Exhibit 10.1
 
EXECUTIVE VERSION

 
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
 
by and among
 
HANCOCK FABRICS, INC.
HF MERCHANDISING, INC.
HANCOCK FABRICS OF MI, INC.
HANCOCKFABRICS.COM, INC.
HANCOCK FABRICS, LLC
as Borrowers

 
and
 
HF ENTERPRISES, INC.
HF RESOURCES, INC.
as Guarantors
 
THE LENDERS AND ISSUING BANK FROM TIME TO TIME PARTY HERETO,
 

 
GENERAL ELECTRIC CAPITAL CORPORATION,
as Working Capital Agent, Issuing Bank and Syndication Agent
 
GA CAPITAL, LLC,
as Term Loan Agent
and as Joint Term Loan Lead Arranger and Joint Bookrunner on the Term B Facility
 
and
 
GE CAPITAL MARKETS, INC.,
as Sole Lead Arranger, Manager and Bookrunner on the Working Capital Facility
and Joint Term Loan Lead Arranger and Joint Bookrunner on the Term B Facility
 
 
 
Dated:  November 15, 2012
 
 
 

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TABLE OF CONTENTS
 

    Page            
SECTION 1
DEFINITIONS
2
SECTION 2
CREDIT FACILITIES
45
2.1
Loans
45
2.2
Letters of Credit
47
SECTION 3
INTEREST AND FEES
53
3.1
Interest
53
3.2
Fees
54
3.3
Changes in Laws and Increased Costs of Loans
55
SECTION 4
CONDITIONS PRECEDENT
57
4.1
Conditions to Effectiveness of Amended and Restated Loan and Security Agreement
57
4.2
Conditions Precedent to All Loans and Letters of Credit after the Amendment
Effective Date
59
SECTION 5
GRANT AND PERFECTION OF SECURITY INTEREST
60
5.1
Grant of Security Interest
60
5.2
Perfection of Security Interests
61
SECTION 6
COLLECTION AND ADMINISTRATION
65
6.1
Borrowers’ Loan Accounts
65
6.2
Statements
65
6.3
Cash Management; Collection of Collateral Proceeds
66
6.4
Payments
68
6.5
Taxes
70
6.6
Authorization to Make Loans
72
6.7
Use of Proceeds
73
6.8
Appointment of Administrative Borrower as Agent for Requesting Loans and
Receipts of Loans and Statements
74
6.9
Pro Rata Treatment
75
6.10
Sharing of Payments, Etc
75
6.11
Settlement Procedures
76
6.12
Obligations Several; Independent Nature of Lenders’ Rights
78

 
 
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TABLE OF CONTENTS
(continued)
 

    Page      
6.13
Bank Products
78
SECTION 7
COLLATERAL REPORTING AND COVENANTS
79
7.1
Collateral Reporting
79
7.2
Accounts Covenants
81
7.3
Inventory Covenants
81
7.4
Equipment and Real Property Covenants
82
7.5
Collateral Audit
83
7.6
Power of Attorney
83
7.7
Right to Cure
84
7.8
Access to Premises
84
SECTION 8
REPRESENTATIONS AND WARRANTIES
85
8.1
Existence, Power and Authority
85
8.2
Name; State of Organization; Chief Executive Office; Collateral Locations
85
8.3
Financial Statements; No Material Adverse Change
86
8.4
Priority of Liens; Title to Properties
86
8.5
Tax Returns
86
8.6
Litigation
87
8.7
Compliance with Other Agreements and Applicable Laws
87
8.8
Environmental Compliance
87
8.9
Employee Benefits
88
8.10
Bank Accounts
89
8.11
Intellectual Property
89
8.12
Subsidiaries; Affiliates; Capitalization; Solvency; Material Adverse Effect
90
8.13
Labor Disputes
90
8.14
Restrictions on Subsidiaries
91
8.15
Material Contracts
91
8.16
Credit Card Agreements
91
8.17
Interrelated Businesses
91
8.18
Payable Practices
92
8.19
Accuracy and Completeness of Information
92

 
 
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TABLE OF CONTENTS
(continued)
 

    Page      
8.20
Intercompany Indebtedness
92
8.21
Survival of Warranties; Cumulative
92
8.22
Obligations as Senior Debt
92
SECTION 9
AFFIRMATIVE AND NEGATIVE COVENANTS
93
9.1
Maintenance of Existence
93
9.2
New Collateral Locations
93
9.3
Compliance with Laws, Regulations, Etc
93
9.4
Payment of Taxes and Claims
94
9.5
Insurance
95
9.6
Financial Statements and Other Information
95
9.7
Sale of Assets, Consolidation, Merger, Dissolution, Etc
98
9.8
Encumbrances
100
9.9
Indebtedness
102
9.10
Loans, Investments, Etc
104
9.11
Restricted Payments
106
9.12
Transactions with Affiliates
109
9.13
Compliance with ERISA
109
9.14
End of Fiscal Years; Fiscal Quarters
109
9.15
Change in Business
109
9.16
Limitation of Restrictions Affecting Subsidiaries
109
9.17
License Agreements
110
9.18
Credit Card Agreements
111
9.19
Minimum Excess Availability
111
9.20
After Acquired Real Property
111
9.21
Foreign Assets Control Regulations, Etc
112
9.22
Costs and Expenses
112
9.23
Further Assurances
113
9.24
Leasehold Estates
114
9.25
Specified Subordinated Debt Documents
114
9.26
Credit Card Agreements
114

 
 
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TABLE OF CONTENTS
(continued)
 

    Page      
9.27
Minimum Fixed Charge Coverage Ratio
114
9.28
Exchange Offering; Holdover Notes
115
9.29
Post-Closing Requirements
116
SECTION 10
EVENTS OF DEFAULT AND REMEDIES
117
10.1
Events of Default
117
10.2
Remedies
120
SECTION 11
JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
123
11.1
Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver
123
11.2
Waiver of Notices
125
11.3
Amendments and Waivers
125
11.4
Waiver of Counterclaims
128
11.5
Indemnification
129
SECTION 12
THE AGENTS
129
12.1
Appointment, Powers and Immunities
129
12.2
Reliance by Agents
130
12.3
Events of Default
130
12.4
GE Capital or GA Capital in its Individual Capacity
131
12.5
Indemnification
131
12.6
Non-Reliance on Agents and Other Lenders
131
12.7
Failure to Act
132
12.8
Intentionally Omitted
132
12.9
Concerning the Collateral and the Related Financing Agreements
132
12.10
Field Audit, Examination Reports and other Information; Disclaimer by Lenders
132
12.11
Collateral Matters
133
12.12
Agency for Perfection
134
12.13
Successor Agent
134
12.14
Other Agent Designations
135
SECTION 13
TERM OF AGREEMENT; MISCELLANEOUS
135
13.1
Term
135

 
 
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TABLE OF CONTENTS
(continued)
 

    Page      
13.2
Interpretative Provisions
136
13.3
Notices
138
13.4
Partial Invalidity
140
13.5
Confidentiality
140
13.6
Publicity
141
13.7
Successors
141
13.8
Assignments; Participations
142
13.9
Entire Agreement
144
13.10
USA PATRIOT Act
144
13.11
Counterparts, Etc
144
13.12
Designated Senior Debt
145
13.13
Amendment and Restatement
145
13.14
Existing Loan Agreement and Financing Agreements
145
13.15
Interlender Provisions
146

 
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INDEX
TO
EXHIBITS, SCHEDULES AND ANNEXES
 
Exhibit A
Form of Assignment and Acceptance
Exhibit B
Information Certificate
Exhibit C
Form of Borrowing Base Certificate
Exhibit D
Form of Compliance Certificate
Exhibit E-1
Application for Standby Letter of Credit
Exhibit E-2
Application for Commercial Letter of Credit
Exhibit F
Notice of Borrowing
Exhibit G
Notice of Conversion/Continuation
Exhibit H
Form of Applicable Margin Certificate
Exhibit I
Form of Intercompany Subordination Agreement
Exhibit J-1
Form of Term B-1 Note
Exhibit J-2
Form of Term B-2 Note
   
Schedule 1.1
Commitments
Schedule 1.2
Customs Brokers
Schedule 1.4
Owned Real Properties
Schedule 1.5
Existing Letters of Credit
Schedule 1.6
Interlender Provisions
Schedule 2.1
Lenders
Schedule 5.2(b)
Chattel Paper and Instruments
Schedule 5.2(d)
Deposit Accounts
Schedule 5.2(e)
Investment Property and Investment Accounts
Schedule 5.2(h)
Letters of Credit, Bankers’ Acceptances and Similar Instruments
Schedule 5.2(i)
Commercial Tort Claims
Schedule 5.2(j)
Collateral with Third Parties
Schedule 8.2
Name; State of Organization; Chief Executive Office; Collateral Locations
Schedule 8.4
Priority of Liens; Title to Properties
Schedule 8.6
Litigation
Schedule 8.8
Environmental Compliance
Schedule 8.10
Bank Accounts
Schedule 8.11
Intellectual Property
Schedule 8.12
Subsidiaries; Affiliates; Capitalization; Solvency
Schedule 8.13
Labor Disputes
Schedule 8.15
Material Contracts
Schedule 8.16
Credit Card Agreements
Schedule 8.20
Intercompany Indebtedness
Schedule 9.9
Indebtedness
Schedule 9.10
Loans; Investments
   
Annex 1
Closing Checklist

 
 
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
 
This Amended and Restated Loan and Security Agreement dated November 15, 2012 is
entered into by and among HANCOCK FABRICS, INC., a Delaware corporation
(“Parent”), HF MERCHANDISING, INC., a Delaware corporation (“Merchandising”),
HANCOCK FABRICS OF MI, INC., a Delaware corporation (“Fabrics MI”),
HANCOCKFABRICS.COM, INC., a Delaware corporation (“Fabrics.com”), HANCOCK
FABRICS, LLC, a Delaware limited liability company (“Fabrics LLC”, and together
with Parent, Merchandising, Fabrics MI and Fabrics.com, each individually a
“Borrower” and collectively, “Borrowers” as hereinafter further defined), HF
ENTERPRISES, INC., a Delaware corporation (“Enterprises”), HF RESOURCES, INC., a
Delaware corporation (“Resources”, and together with Enterprises, each
individually a “Guarantor” and collectively, “Guarantors” as hereinafter further
defined), the parties hereto from time to time as lenders, whether by execution
of this Agreement or an Assignment and Acceptance (each individually, a “Lender”
and collectively, “Lenders” as hereinafter further defined), General Electric
Capital Corporation, a Delaware corporation, in its capacity as working capital
agent for Lenders (in such capacity, “Working Capital Agent” as hereinafter
further defined), and GA Capital, LLC, a Delaware limited liability company, as
term loan agent for the Term Loan Lenders (in such capacity, “Term Loan Agent”
as hereinafter further defined).
 
W I T N E S S E T H:
 
WHEREAS, a revolving credit facility was established in favor of the Borrowers
pursuant to the terms of that certain Loan and Security Agreement dated as of
August 1, 2008 (the “Existing Loan Agreement”) among the Borrowers, the
Guarantors, the Lenders party thereto and General Electric Capital Corporation,
as agent; and
 
WHEREAS, the Borrowers have requested that the Existing Loan Agreement be
amended to, among other things, provide a term loan facility to the Borrowers in
an aggregate principal amount of up to $15,000,000 (“Term B Facility”); and
 
WHEREAS, each Lender is willing to amend the Existing Loan Agreement to extend
such Term B Facility to the Borrowers on the terms and subject to the conditions
set forth herein; and
 
WHEREAS, the Agents, Lenders, Borrowers and Guarantors desire to secure the
Obligations under the Financing Agreements by granting to Working Capital Agent,
for the benefit of the Secured Parties, a security interest in and lien upon
substantially all of the Borrowers’ and Guarantors’ assets, as more fully set
forth in the Financing Agreements; and
 
WHEREAS, in connection with the foregoing, the parties have agreed to amend and
restate, in its entirety, the Existing Loan Agreement pursuant to this
Agreement.
 
NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
 
 
 

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SECTION 1           DEFINITIONS
 
For purposes of this Agreement, the following terms shall have the respective
meanings given to them below:
 
“Accounts” shall mean, as to each Borrower and Guarantor, all present and future
rights of such Borrower and Guarantor to payment of a monetary obligation,
whether or not earned by performance, which is not evidenced by chattel paper or
an instrument, (a) for property that has been or is to be sold, leased,
licensed, assigned, or otherwise disposed of, (b) for services rendered or to be
rendered, (c) for a secondary obligation incurred or to be incurred, or (d)
arising out of the use of a credit or charge card or information contained on or
for use with the card.
 
“Acquired Business” shall have the meaning set forth in the definition of
“Permitted Acquisitions.”
 
“Adjusted Appraised Fair Market Value” shall mean, as of the date of
determination, the fee simple “go-dark” value or equivalent value for vacant
premises assigned to the Eligible Real Property by CRE Business Property (GE) or
any Affiliate of GECC approved by the Working Capital Agent from time to time,
which shall be based upon an appraisal conducted in accordance with Section
7.4.  As of the Amendment Effective Date the Adjusted Appraised Fair Market
Value of the Baldwyn Real Property is $10,675,000.
 
“Adjusted Eurodollar Rate” shall mean, with respect to each Interest Period for
any Eurodollar Rate Loan comprising part of the same borrowing (including
conversions, extensions and renewals), the rate per annum determined by dividing
(a) the London Interbank Offered Rate for such Interest Period by (b) a number
equal to 1.0 minus the aggregate (but without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on the day
that is two (2) Business Days prior to the beginning of such Interest Period
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Federal Reserve Board or other Governmental Authority having
jurisdiction with respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in
Regulation D of the Federal Reserve Board) that are required to be maintained by
a member bank of the Federal Reserve System.
 
“Adjusted Excess Availability” shall mean, as of the date of determination,
Excess Availability less the Applicable Adjusted Excess Availability Amount.
 
“Administrative Borrower” shall mean Parent in its capacity as Administrative
Borrower on behalf of itself and the other Borrowers pursuant to Section 6.8
hereof and it successors and assigns in such capacity.
 
“Affiliate” shall mean, with respect to a specified Person, any other Person
which directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with such Person, and (other than for
the purpose of determining whether a Person is an Affiliate of another Person in
connection with the definition of “Competitor”) without limiting the generality
of the foregoing, includes (a) any Person which beneficially owns or holds five
(5%) percent or more of any class of Voting Stock of such Person or other equity
interests in such Person, (b) any Person of which such Person beneficially owns
or holds five (5%) percent or more of any class of Voting Stock or in which such
Person beneficially owns or holds five (5%) percent or more of the equity
interests and (c) any director or executive officer of such Person.  For the
purposes of this definition, the term “control” (including with correlative
meanings, the terms “controlled by” and “under common control with”), as used
with respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of Voting Stock, by agreement or
otherwise.
 
 
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“Agent Payment Account” shall mean that certain account of Working Capital
Agent, account number 502-795-13 in the name of Working Capital Agent at
Deutsche Bank Trust Company Americas in New York, New York (ABA No. 021 001 033)
or such other account as Working Capital Agent may from time to time designate
to Administrative Borrower as Agent Payment Account for purposes of this
Agreement and the other Financing Agreements.
 
“Agents” means the Working Capital Agent and the Term Loan Agent, and where the
context so requires either of the Working Capital Agent or Term Loan Agent as to
the applicable type of Loan or extension of credit.
 
“Agreement” shall mean this Amended and Restated Loan and Security Agreement by
and among Borrowers, Guarantors, GE Capital, as Working Capital Agent and
Lender, GA Capital, as Term Loan Agent, and the other Lenders from time to time
party hereto, as the same may be amended, supplemented, restated or otherwise
modified from time to time.
 
“Amendment Effective Date” means November 15, 2012.
 
“Applicable Adjusted Excess Availability Amount” shall mean, as of the relevant
time of determination, $7,500,000; provided that, if (i) Excess Availability is
less than or equal to $15,000,000 at any time during any Fiscal Month and (ii)
Parent and its Subsidiaries shall have on a consolidated basis as at the end of
the immediately preceding Fiscal Month for which financial statements were
required to be delivered pursuant to Section 9.6(a)(i), a Fixed Charge Coverage
Ratio for the trailing 12-month period ended as of such Fiscal Month of less
than 1.00 to 1.00 (a “Covenant Trigger Event”), such amount shall be increased
to an aggregate total of $15,000,000 at all times thereafter; provided further
that following the expiration of a Covenant Monitoring Period such amount may be
reduced to $7,500,000 until a subsequent Covenant Trigger Event.  For purposes
of this definition, “Covenant Monitoring Period” shall mean the period
commencing with the date of an increase in the Adjusted Excess Availability
Amount from $7,500,000 to $15,000,000 (the “Increase Date”) and ending on the
date of delivery of the certificate required by Section 9.6(f) demonstrating a
Fixed Charge Coverage Ratio of not less than 1:00 to 1:00 as at the end of at
least three consecutive Fiscal Months that have elapsed since the Increase Date.
 
“Applicable Margin” shall mean,
 
(a)            with respect to the Revolving Loans, from and after the Amendment
Effective Date, at any time, as to the interest rate for Prime Rate Loans and
the interest rate for Eurodollar Rate Loans, the applicable percentage (on a per
annum basis) set forth below if the Quarterly Average Excess Availability for
the immediately preceding calendar quarter is at or within the amounts indicated
for such percentage as of the last day of the immediately preceding calendar
quarter:
 
 
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Tier
Quarterly Average
Excess Availability
Applicable
Eurodollar Rate Margin
Applicable Prime Rate
Margin
       
1
Greater than $30,000,000
2.00%
1.00%
       
2
Less than or equal to $30,000,000 and greater than $15,000,000
2.25%
1.25%
       
3
Less than or equal to $15,000,000
2.50%
1.50%

 
provided, that (1) the Applicable Eurodollar Rate Margin from the Amendment
Effective Date through March 31, 2013 shall be 2.25%, and (2) the Applicable
Prime Rate Margin from the Amendment Effective Date through March 31, 2013 shall
be 1.25%.  Adjustments in the Applicable Margins commencing April 1, 2013 shall
be implemented effective as of each January 1, April 1, July 1, October 1,
commencing at least five (5) days after the date of delivery to Working Capital
Agent of the Applicable Margin Certificate.  Concurrently with the delivery of
the Applicable Margin Certificate herein referenced, Administrative Borrower
shall deliver to Working Capital Agent a certificate, signed by its chief
financial officer, setting forth in reasonable detail the basis for the
continuance of, or any change in, the Applicable Margins.  Failure to deliver
the Applicable Margin Certificate within five (5) days of the date such
certificate is required to be delivered pursuant to Section 7.1(a)(iii) shall,
in addition to any other remedy provided for in this Agreement, result in an
increase in the Applicable Margins to the highest level set forth in the
foregoing grid, until the delivery of the Applicable Margin Certificate
demonstrating that such an increase is not required.  If an Event of Default has
occurred and is continuing at the time any reduction in the Applicable Margins
is to be implemented, that reduction shall be deferred until the date on which
such Event of Default is waived or cured; and
 
(b)            with respect to Term Loans, (i) 10.00% per annum, in the case of
any Term Loan that is a Eurodollar Rate Loan and (ii) 9.00% per annum, in the
case of any Term Loan that is a Prime Rate Loan.
 
“Applicable Margin Certificate” shall mean the a certificate substantially in
the form of Exhibit H hereto, as such form may from time to time be modified by
Working Capital Agent, which is duly completed (including all schedules thereto)
and executed by the chief financial officer or other appropriate financial
officer of Borrowers acceptable to Working Capital Agent and delivered to
Working Capital Agent.
 
“Applicable Percentage” has the meaning set forth in Section 3.2(b).
 
“Assignment and Acceptance” shall mean an Assignment and Acceptance
substantially in the form of Exhibit A attached hereto (with blanks
appropriately completed) delivered to Working Capital Agent in connection with
an assignment of a Lender’s interest hereunder in accordance with the provisions
of Section 13.8 hereof.
 
 
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“Baldwyn Real Property” shall mean the Real Property of Parent located at One
Fashion Way, Baldwyn, Mississippi.
 
“Baldwyn Real Property Sale-Leaseback” shall mean the sale and leaseback of the
Baldwyn Real Property, the disposition of which shall be permitted by Section
9.7(b)(vi), provided that:
 
(a)            the Borrowers shall provide the Agents with at least ten (10)
days’ prior written notice (or such shorter period as may be agreed upon in
writing by the Agents) of the closing date of the proposed sale-leaseback
transaction;
 
(b)            the purchase price of the Baldwyn Real Property pursuant to such
sale-leaseback transaction must be no less than eighty percent (80%) of the then
current Adjusted Appraised Fair Market Value of the Baldwyn Real Property;
 
(c)            the consideration paid to the Borrowers for the Baldwyn Real
Property pursuant to such sale-leaseback transaction shall be paid one hundred
percent (100%) in cash in immediately available funds, the net proceeds of which
shall be applied to the Obligations in accordance with the terms hereof;
 
(d)            the Borrowers shall have delivered to the Agents no less than
five days prior to the disposition of the Baldwyn Real Property pursuant to such
sale-leaseback transaction, true and complete copies of the most current drafts
of any documents, instruments or other similar agreements to be entered into or
completed by the applicable Borrower(s) in connection with such disposition,
such documentation to be in form and substance reasonably acceptable to the
Agents; and
 
(e)            immediately prior to the consummation of such sale-leaseback
transaction the Borrowers shall deliver to the Agents (i) a revised Borrowing
Base Certificate, determined as of last Business Day of the weekly or monthly
period then most recently completed on a pro forma basis, as applicable pursuant
to Section 7.1(a)(i), eliminating therefrom the line item relating to Real
Property Availability and revising the amount of the then outstanding Loans to
reflect the prepayment of the Loans with net proceeds of such sale-leaseback
transaction in accordance with the terms hereof; and (ii) a Collateral Access
Agreement.
 
“Bank Product Provider” shall mean any Lender, Affiliate of any Lender or other
financial institution (in each case to the extent approved by Agents in writing)
that provides any Bank Products to Borrowers or Guarantors.
 
“Bank Products” shall mean any one or more of the following types or services or
facilities provided to a Borrower by Working Capital Agent, any Lender or any
Affiliate of any Lender or any other financial institution acceptable to Working
Capital Agent:  (a) credit cards or stored value cards or (b) cash management or
related services, including (i) the automated clearinghouse transfer of funds
for the account of a Borrower pursuant to agreement or overdraft for any
accounts of Borrowers maintained at any Agent, any Lender or any Affiliate of
any Lender (in each case to the extent approved by Working Capital Agent) that
are subject to the control of Working Capital Agent pursuant to any Deposit
Account Control Agreement to which Working Capital Agent, such Affiliate of
Working Capital Agent, Lender or Affiliate of Lender is a party, as applicable,
and (ii) controlled disbursement services and (iii) Hedge Agreements if and to
the extent permitted hereunder.  Any of the foregoing shall only be included in
the definition of the term “Bank Products” to the extent that the Lender, its
Affiliate or the other financial institution has been approved by Working
Capital Agent in writing.
 
 
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“Bankruptcy Code” shall mean Title 11 of the United States Code, as amended from
time to time and the Federal Rules of Bankruptcy Procedure, as amended from time
to time.
 
“Blocked Account” shall mean a deposit account established and maintained by a
Borrower or a Guarantor, at its expense, with such banks as are reasonably
acceptable to Working Capital Agent and subject at all times to a Deposit
Account Control Agreement.  The Concentration Account shall constitute a Blocked
Account.
 
“Borrowers” shall mean, collectively, the following (together with their
respective successors and assigns):  (a) Hancock Fabrics, Inc., a Delaware
corporation; (b) HF Merchandising, Inc, a Delaware corporation; (c) Hancock
Fabrics of MI, Inc., a Delaware corporation; (d) hancockfabrics.com, Inc., a
Delaware corporation; (e) Hancock Fabrics, LLC, a Delaware limited liability
company, and (f) any other Person that is organized in the United States that at
any time after the date hereof becomes a Borrower; each sometimes being referred
to herein individually as a “Borrower”.
 
“Borrowing Base Certificate” shall mean a certificate substantially in the form
of Exhibit C hereto, as such form may from time to time be modified by Agents,
which is duly completed (including all schedules thereto) and executed by the
chief financial officer or other appropriate financial officer of Borrowers
acceptable to Agents and delivered to Agents.
 
“Business Day” shall mean any day other than a Saturday, Sunday, or other day on
which commercial banks are authorized or required to close under the laws of the
State of New York, and a day on which Agents are open for the transaction of
business, except that if a determination of a Business Day shall relate to any
Eurodollar Rate Loans, the term Business Day shall also exclude any day on which
banks are closed for dealings in dollar deposits in the London interbank market
or other applicable Eurodollar Rate market.
 
“Capital Expenditures” means, for any Person for the period of determination,
all expenditures in respect of the purchase or other acquisition of any fixed or
capital asset (excluding replacements made with insurance proceeds), of or by
such Person and its Subsidiaries on a consolidated basis for such period,
calculated in accordance with GAAP.
 
“Capital Leases” shall mean, as applied to any Person, any lease of (or any
agreement conveying the right to use) any property (whether real, personal or
mixed) by such Person as lessee which in accordance with GAAP, is required to be
reflected as a liability on the balance sheet of such Person.
 
“Capital Stock” shall mean, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person’s capital stock or partnership, limited liability company or other equity
interests at any time outstanding, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or other interests (but
excluding any debt security that is exchangeable for or convertible into such
capital stock).
 
 
6

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“Cash Collateral Account” has the meaning set forth in Section 2.2(j).
 
“Cash Equivalents” shall mean, at any time, (a) any evidence of Indebtedness
with a maturity date of ninety (90) days or less issued or directly and fully
guaranteed or insured by the United States or any agency or instrumentality
thereof; provided, that, the full faith and credit of the United States is
pledged in support thereof; (b) certificates of deposit or bankers’ acceptances
with a maturity of ninety (90) days or less of any financial institution that is
a member of the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $1,000,000,000; (c) commercial paper
(including variable rate demand notes) with a maturity of ninety (90) days or
less issued by a corporation (except an Affiliate of any Borrower or Guarantor)
organized under the laws of any State of the United States or the District of
Columbia and rated at least A-1 by Standard & Poor’s Ratings Service, a division
of The McGraw-Hill Companies, Inc. or at least P-1 by Moody’s Investors Service,
Inc.; (d) repurchase obligations with a term of not more than thirty (30) days
for underlying securities of the types described in clause (a) above entered
into with any financial institution having combined capital and surplus and
undivided profits of not less than $1,000,000,000; (e) repurchase agreements and
reverse repurchase agreements relating to marketable direct obligations issued
or unconditionally guaranteed by the United States or issued by any governmental
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within ninety (90) days or less from the date of acquisition;
provided, that, the terms of such agreements comply with the guidelines set
forth in the Federal Financial Agreements of Depository Institutions with
Securities Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985; and (f) investments in money market funds and mutual funds
which invest substantially all of their assets in securities of the types
described in clauses (a) through (e) above.
 
“Cash Note Payment” has the meaning set forth in Section 6.7(b).
 
“Cash Note Payment Reserve” has the meaning set forth in Section 6.7(b).
 
“Change of Control” shall mean (a) the transfer (in one transaction or a series
of transactions) of all or substantially all of the assets of any Borrower or
Guarantor to any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act), other than as permitted in Section 9.7 hereof; (b) the
liquidation or dissolution of any Borrower or Guarantor or the adoption of a
plan by the stockholders of any Borrower or Guarantor relating to the
dissolution or liquidation of such Borrower or Guarantor, other than as
permitted in Section 9.7 hereof; (c) the acquisition by any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), other than Lenado
Capital Partners, LP, Berg & Berg Enterprises, LLC and Trellus Management and
their respective Affiliates, of more than thirty (30%) percent of beneficial
ownership, directly or indirectly, of the voting power of the total outstanding
Voting Stock of Parent or the Board of Directors of Parent; (d) during any
period of two (2) consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (or similar governing body) of any
Borrower or Guarantor (together with any new directors whose nomination for
election by the stockholders of such Borrower or Guarantor was approved by a
vote of at least a majority of the directors (or similar persons) then still in
office who were either directors (or similar persons) at the beginning of such
period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors (or
similar governing body) of any Borrower or Guarantor then still in office; (e)
the failure of Parent to own and control, directly or indirectly, one hundred
(100%) percent of the voting power of the total outstanding Voting Stock of any
other Borrower or Guarantor; provided, however, the issuance of any Specified
Warrant or the conversion of the Specified Warrants into the Specified Common
Stock pursuant to the terms of the Specified Warrant shall not be considered a
“Change of Control” hereunder; or (f) any “Change of Control” (howsoever defined
under the Indenture) occurs.
 
 
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“Closing Date” shall mean August 1, 2008.
 
“Closing Date Mortgaged Properties” means, collectively, the Real Property owned
by the Credit Parties and located at: (a) the Baldwyn Real Property and (b) 215
East Kings Highway Shreveport, LA.
 
“Code” shall mean the Internal Revenue Code of 1986, as the same now exists or
may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
 
“Collateral” shall mean, collectively, all assets of each Borrower and each
Guarantor, in each case, as referred to in Section 5.1 hereof, any Pledge
Agreement as “Pledged Collateral” or as “Collateral”, as the case may be, and
all other property that is or is intended under the terms of the Security
Documents to be subject to liens in favor of the Working Capital Agent for the
benefit of the Lenders and the other Secured Parties.
 
“Collateral Access Agreement” shall mean an agreement in writing, in form and
substance reasonably satisfactory to Working Capital Agent, from any lessor of
premises to any Borrower or Guarantor (other than lessors of retail store
locations, except as otherwise agreed to by Administrative Borrower and Working
Capital Agent), or any other person to whom any Collateral is consigned or who
has custody, control or possession of any such Collateral or is otherwise the
owner or operator of any premises on which any of such Collateral is located, in
favor of Working Capital Agent with respect to the Collateral at such premises
or otherwise in the custody, control or possession of such lessor, consignee or
other person.
 
“Collateral Enforcement Action” shall mean any of (i) the date of termination of
the Commitments or acceleration pursuant to Section 10.2 or the Maturity Date
(ii) the taking of any action to enforce or realize upon any Lien with respect
to a material portion of the Collateral, including without limitation, the
institution or conduct of any private or judicial foreclosure or sale
proceedings or the noticing of any public or private sale or other disposition
pursuant to Article 9 of the UCC in each case with respect to a material portion
of the Collateral, (iii) the sale or disposition of all or substantially all of
the Collateral, or (iv) the commencement of any Insolvency or Liquidation
Proceeding against any Credit Party.
 
 
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“Commercial Letter of Credit” shall mean any Letter of Credit issued for the
purpose of providing the primary manner of payment for the purchase price of
goods or services by a Borrower in the ordinary course of the business of such
Borrower.
 
“Commitment” means (a) a Revolving Commitment or a Term Commitment, as the
context may require or (b) collectively, the Revolving Commitments and the Term
Commitments.
 
“Commitment Termination Date” shall mean the earliest of (a) the Maturity Date,
(b) the date of termination of Lenders’ obligations to make Loans and/or incur
Letter of Credit Obligations or permit existing Loans to remain outstanding
pursuant to Section 10.2(b), and (c) the date of indefeasible prepayment in full
in cash by Borrowers of the Loans and the cancellation and return (or stand-by
guarantee) of all Letters of Credit or the cash collateralization of all Letter
of Credit Obligations pursuant to Section 2.2, and the permanent reduction of
all Obligations to zero dollars ($0).
 
“Competitor” means a Person or Affiliate of any Person that controls the
operation of a Fabric Retail Business (including, without limitation, Jo-Ann
Stores, Inc., Michael Stores, Inc., A.C. Moore Arts & Crafts, Inc., and Hobby
Lobby) or controls, has entered into any agreement to control or is under common
control with, in each case directly or indirectly, any entity that controls the
operation of a Fabric Retail Business; provided that the foregoing shall not
include commercial or corporate banks or bona fide debt funds, and any funds
that are managed or controlled by such commercial or corporate banks or bona
fide debt funds which funds principally invest in commercial loans or debt
securities.
 
“Concentration Account” means that certain deposit account maintained with
BancorpSouth Bank, with account number 01-210513, in the name of Parent, or any
replacement account therefor expressly agreed to in advance in writing by the
Working Capital Agent, which replacement account shall be a Blocked Account.
 
“Consolidated Net Income” shall mean, with respect to any Person for any period,
the aggregate of the net income (loss) of such Person and its Subsidiaries, on a
consolidated basis, for such period (and as to Borrowers and Guarantors,
excluding to the extent included therein (i) any extraordinary, one-time or
non-recurring non-cash gains, (ii) extraordinary, one-time or non-recurring
non-cash losses or charges (other than any deductions which require or represent
the accrual of a reserve for the payment of a cash charge in any future period
or amortization of a prepaid cash expense that was paid in a prior period), and
(iii) operations that have been discontinued on or before the date hereof) after
deducting all charges which should be deducted before arriving at the net income
(loss) for such period (but without regard to operations that have been
discontinued on or before the date hereof) and after deducting the Provision for
Taxes for such period, all as determined in accordance with GAAP; provided,
that, (a) the net income of any Person that is not a wholly-owned Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid or payable to
such Person or a wholly-owned Subsidiary of such Person; (b) except to the
extent included pursuant to the foregoing clause, the net income of any Person
accrued prior to the date it becomes a wholly-owned Subsidiary of such Person or
is merged into or consolidated with such Person or any of its wholly-owned
Subsidiaries or that Person’s assets are acquired by such Person or by any of
its wholly-owned Subsidiaries shall be excluded; (c) the effect of any change in
accounting principles adopted by such Person or its Subsidiaries after the date
hereof shall be excluded; (d) net income shall exclude interest accruing, but
not paid, on indebtedness owing to a Subsidiary or parent corporation of such
Person; and (e) the net income (if positive) of any wholly-owned Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such wholly-owned Subsidiary to such Person or to any other wholly-owned
Subsidiary of such Person is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such wholly-owned Subsidiary shall
be excluded and the net income of any Foreign Subsidiary shall be excluded.  For
the purposes of this definition, net income excludes (to the extent included in
the calculation of net income (loss)) any non-cash gain and non-cash loss
together with any related Provision for Taxes for such non-cash gain and
non-cash loss realized upon the sale or other disposition of any assets that are
not sold in the ordinary course of business (including, without limitation,
dispositions pursuant to sale and leaseback transactions and for this purpose
sales or other dispositions of retail store locations shall not be deemed to be
in the ordinary course of the business of Borrowers and Guarantors and
accordingly non-cash write-downs or write-offs of Inventory in connection with
such sales shall be excluded from net income) or of any Capital Stock of such
Person or a Subsidiary of such Person and any net non-cash gain or non-cash loss
realized as a result of changes in accounting principles or the application
thereof to such Person.
 
 
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“Covenant Trigger Event” has the meaning set forth in the definition of
“Applicable Adjusted Excess Availability Amount”.
 
“Credit Card Acknowledgments” shall mean, collectively, the agreements by Credit
Card Issuers or Credit Card Processors who are parties to Credit Card Agreements
in favor of Working Capital Agent acknowledging Working Capital Agent’s first
priority security interest, for and on behalf of Lenders, in the monies due and
to become due to a Borrower or Guarantor (including, without limitation, credits
and reserves) under the Credit Card Agreements, and agreeing to transfer all
such amounts to the Blocked Accounts, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced,
sometimes being referred to herein individually as a “Credit Card
Acknowledgment”.
 
“Credit Card Agreements” shall mean all agreements now or hereafter entered into
by any Borrower or any Guarantor for the benefit of any Borrower, in each case
with any Credit Card Issuer or any Credit Card Processor, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, including, but not limited to, the agreements set forth on Schedule
8.16 hereto and the Elavon Processor Agreement.
 
“Credit Card Issuer” shall mean any person (other than a Borrower or a
Guarantor) who issues or whose members issue credit cards, including, without
limitation, MasterCard or VISA bank credit or debit cards or other bank credit
or debit cards issued through MasterCard International, Inc., Visa, U.S.A., Inc.
or Visa International and American Express, Discover, Diners Club, Carte Blanche
and other non-bank credit or debit cards, including, without limitation, credit
or debit cards issued by or through American Express Travel Related Services
Company, Inc., and Discover Financial Services, Inc.
 
 
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“Credit Card Processor” shall mean any servicing or processing agent or any
factor or financial intermediary who facilitates, services, processes or manages
the credit authorization, billing transfer and/or payment procedures with
respect to any Borrower’s or Guarantor’s sales transactions involving credit
card or debit card purchases by customers using credit cards or debit cards
issued by any Credit Card Issuer.
 
“Credit Card Receivables” shall mean, collectively, (a) all present and future
rights of any Borrower or Guarantor to payment from any Credit Card Issuer,
Credit Card Processor or other third party arising from sales of goods or
rendition of services to customers who have purchased such goods or services
using a credit or debit card and (b) all present and future rights of any
Borrower or Guarantor to payment from any Credit Card Issuer, Credit Card
Processor or other third party in connection with the sale or transfer of
Accounts arising pursuant to the sale of goods or rendition of services to
customers who have purchased such goods or services using a credit card or a
debit card, including, but not limited to, all amounts at any time due or to
become due from any Credit Card Issuer or Credit Card Processor under the Credit
Card Agreements or otherwise.
 
“Credit Facility” shall mean the Loans and Letters of Credit provided to or for
the benefit of any Borrower pursuant to Sections 2.1 and 2.2 hereof.
 
“Credit Parties” means each Borrower, each Guarantor and each other Person that
is organized in the United States (a) which executes a guaranty of the
Obligations, (b) which grants a Lien on all or substantially all of its assets
to secure payment of the Obligations and (c) all of the stock and equity
interests of which are pledged to Working Capital Agent for the benefit of the
Secured Parties.
 
“Customs Broker” shall mean the persons listed on Schedule 1.2 hereto or such
other person selected by any Borrower after written notice by such Borrower to
Working Capital Agent who are reasonably acceptable to Working Capital Agent to
perform port of entry services to process Inventory imported by such Borrower
from outside the United States and to supply facilities, labor and materials to
such Borrower in connection therewith.
 
“Default” shall mean an act, condition or event which with notice or passage of
time or both would constitute an Event of Default.
 
“Defaulting Lender” shall have the meaning set forth in Section 6.11(d) hereof.
 
“Deposit Account Control Agreement” shall mean an agreement in writing, in form
and substance satisfactory to Working Capital Agent, by and among Working
Capital Agent, the Borrower or Guarantor with a deposit account at any bank and
the bank at which such deposit account is at any time maintained which provides
that such bank will comply with instructions originated by Working Capital Agent
directing disposition of the funds in the deposit account without further
consent by such Borrower or Guarantor and has such other terms and conditions as
Working Capital Agent may require.
 
“Dollar” and “$” shall mean lawful money of the United States.
 
“Domestic Subsidiary” means any Subsidiary other than a Foreign Subsidiary.
 
 
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“Early Prepayment Fee” has the meaning set forth in Section 3.2(b).
 
“EBITDA” shall mean, as to any Person, with respect to any period, an amount
equal to:  (a) the Consolidated Net Income of such Person and its Subsidiaries
for such period, plus (b) depreciation, amortization, LIFO adjustments
consisting of non-cash charges, and any other non-cash charges, including
imputed interest, deferred compensation and in the case of Borrowers and
Guarantors, non-cash costs associated with the closing of retail store
locations, in each case for such period (to the extent deducted in the
computation of Consolidated Net Income of such Person), all in accordance with
GAAP, plus (c) Interest Expense for such period (to the extent deducted in the
computation of Consolidated Net Income of such Person), plus (d) the Provision
for Taxes for such period (to the extent deducted in the computation of
Consolidated Net Income of such Person).
 
“Elavon” means Elavon, Inc. (formerly Nova Information Systems, Inc.), as
processor under the Elavon Processor Agreement.
 
“Elavon Deposit Account” means that certain deposit account maintained with
BancorpSouth Bank, with account number 41972803 in the name of Parent, or any
replacement account therefor expressly agreed to in advance in writing by the
Working Capital Agent, which replacement account shall be a Blocked Account.
 
“Elavon Member” means, as of the date hereof, U.S. Bank, National Association,
in its capacity as “Member” under the Elavon Processor Agreement and any
replacement “Member” thereunder.
 
“Elavon Processor Agreement” means that certain Terms of Service agreement,
dated as of January 12, 2012, among Parent, Elavon, as processor, and Elavon
Member, together with all other agreements, documents and instruments now or at
any time hereafter executed and/or delivered in connection therewith.
 
“Elavon Reserve Account” means that “Reserve Account” identified in the Elavon
Processor Agreement as in effect on the date hereof.
 
“Eligible Credit Card Receivables” shall mean, as of the date of determination,
as to each Borrower, Credit Card Receivables of such Borrower which are and
continue to be acceptable to Working Capital Agent based on the criteria set
forth below.  Credit Card Receivables shall be Eligible Credit Card Receivables
if:
 
(a)           such Credit Card Receivables arise from the actual and bona fide
sale and delivery of goods or rendition of services by such Borrower in the
ordinary course of the business of such Borrower which transactions are
completed in accordance with the terms and provisions contained in any
agreements binding on such Borrower or the other party or parties related
thereto;
 
(b)            such Credit Card Receivables are not past due (beyond any stated
applicable grace period, if any, therefor) pursuant to the terms set forth in
the Credit Card Agreements with the Credit Card Issuer or Credit Card Processor
of the credit card or debit card used in the purchase which give rise to such
Credit Card Receivables;
 
 
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(c)            such Credit Card Receivables are not unpaid more than five (5)
Business Days after the date of the sale of Inventory giving rise to such Credit
Card Receivables;
 
(d)            all material procedures required by the Credit Card Issuer or the
Credit Card Processor of the credit card or debit card used in the purchase
which gave rise to such Credit Card Receivables shall have been followed by such
Borrower and all documents required for the authorization and approval by such
Credit Card Issuer or Credit Card Processor shall have been obtained in
connection with the sale giving rise to such Credit Card Receivables;
 
(e)            the required authorization and approval by such Credit Card
Issuer or Credit Card Processor shall have been obtained for the sale giving
rise to such Credit Card Receivables;
 
(f)            such Borrower shall have submitted all materials required by the
Credit Card Issuer or Credit Card Processor obligated in respect of such Credit
Card Receivables in order for such Borrower to be entitled to payment in respect
thereof;
 
(g)            the Credit Card Issuer or Credit Card Processor obligated in
respect of such Credit Card Receivable has not failed to timely remit any
monthly payment in respect of such Credit Card Receivable;
 
(h)            such Credit Card Receivables comply with the applicable terms and
conditions contained in Section 7.2 of this Agreement;
 
(i)             the Credit Card Issuer or Credit Card Processor with respect to
such Credit Card Receivables has not asserted a counterclaim, defense or dispute
and does not have, and does not engage in transactions which may give rise to,
any right of setoff against such Credit Card Receivables (other than setoffs to
fees and chargebacks consistent with the practices of such Credit Card Issuer or
Credit Card Processor with such Borrower as of the date hereof or as such
practices may change as a result of changes to the policies of such Credit Card
Issuer or Credit Card Processor applicable to its customers generally and
unrelated to the circumstance of such Borrower), but the portion of the Credit
Card Receivables owing by such Credit Card Issuer or Credit Card Processor in
excess of the amount owing by such Borrower to such Credit Card Issuer or Credit
Card Processor pursuant to such fees and chargebacks may be deemed Eligible
Credit Card Receivables;
 
(j)             the Credit Card Issuer or Credit Card Processor with respect to
such Credit Card Receivables has not setoff against amounts otherwise payable by
such Credit Card Issuer or Credit Card Processor to such Borrower for the
purpose of establishing a reserve or collateral for obligations of such Borrower
to such Credit Card Issuer or Credit Card Processor (notwithstanding that the
Credit Card Issuer or Credit Card Processor may have setoffs for fees and
chargebacks consistent with the practices of such Credit Card Issuer or Credit
Card Processor with such Borrower as of the date hereof or as such practices may
hereafter change as a result of changes to the policies of such Credit Card
Issuer or Credit Card Processor applicable to its customers generally and
unrelated to the circumstances of such Borrower);
 
(k)            there are no facts, events or occurrences which would impair the
validity, enforceability or collectability of such Credit Card Receivables or
reduce the amount payable or delay payment thereunder (other than for setoffs
for fees and chargebacks consistent with the practices of such Credit Card
Issuer or Credit Card Processor with such Borrower as of the date hereof or as
such practices may hereafter change as a result of changes to the policies of
such Credit Card Issuer or Credit Card Processor applicable to its customers
generally and unrelated to the circumstances of such Borrower or any Guarantor);
 
 
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(l)             such Credit Card Receivables are subject to the first priority,
valid and perfected security interest and lien of Working Capital Agent, for and
on behalf of itself and Lenders, and any goods giving rise thereto are not, and
were not at the time of the sale thereof, subject to any security interest or
lien in favor of any person other than Working Capital Agent except as otherwise
permitted in this Agreement, in each case subject to and in accordance with the
terms and conditions applicable hereunder to any such permitted security
interest or lien;
 
(m)          there are no proceedings or actions which are pending or, to the
best of any Borrower’s knowledge, threatened against the Credit Card Issuers or
Credit Card Processors with respect to such Credit Card Receivables which would
reasonably be expected to result in any material adverse change in the financial
condition of any such Credit Card Issuer or Credit Card Processor;
 
(n)            such Credit Card Receivables are owed by Credit Card Issuers or
Credit Card Processors deemed creditworthy at all times by Working Capital Agent
in good faith;
 
(o)            no event of default has occurred under the Credit Card Agreement
of such Borrower with the Credit Card Issuer or Credit Card Processor who has
issued the credit card or debit card or handles payments under the credit card
or debit card used in the sale which gave rise to such Credit Card Receivables
which event of default gives such Credit Card Issuer or Credit Card Processor
the right to cease or suspend payments to such Borrower or any Guarantor and no
event shall have occurred which gives such Credit Card Issuer or Credit Card
Processor the right to setoff against amounts otherwise payable to such
Borrower, including on behalf of a Guarantor (other than for then current fees
and chargebacks consistent with the current practices of such Credit Card Issuer
or Credit Card Processor as of the date hereof or as such practices may
hereafter change as a result of changes to the policies of such Credit Card
Issuer or Credit Card Processor applicable to its customers generally and
unrelated to the circumstances of such Borrower or any Guarantor), except as may
have been waived in writing on terms and conditions reasonably satisfactory to
Working Capital Agent pursuant to the Credit Card Acknowledgment by such Credit
Card Issuer or Credit Card Processor, or the right to establish reserves or
establish or demand collateral, and the Credit Card Issuer or Credit Card
Processor has not sent any written notice of default and/or notice of its
intention to cease or suspend payments to such Borrower in respect of such
Credit Card Receivables or to establish reserves or cash collateral for
obligations of such Borrower to such Credit Card Issuer or Credit Card
Processor, and such Credit Card Agreements are otherwise in full force and
effect and constitute the legal, valid, binding and enforceable obligations of
the parties thereto;
 
(p)            the terms of the sale giving rise to such Credit Card Receivables
and all practices of such Borrower and Guarantors with respect to such Credit
Card Receivables comply in all material respects with applicable Federal, State,
and local laws and regulations; and
 
 
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(q)            the customer using the credit card or debit card giving rise to
such Credit Card Receivable shall not have returned the merchandise purchased
giving rise to such Credit Card Receivable.
 
Credit Card Receivables which would otherwise constitute Eligible Credit Card
Receivables pursuant to this Section will not be deemed ineligible solely by
virtue of the Credit Card Agreements with respect thereto having been entered
into by any Guarantor, for the benefit of Borrowers.  Working Capital Agent
shall have the right to establish, modify or eliminate Reserves against Eligible
Credit Card Receivables from time to time in its reasonable credit judgment.  In
addition, Working Capital Agent reserves the right, at any time and from time to
time after the Closing Date, to adjust any of the criteria set forth above, to
establish new criteria, and to adjust advance rates with respect to Eligible
Credit Card Receivables, in its reasonable credit judgment, subject to the
approval of Required Revolving Lenders in the case of adjustments or new
criteria or changes in advance rates which have the effect of making more credit
available under the Revolving Credit Borrowing Base and approval of the Term
Loan Lenders in the case of the Term Borrowing Base.  Any Credit Card
Receivables which are not Eligible Credit Card Receivables shall nevertheless be
part of the Collateral.
 
“Eligible In-Transit Inventory” shall mean, as of the date of determination,
without duplication of other Eligible Inventory, Inventory that as to
which:  (i) the Inventory is not purchased with and subject to a Letter of
Credit, (ii) the Inventory is then in transit (whether by vessel, air or land)
from a location outside of the continental United States to a location permitted
hereunder and for which Working Capital Agent shall have received such evidence
thereof as Working Capital Agent may require, (iii) has been paid for and the
title of the Inventory has passed to, and such Inventory is owned by, a Borrower
and for which Working Capital Agent shall have received such evidence thereof as
Working Capital Agent may require, (iv) Working Capital Agent has received each
of the following:  (A) a Collateral Access Agreement, duly authorized, executed
and delivered by the customs broker, freight forwarder or other third party
handling the shipping and delivery of such Inventory, (B) a copy of the
certificate of marine cargo insurance in connection therewith in which Working
Capital Agent has been named as an additional insured and loss payee in a manner
acceptable to Working Capital Agent and (C) a copy of the invoice, packing slip
and manifest with respect thereto, (v) the Inventory is either (A) subject to a
negotiable bill of lading:  (1) that is consigned to Working Capital Agent, (2)
that was issued by the carrier in respect of such Inventory and (3) is either in
the possession of the customs broker, freight forwarder or other third party
handling the shipping and delivery of such Inventory acting on behalf of Working
Capital Agent or the subject of a telefacsimile or other electronic copy which
also confirms that such document is in transit to Working Capital Agent or the
customs broker, freight forwarder or other third party handling the shipping and
delivery of such Inventory acting on behalf of Working Capital Agent or (B)
subject to a negotiable cargo receipt and is not the subject of a bill of lading
(other than a negotiable bill of lading consigned to, and in the possession of a
carrier or Working Capital Agent, or their respective agents) and such
negotiable cargo receipt is (1) consigned to Working Capital Agent, (2) issued
by a carrier in respect of such Inventory and (3) either in the possession of
Working Capital Agent or the customs broker, freight forwarder or other third
party handling the shipping and delivery of such Inventory acting on behalf of
Working Capital Agent or the subject of a telefacsimile or other electronic copy
which also confirms that such document is in transit to Working Capital Agent or
the customs broker, freight forwarder or other third party handling the shipping
and delivery of such Inventory, (vi) such Inventory is insured against types of
loss, damage, hazards, and risks, and in amounts, satisfactory to Working
Capital Agent, (vii) such Inventory shall not have been in transit for more than
forty-five (45) days, and (viii) such Inventory is otherwise deemed Eligible
Inventory (other than in respect of its location) hereunder.
 
 
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“Eligible Inventory” shall mean, as of the date of determination, as to each
Borrower, Inventory of such Borrower consisting of finished goods held for
resale in the ordinary course of the business of such Borrower that satisfy the
criteria set forth below as determined by Working Capital Agent.  In general,
Eligible Inventory shall not include:  (a) raw materials and work-in-process;
(b) spare parts for equipment; (c) packaging and shipping materials; (d)
supplies used or consumed in such Borrower’s business; (e) Inventory at premises
other than those owned or leased and controlled by any Borrower except any
Inventory (other than Eligible In-Transit Inventory and Eligible LC Inventory)
which would otherwise be deemed Eligible Inventory that is not located at
premises owned and operated by such Borrower may nevertheless be considered
Eligible Inventory:  (i) as to retail store locations which are leased by such
Borrower, Working Capital Agent may, at its option, establish such Reserves in
respect of amounts at any time payable by such Borrower to the lessor thereof as
Working Capital Agent shall determine in accordance with the definition of
Reserves, (ii) as to locations which are leased by such Borrower (other than
retail store locations which are leased), if Working Capital Agent shall have
received a Collateral Access Agreement from the lessor of such location, duly
authorized, executed and delivered by such lessor, or if Working Capital Agent
shall not have received such Collateral Access Agreement (or Working Capital
Agent shall determine to accept a Collateral Access Agreement that does not
include all required provisions or provisions in the form otherwise required by
Working Capital Agent), Working Capital Agent may, at its option, nevertheless
consider Inventory at such location to be Eligible Inventory to the extent
Working Capital Agent shall have established such Reserves in respect of amounts
at any time payable by such Borrower to the lessor thereof as Working Capital
Agent shall determine in good faith, and (iii) as to locations operated by a
third person, (A) if Working Capital Agent shall have received a Collateral
Access Agreement from such owner with respect to such location, duly authorized,
executed and delivered by such operator or if Working Capital Agent shall not
have received such Collateral Access Agreement (or Working Capital Agent shall
determine to accept a Collateral Access Agreement that does not include all
required provisions or provisions in the form otherwise required by Working
Capital Agent), Working Capital Agent may, at its option, nevertheless consider
Inventory at such location to be Eligible Inventory to the extent Working
Capital Agent shall have established such Reserves in respect of amounts at any
time payable by such Borrower to the owner and operator thereof as Working
Capital Agent shall determine, and (B) in addition, if required by Working
Capital Agent, if Working Capital Agent shall have received:  (1) UCC financing
statements between the owner and operator, as consignee or bailee and such
Borrower, as consignor or bailor, in form and substance satisfactory to Working
Capital Agent, which are duly assigned to Working Capital Agent and (2) a
written notice to any lender to the owner and operator of the first priority
security interest in such Inventory of Working Capital Agent; (f) Inventory
subject to a security interest or lien in favor of any Person other than Working
Capital Agent except those permitted in this Agreement that are subject to an
intercreditor agreement in form and substance satisfactory to Working Capital
Agent between the holder of such security interest or lien and Working Capital
Agent; (g) bill and hold goods; (h) unserviceable, obsolete or slow moving
Inventory; (i) Inventory that is not subject to the first priority, valid and
perfected security interest of and lien in favor of Working Capital Agent;
(j) returned Inventory that is not saleable and held for sale in the ordinary
course of business; (k) damaged and/or defective Inventory; (l) Inventory
purchased or sold on consignment; (m) Inventory located outside the United
States; and (n) Inventory of a Borrower sold under a licensed trademark or trade
name or which contains or uses a medium subject to a licensed copyright, unless,
on or prior to the forty-fifth (45th) day after the date of this Agreement,
either (i) Working Capital Agent shall be satisfied that it has the right to
sell or otherwise dispose of such Inventory without further action or (ii)
Working Capital Agent shall have received a letter agreement, in form and
substance satisfactory to Working Capital Agent, duly authorized, executed and
delivered by such Borrower and the applicable licensor.  Working Capital Agent
shall have the right to establish, modify or eliminate Reserves against Eligible
Inventory from time to time in its reasonable credit judgment.  In addition,
Working Capital Agent reserves the right, at any time and from time to time
after the Closing Date, to adjust any of the criteria set forth above, to
establish new criteria, and to adjust advance rates with respect to Eligible
Inventory, in its reasonable credit judgment, subject to the approval of
Required Revolving Lenders in the case of adjustments or new criteria or changes
in advance rates which have the effect of making more credit available under the
Revolving Credit Borrowing Base and approval of the Term Loan Lenders in the
case of the Term Borrowing Base.  Any Inventory that is not Eligible Inventory
shall nevertheless be part of the Collateral.
 
 
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“Eligible LC Inventory” shall mean, as of the date of determination, without
duplication of other Eligible Inventory, Inventory that as to which:  (i) the
Inventory is purchased with and subject to a Letter of Credit, (ii) the
Inventory is then in transit (whether by vessel, air or land) from a location
outside of the continental United States to a location permitted hereunder and
for which Working Capital Agent shall have received such evidence thereof as
Working Capital Agent may require, (iii) the title of the Inventory has passed
to, and such Inventory is owned by, a Borrower and for which Working Capital
Agent shall have received such evidence thereof as Working Capital Agent may
require, (iv) Working Capital Agent has received each of the following:  (A) a
Collateral Access Agreement, duly authorized, executed and delivered by the
customs broker, freight forwarder or other third party handling the shipping and
delivery of such Inventory, (B) a copy of the certificate of marine cargo
insurance in connection therewith in which Working Capital Agent has been named
as an additional insured and loss payee in a manner acceptable to Working
Capital Agent and (C) a copy of the invoice, packing slip and manifest with
respect thereto, (v) the Inventory is either (A) subject to a negotiable bill of
lading:  (1) that is consigned to Working Capital Agent, (2) that was issued by
the carrier in respect of such Inventory and (3) is either in the possession of
the customs broker, freight forwarder or other third party handling the shipping
and delivery of such Inventory acting on behalf of Working Capital Agent or the
subject of a telefacsimile or other electronic copy which also confirms that
such document is in transit to Working Capital Agent or the customs broker,
freight forwarder or other third party handling the shipping and delivery of
such Inventory acting on behalf of Working Capital Agent or (B) subject to a
negotiable cargo receipt and is not the subject of a bill of lading (other than
a negotiable bill of lading consigned to, and in the possession of a carrier or
Working Capital Agent, or their respective agents) and such negotiable cargo
receipt is (1) consigned to Working Capital Agent, (2) issued by a carrier in
respect of such Inventory and (3) either in the possession of Working Capital
Agent or the customs broker, freight forwarder or other third party handling the
shipping and delivery of such Inventory acting on behalf of Working Capital
Agent or the subject of a telefacsimile or other electronic copy which also
confirms that such document is in transit to Working Capital Agent or the
customs broker, freight forwarder or other third party handling the shipping and
delivery of such Inventory, (vi) such Inventory is insured against types of
loss, damage, hazards, and risks, and in amounts, satisfactory to Working
Capital Agent, (vii) such Inventory shall not have been in transit for more than
forty-five (45) days, and (viii) such Inventory is otherwise deemed Eligible
Inventory (other than in respect of its location) hereunder.
 
 
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“Eligible Real Property” shall mean, as to any Borrower, Real Property owned by
such Borrower in fee simple in each case which are acceptable to Working Capital
Agent in good faith based on the criteria set forth below.  In general, Eligible
Real Property shall not include:  (i) Real Property which is not operated by a
Borrower except as Working Capital Agent may otherwise agree; (ii) Real Property
subject to a security interest, lien, mortgage or other encumbrance in favor of
any person other than Working Capital Agent (and other than those permitted
under Section 9.8(b), 9.8(c) or 9.8(d) hereof or are subject to an intercreditor
agreement in form and substance satisfactory to Working Capital Agent between
the holder of such lien and Working Capital Agent); (iii) Real Property that is
not located in the continental United States; (iv) Real Property that is not
subject to the valid and enforceable, first priority, perfected security
interest, lien and mortgage of Working Capital Agent; (v) Real Property where
Working Capital Agent determines that issues relating to compliance with
Environmental Laws adversely affect such Real Property in such manner that such
Real Property would not be acceptable for purposes of including it in the
calculation of the Revolving Credit Borrowing Base or Term Borrowing Base based
on the customary practices, procedures and policies of Working Capital Agent and
its Affiliates; provided, that, if the Real Property is acceptable for such
purposes in accordance with such practices, procedures and policies, subject to
the satisfaction of the other conditions set forth herein and any requirements
arising pursuant to such practices, procedures and policies, such Real Property
will be considered Eligible Real Property but subject to the right of Working
Capital Agent to establish Reserves to reflect the adverse affect of any
environmental conditions or events with respect thereto on its value or the
ability of Working Capital Agent to sell or otherwise realize on such
Collateral; (vi) Real Property improved with residential housing; (vii) Real
Property that is not subject to a then current final written appraisal by an
appraiser reasonably acceptable to Working Capital Agent (which shall be one of
the appraisers selected by Working Capital Agent from its list of approved
appraisers), on which Working Capital Agent and Lenders are expressly permitted
to rely, and that is in form, scope and methodology reasonably satisfactory to
Working Capital Agent; (viii) if requested by Working Capital Agent, Real
Property for which Working Capital Agent shall not have received a then current
environmental audit conducted by an independent environmental engineering firm
reasonably acceptable to Working Capital Agent (based on Working Capital Agent’s
list of approved firms and in form, scope, substance and methodology reasonably
satisfactory to Working Capital Agent, the results of which are satisfactory to
Working Capital Agent; (ix) if requested by Working Capital Agent, Real Property
for which Working Capital Agent shall not have received, in form and substance
reasonably satisfactory to Working Capital Agent, a valid and effective title
insurance policy (whether in the form of a pro form policy or a marked up title
policy commitment) issued by a company and agent reasonably acceptable to
Working Capital Agent:  (A) insuring the priority, amount and sufficiency of the
Mortgage with respect to such Real Property, (B) insuring against matters that
would be disclosed by surveys and (C) containing any legally available
endorsements, assurances or affirmative coverage requested by Working Capital
Agent for protection of its interests; and (x) any Real Property other than the
Baldwyn Real Property, except as Working Capital Agent may otherwise agree.  Any
Real Property that is not Eligible Real Property shall nevertheless be part of
the Collateral.
 
 
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“Eligible Transferee” shall mean (a) any Lender; (b) the parent company of any
Lender and/or any Affiliate of such Lender which is at least fifty (50%) percent
owned by such Lender or its parent company; (c) any person (whether a
corporation, partnership, trust or otherwise) that is engaged in the business of
making, purchasing, holding or otherwise investing in bank loans and similar
extensions of credit in the ordinary course of its business and is administered
or managed by a Lender or with respect to any Lender that is a fund which
invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor, and in each case is approved by Working Capital Agent; and (d) any
other commercial bank, financial institution or “accredited investor” (as
defined in Regulation D under the Securities Act of 1933) approved by Working
Capital Agent, provided, that, (i) neither any Borrower nor any Guarantor or any
Affiliate of any Borrower or Guarantor shall qualify as an Eligible Transferee,
(ii) no Person to whom any Indebtedness which is in any way subordinated in
right of payment to any other Indebtedness of any Borrower or Guarantor shall
qualify as an Eligible Transferee, except as Working Capital Agent may otherwise
specifically agree in writing and (iii) no Competitor shall qualify as an
Eligible Transferee.
 
“Environmental Laws” shall mean all foreign, Federal, State and local laws
(including common law), legislation, rules, codes, licenses, permits (including
any conditions imposed therein), authorizations, judicial or administrative
decisions, injunctions or agreements between any Borrower or Guarantor and any
Governmental Authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials.  The term “Environmental Laws” includes:  (i)
the Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
 
“Equipment” shall mean, as to each Borrower and Guarantor, all of such
Borrower’s and Guarantor’s now owned and hereafter acquired equipment, wherever
located, including machinery, data processing and computer equipment (whether
owned or licensed and including embedded software), vehicles, tools, furniture,
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and substitutions and replacements
thereof, wherever located.
 
 
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“ERISA” shall mean the Employee Retirement Income Security Act of 1974, together
with all rules, regulations and interpretations thereunder or related thereto.
 
“ERISA Affiliate” shall mean any person required to be aggregated with any
Borrower, any Guarantor or any of its or their respective Subsidiaries under
Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
 
“ERISA Event” shall mean (a) any “reportable event”, as defined in Section
4043(c) of ERISA or the regulations issued thereunder, with respect to a Pension
Plan, other than events as to which the requirement of notice has been waived in
regulations by the Pension Benefit Guaranty Corporation; (b) the adoption of any
amendment to a Pension Plan or the taking of any action with respect to a
Pension Plan that would require the provision of security as a condition of the
Internal Revenue Service’s waiving, or modifying a waiver of, contribution
requirements pursuant to the Pension Funding Rules; (c) a complete or partial
withdrawal by any Borrower, Guarantor or any ERISA Affiliate from a
Multiemployer Plan or a cessation of operations which is treated as such a
withdrawal or notification that a Multiemployer Plan is in reorganization; (d)
the filing of a notice of intent to terminate a Pension Plan, the treatment of a
Pension Plan amendment as a termination under Sections 4041 or 4041A of ERISA,
or the commencement of proceedings by the Pension Benefit Guaranty Corporation
to terminate a Pension Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan; (f) the imposition
of any liability under Title IV of ERISA, other than the Pension Benefit
Guaranty Corporation premiums due but not delinquent under Section 4007 of
ERISA, upon any Borrower, Guarantor or any ERISA Affiliate in excess of $750,000
and (g) any other event or condition with respect to a Plan including any
Pension Plan subject to Title IV of ERISA maintained, or contributed to, by any
ERISA Affiliate that could reasonably be expected to result in liability of any
Borrower in excess of $2,000,000.
 
“Eurodollar Rate Loans” shall mean any Loans or portion thereof on which
interest is payable based on the Adjusted Eurodollar Rate in accordance with the
terms hereof.
 
“Event of Default” shall mean the occurrence or existence of any event or
condition described in Section 10.1 hereof.
 
“Excess Availability” shall mean the amount, as determined by Working Capital
Agent, calculated at any time, equal to:
 
(a)            the lesser of (i) the Revolving Credit Borrowing Base or (ii) the
Maximum Credit (in each case under (i) or (ii) after giving effect to any
Reserves (other than any Reserves in respect of Letters of Credit to the extent
such amounts are deducted pursuant to clause (b)(ii) below)), minus
 
(b)           the sum of (i) the amount of the then outstanding Revolving Loans,
plus (ii) the aggregate undrawn amount of all outstanding Letters of Credit plus
any fees and expenses then due and owing in respect to all Letters of Credit or
other Letter of Credit Obligations.
 
 
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“Exchange Act” shall mean the Securities Exchange Act of 1934, together with all
rules, regulations and interpretations thereunder or related thereto.
 
“Exchange Agreements” shall mean each of (i) the Notes Exchange Agreement, dated
as of November 15, 2012, among Parent, as issuer, and Lightpointe
Communications, Inc., as holder, (ii) the Notes Exchange Agreement, dated as of
November 15, 2012, among Parent, as issuer, and Lenado DP, Series A of Lenado
DP, L.P., as holder, (iii) the Notes Exchange Agreement, dated as of November
15, 2012, among Parent, as issuer, and Lenado Partners, SeriesA of Lenado
Capital Partners, L.P., as holder, (iv) the Notes Exchange Agreement, dated as
of November 15, 2012, among Parent, as issuer, and SPV Quatro, LLC, as holder,
(v) the Notes Exchange Agreement, dated as of November 15, 2012, among Parent,
as issuer, and SPV Uno, LLC, as holder, and (vi) the Notes Exchange Agreement,
dated as of November 15, 2012, among Parent, as issuer, and Enteraspen Limited,
as holder.
 
“Exchange Closing Date” has the meaning set forth in Section 6.7(b).
 
“Exchange Notes” has the meaning set forth in Section 6.7(b).
 
“Exchange Notes Documents” shall mean, collectively, (i) the Indenture, (ii)
each of the “Notes” issued pursuant to and as defined under the Indenture, (iii)
each of the “Collateral Documents” entered into pursuant to and under the
Indenture as in effect on the date hereof, (iv) Master Warrant Agreement and
(iv) the Exchange Agreements.
 
“Existing Indenture” shall mean that certain Indenture dated as of June 17, 2008
between Deutsche Bank National Trust Company, as trustee, and the Parent, as
Issuer, in respect of the Floating Rate Series A Secured Notes Due 2013.
 
“Existing Letters of Credit” means those Letters of Credit identified on
Schedule 1.5 hereto.
 
“Existing Loan Agreement” has the meaning assigned to it in the recitals to this
Agreement.
 
“Fabric Retail Business” means a retailer engaged in the selling of arts and
crafts and/or textiles and/or sewing and needlecraft equipment, supplies and
accessories (including any mass retailer that dedicates a portion of its selling
space to the sale of arts and crafts and/or textiles and/or sewing and
needlecraft equipment, supplies and accessories).
 
“Federal Funds Rate” shall mean, for any day, a floating rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions among
members of the Federal Reserve System, as determined by Working Capital Agent in
its sole discretion, which determination shall be final, binding and conclusive
(absent manifest error).
 
“Federal Reserve Board” shall mean the Board of Governors of the Federal Reserve
System.
 
“Fee Letter” shall mean the letter agreement, dated of even date herewith, by
and among Borrowers, Working Capital Agent, and GA Capital setting forth certain
fees payable by Borrowers in connection with the Credit Facility, as the same
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
 
 
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“Financing Agreements” shall mean, collectively, this Agreement and all notes,
the Interlender Provisions, the Letter of Credit Documents, the Guarantee, all
Security Documents, the Intercompany Subordination Agreement, the Subordination
Provisions, the Supplemental Agreement, the Reaffirmation Agreement, all
guarantees, all other intercreditor agreements, all subordination agreements and
all other agreements, documents and instruments now or at any time hereafter
executed and/or delivered by any Borrower or Guarantor in connection with this
Agreement; provided, that, the Financing Agreements shall not include Hedge
Agreements other than Secured Rate Contracts.
 
“FIRREA” shall mean the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, as amended.
 
“Fiscal Month” shall mean one of the three fiscal periods in a Fiscal Quarter,
the first of such periods comprised of four weeks, the second of such periods
comprised of five weeks, and the third of such periods comprised of four weeks,
with each of the weeks in a Fiscal Quarter ending on the close of business on a
Saturday (except that the last fiscal period in the last Fiscal Quarter of a 53
week year shall be five weeks).  There are twelve Fiscal Months in a Fiscal
Year.
 
“Fiscal Quarter” means one of four thirteen or fourteen week quarters in a
Fiscal Year, with the first of such quarters beginning on the first day of a
Fiscal Year and ending on the Saturday of the last week in such quarter.
 
“Fiscal Year” shall mean the 52 or 53 week period ending on the Saturday nearest
to January 31 of each calendar year.
 
“Fixed Charges” means, with respect to any Person for any fiscal period, (a) the
aggregate of all cash Interest Expense of such Person and its Subsidiaries on a
consolidated basis in accordance with GAAP paid during such period, plus (b)
scheduled or required payments of principal with respect to Indebtedness of such
Person and its Subsidiaries on a consolidated basis in accordance with GAAP
during such period, plus (c) any cash Restricted Payments (other than scheduled
interest payments or other amounts already included in the preceding clauses (a)
and b)) made by such Person and its Subsidiaries during such period plus (d) the
aggregate of all pension payments paid or payable in cash during such period in
excess amounts reflected as cash outlays known as pension and SREP liabilities
on the consolidated statements of cash flow; provided, that the Cash Note
Payment (including the Cash Note Payment Reserve) and any principal payments of
Holdover Notes (including the Holdover Reserve) shall not constitute Fixed
Charges.
 
“Fixed Charge Coverage Ratio” means, with respect to any Person for any fiscal
period, the ratio of (a)(i) EBITDA of such Person and its Subsidiaries on a
consolidated basis  minus (ii) Capital Expenditures of such Person and its
Subsidiaries on a consolidated basis in accordance with GAAP paid or payable in
cash during such period minus (iii) Provision for Taxes of such Person and its
Subsidiaries on a consolidated basis in accordance with GAAP paid or payable in
cash with respect to such period, to (b) Fixed Charges of such Person and its
Subsidiaries on a consolidated basis for such period.
 
 
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“Foreign Lender” shall mean any Lender that is organized under the laws of a
jurisdiction other than that in which a Borrower is resident for tax
purposes.  For purposes of this definition, the United States, each State
thereof and the District of Columbia shall be deemed to constitute a single
jurisdiction.
 
“Foreign Subsidiary” means, with respect to any Person, a Subsidiary of such
Person that is a “controlled foreign corporation” under Section 957 of the Code.
 
“Funding Bank” shall have the meaning given to such term in Section 3.3(a)
hereof.
 
“GAAP” shall mean generally accepted accounting principles in the United States
as in effect from time to time as set forth in the opinions and pronouncements
of the Accounting Principles Board and the American Institute of Certified
Public Accountants and the statements and pronouncements of the Financial
Accounting Standards Board which are applicable to the circumstances as of the
date of determination consistently applied.
 
“GA Capital” shall mean GA Capital, LLC, a Delaware limited liability company.
 
“GE Capital” shall mean General Electric Capital Corporation, a Delaware
corporation.
 
“Governmental Authority” shall mean any nation or government, any state,
province, or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
 
“Guarantee” shall mean that certain Guarantee dated as of the Closing Date
executed and delivered by Borrowers, Guarantors and Working Capital Agent and
any guarantee agreements entered into after the Closing Date by any Borrower or
Guarantor (as required by this Agreement or any other Financing Agreement).
 
“Guarantors” shall mean, collectively, the following (together with their
respective successors and assigns):  (a) each Borrower, (b) HF Enterprises,
Inc., a Delaware corporation; (c) HF Resources, Inc., a Delaware corporation;
and (d) any other Person that is organized in the United States that at any time
after the date hereof becomes party to a guarantee in favor of Working Capital
Agent for the benefit of any Secured Party or otherwise liable on or with
respect to the Obligations or who is the owner of any property which is security
for the Obligations (other than Borrowers); each sometimes being referred to
herein individually as a “Guarantor”.
 
“Hazardous Materials” shall mean any hazardous, toxic or dangerous substances,
materials and wastes, including hydrocarbons (including naturally occurring or
man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea
formaldehyde insulation, radioactive materials, biological substances,
polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type
of pollutants or contaminants (including materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including any that are or become classified as hazardous or toxic under any
Environmental Law).
 
 
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“Hedge Agreement” shall mean an agreement between any Borrower or Guarantor and
a Bank Product Provider that is a rate swap agreement, basis swap, forward rate
agreement, commodity swap, interest rate option, forward foreign exchange
agreement, spot foreign exchange agreement, rate cap agreement, rate floor
agreement, rate collar agreement, currency swap agreement, cross-currency rate
swap agreement, currency option, any other similar agreement (including any
option to enter into any of the foregoing or a master agreement for any the
foregoing together with all supplements thereto) for the purpose of protecting
against or managing exposure to fluctuations in interest or exchange rates,
currency valuations or commodity prices; sometimes being collectively referred
to herein as “Hedge Agreements”.
 
“Holdover Closing Date” has the meaning set forth in Section 9.28(b).
 
“Holdover Note Payment” has the meaning set forth in Section 9.11(i).
 
“Holdover Notes” has the meaning set forth in Section 6.7(b).
 
“Holdover Reserve” has the meaning set forth in Section 6.7(b).
 
“Increase Date” has the meaning set forth in the definition of “Applicable
Adjusted Excess Availability Amount”.
 
“Indebtedness” shall mean, with respect to any Person, any liability, whether or
not contingent, (a) in respect of borrowed money (whether or not the recourse of
the lender is to the whole of the assets of such Person or only to a portion
thereof) or evidenced by bonds, notes, debentures or similar instruments; (b)
representing the balance deferred and unpaid of the purchase price of any
property or services (other than an account payable to a trade creditor (whether
or not an Affiliate) incurred in the ordinary course of business of such Person
and payable in accordance with customary trade practices); (c) all obligations
as lessee under leases which have been, or should be, in accordance with GAAP
recorded as Capital Leases; (d) any contractual obligation, contingent or
otherwise, of such Person to pay or be liable for the payment of any
indebtedness described in this definition of another Person, including, without
limitation, any such indebtedness, directly or indirectly guaranteed, or any
agreement to purchase, repurchase, or otherwise acquire such indebtedness,
obligation or liability or any security therefor, or to provide funds for the
payment or discharge thereof, or to maintain solvency, assets, level of income,
or other financial condition; (e) all obligations with respect to redeemable
stock and redemption or repurchase obligations under any Capital Stock or other
equity securities issued by such Person; (f) all reimbursement obligations and
other liabilities of such Person with respect to surety bonds (whether bid,
performance or otherwise), letters of credit, banker’s acceptances, drafts or
similar documents or instruments issued for such Person’s account; (g) all
indebtedness of such Person in respect of indebtedness of another Person for
borrowed money or indebtedness of another Person otherwise described in this
definition which is secured by any consensual lien, security interest,
collateral assignment, conditional sale, mortgage, deed of trust, or other
encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time; (h) all obligations, liabilities and indebtedness
of such Person (marked to market) arising under swap agreements, cap agreements
and collar agreements and other agreements or arrangements designed to protect
such person against fluctuations in interest rates or currency or commodity
values; (i) all obligations owed by such Person under License Agreements with
respect to non-refundable, advance or minimum guarantee royalty payments; (j)
indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer to the extent such Person is liable therefor
as a result of such Person’s ownership interest in such entity, except to the
extent that the terms of such indebtedness expressly provide that such Person is
not liable therefor or such Person has no liability therefor as a matter of law;
and (k) the principal and interest portions of all rental obligations of such
Person under any synthetic lease or similar off-balance sheet financing where
such transaction is considered to be borrowed money for tax purposes but is
classified as an operating lease in accordance with GAAP.
 
 
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“Indemnitee” shall have the meaning set forth in Section 11.5.
 
“Indenture” shall mean that certain Indenture dated on or about November 19,
2012 between Deutsche Bank National Trust Company, as trustee, and the Parent,
as issuer, in respect of the Floating Rate Series A Secured Notes Due 2017.
 
“Information Certificate” shall mean, collectively, the Information Certificates
of Borrowers and Guarantors each substantially in the form of Exhibit B hereto
or in such other form as may be acceptable to Working Capital Agent in its
reasonable discretion, containing material information with respect to Borrowers
and Guarantors, their respective businesses and assets provided by or on behalf
of Borrowers and Guarantors to Working Capital Agent in connection with the
preparation of this Agreement and the other Financing Agreements and the
financing arrangements provided for herein.
 
“Insolvency Law” shall mean the Bankruptcy Code, or any similar federal, state,
provincial or foreign law for the relief of debtors or any arrangement,
reorganization, insolvency, moratorium, assignment for the benefit of creditors,
any other marshalling of the assets and liabilities of any Credit Party or any
similar law relating to or affecting the enforcement of creditors’ rights
generally.
 
“Insolvency or Liquidation Proceeding” shall mean, collectively, (a) any
voluntary or involuntary case or proceeding under any Insolvency Law with
respect to any Credit Party, (b) any other voluntary or involuntary insolvency,
reorganization or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding with respect to
any Credit Party or with respect to any of their respective assets, (c) any
liquidation, dissolution, reorganization or winding up of any Credit Party,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, and (d) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of any Credit Party.
 
“Intellectual Property” shall mean, as to each Borrower and Guarantor, such
Borrower’s and Guarantor’s now owned and hereafter arising or
acquired:  patents, patent rights, patent applications, copyrights, works which
are the subject matter of copyrights, copyright applications, copyright
registrations, trademarks, servicemarks, trade names, trade styles, trademark
and service mark applications, and licenses and rights to use any of the
foregoing and all applications, registrations and recordings relating to any of
the foregoing as may be filed in U.S. Copyright Office, the U.S. Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, any political subdivision thereof or in any other country or
jurisdiction, together with all rights and privileges arising under applicable
law with respect to any Borrower’s or Guarantor’s use of any of the foregoing;
all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to sue for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys,
reports, manuals, and operating standards; goodwill (including any goodwill
associated with any trademark or servicemark, or the license of any trademark or
servicemark); customer and other lists in whatever form maintained; trade secret
rights, copyright rights, rights in works of authorship, domain names and domain
name registration; software and contract rights relating to computer software
programs, in whatever form created or maintained.
 
 
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“Intercompany Indebtedness” shall have the meaning set forth in Section 8.20
hereof.
 
“Intercompany Royalty Accounts” shall mean, collectively, the following bank
accounts maintained at Wells Fargo Bank:  (a) the bank account of Resources
bearing account number 2000038373008 and (b) the bank account of Enterprises
bearing account number 20000038372999.
 
“Intercompany Subordination Agreement” shall mean the Intercompany Subordination
Agreement substantially in the form of Exhibit I attached hereto executed by the
Borrowers and each of their subsidiaries from time to time.
 
“Interest Expense” shall mean, for any period, as to any Person, as determined
in accordance with GAAP, the total interest expense of such Person, whether paid
or accrued during such period (including the interest component of Capital
Leases for such period), including, without limitation, discounts in connection
with the sale of any Accounts and bank fees, commissions, discounts and other
fees and charges owed with respect to letters of credit, banker’s acceptances or
similar instruments.
 
“Interest Payment Date” means, (a) with respect to any Eurodollar Rate Loan, the
last day of each Interest Period applicable to such Loan and (b) with respect to
Prime Rate Loans, the first day of each month.
 
“Interest Period” shall mean for any Eurodollar Rate Loan, each period
commencing on a Business Day selected by Administrative Borrower and ending one
(1), two (2), or three (3) months thereafter as selected by Administrative
Borrower in an irrevocable notice to Working Capital Agent as set forth in
Section 2.1, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that:
 
(a)            if any Interest Period would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period shall end
on the immediately preceding Business Day;
 
 
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(b)           any Interest Period that would otherwise extend beyond the
Commitment Termination Date shall end two (2) Business Days prior to such date;
 
(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 a calendar month;
 
(d)           Administrative Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Rate Loan during a Interest
Period for such Loan; and
 
(e)           Administrative Borrower shall select Interest Periods so that
there shall be no more than 5 separate Eurodollar Rate Loans in existence at any
one time.
 
“Interest Rate” shall mean,
 
(a)           Subject to clause (b) of this definition below:
 
(i)           as to Prime Rate Loans, a rate equal to the then Applicable Margin
for Prime Rate Loans on a per annum basis plus the Prime Rate, and
 
(i)           as to Eurodollar Rate Loans, a rate equal to the then Applicable
Margin for Eurodollar Rate Loans on a per annum basis plus the Adjusted
Eurodollar Rate.
 
(b)          Notwithstanding anything to the contrary contained herein, during
the continuance of an Event of Default under Sections 10.1(a), 10.1(f), 10.1(g)
or 10.1(h), or during the continuance of any other Event of Default and at
election of either Agent (or at the direction of the Required Lenders), the
Interest Rates applicable to the Loans and Letters of Credit Fees shall be
increased by two (2%) percent per annum above the rates of interest or rates for
such fees otherwise applicable hereunder.
 
“Interlender Provisions” means the interlender provisions set forth on Schedule
1.6 dated as of the date hereof among the Working Capital Agent, the Term Loan
Agent and the Credit Parties, as amended, restated, supplemented or otherwise
modified from time to time in accordance therewith and herewith.
 
“Inventory” shall mean, as to each Borrower and Guarantor, all of such
Borrower’s and Guarantor’s now owned and hereafter existing or acquired goods,
wherever located, which (a) are leased by such Borrower or Guarantor as lessor;
(b) are held by such Borrower or Guarantor for sale or lease or to be furnished
under a contract of service; (c) are furnished by such Borrower or Guarantor
under a contract of service; or (d) consist of raw materials, work in process,
finished goods or materials used or consumed in its business.
 
“Investment” shall have the meaning set forth in Section 9.10 hereof.
 
 
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“Investment Property Control Agreement” shall mean an agreement in writing, in
form and substance satisfactory to Working Capital Agent, by and among Working
Capital Agent, any Borrower or Guarantor (as the case may be) and any securities
intermediary, commodity intermediary or other person who has custody, control or
possession of any investment property of such Borrower or Guarantor
acknowledging that such securities intermediary, commodity intermediary or other
person has custody, control or possession of such investment property on behalf
of Working Capital Agent, that it will comply with entitlement orders originated
by Working Capital Agent with respect to such investment property, or other
instructions of Working Capital Agent, and has such other terms and conditions
as Working Capital Agent may require.
 
“Issuing Bank” shall have the meaning set forth in Section 2.2(a).
 
“Lenders” shall mean (a) GE Capital, GA Capital, the other Lenders named on the
signature pages of this Agreement, and, if any such Lender shall decide to
assign all or any portion of the Obligations in accordance with Section 13.8,
such term shall include any assignee of such Lender, and (b) solely for the
purpose of (x) obtaining the benefit of the liens granted to Working Capital
Agent for the benefit of Lenders under any Financing Agreement and (y) obtaining
the benefit of any guarantees by the Guarantors, a Person to whom any
Obligations in respect of a Secured Rate Contract are owed.  For the avoidance
of doubt, any Person to whom any Obligations in respect of a Secured Rate
Contract are owed and which does not hold any Loans or Commitments shall not be
entitled to any other rights as a “Lender” under this Agreement or any other
Financing Agreements.
 
“Letter of Credit Documents” shall mean, with respect to any Letter of Credit,
such Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, including, without limitation, any Master Commercial
Agreement and/or Master Standby Agreement, any application therefor, and any
agreements, instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or providing
for i) the rights and obligations of the parties concerned or at risk or ii) any
collateral security for such obligations.
 
“Letter of Credit Fee” shall have the meaning set forth in Section 2.2(b).
 
“Letter of Credit Limit” shall mean $20,000,000.  The Letter of Credit Limit is
part of, and not in addition to, the Revolving Commitment.
 
“Letter of Credit Obligations” shall mean all outstanding obligations incurred
by Working Capital Agent and Revolving Lenders, whether direct or indirect,
contingent or otherwise, due or not due, in connection with the issuance of
Letters of Credit by the Issuing Bank or the purchase of a participation as set
forth in Section 2.2 with respect to any Letter of Credit.  The amount of such
Letter of Credit Obligations shall equal the maximum amount that may be payable
at such time or at any time thereafter by Working Capital Agent or Revolving
Lenders thereupon or pursuant thereto.
 
“Letters of Credit” shall mean all letters of credit (whether documentary or
stand-by and whether for the purchase of inventory, equipment or otherwise)
issued by an Issuing Bank for the account of any Borrower pursuant to this
Agreement, and all amendments, renewals, extensions or replacements
thereof.  The Existing Letters of Credit shall constitute Letters of Credit
hereunder for all purposes.
 
 
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“License Agreements” shall have the meaning set forth in Section 8.11 hereof.
 
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment,
charge, deposit arrangement, encumbrance, easement, lien (statutory or
otherwise), security interest or other security arrangement and any
other  preference, priority or preferential arrangement of any kind or nature
whatsoever, including those created by, arising under or evidenced by 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.
 
“Loans” shall mean as applicable, and as the context may require, either (a) a
Revolving Loan or a Term Loan or (b) collectively, the Revolving Loans or the
Term Loans.
 
“London Interbank Offered Rate” shall mean, for each Interest Period, a rate of
interest determined by Working Capital Agent equal to the offered rate for
deposits in United States dollars for the applicable Interest Period that
appears on Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time), on the
second full Business Day next preceding the first day of such Interest Period
(unless such date is not a Business Day, in which event the next succeeding
Business Day will be used).  If such interest rates shall cease to be available
from Telerate News Service (or its successor satisfactory to Working Capital
Agent), the London Interbank Offered Rate shall be determined from such
financial reporting service or other information as shall be mutually acceptable
to Working Capital Agent or Term Loan Agent and Administrative Borrower.  With
respect to all Term Loans, the London Interbank Offered Rate shall not be less
than 1.50%.
 
“Master Commercial Agreement” shall mean the Master Agreement for Commercial
Letters of Credit dated as of the Closing Date among Borrowers, as Applicant(s),
and GE Capital.
 
“Master Standby Agreement” shall mean the Master Agreement for Standby Letters
of Credit dated as of the Closing Date among Borrowers, as Applicant(s), and GE
Capital, as issuer.
 
“Master Warrant Agreement” shall mean that certain Master Warrant Agreement
dated as of November 15, 2012 between the Parent and Continental Stock Transfer
& Trust Company, as warrant agent.
 
“Material Adverse Effect” shall mean a material adverse effect on (a) the
financial condition, business, performance or operations of Borrowers; (b) the
legality, validity or enforceability of this Agreement or any of the other
Financing Agreements; (c) the legality, validity, enforceability, perfection or
priority of the security interests and liens of Working Capital Agent upon the
Collateral; (d) the Collateral or its value; (e) the ability of any Borrower to
repay the Obligations or of any Borrower to perform its obligations under this
Agreement or any of the other Financing Agreements as and when to be performed;
or (f) the ability of Working Capital Agent or any Lender to enforce the
Obligations or realize upon the Collateral or otherwise with respect to the
rights and remedies of Agents and Lenders under this Agreement or any of the
other Financing Agreements.
 
 
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“Material Contract” shall mean (a) any contract or other agreement (other than
the Financing Agreements), written or oral, of any Borrower or Guarantor
involving monetary liability of or to any Person in an amount in excess of
$5,000,000 in any Fiscal Year and (b) any other contract or other agreement
(other than the Financing Agreements), whether written or oral, to which any
Borrower or Guarantor is a party as to which the breach, nonperformance,
cancellation or failure to renew by any party thereto would have a Material
Adverse Effect.
 
“Maturity Date” shall mean November 15, 2016.
 
“Maximum Credit” shall mean the amount of $100,000,000.
 
“Mortgage” shall means each of the mortgages, deeds of trust, leasehold
mortgages, leasehold deeds of trust, collateral assignments of leases or other
real estate security documents delivered by any Borrower or any Guarantor to
Working Capital Agent on behalf of itself and Secured Parties with respect to
the Real Property of the Borrowers and the Guarantors, all in form and substance
reasonably satisfactory to Working Capital Agent, including, without limitation,
the Deed of Trust, Security Agreement, Assignment of Rents and Leases and
Fixture Filing, dated even date herewith by Parent in favor of Working Capital
Agent with respect to the Real Property and related assets of such Borrower
located in Baldwyn, Mississippi, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
 
“Multiemployer Plan” shall mean a “multiemployer plan” as defined in Section
4001(a)(3) of ERISA which is or was at any time during the current year or the
immediately preceding six (6) years contributed to by any Borrower, Guarantor or
any ERISA Affiliate or with respect to which any Borrower, Guarantor or any
ERISA Affiliate may incur any liability.
 
“Net Recovery Percentage” shall mean the net appraised liquidation value of
Borrowers’ Eligible Inventory, Eligible LC Inventory and Eligible In-Transit
Inventory as set forth in Borrowers’ inventory ledger as determined from time to
time in accordance with an independent appraisal satisfactory to Working Capital
Agent.
 
“Non-Consenting Lender” shall have the meaning set forth in Section 11.3(c).
 
“Notice of Borrowing” shall have the meaning set forth in Section 2.1(a).
 
“Notice of Conversion/Continuation” shall have the meaning set forth in Section
3.1(b).
 
“Obligations” shall mean (a) any and all Loans, Letter of Credit Obligations and
all other obligations, liabilities and indebtedness of every kind, nature and
description owing by any or all of Borrowers to Agents or any Lender or any
Secured Swap Provider, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, arising under this Agreement or any of the other Financing
Agreements or any Secured Rate Contract (with respect to Secured Rate Contracts,
solely to the extent consented to by Agents), whether now existing or hereafter
arising, whether arising before, during or after the initial or any renewal term
of this Agreement or after the commencement of any case with respect to such
Borrower under the U.S. Bankruptcy Code or any similar statute (including the
payment of interest and other amounts which would accrue and become due but for
the commencement of such case, whether or not such amounts are allowed or
allowable in whole or in part in such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, or secured or unsecured and (b) for purposes only of
Section 5.1 hereof and the Security Documents and subject to the priority in
right of payment set forth in Section 6.4 hereof, all obligations, liabilities
and indebtedness of every kind, nature and description owing by any or all of
Borrowers or Guarantors to Agents, any Secured Swap Provider arising under or
pursuant to any Secured Rate Contract or any Bank Product Provider arising under
or pursuant to any Bank Products, whether now existing or hereafter arising,
provided, that, (i) as to any such obligations, liabilities and indebtedness
arising under or pursuant to a Hedge Agreement (other than a Secured Rate
Contract), the same shall only be included within the Obligations if upon
Working Capital Agent’s request, Working Capital Agent shall have entered into
an agreement, in form and substance satisfactory to Working Capital Agent, with
the Bank Product Provider that is a counterparty to such Hedge Agreement, as
acknowledged and agreed to by Borrowers and Guarantors, providing for the
delivery to Working Capital Agent by such counterparty of information with
respect to the amount of such obligations and providing for the other rights of
Working Capital Agent and such Bank Product Provider in connection with such
arrangements, (ii) any Bank Product Provider, other than GE Capital and its
Affiliates or a Secured Swap Provider, shall have delivered written notice to
Working Capital Agent that (A) such Bank Product Provider has entered into a
transaction to provide Bank Products to a Borrower and Guarantor and (B) the
obligations arising pursuant to such Bank Products provided to Borrowers and
Guarantors constitute Obligations entitled to the benefits of the security
interest of Working Capital Agent granted hereunder, and Working Capital Agent
shall have accepted such notice in writing, and (iii) in no event shall any Bank
Product Provider (other than a Secured Swap Provider) to whom such obligations,
liabilities or indebtedness are owing be deemed a Lender for purposes hereof to
the extent of and as to such obligations, liabilities or indebtedness other than
for purposes of Section 5.1 hereof and other than for purposes of Sections 12.1,
12.2, 12.3(b), 12.6, 12.7, 12.9, 12.12 and 13.7 hereof and in no event shall
such obligations be included in the Obligations to the extent that the effect is
that the value of the Collateral (as determined by Working Capital Agent) is
less than the Obligations and in no event shall the approval of any such person
be required in connection with the release or termination of any security
interest or lien of Working Capital Agent.
 
 
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“Obligor” shall mean any guarantor, endorser, acceptor, surety or other person
liable on or with respect to the Obligations or who is the owner of any property
which is security for the Obligations (including, without limitation,
Guarantors).
 
“Other Taxes” shall have the meaning set forth in Section 6.5(c).
 
“Overadvance” shall have the meaning set forth in Section 2.1(a)(iii).
 
“Owned Real Properties” shall mean, collectively, the Real Properties of Parent
listed on Schedule 1.4.
 
 
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“Parent” shall mean Hancock Fabrics, Inc., a Delaware corporation, and its
successors and assigns.
 
“Participant” shall mean any financial institution that acquires and holds a
participation in the interest of any Lender in any of the Loans and Letters of
Credit in conformity with the provisions of Section 13.8 of this Agreement
governing participations.
 
“Pension Funding Rules” shall mean the rules of the Code and ERISA regarding
minimum required contributions (including any installment payment thereof) to
certain Plans and set forth in, with respect to plan years ending prior to the
effective date as to any such Plan of the Pension Protection Act of 2006,
Section 412 of the Code and Part 3, Subtitle I, of Title I of ERISA each as in
effect prior to the Pension Protection Act of 2006 and, thereafter, Sections 412
and 430 of the Code and Sections 302 and 303 of ERISA.
 
“Pension Plan” shall mean an employee benefit plan (as defined in Section 3(3)
of ERISA) subject to the Pension Funding Rules which is or was at any time
during the current year or the immediately preceding six (6) years contributed
to by any Borrower, Guarantor or any ERISA Affiliate or with respect to which
any Borrower, Guarantor or any ERISA Affiliate may incur any liability, other
than a Multiemployer Plan.
 
“Permits” shall have the meaning set forth in Section 8.7(b).
 
“Permitted Acquisitions” shall mean the purchase by a Borrower or Guarantor
after the date hereof of all or substantially all of the assets of any Person or
a business or division of such Person (including pursuant to a merger with such
Person or the formation of a wholly owned Subsidiary solely for such purpose
that is merged with such Person) or of all or a majority of the Capital Stock
(such assets or Person being referred to herein as the “Acquired Business”) and
in one or a series of transactions that (except for such purchases the aggregate
consideration paid for which does not exceed $200,000 (calculated after giving
effect to all payments or other consideration paid in respect of such purchases
and after giving effect to the assumption of all Indebtedness in connection with
such purchases) in any Fiscal Year) satisfies each of the following conditions
as determined by Working Capital Agent:
 
(a)            Working Capital Agent shall have received not less than ten (10)
Business Days’ prior written notice of the proposed acquisition and such
information with respect thereto as Working Capital Agent may request, including
(i) the proposed date and amount of the acquisition, (ii) a list and description
of the assets or shares to be acquired, (iii) the total purchase price for the
assets to be purchased (and the terms of payment of such purchase price), and
(iv) a summary of the due diligence undertaken by Borrowers in connection with
such acquisition,
 
(b)            the Acquired Business shall be an operating company that engages
in a line of business substantially similar to the business that Borrowers are
engaged in on the date hereof,
 
(c)            (i) the aggregate consideration paid for or in connection with
the assets or shares of the Acquired Business shall not exceed $15,000,000
(calculated after giving effect to all payments or other consideration paid in
respect of such acquisition and after giving effect to the assumption of all
Indebtedness in connection with such acquisition), and (ii) the aggregate
consideration paid for or in connection with all Permitted Acquisitions shall
not exceed $30,000,000 (calculated after giving effect to all payments or other
consideration paid in respect of all Permitted Acquisitions and after giving
effect to the assumption of all Indebtedness in connection with all Permitted
Acquisition),
 
 
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(d)            if requested by Working Capital Agent, Working Capital Agent
shall have received:  (i) the most recent annual and interim financial
statements with respect to the Acquired Business and related statements of
income and cash flows, (ii) detailed forecasts of cash flows for the Acquired
Business, (iii) detailed projections for Parent and its Subsidiaries through the
Maturity Date, on a monthly basis for the first year after the acquisition and
on a quarterly basis thereafter, giving pro forma effect to such acquisition,
based on assumptions satisfactory to Working Capital Agent and demonstrating pro
forma compliance with all financial covenants set forth in this Agreement,
prepared in good faith an in a manner and using such methodology as is
consistent with the most recent financial statements delivered to Working
Capital Agent pursuant to Section 9.6 hereof and in form and substance
satisfactory to Working Capital Agent and (iv) current, updated projections of
the amount of the Revolving Credit Borrowing Base, Term Borrowing Base and
Excess Availability for the six month period after the date of such acquisition,
in a form reasonably satisfactory to Working Capital Agent, representing
Borrowers’ reasonable best estimate of the future Revolving Credit Borrowing
Base, Term Borrowing Base and Excess Availability for the period set forth
therein as of the date not more than ten (10) days prior to the date of such
acquisition, which projections shall have been prepared on the basis of the
assumptions set forth therein which Borrowers believe are fair and reasonable as
of the date of preparation in light of current and reasonably foreseeable
business conditions,
 
(e)            if Agents so elect, Agents shall have received an appraisal of
the inventory of the Acquired Business and such other assets of the Acquired
Business as Agents may specify, in each case in form and containing assumptions
and appraisal methods satisfactory to Agents by an appraiser acceptable to
Agents, on which Agents and Lenders are expressly permitted to rely,
 
(f)             if Agents so elect, Agents shall have completed a field
examination with respect to the business and assets of the Acquired Business in
accordance with Agents’ customary procedures and practices and as otherwise
required by the nature and circumstances of the business of the Acquired
Business, the scope and results of which shall be satisfactory to Agents and any
inventory of the Acquired Business shall only be Eligible Inventory to the
extent the criteria for Eligible Inventory set forth herein are satisfied with
respect thereto in accordance with this Agreement (or such other or additional
criteria as Working Capital Agent may, at its option, establish with respect
thereto in accordance with this Agreement and subject to such Reserves as
Working Capital Agent may establish in connection with the Acquired Business),
 
(g)            Working Capital Agent shall have received (i) all items required
by Sections 5.2 and 9.23 in connection with the Acquired Business, (ii) evidence
satisfactory to Working Capital Agent that all liens and encumbrances with
respect to the assets of the Acquired Business (other than liens and
encumbrances permitted under Section 9.8) have been discharged in full or
arrangements therefor satisfactory to the Working Capital Agent have been made
and (iii) evidence satisfactory to Working Capital Agent that any Indebtedness
assumed in connection with such acquisition shall constitute Indebtedness
permitted under Section 9.9,
 
 
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(h)            in the case of the acquisition of the Capital Stock of another
Person, the board of directors (or other comparable governing body) of such
other Person shall have duly approved 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 will violate applicable law,
 
(i)             Adjusted Excess Availability shall have been not less than
$25,000,000 for each of the two consecutive months immediately prior to the date
of any such acquisition based on the Revolving Credit Borrowing Base as of the
end of each of such months and after giving effect to the acquisition and all
payments and other consideration in respect thereof, on a pro forma basis using
the Adjusted Excess Availability as of the end of the month immediately prior to
the date of such acquisition and payments or other consideration, Adjusted
Excess Availability shall be not less than $25,000,000,
 
(j)             no Default or Event of Default shall exist or have occurred as
of the date of the acquisition or any payment in respect thereof and after
giving effect to the acquisition or such payment,
 
(k)            Working Capital Agent shall have received true, correct and
complete copies of all agreements, documents and instruments relating to such
acquisition, which documents shall be satisfactory to Working Capital Agent, and
 
(l)             if required by Working Capital Agent, Working Capital Agent
shall have received a certificate of the chief financial officer or chief
executive officer of Administrative Borrower certifying to Working Capital Agent
and Lenders as to the matters set forth above in this definition.
 
“Permitted Dispositions” shall mean each of the following:
 
(a)            sales of Inventory in the ordinary course of business,
 
(b)            the sale or other disposition of Equipment (including worn-out or
obsolete Equipment or Equipment no longer used or useful in the business of any
Borrower or Guarantor) so long as such sales or other dispositions do not
involve Equipment having an aggregate fair market value in excess of $500,000
for all such Equipment disposed of in any Fiscal Year of Borrowers or as Working
Capital Agent may otherwise agree,
 
(c)            sales or other dispositions by any Borrower of assets in
connection with the closing or sale of a retail store location of such Borrower
in the ordinary course of such Borrower’s business which consist of leasehold
interests in the premises of such store, the Equipment and fixtures located at
such premises and the books and records relating exclusively and directly to the
operations of such store; provided, that, as to each and all such sales and
closings, (i) after giving effect thereto, no Default or Event of Default shall
exist or have occurred and be continuing, and (ii) such sale shall be on
commercially reasonable prices and terms in a bona fide arm’s length
transaction,
 
(d)            the grant by any Borrower or Guarantor after the date hereof of a
non-exclusive license to any person for the use of any Intellectual Property
consisting of trademarks owned by such Borrower or Guarantor; provided, that, as
to any such license, each of the following conditions is satisfied, (i) such
licenses shall be on commercially reasonable prices and terms in a bona fide
arms’ length transactions, (ii) the rights of the licensee shall be subject to
the rights of Working Capital Agent, and shall not adversely affect, limit or
restrict the rights of Working Capital Agent to use any Intellectual Property of
a Borrower or Guarantor to sell or otherwise dispose of any Inventory or other
Collateral, (iii) Working Capital Agent shall have received, true, correct and
complete copies of the executed license agreement, promptly upon the execution
thereof and (iv) as of the date of the grant of any such license, and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred,
 
 
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(e)            sales, transfers and dispositions of assets of a Borrower to
another Borrower or by a Guarantor or other Subsidiary of Parent to a Borrower
or Guarantor, in each case to the extent permitted under Section 9.12 hereof;
and
 
(f)             the sale of the Tupelo Real Property, any of the Owned Real
Properties (other than the Baldwyn Real Property), the Equipment and fixtures
located at the Tupelo Real Property and the Owned Real Properties (other than
the Baldwyn Real Property) and the books and records relating exclusively and
directly to the operations of the Tupelo Real Property or any of the Owned Real
Properties (other than the Baldwyn Real Property); provided, that, as to such
sale and closing, (i) Working Capital Agent shall have received not less than
ten (10) Business Days prior written notice of such sale or closing, which
notice shall set forth in reasonable detail satisfactory to Working Capital
Agent, the parties to such sale, the purchase price and the manner of payment
thereof and such other information with respect thereto as Working Capital Agent
may request, (ii) after giving effect thereto, no Default or Event of Default
shall exist or have occurred and be continuing, (iii) such sale shall be on
commercially reasonable prices and terms in a bona fide arm’s length
transaction.
 
“Permitted Investments” shall mean each of the following:
 
(a)            the endorsement of instruments for collection or deposit in the
ordinary course of business;
 
(b)            Investments in cash or Cash Equivalents, provided, that, (i) no
Loans are then outstanding and (ii) the terms and conditions of Section 5.2
hereof shall have been satisfied with respect to the deposit account, investment
account or other account in which such cash or Cash Equivalents are held;
 
(c)            the existing Investments of each Borrower and Guarantor as of the
date hereof in its Subsidiaries, provided, that, no Borrower or Guarantor shall
have any further obligations or liabilities to make any capital contributions or
other additional investments or other payments to or in or for the benefit of
any of such Subsidiaries;
 
(d)            loans and advances by any Borrower or Guarantor to employees of
such Borrower or Guarantor not to exceed the principal amount of $250,000 in the
aggregate at any time outstanding for:  (i) reasonably and necessary
work-related travel or other ordinary business expenses to be incurred by such
employee in connection with their work for such Borrower or Guarantor and (ii)
reasonable and necessary relocation expenses of such employees (including home
mortgage financing for relocated employees);
 
 
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(e)            stock or obligations issued to any Borrower or Guarantor by any
Person (or the representative of such Person) in respect of Indebtedness of such
Person owing to such Borrower or Guarantor in connection with the insolvency,
bankruptcy, receivership or reorganization of such Person or a composition or
readjustment of the debts of such Person; provided, that, the original of any
such stock or instrument evidencing such obligations shall be promptly delivered
to Working Capital Agent, upon Working Capital Agent’s request, together with
such stock power, assignment or endorsement by such Borrower or Guarantor as
Working Capital Agent may request; and
 
(f)             obligations of account debtors to any Borrower or Guarantor
arising from Accounts which are past due evidenced by a promissory note made by
such account debtor payable to such Borrower or Guarantor; provided, that,
promptly upon the receipt of the original of any such promissory note by such
Borrower or Guarantor, such promissory note shall be endorsed to the order of
Working Capital Agent by such Borrower or Guarantor and promptly delivered to
Working Capital Agent as so endorsed.
 
“Permitted Overadvances” shall have the meaning set forth in Schedule 1.6
hereof.
 
“Person” or “person” shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Code), limited liability company, limited liability
partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
 
“Plan” shall mean an employee benefit plan (as defined in Section 3(3) of ERISA)
which any Borrower or Guarantor sponsors, maintains, or to which it makes, is
making, or is obligated to make contributions, or, in the case of a
Multiemployer Plan, has made contributions at any time during the immediately
preceding six (6) plan years or with respect to which any Borrower or Guarantor
may incur liability.
 
“Pledge Agreements” shall mean that certain Pledge Agreement dated as of the
Closing Date executed and delivered by Borrowers, Guarantors and Working Capital
Agent and any pledge agreements entered into after the Closing Date by any
Borrower or Guarantor (as required by this Agreement or any other Financing
Agreement).
 
“Post-Petition Interest” means interest or fees accruing on or after the
occurrence of, and during the continuance of, an Event of Default under Section
10.1(g) or (h) of the Agreement at the rates set forth in the Agreement, whether
or not allowed or allowable in any case or proceeding under the Bankruptcy Code.
 
“Prime Rate” shall mean, on any date, the greater of (a) the rate publicly
quoted from time to time by The Wall Street Journal as the “prime rate” (or, if
The Wall Street Journal ceases quoting a prime rate, the highest per annum rate
of interest published by the Federal Reserve Board in Federal Reserve
statistical release H.15 (519) entitled “Selected Interest Rates” as the Bank
prime loan rate or its equivalent) or (b) the Federal Funds Rate in effect on
such day plus one-half (1/2%) percent.  Each change in any interest rate
provided for in this Agreement based upon the Prime Rate shall take effect at
the time of such change in the Prime Rate.  With respect to all Term Loans, the
Prime Rate shall not be less than 2.50%.
 
 
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“Prime Rate Loans” shall mean any Loans or portion thereof on which interest is
payable based on the Prime Rate in accordance with the terms thereof.
 
“Pro Rata Share” shall mean as to any Lender, (a) with respect to the Revolving
Loan the fraction (expressed as a percentage) the numerator of which is such
Lender’s Revolving Commitment and the denominator of which is the aggregate
amount of all of the Revolving Commitments of Lenders, as adjusted from time to
time in accordance with the provisions of Section 13.8 hereof and (b) with
respect to the Term Loan the fraction (expressed as a percentage) the numerator
of which is such Lender’s Term Loan Commitment and the denominator of which is
the aggregate amount of all of the Term Loan Commitments of Lenders, as adjusted
from time to time in accordance with the provisions of Section 13.8 hereof;
provided, that, if the Commitments have been terminated, the numerator shall be
the unpaid amount of such Lender’s Loans and its interest in the Letters of
Credit and the denominator shall be the aggregate amount of all unpaid
applicable Loans and, as to Revolving Lenders, Letters of Credit.
 
“Protective Overadvance” shall have the meaning set forth in Schedule 1.6
hereof.
 
“Provision for Taxes” shall mean an amount equal to all taxes imposed on or
measured by net income, whether Federal, State, county or local, and whether
foreign or domestic, that are paid or payable by any Person in respect of any
period in accordance with GAAP.
 
“Quarterly Average Excess Availability” shall mean, as of the date of
determination, the daily average of the aggregate amount of the Adjusted Excess
Availability, calculated for the immediately preceding calendar quarter then
most recently ended.
 
“Rate Contracts” shall mean swap agreements (as such term is defined in Section
101 of the Bankruptcy Code) and any other agreements or arrangements designed to
provide protection against fluctuations in interest or currency exchange rates.
 
“Reaffirmation Agreement” means that certain Omnibus Reaffirmation and
Ratification Agreement, dated as of the Amendment Effective Date, among the
Borrowers, Guarantors and the Working Capital Agent for the benefit of the
Secured Parties.
 
“Real Property” shall mean all now owned and hereafter acquired real property of
each Borrower and Guarantor, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
 
“Real Property Availability” shall mean the Adjusted Appraised Fair Market Value
of Eligible Real Property as set forth in the most recent acceptable appraisal
(or acceptable updates of existing appraisals) of such Real Property received by
Agents in accordance with Section 4.1 or 7.4 hereof.
 
 
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“Receivables” shall mean all of the following now owned or hereafter arising or
acquired property of each Borrower and Guarantor:  (a) all Accounts; (b) all
interest, fees, late charges, penalties, collection fees and other amounts due
or to become due or otherwise payable in connection with any Account; (c) all
payment intangibles of such Borrower or Guarantor; (d) letters of credit,
indemnities, guarantees, security or other deposits and proceeds thereof issued
payable to any Borrower or Guarantor or otherwise in favor of or delivered to
any Borrower or Guarantor in connection with any Account; or (e) all other
accounts, contract rights, chattel paper, instruments, notes, general
intangibles and other forms of obligations owing to any Borrower or Guarantor,
whether from the sale and lease of goods or other property, licensing of any
property (including Intellectual Property or other general intangibles),
rendition of services or from loans or advances by any Borrower or Guarantor or
to or for the benefit of any third person (including loans or advances to any
Affiliates or Subsidiaries of any Borrower or Guarantor) or otherwise associated
with any Accounts, Inventory or general intangibles of any Borrower or Guarantor
(including, without limitation, choses in action, causes of action, tax refunds,
tax refund claims, any funds which may become payable to any Borrower or
Guarantor in connection with the termination of any Plan or other employee
benefit plan and any other amounts payable to any Borrower or Guarantor from any
Plan or other employee benefit plan, rights and claims against carriers and
shippers, rights to indemnification, business interruption insurance and
proceeds thereof, casualty or any similar types of insurance and any proceeds
thereof and proceeds of insurance covering the lives of employees on which any
Borrower or Guarantor is a beneficiary).
 
“Records” shall mean, as to each Borrower and Guarantor, all of such Borrower’s
and Guarantor’s present and future books of account of every kind or nature,
purchase and sale agreements, invoices, ledger cards, bills of lading and other
shipping evidence, statements, correspondence, memoranda, credit files and other
data relating to the Collateral or any account debtor, together with the tapes,
disks, diskettes and other data and software storage media and devices, file
cabinets or containers in or on which the foregoing are stored (including any
rights of any Borrower or Guarantor with respect to the foregoing maintained
with or by any other person).
 
“Register” shall have the meaning set forth in Section 13.8(b) hereof.
 
“Required Lenders” shall mean Lenders holding in the aggregate at least 50.1% of
(x) the Commitments and the outstanding Loans or (y) if no Loans or Letters of
Credit under the Credit Facility are then outstanding, the Commitments.
 
“Required Revolving Lenders” shall mean, at any time, those Revolving Lenders
whose Pro Rata Shares aggregate more than fifty (50%) percent of the aggregate
of the Revolving Commitments of all Revolving Lenders, or if the Revolving
Commitments shall have been terminated, Revolving Lenders to whom more than
fifty (50%) percent of the then outstanding Obligations are owing; provided,
that, if the Pro Rata Share of any Revolving Lender exceeds fifty (50%) percent
at a time when more than one Revolving Lender exists, then Required Revolving
Lenders shall mean such Lender and at least one other Revolving Lender.
 
 
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“Reserves” shall mean (i) as of any date of determination, such amounts as
Working Capital Agent may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letters of Credit which would
otherwise be available to Borrowers that Working Capital Agent may, in its
reasonable credit judgment, establish from time to time, (ii) the Term Loan
Reserve and (iii) the Term Loan B-1 Reserve.  Without limiting the generality of
the foregoing, Reserves may be established to reflect any of the
following:  dilution; gift certificates; customs duties and other costs to
release Inventory which is being imported into the United States; inventory
shrinkage; mark downs and cost variances; taxes; rental payments; amounts as
Working Capital Agent may from time to time establish in good faith with respect
to a prospective increase in the Applicable Adjusted Excess Availability Amount
based on the proviso of the definition thereof, such Reserve to be in effect for
periods of time commencing with the date Adjusted Excess Availability is less
than or equal to $7,500,000 until the date of delivery of financial statements
for the Fiscal Month in which Adjusted Excess Availability is less than or equal
to $7,500,000; services charges and other amounts to become due to lessors of
real property to the extent Inventory or Records are located in or on such
property or such Records are needed to monitor or otherwise deal with the
Collateral, provided, that, the Reserves established in respect of such payments
and charges as to retail store locations that are leased shall not exceed at any
time the aggregate of amounts payable for the next three (3) months to the
lessors of such retail store locations located in those States where any right
of the lessor to Collateral may have priority over the security interest and
lien of Working Capital Agent therein, provided, further, that such limitation
on the amount of the Reserves shall only apply so long as: (A) no Event of
Default shall exist or have occurred, (B) neither a Borrower, Guarantor nor
Working Capital Agent shall have received notice of any event of default under
the lease with respect to such location and (C) no Borrower has granted to the
lessor a security interest or lien upon any assets of such Borrower; customer
deposits; other obligations, liabilities or indebtedness (contingent or
otherwise) of any Borrower or any Guarantor to any Bank Product Provider arising
under or in connection with any Bank Products or to any other Person arising in
connection with any deposit accounts or other cash management arrangements; and
Letter of Credit Outstandings.  Without limiting the generality of the
foregoing, Reserves established to ensure the payment of accrued Interest
Expenses or Indebtedness shall be deemed to be a reasonable exercise of Working
Capital Agent’s credit judgment (including without limitation the deferral of
any fees due to the Working Capital Agent).
 
“Restricted Payment” shall mean (a) any cash dividend or other cash
distribution, direct or indirect, on account of any shares of any class of
Capital Stock of Parent or any of its Subsidiaries, as the case may be, now or
hereafter outstanding, (b) any redemption, retirement, sinking fund or similar
payment on account of, or purchase or other acquisition for value, direct or
indirect, of any shares of any class of Capital Stock of Parent or any of its
Subsidiaries, except for any redemption, retirement, sinking funds or similar
payment payable solely in such shares of that class of stock or in any class of
stock junior to that class, (c) any cash payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire any shares of any class of Capital Stock of
Parent or any of its Subsidiaries now or hereafter outstanding, (d) any payment
or other transfer of funds or other property made in satisfaction of any
Indebtedness arising under any Subordinated Debt Documents, (e) any payment or
other transfer of funds or other property made in satisfaction of any liability
or obligation owing to any Person arising under any Subordinated Debt Documents,
including any fees, expenses, premiums, indemnification obligations or otherwise
arising under any Specified Subordinated Indebtedness Documents, or (f) any
payment (including, without limitation, any payment of management, consulting,
monitoring or advisory fees) to any Affiliate of any Borrower except to the
extent expressly permitted in this Agreement.
 
 
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“Revolving Commitment” shall mean, at any time, as to each Revolving Lender, the
commitment of such Revolving Lender hereunder set forth as its “Revolving
Commitment” opposite such Revolving Lender’s name on Schedule 1.1 hereto or on
Schedule 1 to the Assignment and Acceptance Agreement pursuant to which such
Lender became a Lender hereunder in accordance with the provisions of Section
13.8 hereof, as the same may be adjusted from time to time in accordance with
the terms hereof; sometimes being collectively referred to herein as “Revolving
Commitments”.
 
“Revolving Credit Borrowing Base” shall mean, at any time, the amount equal to:
 
(a)            the sum of:
 
(i)           the amount equal to ninety (90%) percent of the face amount of
Eligible Credit Card Receivables, plus
 
(ii)          the amount equal to ninety (90%) percent of the Net Recovery
Percentage multiplied by the Value of Eligible Inventory, plus
 
(iii)         the amount equal to ninety (90%) percent of the Net Recovery
Percentage multiplied by the Value of Eligible In-Transit Inventory, plus
 
(iv)         the amount equal to ninety (90%) percent of the Net Recovery
Percentage multiplied by the Value of Eligible LC Inventory, plus
 
(v)          the amount equal to sixty (60%) percent of Real Property
Availability, provided that, the aggregate amount of the Revolving Credit
Borrowing Base and Term Borrowing Base attributable to amounts included in this
clause (v) in respect of Real Property Availability shall not exceed $9,000,000,
minus
 
(b)            Term Loan Reserve, minus
 
(c)            Term Loan B-1 Reserve (but without duplication of any Term Loan
Reserve deducted in calculating the Revolving Credit Borrowing Base), minus
 
(d)           without duplication of clauses (b) and (c) above, Reserves
established by Working Capital Agent from time to time in accordance with this
Agreement.
 
“Revolving Lender” means each Lender that (a) has a Revolving Commitment, (b)
holds a Revolving Loan, or (c) participates in any Letter of Credit.
 
“Revolving Loans” shall mean the loans now or hereafter made by or on behalf of
any Revolving Lender or by Working Capital Agent for the account of any
Revolving Lender on a revolving basis pursuant to the Credit Facility (involving
advances, repayments and readvances) as set forth in Section 2.1(a) hereof.
 
 
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“Secured Parties” shall mean, collectively, (i) Working Capital Agent, (ii) Term
Loan Agent, (iii) Lenders, (iv) the Issuing Bank and (v) any Bank Product
Provider (including, in the avoidance of doubt, any Secured Swap Provider);
provided, that, (i) as to any Bank Product Provider, only to the extent of the
Obligations owing to such Bank Product Provider and (ii) such parties are
sometimes referred to herein individually as a “Secured Party”.
 
“Secured Rate Contract” shall mean any Rate Contract between a Borrower and a
Secured Swap Provider.
 
“Secured Swap Provider” shall mean a Person with whom a Borrower has entered
into a Secured Rate Contract provided or arranged by GE Capital or an Affiliate
of GE Capital, and any assignee thereof.
 
“Security Documents” shall mean, collectively, the following agreements (as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced): this Agreement, each Pledge Agreement, each
Mortgage, each Collateral Access Agreement, each Credit Card Acknowledgment,
each Deposit Account Control Agreement, each Investment Property Control
Agreement, the Reaffirmation Agreement, each trademark security agreement, each
copyright security agreement, each patent security agreement, each landlord
waiver and consent, each customs broker agreement and any other Financing
Agreements as Working Capital Agent may from time to time designate as a
“Security Document” in a writing delivered by Working Capital Agent to
Administrative Borrower.
 
“Settlement Period” shall have the meaning set forth in Section 6.11(b).
 
“Solvent” shall mean, with respect to any Person on a particular date, that on
such date (a) the fair value of the property of such Person is greater than the
total amount of liabilities, including contingent liabilities, of such Person;
(b) the present fair salable value of the assets of such Person is not less than
the amount that will be required to pay the probable liability of such Person on
its debts as they become absolute and matured; (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person’s ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person’s property would constitute
an unreasonably small capital.  The amount of contingent liabilities (such as
litigation, guaranties and pension plan liabilities) at any time shall be
computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
 
“Specified Amount” shall mean, as of the date of determination, twenty five
percent (25%) of the Revolving Credit Borrowing Base then most recently
delivered to Working Capital Agent pursuant to the terms hereof.
 
“Specified Common Stock” shall mean the shares of common stock of Parent
issuable upon exercise of the Specified Warrants.
 
“Specified Subordinated Indebtedness” shall mean (a) the floating rate secured
promissory notes issued by Parent in the aggregate principal amount of not more
than (i) $21,555,754 as of the date hereof (it being agreed that any such amount
other than with respect to the Holdover Notes shall be retired on the Exchange
Closing Date) and (ii) $5,141,363 of Holdover Notes following the Exchange
Closing Date and the occurrence of the Cash Note Payment and the issuance of the
Exchange Notes, in each case issued pursuant to the Existing Indenture, and (b)
the Exchange Notes, in an aggregate principal amount of not more than (i)
$8,204,000 issued on the Exchange Closing Date plus (ii) any additional amounts
that may be issued under any indenture in exchange for the Holdover Notes, if
any, or in connection with Holdover Note Payments, in each case issued on terms
reasonably acceptable to Working Capital Agent and subject to documentation
reasonably acceptable to Working Capital Agent.
 
 
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“Specified Subordinated Indebtedness Documents” shall mean, collectively, (i)
the Existing Indenture, the Indenture, (ii) each of the “Notes” issued pursuant
to and as defined under the Existing Indenture and the Indenture, (iii) each of
the “Collateral Documents” entered into pursuant to and under the Existing
Indenture and the Indenture, and (iv) each of the Indenture Documents as defined
in the Existing Indenture as in effect on the date hereof and under the
Indenture as in effect on the issue date of the Exchange Notes.
 
“Specified Warrants” shall mean the warrants to be issued by Parent to purchase
an aggregate of 9,500,000 shares of common stock of Parent in connection with
the issuance of the Specified Subordinated Indebtedness.
 
“Standby Letters of Credit” shall mean all Letters of Credit other than
Commercial Letters of Credit.
 
“Store Accounts” shall mean each of the deposit accounts of a Borrower that are
used solely for receiving store receipts from a retail store location of a
Borrower.
 
“Subordinated Debt Documents” shall mean, collectively, any and all agreements,
documents and instruments evidencing or otherwise related to Indebtedness
permitted under Section 9.9(g) hereof, including, without limitation the
Specified Subordinated Indebtedness Documents.
 
“Subordination Provisions” shall mean Article XI of the Existing Indenture or
the Indenture, as applicable.
 
“Subsidiary” or “subsidiary” shall mean, with respect to any Person, any
corporation, limited liability company, limited liability partnership or other
limited or general partnership, trust, association or other business entity of
which an aggregate of at least a majority of the outstanding Capital Stock or
other interests entitled to vote in the election of the board of directors of
such corporation (irrespective of whether, at the time, Capital 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), managers, trustees or other
controlling persons, or an equivalent controlling interest therein, of such
Person is, at the time, directly or indirectly, owned by such Person and/or one
or more subsidiaries of such Person.
 
“Supplemental Agreement” means that certain Supplemental Agreement, dated as of
the Closing Date, among the Working Capital Agent, Deutsche Bank National Trust
Company, Parent, Sopris Capital Partners, LP, Berg & Berg Enterprises, LLC and
Trellus Management Company, LLC.
 
 
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“Taxes” shall have the meaning set forth in Section 6.5(a).
 
“Term Borrowing Base” means, at any time of calculation, an amount equal to the
lesser of:
 
(a)            the sum of:
 
(i)           the amount equal to five percent (5%) of the face amount of
Eligible Credit Card Receivables, plus
 
(ii)          the amount equal to fifteen percent (15%) of the Net Recovery
Percentage multiplied by the Value of Eligible Inventory, plus
 
(iii)         the amount equal to fifteen percent (15%) percent of the Net
Recovery Percentage multiplied by the Value of Eligible In-Transit Inventory,
plus
 
(iv)        the amount equal to fifteen percent (15%) of the Net Recovery
Percentage multiplied by the Value of Eligible LC Inventory, plus
 
(v)         the amount equal to twenty four percent (24%) of Real Property
Availability, provided that, the aggregate amount of the Term Borrowing Base and
Revolving Credit Borrowing Base attributable to amounts included in this clause
(v) in respect of Real Property Availability shall not exceed $9,000,000; or
 
(b)            $15,000,000.
 
“Term B Facility” has the meaning assign to it in the recitals to this
Agreement.
 
“Term B-1 Commitment” has the meaning specified in Section 2.1(b).
 
“Term B-2 Commitment” has the meaning specified in Section 2.1(b).
 
“Term B-1 Lenders” means each of the financial institutions from time to time
party to this Agreement holding a Term B-1 Loan and individually each a “Term
B-1 Lender.”
 
“Term B-2 Lenders” means each of the financial institutions from time to time
party to this Agreement holding a Term B-2 Loan and individually each a “Term
B-2 Lender.”
 
“Term B-1 Loans” shall mean the term loans made to the Borrowers pursuant to
Section 2.1(b)(i) of this Agreement.
 
“Term B-2 Loans” shall mean the term loans made to the Borrowers pursuant to
Section 2.1(b)(ii) of this Agreement.
 
“Term B-1 Note” means a promissory note of the Borrowers payable to the order of
a Term B-1 Lender in substantially the form of Exhibit J-1 hereto, evidencing
Indebtedness of the Borrowers under the Term B-1 Commitment of such Term B-1
Lender.
 
 
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“Term B-2 Note” means a promissory note of the Borrowers payable to the order of
a Term B-2 Lender in substantially the form of Exhibit J-2 hereto, evidencing
Indebtedness of the Borrowers under the Term B-2 Commitment of such Term B-2
Lender.
 
“Term Commitment” means, collectively, the Term B-1 Commitment and Term B-2
Commitment.
 
“Term Loan Agent” means GA Capital in its capacity as agent for the Term Loan
Lenders.
 
“Term Loan Reserve” means, as of any date of determination, if at any time the
Term Loans exceed the Term Borrowing Base, the greater of (a) $0 or (b) the
amount, if any, by which the aggregate outstanding principal amount of all Term
Loans exceeds the Term Borrowing Base.
 
“Term Loan B-1 Reserve” means, as of any date of determination, if at any time
the Term B-1 Loans exceed the sum of clauses (i) through (iv) below, the greater
of (a) $0 or (b) the amount, if any, by which the aggregate outstanding
principal amount of all Term B-1 Loans exceeds the sum of (i) the amount equal
to five (5%) percent of the face amount of Eligible Credit Card Receivables,
plus (ii) the amount equal to five (5%) percent of the Net Recovery Percentage
multiplied by the Value of Eligible Inventory, plus (iii) the amount equal to
five (5%) of the Net Recovery Percentage multiplied by the Value of Eligible
In-Transit Inventory, plus (iv) the amount equal to five (5%) of the Net
Recovery Percentage multiplied by the Value of Eligible LC Inventory.
 
“Term Loan Lenders” means, collectively, the Term B-1 Lenders and Term B-2
Lenders.
 
“Term Loans” has the meaning specified in Section 2.1(b).
 
“Total Term Outstandings” means, at any time, the aggregate outstanding amount
of all Term Loans at such time.
 
“Tupelo Real Property” shall mean the Real Property of Parent located at 3400
Convention Drive, Tupelo, Mississippi.
 
“UCC” shall mean the Uniform Commercial Code as in effect in the State of New
York and any successor statute, as in effect from time to time (except that
terms used herein which are defined in the Uniform Commercial Code as in effect
in the State of New York on the date hereof shall continue to have the same
meaning notwithstanding any replacement or amendment of such statute except as
Working Capital Agent may otherwise determine).
 
“United States” and “U.S.” shall mean the United States of America.
 
“Value” shall mean, as determined by Working Capital Agent in good faith, with
respect to Inventory, the lower of (a) cost computed on a weighted average cost
basis in accordance with GAAP or (b) market value, provided, that, for purposes
of the calculation of the Revolving Credit Borrowing Base and Term Borrowing
Base, (i) the Value of the Inventory shall not include:  (A) the portion of the
value of Inventory equal to the profit earned by any Borrower or Guarantor on
the sale thereof to any other Borrower, or (B) that portion of the value of
Inventory constituting capitalized costs incurred in the acquisition, storage or
distribution of any Inventory or (C) write-ups or write-downs in value with
respect to currency exchange rates and (ii) notwithstanding anything to the
contrary contained herein, the cost of the Inventory shall be computed in the
same manner and consistent with the most recent appraisal of the Inventory
received and accepted by Working Capital Agent prior to the date hereof, if any.
 
 
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“Voting Stock” shall mean with respect to any Person, (a) one (1) or more
classes of Capital Stock of such Person having general voting powers to elect at
least a majority of the board of directors, managers or trustees of such Person,
irrespective of whether at the time Capital Stock of any other class or classes
have or might have voting power by reason of the happening of any contingency,
and (b) any Capital Stock of such Person convertible or exchangeable without
restriction at the option of the holder thereof into Capital Stock of such
Person described in clause (a) of this definition.
 
“Working Capital Agent” means GE Capital in its capacity as administrative and
collateral agent for the Secured Parties hereunder, and any successor
administrative and collateral agent.
 
“Working Capital Facility” shall mean the Revolving Loans and Letters of Credit
provided to or for the benefit of any Borrower pursuant to Sections 2.1(a) and
2.2 hereof.
 
SECTION 2           CREDIT FACILITIES
 
2.1            Loans.
 
(a)           Revolving Loans.
 
(i)             (1)           On the Amendment Effective Date, all outstanding
“Revolving Loans” under the Existing Loan Agreement shall be continued as
Revolving Loans hereunder. Subject to and upon the terms and conditions
contained herein, each Revolving Lender severally (and not jointly) agrees to
make its Pro Rata Share of Revolving Loans to Borrowers from time to time until
the Commitment Termination Date in amounts requested by Administrative Borrower
on behalf of the applicable Borrower up to the aggregate amount outstanding for
all Revolving Lenders at any time and after giving effect to the requested
Revolving Loan such that the aggregate principal amount of the Revolving Loans
and the Letter of Credit Obligations outstanding at such time shall not exceed
the required amount of Adjusted Excess Availability.  The Pro Rata Share of the
Revolving Loan of any Revolving Lender shall not at any time exceed its separate
Revolving Commitment.  Until the Commitment Termination Date, Borrowers may
borrow, repay and reborrow under this Section 2.1(a)(i)(1).
 
(2)           Each Revolving Loan shall be made on notice by Administrative
Borrower on behalf of the applicable Borrower to one of the representatives of
Working Capital Agent identified on Schedule 2.1 at the address specified
therein.  Any such notice must be given no later than (x) 1 p.m. (Eastern time)
on the Business Day of the proposed Revolving Loan, in the case of a Prime Rate
Loan, or (y) 1 p.m. (Eastern time) on the date which is three (3) Business Days
prior to the proposed Revolving Loan, in the case of a Eurodollar Rate
Loan.  Each such notice (each a “Notice of Borrowing”) must be given in writing
(by telecopy or overnight courier) substantially in the form of Exhibit F, and
shall include the information required in such Exhibit and such other
information as may be required by Working Capital Agent.
 
 
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(ii)            Except in Agents’ discretion, with the consent of all Revolving
Lenders, or as otherwise provided herein, the aggregate principal amount of the
Revolving Loans and the Letter of Credit Obligations outstanding at any time
shall not exceed Adjusted Excess Availability.
 
(iii)           In the event that the aggregate principal amount of the
Revolving Loans and the Letter of Credit Obligations outstanding at any time
exceed Adjusted Excess Availability (an “Overadvance”), such event shall not
limit, waive or otherwise affect any rights of Agents or Lenders in such
circumstances or on any future occasions and Borrowers shall, upon demand by
Agents, which may be made at any time or from time to time, immediately repay to
Working Capital Agent the entire amount of any such excess(es) for which payment
is demanded.
 
(b)           Term Loan.  Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of the Borrowers and
Guarantors contained herein:  (i) each Term B-1 Lender severally and not jointly
agrees to lend, on the Amendment Effective Date, to the Borrowers the amount set
forth opposite such Term B-1 Lender’s name in Schedule 1.1 under the heading
“Term B-1 Loans Commitments” (such amount being referred to herein as such Term
B-1 Lender’s “Term B-1 Commitment”); and (ii) each Term B-2 Lender severally and
not jointly agrees to lend, on the Amendment Effective Date, to the Borrowers
the amount set forth opposite such Term B-2 Lender’s name in Schedule 1.1 under
the heading “Term B-2 Loans Commitments” (such amount being referred to herein
as such Term B-2 Lender’s “Term B-2 Commitment”).  The Term Commitments shall
expire upon the funding of the Term Loan by the Lenders.  Amounts borrowed under
this Section 2.1(b) are referred to as the “Term Loans.”  Once repaid, whether
such payment is voluntary, scheduled or mandatory, no portion of the Term Loans
may be reborrowed.
 
(c)           Payments Generally.
 
(i)            Subject to clause (ii) below, the aggregate outstanding principal
balance of each of the Term Loans shall remain outstanding and shall be due and
payable in full in immediately available funds on the earlier of (x) the
Commitment Termination Date and (y) the Maturity Date, if not sooner paid in
full.  The Borrowers shall repay to the Revolving Lenders in full on the earlier
of (x) the Commitment Termination Date and (y) the Maturity Date, all
obligations with respect to the Revolving Loans.
 
(ii)           Except as set forth in Section 6.4(a)(ii), the Borrowers shall
not make any principal payments on account of the Term Loans until Borrowers’
Obligations to the Revolving Lenders shall have been paid in full in immediately
available funds and the Revolving Commitments as to all Revolving Lenders shall
have been terminated.
 
 
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(d)           Optional Prepayment.
 
(i)            The Borrowers may at any time or from time to time, and subject
to payment of London Interbank Offered Rate breakage costs in accordance with
Section 3.3(d), voluntarily prepay the Revolving Loans in whole or in part
without premium or penalty or any reduction in the Revolving Commitment except
as provided in Section 3.2.
 
(ii)           The Borrowers may, at any time upon at least two (2) Business
Days’ (or such shorter period as is acceptable to Working Capital Agent) prior
written notice by Administrative Borrower to Working Capital Agent, terminate
the Revolving Commitment in whole accompanied by a permanent prepayment in whole
of the Revolving Loans and a prepayment of the Term Loans in whole, in each
instance, without penalty or premium except as provided in Sections 3.2 and
3.3.  The notice of any prepayment under this clause (ii) shall not thereafter
be revocable by the Borrowers or Administrative Borrower and Working Capital
Agent will promptly notify each Lender thereof and of such Lender’s Pro Rata
Share of such prepayment.  The payment amount specified in such notice shall be
due and payable on the date specified therein.  Together with each prepayment
under this Section 2.1(d), the Borrowers shall pay any amounts required pursuant
to Sections 3.2 and 3.3.
 
2.2           Letters of Credit.
 
(a)           (i) Subject to and upon the terms and conditions contained herein
and in the Letter of Credit Documents, at the request of Administrative Borrower
on behalf of the applicable Borrower for such Borrower’s account, Working
Capital Agent and Revolving Lenders agree to incur, from time to time prior to
the Commitment Termination Date, Letter of Credit Obligations by causing Letters
of Credit to be issued by GE Capital or a Subsidiary thereof or a bank or other
legally authorized Person selected by or acceptable to Working Capital Agent in
its sole discretion (each an “Issuing Bank”).  Issuing Bank agrees to issue, for
the account of such Borrower, one or more Letters of Credit, for the ratable
risk of each Revolving Lender according to its Pro Rata Share, containing terms
and conditions acceptable to Working Capital Agent and Issuing Bank.  No such
Letter of Credit shall have an expiry date that is more than one year following
the date of issuance thereof, unless otherwise determined by Working Capital
Agent, in its sole discretion (including with respect to customary evergreen
provisions), and neither Working Capital Agent nor Revolving Lenders shall be
under any obligation to incur Letter of Credit Obligations in respect of, or
purchase risk participations in, any Letter of Credit having an expiry date that
is later than the Commitment Termination Date.
 
(b)           In addition to any charges, fees or expenses charged by any bank
or issuer in connection with the Letters of Credit, Borrowers shall pay to
Working Capital Agent, for the benefit of Revolving Lenders, monthly a letter of
credit fee (the “Letter of Credit Fee”) at a rate equal to the percentage (on a
per annum basis) set forth below on the daily outstanding balance of the
Commercial Letters of Credit and Standby Letters of Credit during the
immediately preceding month (or part thereof), payable in arrears as of the
first Business Day of each succeeding month and on the Commitment Termination
Date and calculated based on a three hundred and sixty (360) day year and actual
days elapsed, provided, that, such percentage shall be increased or decreased,
as the case may be, to the percentage (on a per annum basis) set forth below
based on the Quarterly Average Excess Availability for the immediately preceding
calendar quarter being at or within the amounts indicated for such percentage:
 
 
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Tier
Quarterly Average Excess
Availability
Commercial
Letter of
Credit Rate
Standby
Letter of
Credit Rate
1
Greater than $30,000,000
1.75%
2.00%
2
Less than or equal to $30,000,000 and greater than $15,000,000
2.00%
2.25%
3
Less than or equal to $15,000,000
2.25%
2.50%

provided, that, (i) the Commercial Letter of Credit Rate from the Amendment
Effective Date through March 31, 2013 shall be 2.00%, and (ii) the Standby
Letter of Credit Rate from the Amendment Effective Date through March 31, 2013
shall be 2.25%.  Adjustments in the rates applicable for Letter of Credit Fees
commencing April 1, 2013 shall be implemented effective as of each January 1,
April 1, July 1, October 1, commencing at least five (5) days after the date of
delivery to Working Capital Agent of the Applicable Margin
Certificate.  Concurrently with the delivery of the Applicable Margin
Certificate herein referenced, Administrative Borrower shall deliver to Working
Capital Agent a certificate, signed by its chief financial officer, setting
forth in reasonable detail the basis for the continuance of, or any change in,
the rates for the Letter of Credit Fees.  Failure to deliver such Applicable
Margin Certificate within five (5) days of the date such certificate is required
to be delivered pursuant to Section 7.1(a)(iii) shall, in addition to any other
remedy provided for in this Agreement, result in an increase in the rates in the
Letter of Credit Fees to the highest level set forth in the foregoing grid,
until the delivery of the Applicable Margin Certificate demonstrating that such
an increase is not required.  If an Event of Default has occurred and is
continuing at the time any reduction in the rates applicable for the Letter of
Credit Fees is to be implemented, that reduction shall be deferred until the
date on which such Event of Default is waived or cured.
 
(c)           Borrowers shall give Working Capital Agent at least three (3)
Business Days’ prior written notice requesting the incurrence of any Letter of
Credit Obligation.  The notice shall be accompanied by the form of the Letter of
Credit (which shall be acceptable to the Issuing Bank) and a completed
Application for Standby Letter of Credit or Application and Agreement for
Commercial Letter of Credit or Application for Commercial Letter of Credit (as
applicable) in the form of Exhibit E-1 or E-2 attached hereto.  Notwithstanding
anything contained herein to the contrary, Letter of Credit applications by
Borrowers and approvals by Working Capital Agent and the Issuing Bank may be
made and transmitted pursuant to electronic codes and security measures mutually
agreed upon and established by and among Borrowers, Working Capital Agent and
the Issuing Bank.  In addition to being subject to the satisfaction of the
applicable conditions precedent contained in Section 4 hereof and the other
terms and conditions contained herein, no Letter of Credit shall be available
unless each of the following conditions precedent have been satisfied in a
manner reasonably satisfactory to Working Capital Agent:  (i) Administrative
Borrower on behalf of the applicable Borrower shall have delivered to Issuing
Bank at such times and in such manner as Issuing Bank may require, an
application, in form and substance satisfactory to Issuing Bank and Working
Capital Agent, for the issuance of the Letter of Credit and such other Letter of
Credit Documents as may be required pursuant to the terms thereof, and the form
and terms of the proposed Letter of Credit shall be reasonably satisfactory to
Working Capital Agent and Issuing Bank, (ii) as of the date of issuance, no
order of any court, arbitrator or other Governmental Authority shall purport by
its terms to enjoin or restrain money center banks generally from issuing
letters of credit of the type and in the amount of the proposed Letter of
Credit, and no law, rule or regulation applicable to money center banks
generally and no request or directive (whether or not having the force of law)
from any Governmental Authority with jurisdiction over money center banks
generally shall prohibit, or request that Issuing Bank refrain from, the
issuance of letters of credit generally or the issuance of such Letter of
Credit, (iii) after giving effect to the issuance of such Letter of Credit, the
Letter of Credit Obligations shall not exceed the Letter of Credit Limit, and
(iv) Adjusted Excess Availability, prior to giving effect to any Reserves in the
calculation of Excess Availability with respect to such Letter of Credit, on the
date of the proposed issuance of any Letter of Credit shall be equal to or
greater than an amount equal to one hundred (100%) percent of the face amount of
such Commercial Letter of Credit or Standby Letter of Credit being requested and
all other commitments and obligations made or incurred by Working Capital Agent
with respect thereto.  Effective on the issuance of each Letter of Credit, a
Reserve shall be established in the amount equal to one hundred (100%) percent
of the face amount of such Commercial Letter of Credit or Standby Letter of
Credit being requested and all other commitments and obligations made or
incurred by Working Capital Agent with respect thereto.
 
 
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(d)           Each Borrower shall reimburse immediately Issuing Bank for any
draw under any Letter of Credit issued for the account of such Borrower and pay
Issuing Bank the amount of all other charges and fees payable to Issuing Bank in
connection with any Letter of Credit issued for the account of such Borrower
immediately when due, irrespective of any claim, setoff, defense or other right
which such Borrower may have at any time against Issuing Bank or any other
Person.  Each drawing under any Letter of Credit or other amount payable in
connection therewith when due shall constitute a request by the Borrower for
whose account such Letter of Credit was issued to Working Capital Agent for a
Prime Rate Loan in the amount of such drawing or other amount then due, and
shall be made by Working Capital Agent on behalf of Revolving Lenders as a
Revolving Loan (or Protective Advance, as the case may be).  The date of such
Loan shall be the date of the drawing or as to other amounts, the due date
therefor.  Any payments made by or on behalf of Working Capital Agent or any
Lender to Issuing Bank and/or related parties in connection with any Letter of
Credit shall constitute additional Revolving Loans to such Borrower pursuant to
this Section 2 (or Protective Advances as the case may be).
 
(e)           Borrowers and Guarantors shall indemnify and hold the Issuing
Bank, Working Capital Agent and Revolving Lenders harmless from and against any
and all losses, claims, damages, liabilities, costs and expenses which the
Issuing Bank, Working Capital Agent or any Lender may suffer or incur in
connection with any Letter of Credit and any documents, drafts or acceptances
relating thereto, including any losses, claims, damages, liabilities, costs,
charges and expenses (including reasonable attorneys’ fees) due to any action
taken by any issuer or correspondent with respect to any Letter of Credit,
except for such losses, claims, damages, liabilities, costs or expenses that are
a direct result of the gross negligence or willful misconduct of the Issuing
Bank, Working Capital Agent or such Revolving Lender as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.  Each Borrower
and Guarantor assumes all risks with respect to the acts or omissions of the
drawer under or beneficiary of any Letter of Credit and for such purposes the
drawer or beneficiary shall be deemed such Borrower’s agent.  Each Borrower and
Guarantor assumes all risks for, and agrees to pay, all foreign, Federal, State
and local taxes, duties and levies relating to any goods subject to any Letter
of Credit or any documents, drafts or acceptances thereunder.  Each Borrower and
Guarantor hereby releases and holds the Issuing Bank, Working Capital Agent and
Revolving Lenders harmless from and against any acts, waivers, errors, delays or
omissions, whether caused by any Borrower, Guarantor, by any issuer or
correspondent or otherwise with respect to or relating to any Letter of Credit,
except for the gross negligence or willful misconduct of the Issuing Bank,
Working Capital Agent or such Revolving Lender as determined pursuant to a
final, non-appealable order of a court of competent jurisdiction.  The
provisions of this Section 2.2(e) shall survive the payment of Obligations and
the termination of this Agreement.  Nothing contained herein shall be deemed to
limit or to expand any waivers, covenants or indemnities made by Borrowers in
favor of any Issuing Bank in any letter of credit application, reimbursement
agreement or similar document, instrument or agreement between or among
Borrowers and such Issuing Bank, including an Application and Agreement For
Commercial Letter of Credit, a Master Commercial Agreement and a Master Standby
Agreement entered into with Working Capital Agent.
 
 
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(f)           In connection with Inventory purchased pursuant to any Letter of
Credit, Borrowers and Guarantors shall, at Working Capital Agent’s request,
instruct all suppliers, carriers, forwarders, customs brokers, warehouses or
others receiving or holding cash, checks, Inventory, documents or instruments in
which Working Capital Agent holds a security interest that, upon Working Capital
Agent’s request, such items shall be delivered to Working Capital Agent and/or
subject to Working Capital Agent’s order, and if they shall come into such
Borrower’s or Guarantor’s possession, to deliver them, upon Working Capital
Agent’s request, to Working Capital Agent in their original form; provided,
that, so long as no Default or Event of Default shall then be continuing,
Working Capital Agent shall not exercise the rights under this clause (f) to
have such Persons deliver any cash, checks, Inventory, documents or instruments
so long as the same are held by a Customs Broker that has entered into a customs
broker agreement in form and substance reasonably satisfactory to the Working
Capital Agent).  Borrowers and Guarantors shall also, at Working Capital Agent’s
request, designate Working Capital Agent as the consignee on all bills of lading
and other negotiable and non-negotiable documents.
 
(g)           Each Borrower and Guarantor hereby irrevocably authorizes and
directs Issuing Bank to name such Borrower or Guarantor as the account party
therein and to deliver to Working Capital Agent all instruments, documents and
other writings and property received by Issuing Bank pursuant to any Letter of
Credit and to accept and rely upon Working Capital Agent’s instructions and
agreements with respect to all matters arising in connection with any Letter of
Credit or the Letter of Credit Documents with respect thereto.  Nothing
contained herein shall be deemed or construed to grant any Borrower or Guarantor
any right or authority to pledge the credit of Working Capital Agent or any
Lender in any manner.  Borrowers and Guarantors shall be bound by any reasonable
interpretation made in good faith by Working Capital Agent, or Issuing Bank
under or in connection with any Letter of Credit or any documents, drafts or
acceptances thereunder, notwithstanding that such interpretation may be
inconsistent with any instructions of any Borrower or Guarantor.
 
 
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(h)           Immediately upon the issuance or amendment of any Letter of
Credit, each Revolving Lender shall be deemed to have irrevocably and
unconditionally purchased and received, without recourse or warranty, an
undivided interest and participation to the extent of such Revolving Lender’s
Pro Rata Share of the liability with respect to such Letter of Credit and the
obligations of Borrowers with respect thereto (including all Letter of Credit
Obligations with respect thereto).  Each Revolving Lender shall absolutely,
unconditionally and irrevocably assume, as primary obligor and not as surety,
and be obligated to pay to Issuing Bank therefor and discharge when due, its Pro
Rata Share of all of such obligations arising under such Letter of
Credit.  Without limiting the scope and nature of each Revolving Lender’s
participation in any Letter of Credit, to the extent that Issuing Bank has not
been reimbursed or otherwise paid as required hereunder or under any such Letter
of Credit, each such Revolving Lender shall pay to Issuing Bank its Pro Rata
Share of such unreimbursed drawing or other amounts then due to Issuing Bank in
connection therewith.  If it shall be illegal or unlawful for Borrowers to incur
Revolving Loans because of an Event of Default described in Sections 10.1(f),
10.1(g) or 10.1(h) or otherwise or if it shall be illegal or unlawful for any
Revolving Lender to be deemed to have assumed a ratable share of the
reimbursement obligations owed to an Issuing Bank, or if the Issuing Bank is a
Revolving Lender, then (A) immediately and without further action whatsoever,
each Revolving Lender shall be deemed to have irrevocably and unconditionally
purchased from Working Capital Agent (or such Issuing Bank, as the case may be)
an undivided interest and participation equal to such Revolving Lender’s Pro
Rata Share (based on the Maximum Credit) of the Letter of Credit Obligations in
respect of all Letters of Credit then outstanding and (B) thereafter,
immediately upon issuance of any Letter of Credit, each Revolving Lender shall
be deemed to have irrevocably and unconditionally purchased from Working Capital
Agent (or such Issuing Bank, as the case may be) an undivided interest and
participation in such Revolving Lender’s Pro Rata Share (based on the Maximum
Credit) of the Letter of Credit Obligations with respect to such Letter of
Credit on the date of such issuance.  Each Revolving Lender shall fund its
participation in all payments or disbursements made under the Letters of Credit
in the same manner as provided in this Agreement with respect to Revolving
Loans.
 
(i)           The obligations of Borrowers to pay each Letter of Credit
Obligations and the obligations of Revolving Lenders to make payments to Working
Capital Agent for the account of Issuing Bank with respect to Letters of Credit
shall be absolute, unconditional and irrevocable without necessity of
presentment, demand, protest or other formalities, and the obligations of each
Revolving Lender to make payments to the Issuing Bank with respect to Letters of
Credit shall be unconditional and irrevocable.  Such obligations of the
Borrowers and Revolving Lenders shall be paid strictly in accordance with the
terms hereof under all circumstances, including, without limitation:  (i) any
lack of validity or enforceability of any Letter of Credit or this Agreement or
any other Financing Agreement, (ii) the existence of any claim, setoff, defense
or other right that any Borrower or any of their respective Affiliates or any
Revolving Lender may at any time have against a beneficiary or any transferee of
any Letter of Credit (or any Persons or entities for whom any such transferee
may be acting), Issuing Bank, Working Capital Agent, any Revolving Lender, or
any other Person, whether in connection with this Agreement, the Letter of
Credit, the transactions contemplated herein or therein or any unrelated
transaction (including any underlying transaction between any Borrower or any of
their respective Affiliates and the beneficiary for which the Letter of Credit
was procured), (iii) any draft, demand, certificate or any other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or statement therein being untrue or inaccurate
in any respect, (iv) payment by any Issuing Bank under any Letter of Credit or
guaranty thereof against presentation of a demand, draft or certificate or other
document that does not comply with the terms of such Letter of Credit or
guaranty, (v) the failure to satisfy any other condition set forth in Section 4
(including whether a Default or Event of Default has occurred and is continuing)
or (vi) any other event or circumstance that is similar to the
foregoing.  Furthermore, as between Working Capital Agent, Issuing Bank, any
Revolving Lender and the Borrowers, Borrowers assume all risk of the acts and
omissions of, or misuse of any Letter of Credit by beneficiaries, of any Letter
of Credit.  If such amount is not made available by a Revolving Lender when due,
Working Capital Agent shall be entitled to recover such amount on demand from
such Lender with interest thereon, for each day from the date such amount was
due until the date such amount is paid to Working Capital Agent at the interest
rate then payable by any Borrower in respect of Loans that are Prime Rate
Loans.  Any such reimbursement shall not relieve or otherwise impair the
obligation of Borrowers to reimburse Issuing Bank under any Letter of Credit or
make any other payment in connection therewith.
 
 
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(j)            (i)            If a Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to this Agreement,
including Section 10.2 of this Agreement, prior to the Commitment Termination
Date, such Borrower will pay to Working Capital Agent for the ratable benefit of
itself and Revolving Lenders cash or Cash Equivalents in an amount equal to one
hundred five (105%) percent of the amount of the Letter of Credit Obligations
plus the amount of any fees and expenses payable in connection therewith through
the end of the latest expiration date of such Letter of Credit
Obligations.  Such funds or Cash Equivalents shall be held by Working Capital
Agent in a cash collateral account (the “Cash Collateral Account”) maintained at
a bank or financial institution acceptable to Working Capital Agent.  The Cash
Collateral Account shall be in the name of the applicable Borrower and shall be
pledged to, and subject to the control of, Working Capital Agent, for the
benefit of Working Capital Agent and Revolving Lenders, in a manner reasonably
satisfactory to Working Capital Agent.  Each Borrower hereby pledges and grants
to Working Capital Agent, on behalf of itself and Lenders, a security interest
in all such funds and Cash Equivalents held in the Cash Collateral Account from
time to time and all proceeds thereof, as security for the payment of all
amounts due in respect of the Letter of Credit Obligations and other
Obligations, whether or not then due.  This Agreement shall constitute a
security agreement under applicable law.
 
(ii)           If any Letter of Credit Obligations, whether or not then due and
payable, shall for any reason be outstanding on the Commitment Termination Date,
Borrowers shall either (A) provide cash collateral therefor in the manner
described above, or (B) cause all such Letters of Credit and guaranties thereof,
if any, to be canceled and returned, or (C) deliver a stand-by letter (or
letters) of credit in guaranty of such Letter of Credit Obligations, which
stand-by letter (or letters) of credit shall be of like tenor and duration (plus
thirty (30) additional days) as, and in an amount equal to one hundred five
(105%) percent of the amount of the Letter of Credit Obligations plus the amount
of any fees and expenses payable in connection therewith through the end of the
latest expiration date of such Letter of Credit Obligations, and shall be issued
by a Person, and shall be subject to such terms and conditions, as are be
satisfactory to Working Capital Agent in its sole discretion.
 
 
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(iii)           From time to time after funds are deposited in the Cash
Collateral Account by any Borrower, whether before or after the Commitment
Termination Date, Working Capital Agent may apply such funds or Cash Equivalents
then held in the Cash Collateral Account to the payment of any amounts, and in
such order as Working Capital Agent may elect, as shall be or shall become due
and payable by such Borrower to Working Capital Agent and Lenders with respect
to such Letter of Credit Obligations of such Borrower and, upon the satisfaction
in full of all Letter of Credit Obligations of such Borrower, to any other
Obligations of any Borrower then due and payable.
 
(iv)           No Borrower nor any Person claiming on behalf of or through any
Borrower shall have any right to withdraw any of the funds or Cash Equivalents
held in the Cash Collateral Account.  Upon the termination of any Letter of
Credit and the payment of all amounts payable by Borrowers to Working Capital
Agent and Revolving Lenders in respect thereof, the Working Capital Agent shall
promptly pay to the Borrowers unless otherwise required by law such amounts in
excess of 105% of the then extant Letter of Credit Obligations.  Interest earned
on deposits in the Cash Collateral Account shall be for the account of the
Borrowers and held as additional collateral.  Upon payment in full in cash of
all Obligations and the termination of all Commitments to lend hereunder, the
Working Capital Agent shall return to the Borrowers any accrued interest not
otherwise applied to the payment of the Obligations, unless otherwise required
by law.
 
(k)           Unless otherwise specified herein, the amount of a Letter of
Credit at any time shall be deemed to be the stated amount of such Letter of
Credit in effect at such time; provided, however, that with respect to any
Letter of Credit that, by its terms or the terms of any Letter of Credit
Document, provides for one or more automatic increases in the stated amount
thereof, the amount of such Letter of Credit shall be deemed to be the maximum
stated amount of such Letter of Credit after giving effect to all such
increases, whether or not such maximum stated amount is in effect at such time.
 
SECTION 3           INTEREST AND FEES
 
3.1            Interest.
 
(a)           Borrowers shall pay to Working Capital Agent, for the benefit of
Lenders, interest on the outstanding principal amount of the Loans at the
Interest Rate as provided in clause (d) of this Section 3.1; provided, however,
all interest accruing hereunder on and after the date of any Event of Default or
the Commitment Termination Date shall be payable on demand.
 
(b)           Administrative Borrower on behalf of the applicable Borrower may
from time to time (i) request that Prime Rate Loans be converted to Eurodollar
Rate Loans, (ii) request to convert any Eurodollar Rate Loan to a Prime Rate
Loan upon payment of an administrative fee of $250 and subject to payment of
Eurodollar breakage costs in accordance with Section 3.3(c) if such conversion
is made prior to the expiration of the Interest Period applicable thereto, or
(iii) request that all or any portion of any Eurodollar Rate Loan be continued
as a Eurodollar Rate Loan upon the expiration of the applicable Interest Period
and the succeeding Interest Period of that continued Loan shall commence on the
first day after the last day of the Interest Period of the Loan to be
continued.  Any Loan or group of Loans having the same proposed Interest Period
to be made or continued as, or converted into, a Eurodollar Rate Loan must be in
a minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of
such amount.  Such request must be made by 1 p.m. (Eastern time) on the third
Business Day prior to (i) the date of any proposed Loan which is to bear
interest at the Eurodollar Rate, (ii) the end of each Interest Period with
respect to any Eurodollar Rate Loans to be continued as such, or (iii) the date
on which Administrative Borrower wishes to convert any Prime Rate Loan to a
Eurodollar Rate Loan for an Interest Period designated by Administrative
Borrower in such election.  Any request by Administrative Borrower on behalf of
a Borrower for Eurodollar Rate Loans or to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable.  Notwithstanding anything to the contrary contained herein, Agents
and Lenders shall not be required to purchase United States Dollar deposits in
the London interbank market or other applicable Eurodollar Rate market to fund
any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as
if Agents and Lenders had purchased such deposits to fund the Eurodollar Rate
Loans.  Administrative Borrower on behalf of the applicable Borrower must make
such election by notice to Working Capital Agent in writing, by telecopy or
overnight courier.  In the case of any conversion or continuation, such election
must be made pursuant to a written notice (a “Notice of
Conversion/Continuation”) substantially in the form of Exhibit G.
 
 
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(c)           Any Eurodollar Rate Loans shall automatically convert to Prime
Rate Loans upon the last day of the applicable Interest Period, unless Working
Capital Agent has received and approved a request to continue such Eurodollar
Rate Loan at least three (3) Business Days prior to such last day in accordance
with the terms hereof.  Any Eurodollar Rate Loans shall, at Working Capital
Agent’s option, upon notice by Working Capital Agent to Parent, be subsequently
converted to Prime Rate Loans in the event that this Agreement shall terminate
or not be renewed.  Borrowers shall pay to Working Capital Agent, for the
benefit of Lenders, upon demand by Working Capital Agent (or Working Capital
Agent may, at its option, charge any loan account of any Borrower) any amounts
required to compensate any Lender or Participant for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as a result of
the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of
the foregoing.
 
(d)           Interest on each Loan shall be paid in arrears on each Interest
Payment Date and shall be calculated on the basis of a three hundred sixty (360)
day year and actual days elapsed.  Interest shall also be paid on the date of
any payment or prepayment of Term Loans in full and Revolving Loans on the
Commitment Termination Date.  The interest rate on non-contingent Obligations
(other than Eurodollar Rate Loans) shall increase or decrease by an amount equal
to each increase or decrease in the Prime Rate effective on the first day of the
month after any change in such Prime Rate is announced based on the Prime Rate
in effect on the last day of the month in which any such change occurs.  In no
event shall charges constituting interest payable by Borrowers to Agents and
Lenders exceed the maximum amount or the rate permitted under any applicable law
or regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
 
3.2           Fees.
 
(a)           Borrowers shall pay to Working Capital Agent, for the account of
Revolving Lenders a monthly unused line fee at a rate equal to the percentage
(on a per annum basis) of 0.375% calculated upon the amount by which the Maximum
Credit exceeds the average daily principal balance of the outstanding Revolving
Loans and Letters of Credit during the immediately preceding month (or part
thereof).  Such fee shall be payable on the first Business Day of each month in
arrears and on the Commitment Termination Date and shall be calculated based on
a three hundred sixty (360) day year and actual days elapsed.
 
 
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(b)           On or prior to the Maturity Date, if Borrowers voluntarily prepay
all or any portion of the Term Loan, Borrowers shall pay to Working Capital
Agent, for the benefit of Term Lenders as liquidated damages and compensation
for the costs of being prepared to make funds available hereunder, a fee (“Early
Prepayment Fee”) in an amount equal to the Applicable Percentage (as defined
below) multiplied by the principal amount of the Term Loan accelerated or
prepaid.  As used herein, the term “Applicable Percentage” shall mean (i) four
percent (4%) in the case of prepayment or acceleration on or prior to the first
anniversary of the Amendment Effective Date; (ii) three percent (3%) in the case
of prepayment or acceleration after the first anniversary of the Restatement
Effective Date but on or prior to the second anniversary thereof; (iii) two
percent (2%) in the case of prepayment or acceleration after the second
anniversary of the Restatement Effective Date but on or prior to the third
anniversary thereof and (iv) zero percent (0%) in the case of prepayment or
acceleration after the third anniversary thereof.  The Credit Parties agree that
the Applicable Percentage is a reasonable calculation of Lenders’ lost profits
in view of the difficulties and impracticality of determining actual damages
resulting from an early payment of the Term Loan.
 
(c)           Borrowers agree to pay to Working Capital Agent or Term Loan Agent
the other fees and amounts set forth in the Fee Letter in the amounts and at all
times specified therein.
 
3.3           Changes in Laws and Increased Costs of Loans.
 
(a)           If after the date hereof, either (i) any change in, or in the
interpretation of, any law or regulation is introduced, including, without
limitation, with respect to reserve requirements, applicable to any Lender or
any banking or financial institution from whom any Lender borrows funds or
obtains credit (a “Funding Bank”), or (ii) a Funding Bank or any Lender complies
with any future guideline or request from any central bank or other Governmental
Authority or (iii) a Funding Bank, any Lender or Issuing Bank determines that
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof has or would
have the effect described below, or a Funding Bank, any Lender or Issuing Bank
complies with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, and in the case of any event set forth in this clause (iii), such
adoption, change or compliance has or would have the direct or indirect effect
of reducing the rate of return on any Lender’s or Issuing Bank’s capital as a
consequence of its obligations hereunder to a level below that which such Lender
or Issuing Bank could have achieved but for such adoption, change or compliance
(taking into consideration the Funding Bank’s or Lender’s or Issuing Bank’s
policies with respect to capital adequacy) by an amount deemed by such Lender or
Issuing Bank to be material, and the result of any of the foregoing events
described in clauses (i), (ii) or (iii) is or results in an increase in the cost
to any Lender or Issuing Bank of funding or maintaining the Loans, the Letters
of Credit or its Commitment, then Borrowers and Guarantors shall from time to
time upon demand by Working Capital Agent pay to Working Capital Agent
additional amounts sufficient to indemnify such Lender, as the case may be,
against such increased cost on an after-tax basis (after taking into account
applicable deductions and credits in respect of the amount indemnified).  A
certificate as to the amount of such increased cost shall be submitted to
Administrative Borrower by Working Capital Agent or the applicable Lender and
shall be conclusive, absent manifest error.
 
 
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(b)           If prior to the first day of any Interest Period, (i) Working
Capital Agent shall have determined in good faith (which determination shall be
conclusive and binding upon Borrowers and Guarantors) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Adjusted Eurodollar Rate for such Interest
Period, (ii) Working Capital Agent has received notice from the Required Lenders
that the Adjusted Eurodollar Rate determined or to be determined for such
Interest Period will not adequately and fairly reflect the cost to Lenders of
making or maintaining Eurodollar Rate Loans during such Interest Period, or
(iii) Dollar deposits in the principal amounts of the Eurodollar Rate Loans to
which such Interest Period is to be applicable are not generally available in
the London interbank market, Working Capital Agent shall give telecopy or
telephonic notice thereof to Administrative Borrower as soon as practicable
thereafter, and will also give prompt written notice to Administrative Borrower
when such conditions no longer exist.  If such notice is given (A) any
Eurodollar Rate Loans requested to be made on the first day of such Interest
Period shall be made as Prime Rate Loans, (B) any Loans that were to have been
converted on the first day of such Interest Period to or continued as Eurodollar
Rate Loans shall be converted to or continued as Prime Rate Loans and (C) each
outstanding Eurodollar Rate Loan shall be converted, on the last day of the
then-current Interest Period thereof, to Prime Rate Loans.  Until such notice
has been withdrawn by Working Capital Agent, no further Eurodollar Rate Loans
shall be made or continued as such, nor shall Administrative Borrower on behalf
of any Borrower have the right to convert Prime Rate Loans to Eurodollar Rate
Loans.
 
(c)           Notwithstanding any other provision herein, if the adoption of or
any change in any law, treaty, rule or regulation or final, non-appealable
determination of an arbitrator or a court or other Governmental Authority or in
the interpretation or application thereof occurring after the date hereof shall
make it unlawful for Working Capital Agent or any Lender to make or maintain
Eurodollar Rate Loans as contemplated by this Agreement, (i) Working Capital
Agent or such Lender shall promptly give written notice of such circumstances to
Administrative Borrower (which notice shall be withdrawn whenever such
circumstances no longer exist), (ii) the commitment of such Lender hereunder to
make Eurodollar Rate Loans, continue Eurodollar Rate Loans as such and convert
Prime Rate Loans to Eurodollar Rate Loans shall forthwith be canceled and, until
such time as it shall no longer be unlawful for such Lender to make or maintain
Eurodollar Rate Loans, such Lender shall then have a commitment only to make a
Prime Rate Loan when a Eurodollar Rate Loan is requested and (iii) such Lender’s
Loans then outstanding as Eurodollar Rate Loans, if any, shall be converted
automatically to Prime Rate Loans on the respective last days of the then
current Interest Periods with respect to such Loans or within such earlier
period as required by law.  If any such conversion of a Eurodollar Rate Loan
occurs on a day which is not the last day of the then current Interest Period
with respect thereto, Borrowers and Guarantors shall pay to such Lender such
amounts, if any, as may be required pursuant to Section 3.3(d) below.
 
 
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(d)           Borrowers and Guarantors shall jointly and severally indemnify
Agents and each Lender and to hold Agents and each Lender harmless from any loss
or expense which Agents or such Lender may sustain or incur as a consequence of
(i) default by any Borrower in making a borrowing of, conversion into or
extension of Eurodollar Rate Loans after Administrative Borrower on behalf of
such Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (ii) default by any Borrower in making any
prepayment of a Eurodollar Rate Loan after Administrative Borrower on behalf of
such Borrower has given a notice thereof in accordance with the provisions of
this Agreement, and (iii) the making of a prepayment of Eurodollar Rate Loans on
a day which is not the last day of an Interest Period with respect
thereto.  With respect to Eurodollar Rate Loans, such indemnification may
include an amount equal to the excess, if any, of (A) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed, converted
or extended, for the period from the date of such prepayment or of such failure
to borrow, convert or extend to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or extend, the Interest Period
that would have commenced on the date of such failure) in each case at the
applicable rate of interest for such Eurodollar Rate Loans provided for herein
over (B) the amount of interest (as determined by such Agent or such Lender)
which would have accrued to such Agent or such Lender on such amount by placing
such amount on deposit for a comparable period with leading banks in the
interbank Eurodollar market.  This covenant shall survive the termination or
non-renewal of this Agreement and the payment of the Obligations.
 
SECTION 4          CONDITIONS PRECEDENT
 
4.1           Conditions to Effectiveness of Amended and Restated Loan and
Security Agreement.  The obligation of the Issuing Bank and each Lender to amend
and restate the Existing Loan Agreement as set forth herein is subject to
satisfaction of, or waiver of, the following conditions precedent:
 
(a)           this Agreement or counterparts hereof shall have been duly
executed by, and delivered to, Borrowers, Guarantors, Agents and Lenders; and
Agents shall have received such documents, instruments, agreements and legal
opinions as Agents shall reasonably request in connection with the transactions
contemplated by this Agreement and the other Financing Agreement, including all
those listed in the Closing Checklist attached hereto as Annex 1, each in form
and substance reasonably satisfactory to Agents;
 
(b)           [reserved];
 
(c)           all requisite corporate action and proceedings in connection with
this Agreement and the other Financing Agreements shall be satisfactory in form
and substance to Agents, and Agents shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Agents may have requested in connection therewith, such
documents to be certified by appropriate corporate officers or Governmental
Authority (and including a copy of the certificate of incorporation or formation
of each Borrower and Guarantor certified by the Secretary of State (or
equivalent Governmental Authority) which shall set forth the same complete name
of such Borrower or Guarantor as is set forth herein and such document as shall
set forth the organizational identification number of each Borrower or
Guarantor, if one is issued in its jurisdiction of incorporation or formation);
 
 
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(d)           a certificate signed by the chief executive officer, chief
financial officer, president or vice president of each Borrower, certifying that
since January 28, 2012 no event has occurred, that alone or together with other
events, could reasonably be expected to have a Material Adverse Effect;
 
(e)           Agents shall have received a certificate signed by the chief
executive officer or chief financial officer of Administrative Borrower, in form
and substance satisfactory to Agents, attaching all consents, waivers,
acknowledgments and other agreements from third persons which Agents may deem
necessary or desirable in order to permit, protect and perfect its security
interests in and liens upon the Collateral or to effectuate the provisions or
purposes of this Agreement and the other Financing Agreements, including,
without limitation, Collateral Access Agreements (other than from the lessors of
retail store locations) and Credit Card Acknowledgments;
 
(f)           Adjusted Excess Availability as determined by Working Capital
Agent, as of the Amendment Effective Date, shall be not less than $22,000,000,
after giving effect to (i) the release of the Cash Note Payment Reserve to make
the Cash Note Payment on the Exchange Closing Date (ii) the payment of all trade
payables and expenses and liabilities of Borrowers in the ordinary course of
business, and (iii) the making or continuance of the Loans on the Amendment
Effective Date;
 
(g)           Agents shall have received evidence, in form and substance
satisfactory to Agents, that Working Capital Agent has a valid perfected first
priority security interest in all of the Collateral;
 
(h)           Agents shall have received and reviewed lien search results for
each Borrower and Guarantor in such jurisdictions as Agents shall request, which
search results shall be in form and substance satisfactory to Agents;
 
(i)           Agents shall have received environmental audits of the Baldwyn
Real Property conducted by an independent environmental engineering firm
acceptable to Agents, and in form, scope and methodology reasonably satisfactory
to Agents, the results of which shall be satisfactory to Agents;
 
(j)           Agents shall have received a Borrowing Base Certificate setting
forth the Loans and Letters of Credit available to Borrowers as of the date
hereof and giving pro forma effect to the transactions contemplated hereunder as
completed in a manner reasonably satisfactory to Agents and duly authorized,
executed and delivered on behalf of Borrowers;
 
(k)           [reserved];
 
(l)           [reserved];
 
 
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(m)           no material pending or threatened, litigation, proceeding,
bankruptcy or insolvency, injunction, order or claims with respect to Borrowers
and Guarantors shall exist;
 
(n)           as of the date hereof and after giving effect to the transactions
contemplated hereby, no defaults or events of default on any material
Indebtedness or any other Material Contracts of Borrowers or Guarantors shall
exist or have occurred and be continuing;
 
(o)           Agents shall have received, in form and substance reasonably
satisfactory to Agents, such opinion letters of counsel to Borrowers and
Guarantors with respect to the Financing Agreements and such other matters as
Agents may request;
 
(p)           a certificate signed by the chief executive officer or chief
financial officer of Parent (i) certifying that holders have, pursuant to
binding and irrevocable agreements, agreed to tender for exchange Floating Rate
Series A Secured Notes Due 2013 (as defined in the Existing Indenture)
representing an aggregate principal amount of $16,411,195 for the Exchange Notes
plus a cash payment in the amount of 8,207,195 and (ii) certifying and attaching
true, correct and complete copies of each of the Exchange Agreements and Master
Warrant Agreement in form and substance satisfactory to the Agents;
 
(q)           [reserved]; and
 
(r)            Agents shall have received such other documents and instruments
reasonably as Agents or their counsel may require or request.
 
4.2           Conditions Precedent to All Loans and Letters of Credit after the
Amendment Effective Date.  The obligation of Lenders to make the Loans, or of
the Issuing Bank to issue any Letter of Credit, and any further Loans and
Letters of Credit, is subject to the further satisfaction of, or waiver of,
immediately prior to or concurrently with the making of each such Loan or the
issuance of such Letter of Credit of each of the following conditions precedent:
 
(a)           all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit and after giving effect thereto, except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall have been true and accurate
in all material respects on and as of such earlier date);
 
(b)           no law, regulation, order, judgment or decree of any Governmental
Authority shall exist, and no action, suit, investigation, litigation or
proceeding shall be pending or threatened in any court or before any arbitrator
or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or
otherwise affect (A) the making of the Loans or providing the Letters of Credit,
or (B) the consummation of the transactions contemplated pursuant to the terms
hereof or the other Financing Agreements or (ii) has or has a reasonable
likelihood of having a Material Adverse Effect; and
 
 
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(c)            no Default or Event of Default shall exist or have occurred and
be continuing on and as of the date of the making of such Loan or providing each
such Letter of Credit and after giving effect thereto; and
 
(d)           Borrowers shall be in compliance with the covenant set forth in
Section 9.19.
 
SECTION 5          GRANT AND PERFECTION OF SECURITY INTEREST
 
5.1           Grant of Security Interest.  To secure payment and performance of
all Obligations, each Borrower and Guarantor hereby grants to Working Capital
Agent, for itself and the benefit of the Secured Parties, a continuing security
interest in, a lien upon, and a right of set off against, and hereby assigns to
Working Capital Agent, for itself and the benefit of the Lenders, as security,
all of the following personal property, and interests in personal property, of
each Borrower and Guarantor, whether now owned or hereafter acquired or
existing, and wherever located (together with all other collateral security for
the Obligations at any time granted to or held or acquired by Agents or any
Lender, collectively, the “Collateral”), including:
 
(a)           all Accounts;
 
(b)           all general intangibles, including, without limitation,
Intellectual Property;
 
(c)           all goods, including without limitation, Inventory and Equipment;
 
(d)           all Real Property (other than leasehold estates) and fixtures;
 
(e)           all chattel paper, including without limitation, all tangible and
electronic chattel paper;
 
(f)           all instruments, including without limitation, all promissory
notes;
 
(g)           all documents;
 
(h)           all deposit accounts;
 
(i)            all letters of credit, banker’s acceptances and similar
instruments and including all letter of credit rights;
 
(j)            all supporting obligations and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Receivables and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral; (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party; (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, other Collateral, including returned, repossessed and reclaimed
goods; and (iv) deposits by and property of account debtors and other persons
securing the obligations of account debtors;
 
 
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(k)           all (i) investment property (including securities, whether
certificated or uncertificated, securities accounts, security entitlements,
commodity contracts or commodity accounts) and (ii) monies, credit balances,
deposits and other property of any Borrower or Guarantor now or hereafter held
or received by or in transit to Agents or any Lender or its Affiliates at any
other depository or other institution from or for the account of any Borrower or
Guarantor, whether for safekeeping, pledge, custody transmission, collection or
otherwise;
 
(l)            all commercial tort claims, including, without limitation, those
identified on Schedule 5.2(i);
 
(m)          to the extent not described above, all Receivables;
 
(n)           all Records; and
 
(o)           all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of or other involuntary conversion of any kind or nature of any or
all of the other Collateral.
 
5.2           Perfection of Security Interests.
 
(a)           Each Borrower and Guarantor irrevocably and unconditionally
authorizes Working Capital Agent (or its agent) to file at any time and from
time to time such financing statements with respect to the Collateral naming
Working Capital Agent or its designee as the secured party and such Borrower or
Guarantor as debtor, as Working Capital Agent may require, and including any
other information with respect to such Borrower or Guarantor or otherwise
required by part 5 of Article 9 of the Uniform Commercial Code of such
jurisdiction as Working Capital Agent may determine, together with any amendment
and continuations with respect thereto, which authorization shall apply to all
financing statements filed on, prior to or after the date hereof.  Each Borrower
and Guarantor hereby ratifies and approves all financing statements naming
Working Capital Agent or its designee as secured party and such Borrower or
Guarantor, as the case may be, as debtor with respect to the Collateral (and any
amendments with respect to such financing statements) filed by or on behalf of
Working Capital Agent prior to the date hereof and ratifies and confirms the
authorization of Working Capital Agent to file such financing statements (and
amendments, if any).  Each Borrower and Guarantor hereby authorizes Working
Capital Agent to adopt on behalf of such Borrower and Guarantor any symbol
required for authenticating any electronic filing.  In the event that the
description of the collateral in any financing statement naming Working Capital
Agent or its designee as the secured party and any Borrower or Guarantor as
debtor includes assets and properties of such Borrower or Guarantor that do not
at any time constitute Collateral, whether hereunder, under any of the other
Financing Agreements or otherwise, the filing of such financing statement shall
nonetheless be deemed authorized by such Borrower or Guarantor to the extent of
the Collateral included in such description and it shall not render the
financing statement ineffective as to any of the Collateral or otherwise affect
the financing statement as it applies to any of the Collateral.  In no event
shall any Borrower or Guarantor at any time file, or permit or cause to be
filed, any correction statement or termination statement with respect to any
financing statement (or amendment or continuation with respect thereto) naming
Working Capital Agent or its designee as secured party and such Borrower or
Guarantor as debtor.
 
 
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(b)           Each Borrower and Guarantor does not have any chattel paper
(whether tangible or electronic) or instruments as of the Closing Date, except
as set forth on Schedule 5.2(b).  In the event that any Borrower or Guarantor
shall be entitled to or shall receive any chattel paper or instrument after the
date hereof, Borrowers and Guarantors shall promptly notify Working Capital
Agent thereof in writing.  Promptly upon the receipt thereof by or on behalf of
any Borrower or Guarantor (including by any agent or representative), such
Borrower or Guarantor shall deliver, or cause to be delivered to Working Capital
Agent, all tangible chattel paper and instruments that such Borrower or
Guarantor has or may at any time acquire, accompanied by such instruments of
transfer or assignment duly executed in blank as Working Capital Agent may from
time to time specify, in each case except as Working Capital Agent may otherwise
agree.  At Working Capital Agent’s option, each Borrower and Guarantor shall, or
Working Capital Agent may at any time on behalf of any Borrower or Guarantor,
cause the original of any such instrument or chattel paper to be conspicuously
marked in a form and manner acceptable to Working Capital Agent with the
following legend referring to chattel paper or instruments as applicable:  “This
[chattel paper][instrument] is subject to the security interest of General
Electric Capital Corporation in its capacity as Working Capital Agent and any
sale, transfer, assignment or encumbrance of this [chattel paper][instrument]
violates the rights of such secured party.”
 
(c)           In the event that any Borrower or Guarantor shall at any time hold
or acquire an interest in any electronic chattel paper or any “transferable
record” (as such term is defined in Section 201 of the Federal Electronic
Signatures in Global and National Commerce Act or in Section 16 of the Uniform
Electronic Transactions Act as in effect in any relevant jurisdiction), such
Borrower or Guarantor shall promptly notify Working Capital Agent thereof in
writing.  Promptly upon Working Capital Agent’s request, such Borrower or
Guarantor shall take, or cause to be taken, such actions as Working Capital
Agent may request to give Working Capital Agent control of such electronic
chattel paper under Section 9-105 of the UCC and control of such transferable
record under Section 201 of the Federal Electronic Signatures in Global and
National Commerce Act or, as the case may be, Section 16 of the Uniform
Electronic Transactions Act, as in effect in such jurisdiction.
 
(d)           Each Borrower and Guarantor does not have any deposit accounts as
of the date hereof, except as set forth on Schedule 5.2(d).  Borrowers and
Guarantors shall not, directly or indirectly, after the date hereof open,
establish or maintain any deposit account unless each of the following
conditions is satisfied:  (i) Working Capital Agent shall have received not less
than five (5) Business Days prior written notice of the intention of any
Borrower or Guarantor to open or establish such account which notice shall
specify in reasonable detail and specificity acceptable to Working Capital Agent
the name of the account, the owner of the account, the name and address of the
bank at which such account is to be opened or established, the individual at
such bank with whom such Borrower or Guarantor is dealing and the purpose of the
account, except as to any Store Account opened or established after the date
hereof, so long as no Event of Default shall exist or have occurred and be
continuing, Working Capital Agent shall only have received such information as
to such Store Account on the next monthly report with respect to deposit
accounts in accordance with Section 7.1(a) hereof, (ii) the bank where such
account is opened or maintained shall be acceptable to Working Capital Agent,
and (iii) on or before the opening of such deposit account (other than as to a
Store Account so long as no Default or Event of Default shall exist or have
occurred and be continuing), such Borrower or Guarantor shall deliver to Working
Capital Agent a Deposit Account Control Agreement with respect to such deposit
account duly authorized, executed and delivered by such Borrower or Guarantor
and the bank at which such deposit account is opened and maintained.  At all
times the Borrowers and Guarantors shall maintain a Deposit Account Control
Agreement in full force and effect with respect to the Concentration Account and
the Elavon Deposit Account.  The terms of this subsection (d) shall not apply to
deposit accounts specifically and exclusively used for payroll, payroll taxes
and other employee wage and benefit payments to or for the benefit of any
Borrower’s or Guarantor’s salaried employees.
 
 
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(e)            No Borrower or Guarantor owns or holds, directly or indirectly,
beneficially or as record owner or both, any investment property, as of the date
hereof, or have any investment account, securities account, commodity account or
other similar account with any bank or other financial institution or other
securities intermediary or commodity intermediary as of the date hereof, in each
case except as set forth on Schedule 5.2(e).
 
(f)            In the event that any Borrower or Guarantor shall be entitled to
or shall at any time after the date hereof hold or acquire any certificated
securities, such Borrower or Guarantor shall promptly endorse, assign and
deliver the same to Working Capital Agent, accompanied by such instruments of
transfer or assignment duly executed in blank as Working Capital Agent may from
time to time specify.  If any securities, now or hereafter acquired by any
Borrower or Guarantor are uncertificated and are issued to such Borrower or
Guarantor or its nominee directly by the issuer thereof, such Borrower or
Guarantor shall immediately notify Working Capital Agent thereof and shall cause
the issuer to agree to comply with instructions from Working Capital Agent as to
such securities, without further consent of any Borrower or Guarantor or such
nominee.
 
(g)           Borrowers and Guarantors shall not, directly or indirectly, after
the date hereof open, establish or maintain any investment account, securities
account, commodity account or any other similar account (other than a deposit
account) with any securities intermediary or commodity intermediary unless each
of the following conditions is satisfied:  (A) Working Capital Agent shall have
received not less than five (5) Business Days prior written notice of the
intention of such Borrower or Guarantor to open or establish such account which
notice shall specify in reasonable detail and specificity acceptable to Working
Capital Agent the name of the account, the owner of the account, the name and
address of the securities intermediary or commodity intermediary at which such
account is to be opened or established, the individual at such intermediary with
whom such Borrower or Guarantor is dealing and the purpose of the account, (B)
the securities intermediary or commodity intermediary (as the case may be) where
such account is opened or maintained shall be acceptable to Working Capital
Agent, and (C) on or before the opening of such investment account, securities
account or other similar account with a securities intermediary or commodity
intermediary, such Borrower or Guarantor shall as Working Capital Agent may
specify either (i) execute and deliver, and cause to be executed and delivered
to Working Capital Agent, an Investment Property Control Agreement with respect
thereto duly authorized, executed and delivered by such Borrower or Guarantor
and such securities intermediary or commodity intermediary or (ii) arrange for
Working Capital Agent to become the entitlement holder with respect to such
investment property on terms and conditions acceptable to Working Capital Agent.
 
 
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(h)           Borrowers and Guarantors are not the beneficiary or otherwise
entitled to any right to payment under any letter of credit, banker’s acceptance
or similar instrument as of the date hereof, except as set forth on Schedule
5.2(h).  In the event that any Borrower or Guarantor shall be entitled to or
shall receive any right to payment under any letter of credit, banker’s
acceptance or any similar instrument, whether as beneficiary thereof or
otherwise after the date hereof, such Borrower or Guarantor shall promptly
notify Working Capital Agent thereof in writing.  Such Borrower or Guarantor
shall immediately, as Working Capital Agent may specify, either (i) deliver, or
cause to be delivered to Working Capital Agent, with respect to any such letter
of credit, banker’s acceptance or similar instrument, the written agreement of
the issuer and any other nominated person obligated to make any payment in
respect thereof (including any confirming or negotiating bank), in form and
substance reasonably satisfactory to Working Capital Agent, consenting to the
assignment of the proceeds of the letter of credit to Working Capital Agent by
such Borrower or Guarantor and agreeing to make all payments thereon directly to
Working Capital Agent or as Working Capital Agent may otherwise direct or (ii)
cause Working Capital Agent to become, at Borrowers’ expense, the transferee
beneficiary of the letter of credit, banker’s acceptance or similar instrument
(as the case may be).
 
(i)            Borrowers and Guarantors do not have any commercial tort claims
as of the Closing Date, except as set forth on Schedule 5.2(i).  In the event
that any Borrower or Guarantor shall at any time after the date hereof have any
commercial tort claims, such Borrower or Guarantor shall promptly notify Working
Capital Agent thereof in writing, which notice shall (i) set forth in reasonable
detail the basis for and nature of such commercial tort claim and (ii) include
the express grant by such Borrower or Guarantor to Working Capital Agent of a
security interest in such commercial tort claim (and the proceeds thereof).  In
the event that such notice does not include such grant of a security interest,
the sending thereof by such Borrower or Guarantor to Working Capital Agent shall
be deemed to constitute such grant to Working Capital Agent.  Upon the sending
of such notice, any commercial tort claim described therein shall constitute
part of the Collateral and shall be deemed included therein.  Without limiting
the authorization of Working Capital Agent provided in Section 5.2(a) hereof or
otherwise arising by the execution by such Borrower or Guarantor of this
Agreement or any of the other Financing Agreements, Working Capital Agent is
hereby irrevocably authorized from time to time and at any time to file such
financing statements naming Working Capital Agent or its designee as secured
party and such Borrower or Guarantor as debtor, or any amendments to any
financing statements, covering any such commercial tort claim as Collateral.  In
addition, each Borrower and Guarantor shall promptly upon Working Capital
Agent’s request, execute and deliver, or cause to be executed and delivered, to
Working Capital Agent such other agreements, documents and instruments as
Working Capital Agent may require in connection with such commercial tort claim.
 
(j)            Borrowers and Guarantors do not have any goods, documents of
title or other Collateral in the custody, control or possession of a third party
as of the Closing Date, except as set forth on Schedule 5.2(j) and except for
goods located in the United States in transit to a location of a Borrower or
Guarantor permitted herein in the ordinary course of business of such Borrower
or Guarantor in the possession of the carrier transporting such goods.  In the
event that any goods, documents of title or other Collateral are at any time
after the date hereof in the custody, control or possession of any other person
not referred to on Schedule 5.2(j) or such carriers, Borrowers and Guarantors
shall promptly notify Working Capital Agent thereof in writing.  Promptly upon
Working Capital Agent’s request, Borrowers and Guarantors shall deliver to
Working Capital Agent a Collateral Access Agreement duly authorized, executed
and delivered by such person and the Borrower or Guarantor that is the owner of
such Collateral.
 
 
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(k)           Borrowers and Guarantors shall take any other actions reasonably
requested by Working Capital Agent from time to time to cause the attachment,
perfection and first priority of, and the ability of Working Capital Agent to
enforce, the security interest of Working Capital Agent in any and all of the
Collateral, including, without limitation, (i) executing, delivering and, where
appropriate, filing financing statements and amendments relating thereto under
the UCC or other applicable law, to the extent, if any, that any Borrower’s or
Guarantor’s signature thereon is required therefor, (ii) causing Working Capital
Agent’s name to be noted as secured party on any certificate of title for a
titled good if such notation is a condition to attachment, perfection or
priority of, or ability of Working Capital Agent to enforce, the security
interest of Working Capital Agent in such Collateral, (iii) complying with any
provision of any statute, regulation or treaty of the United States as to any
Collateral if compliance with such provision is a condition to attachment,
perfection or priority of, or ability of Working Capital Agent to enforce, the
security interest of Working Capital Agent in such Collateral, (iv) obtaining
the consents and approvals of any Governmental Authority or third party,
including, without limitation, any consent of any licensor, lessor or other
person obligated on Collateral, and (v) taking all actions required by any
earlier versions of the UCC or by other law, as applicable in any relevant
jurisdiction.
 
SECTION 6          COLLECTION AND ADMINISTRATION
 
6.1           Borrowers’ Loan Accounts.  Working Capital Agent shall maintain
one or more loan account(s) on its books in which shall be recorded (a) all
Loans, Letters of Credit and other Obligations and the Collateral, (b) all
payments made by or on behalf of any Borrower or Guarantor and (c) all other
appropriate debits and credits as provided in this Agreement, including fees,
charges, costs, expenses and interest.  All entries in the loan account(s) shall
be made in accordance with Working Capital Agent’s customary practices as in
effect from time to time.
 
6.2           Statements.  Working Capital Agent shall render to Administrative
Borrower each month a statement setting forth the balance in Borrowers’ loan
account(s) maintained by Working Capital Agent for Borrowers pursuant to the
provisions of this Agreement, including principal, interest, fees, costs and
expenses.  Each such statement shall be subject to subsequent adjustment by
Working Capital Agent but shall, absent manifest errors or omissions, be
considered correct and deemed accepted by Borrowers and Guarantors and
conclusively binding upon Borrowers and Guarantors as an account stated except
to the extent that Working Capital Agent receives a written notice from
Administrative Borrower of any specific exceptions of Administrative Borrower
thereto within forty-five (45) days after the date such statement has been
received by Parent.  Only those items expressly objected to in such notice shall
be deemed to be disputed by Administrative Borrower.  Until such time as Working
Capital Agent shall have rendered to Administrative Borrower a written statement
as provided above, the balance in any Borrower’s loan account(s) shall be
presumptive evidence of the amounts due and owing to Agents and Lenders by
Borrowers and Guarantors.
 
 
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6.3           Cash Management; Collection of Collateral Proceeds.
 
(a)           Each Borrower and Guarantor shall establish and maintain, at its
expense, deposit account arrangements and merchant payment arrangements with the
banks set forth on Schedule 8.10 and subject to Section 5.2(d) hereof, such
other banks as such Borrower or Guarantor may hereafter select.  The banks set
forth on Schedule 8.10 constitute all of the banks with which Borrowers and
Guarantors have deposit account arrangements and merchant payment arrangements
as of the date hereof, which such Schedule identifies those deposit accounts
that constitute a Store Account or otherwise describes the nature of the use of
such deposit account by such Borrower.
 
(b)           (i)  Each Borrower shall deposit all proceeds from sales of
Inventory in every form, including, without limitation, cash, checks, credit
card sales drafts, credit card sales or charge slips or receipts and other forms
of daily store receipts, from each retail store location of such Borrower on
each Business Day into the Store Account of such Borrower used solely for such
purpose or the Concentration Account; provided, that, each retail store of a
Borrower shall be permitted to retain cash on hand in an amount not to exceed
$1,000 immediately after giving effect to the deposit of funds from such store
into the applicable Store Account or Concentration Account.  All such funds
deposited into the Store Accounts shall be sent by wire transfer or other
electronic funds transfer on each Business Day to the Concentration Account as
provided in Section 6.3(c), except for nominal amounts required to be maintained
in such Store Accounts under the terms of such Borrower’s arrangements with the
bank at which such Store Accounts are maintained (which nominal amounts shall
not at any time exceed (i) $6,000 as to each Store Account from the period
beginning January 1 through September 30 of each year and (ii) $15,000 as to
each Store Account for the period beginning October 1 through December 31 of
each year, provided that the aggregate amount in the Store Accounts for the
period from October 1 through December 31 of each year shall not at any time
exceed $1,750,000 on any given day).
 
(ii)            Each Borrower shall cause Elavon Processor to deposit into the
Elavon Deposit Account or the Concentration Account all amounts payable by
Elavon Processor to any Borrower, such deposits to occur at least twice per
calendar week by wire transfer or other electronic funds transfer.  All amounts
in the Elavon Deposit Account in excess of $200,000 in the aggregate shall be
transferred by wire transfer or other electronic funds transfer on each Business
Day to the Concentration Account as provided in Section 6.3(c).
 
(iii)           Each Borrower shall cause all Credit Card Processors (other than
Elavon Processor) and all Credit Card Issuers to deposit into the Concentration
Account as provided in Section 6.3(c) all amounts payable from such Credit Card
Processor or such Credit Card Issuer to any Borrower by wire transfer or other
electronic funds transfer.
 
(iv)           Borrowers shall, and shall cause each of their Subsidiaries to,
transfer any funds released from the Elavon Reserve Account, on the day such
funds are released therefrom, to the Concentration Account as provided in
Section 6.3(c), by wire transfer or other electronic funds transfer.
 
 
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(v)           All amounts in each Intercompany Royalty Account shall be sent by
wire transfer or other electronic funds transfer on each Business Day to the
Concentration Account as provided in Section 6.3(c).
 
(c)           Each Borrower shall (i) cause all amounts (other than to the
extent expressly permitted under Section 6.3(b)(i) hereof) on deposit in the
Store Accounts of such Borrower to be deposited by wire transfer or other
electronic funds transfer on each Business Day in the Concentration Account (or,
to the extent consented to in advance in writing by the Working Capital Agent in
its sole discretion, another Blocked Account), (ii) itself deposit or cause to
be deposited on each Business Day in the Concentration Account (or, to the
extent consented to in advance in writing by the Working Capital Agent in its
sole discretion, another Blocked Account) in immediately available funds all
proceeds of Collateral, including all proceeds from sales of Inventory and all
other proceeds of Collateral, unless otherwise deposited pursuant to clause (i)
above and (iii) at all times ensure that all other cash, cash proceeds or funds
of the types described in Sections 6.3(b)(iv) and (v) of the Borrowers be
immediately deposited directly into the Concentration Account.  Borrowers and
Guarantors shall deliver, or cause to be delivered to Working Capital Agent a
Deposit Account Control Agreement duly authorized, executed and delivered by
each bank where a Blocked Account is maintained as provided in Section 5.2
hereof. From and after the Amendment Effective Date, all available amounts
received in the applicable Blocked Account or, subject to Section 6.3(d), any
Store Account (except as provided in Section 6.3(b) above) shall be transferred
daily from such Blocked Account or Store Account to the Agent Payment Account.
 
(d)           At any time a Default or an Event of Default shall exist or have
occurred and be continuing, promptly upon Working Capital Agent’s request,
Borrowers and Guarantors shall deliver, or cause to be delivered, to Working
Capital Agent a Deposit Account Control Agreement duly authorized, executed and
delivered by such banks where a Store Account is maintained as Working Capital
Agent shall specify.  Without limiting any other rights or remedies of Agents or
Lenders, in the event that a Deposit Account Control Agreement is in effect for
a Store Account, then Working Capital Agent may, at its option, instruct the
depository bank at which the Store Account is maintained to transfer all
available funds received or deposited into the Store Account to Agent Payment
Account at any time that an Event of Default shall exist or have occurred and be
continuing.
 
(e)           At all times, all payments made to the Concentration Account, the
Elavon Deposit Account, all Blocked Accounts or Store Accounts subject to a
Deposit Account Control Agreement, whether in respect of the Receivables, as
proceeds of Inventory or other Collateral or otherwise shall be treated as
payments to Working Capital Agent in respect of the Obligations and therefore
shall constitute the property of Agents and Lenders to the extent of the then
outstanding Obligations.
 
(f)           No Borrower shall, or shall cause or permit any Subsidiary
thereof, to accumulate or maintain cash in any payroll accounts as of any date
of determination in excess of checks outstanding against such accounts as of
that date and amounts necessary to meet minimum balance requirements.
 
 
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(g)          For purposes of calculating the amount of the Loans available to
each Borrower, such payments will be applied (conditional upon final collection)
to the Obligations on the Business Day of receipt by Working Capital Agent of
immediately available funds in Agent Payment Account; provided such payments and
notice thereof are received in accordance with Working Capital Agent’s usual and
customary practices as in effect from time to time and within sufficient time to
credit the applicable loan account on such day, and if not, then on the next
Business Day.
 
(h)           Each Borrower and Guarantor and their respective employees, agents
and Subsidiaries shall, acting as trustee for Working Capital Agent, receive, as
the property of Working Capital Agent, any monies, checks, notes, drafts or any
other payment relating to and/or proceeds of Accounts or other Collateral which
come into their possession or under their control and promptly upon receipt
thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Working Capital Agent.
 
(i)            Borrowers agree to reimburse Working Capital Agent on demand for
any amounts owed or paid to any bank or other financial institution at which a
Blocked Account or any other deposit account or investment account is
established or any other bank, financial institution or other person involved in
the transfer of funds to or from the Blocked Accounts arising out of Working
Capital Agent’s payments to or indemnification of such bank, financial
institution or other person.  The obligations of Borrowers to reimburse Working
Capital Agent for such amounts pursuant to this Section 6.3 shall survive the
termination of this Agreement.
 
6.4           Payments.
 
(a)           All Obligations shall be payable to Agent Payment Account as
provided in Section 6.3 or such other place as Working Capital Agent may
designate from time to time.
 
(i)            Subject to the other terms and conditions contained herein, so
long as no Collateral Enforcement Action has occurred, Working Capital Agent
shall apply all payments received or collected from any Borrower or Guarantor or
for the account of any Borrower or Guarantor as follows: first, to pay any fees,
indemnities or expense reimbursements then due to Working Capital Agent,
Revolving Lenders and Issuing Bank from any Borrower or Guarantor; second, to
pay interest then due in respect of any Revolving Loans (and including any
Permitted Overadvances) and Letter of Credit Obligations; third, to pay
principal in respect of Permitted Overadvances; fourth, to pay principal in
respect of the Revolving Loans; fifth to pay any fees or expense reimbursements
then due to Term Loan Agent or Term Lenders from any Borrower or Guarantor;
sixth, to pay interest then due with respect to the Term B-1 Loan, seventh, to
pay interest then due with respect to the Term B-2 Loan, and eighth to the
Borrowers’ operating account.
 
 
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(ii)           Subject to the other terms and conditions contained herein, after
the occurrence of a Collateral Enforcement Action, Working Capital Agent shall
apply payments received or collected from any Borrower or Guarantor or for the
account of any Borrower or Guarantor (including the monetary proceeds of
collections or of realization upon any Collateral) as follows:  first, to pay
any fees, indemnities or expense reimbursements then due to Working Capital
Agent, Revolving Lenders and Issuing Bank from any Borrower or Guarantor;
second, to pay interest due in respect of any Revolving Loans (and including any
Permitted Overadvances) or Letter of Credit Obligations (including, in each
case, Post-Petition Interest); third, to pay principal in respect of Permitted
Overadvances; fourth, to pay principal in respect of the Revolving Loans, any
then due Obligations under any Secured Rate Contract and to provide cash
collateral for then outstanding Letter of Credit Obligations in the manner
described in Section 2.2, ratably to the aggregate, combined principal balance
of the principal of the Revolving Loans, the then due Obligations under any
Secured Rate Contract and the outstanding Letter of Credit Obligations; fifth to
pay any fees, indemnities or expense reimbursements then due to Term Loan Agent
or Term Lenders from any Borrower or Guarantor; sixth, ratably to pay interest
accrued and payable in respect of any Term B-1 Loans (including Post-Petition
Interest), until paid in full; seventh, ratably to pay principal due in respect
of the Term B-1 Loans, until paid in full; eighth, ratably to pay interest
accrued and payable in respect of any Term B-2 Loans (including Post-Petition
Interest), until paid in full; ninth, ratably to pay principal accrued and
payable in respect of any Term B-2 Loans, until paid in full; tenth, to pay
Obligations then due arising under or pursuant to any Hedge Agreement (other
than any Secured Rate Contract) of a Borrower or Guarantor with a Bank Product
Provider (up to the amount of any then effective Reserve established in respect
of such Obligations), on a pro rata basis; eleventh, to pay or prepay any other
Obligations whether or not then due, in such order and manner as Working Capital
Agent determines and, at any time an Event of Default exists or has occurred and
is continuing, to be held as cash collateral in connection with any Letter of
Credit; and twelfth, to pay Obligations arising under or pursuant to any Bank
Product (other than to the extent provided for above) on a pro rata
basis.  Notwithstanding anything to the contrary contained in this Agreement and
subject to Section 2.1(c)(ii), (i) unless so directed by Working Capital Agent,
or unless a Default or an Event of Default shall exist or have occurred and be
continuing, Working Capital Agent shall not apply any payments which it receives
to any Eurodollar Rate Loans, except (A) on the expiration date of the Interest
Period applicable to any such Eurodollar Rate Loans or (B) in the event that
there are no outstanding Prime Rate Loans and (ii) to the extent any Borrower
uses any proceeds of the Revolving Loans or Letters of Credit to acquire rights
in or the use of any Collateral or to repay any Indebtedness used to acquire
rights in or the use of any Collateral, payments in respect of the Obligations
shall be deemed applied first to the Obligations arising from Revolving Loans
and Letter of Credit Obligations that were not used for such purposes and second
to the Obligations arising from Revolving Loans and Letter of Credit Obligations
the proceeds of which were used to acquire rights in or the use of any
Collateral in the chronological order in which such Borrower acquired such
rights in or the use of such Collateral.  The Working Capital Agent shall use
reasonable efforts to make the Term Loan Agent aware of the commencement of any
Collateral Enforcement Action hereunder; provided, that the failure of the Term
Loan Agent or any Term B-2 Lender being aware of such occurrence shall not
impair the rights of the Secured Parties as set forth in this Section
6.4(a)(ii).
 
(b)           At Working Capital Agent’s option, all principal, interest, fees,
costs, expenses and other charges provided for in this Agreement or the other
Financing Agreements may be charged directly to the loan account(s) of any
Borrower maintained by Working Capital Agent.  If after receipt of any payment
of, or proceeds of Collateral applied to the payment of, any of the Obligations,
any Agent, any Lender or Issuing Bank is required to surrender or return such
payment or proceeds to any Person for any reason, then the Obligations intended
to be satisfied by such payment or proceeds shall be reinstated and continue and
this Agreement shall continue in full force and effect as if such payment or
proceeds had not been received by such Agent or such Lender.  Borrowers and
Guarantors shall be liable to pay to Working Capital Agent, and do hereby
indemnify and hold Agents and Lenders harmless for the amount of any payments or
proceeds surrendered or returned.  This Section 6.4(b) shall remain effective
notwithstanding any contrary action which may be taken by Agents or any Lender
in reliance upon such payment or proceeds.  This Section 6.4 shall survive the
payment of the Obligations and the termination of this Agreement.
 
 
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(c)           (i)           Immediately upon receipt by any Borrower of any cash
proceeds of any asset disposition (other than any Permitted Disposition
described in clauses (a), (b), (e) and (f) of the definition thereof), Borrowers
shall prepay the Loans in an amount equal to all such proceeds, net of (A)
commissions and other reasonable and customary transaction costs, fees and
expenses properly attributable to such transaction and payable by Borrowers in
connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes,
(C) amounts payable to holders of senior Liens on such asset (to the extent such
Liens constitute encumbrances permitted hereunder), if any, and (D) an
appropriate reserve for income taxes in accordance with GAAP in connection
therewith.  Any such prepayment shall be applied in accordance with Section
6.4(a).  The Commitment shall not be permanently reduced by the amount of any
such prepayments.
 
(ii)           If any Borrower issues Capital Stock or incurs any Indebtedness
(other than Indebtedness permitted by Section 9.9), no later than the Business
Day following the date of receipt of the proceeds thereof, Borrowers shall
prepay the Loans (and cash collateralize Letter of Credit Obligations) in an
amount equal to all such proceeds, net of underwriting discounts and commissions
and other reasonable costs paid to non-Affiliates in connection therewith.  Any
such prepayment shall be applied in accordance with Section 6.4(a).  The
Commitment shall not be permanently reduced by the amount of any such
prepayments.
 
6.5           Taxes.
 
(a)           Any and all payments by or on account of any of the Obligations
shall be made free and clear of and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, charges, withholdings, liabilities, restrictions or conditions
of any kind, excluding (i) in the case of each Lender, Issuing Bank and each
Agent (A) taxes measured by its net income, and franchise taxes imposed on it,
by the jurisdiction (or any political subdivision thereof) under the laws of
which such Lender, Issuing Bank or Agent (as the case may be) is organized and
(B) any United States withholding taxes payable with respect to payments under
the Financing Agreements under laws (including any statute, treaty or
regulation) in effect on the date hereof (or, in the case of an Eligible
Transferee, the date of the Assignment and Acceptance) applicable to such
Lender, Issuing Bank or Agents, as the case may be, but not excluding any U.S.
withholding taxes payable as a result of any change in such laws occurring after
the date hereof (or the date of such Assignment and Acceptance) and (ii) in the
case of each Lender, taxes measured by its net income, and franchise taxes
imposed on it as a result of a connection between such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
fees, deductions, charges, withholdings and liabilities being hereinafter
referred to as “Taxes”).
 
 
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(b)           If any Taxes shall be required by law to be deducted from or in
respect of any sum payable in respect of the Obligations to any Lender, Issuing
Bank or Agents (i) the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 6.5), such Lender or Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the relevant Borrower or Guarantor shall make
such deductions, (iii) the relevant Borrower or Guarantor shall pay the full
amount deducted to the relevant taxing authority or other authority in
accordance with applicable law and (iv) the relevant Borrower or Guarantor shall
deliver to Working Capital Agent evidence of such payment.
 
(c)           In addition, each Borrower and Guarantor agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies of the United States or any political subdivision
thereof or any applicable foreign jurisdiction, and all liabilities with respect
thereto, in each case arising from any payment made hereunder or under any of
the other Financing Agreements or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any of the other Financing
Agreements (collectively, “Other Taxes”).
 
(d)           Each Borrower and Guarantor shall indemnify each Lender, Issuing
Bank and Agents for the full amount of Taxes and Other Taxes (including any
Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this
Section 6.5) paid by such Lender, Issuing Bank or Agent (as the case may be) and
any liability (including for penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted, unless the payment thereof by such Lender, Issuing Bank or
Agent (as the case may be) resulted from the gross negligence or willful
misconduct of such Lender, Issuing Bank or Agent (as the case may be) as
determined pursuant to a final, non-appealable order of a court of competent
jurisdiction.  This indemnification shall be made within ten (10) days from the
date such Lender, Issuing Bank or Agent (as the case may be) makes written
demand therefor.  A certificate as to the amount of such payment or liability
delivered to Administrative Borrower by a Lender or Issuing Bank (in each case
with a copy to Working Capital Agent) or by Working Capital Agent on its own
behalf or on behalf of a Lender or Issuing Bank, shall be conclusive absent
manifest error.
 
(e)           If an Agent, Issuing Bank or any Lender receives a refund or
credit in respect of any Taxes or Other Taxes for which such Agent, Issuing Bank
or such Lender has received payment from any Borrower or Guarantor hereunder, so
long as no Event of Default shall exist or have occurred and be continuing, such
Agent, Issuing Bank or such Lender (as the case may be) shall credit to the loan
account of Borrowers the amount of such refund or the amount of any tax savings
(if any) realized by such Agent, Issuing Bank or such Lender directly
attributable to such credit.
 
(f)           As soon as practicable after any payment of Taxes or Other Taxes
by any Borrower or Guarantor, such Borrower or Guarantor shall furnish to
Working Capital Agent, at its address referred to herein, the original or a
certified copy of a receipt evidencing payment thereof.
 
 
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(g)           Without prejudice to the survival of any other agreements of any
Borrower or Guarantor hereunder or under any of the other Financing Agreements,
the agreements and obligations of such Borrower or Guarantor contained in this
Section 6.5 shall survive the termination of this Agreement and the payment in
full of the Obligations.
 
(h)           Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
applicable Borrower is resident for tax purposes, or any treaty to which such
jurisdiction is a party, with respect to payments hereunder or under any of the
other Financing Agreements shall deliver to Administrative Borrower (with a copy
to Working Capital Agent), at the time or times prescribed by applicable law or
reasonably requested by Administrative Borrower or Working Capital Agent (in
such number of copies as is reasonably requested by the recipient), whichever of
the following is applicable (but only if such Foreign Lender is legally entitled
to do so):  (i) duly completed copies of Internal Revenue Service Form W-8BEN
claiming exemption from, or a reduction to, withholding tax under an income tax
treaty, or any successor form, (ii) duly completed copies of Internal Revenue
Service Form 8-8ECI claiming exemption from withholding because the income is
effectively connection with a U.S. trade or business or any successor form,
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under Sections 871(h) or 881(c) of the Code, (A) a
certificate of the Lender to the effect that such Lender is not a “bank” within
the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of a
Borrower within the meaning of Section 881(c)(3)(B) of the Code or a “controlled
foreign corporation” described and Section 881(c)(3)(C) of the Code and (B) duly
completed copies of Internal Revenue Service Form W-8BEN claiming exemption from
withholding under the portfolio interest exemption or any successor form or (iv)
any other applicable form, certificate or document prescribed by applicable law
as a basis for claiming exemption from or a reduction in U.S. withholding tax
duly completed together with such supplementary documentation as may be
prescribed by applicable law to permit a Borrower to determine the withholding
or deduction required to be made.  Unless Administrative Borrower and Working
Capital Agent have received forms or other documents reasonably satisfactory to
them indicating that payments hereunder or under any of the other Financing
Agreements to or for a Foreign Lender are not subject to U.S. withholding tax or
are subject to such tax at a rate reduced by an applicable tax treaty, Borrowers
or Working Capital Agent shall withhold amounts required to be withheld by
applicable requirements of law from such payments at the applicable statutory
rate.
 
(i)           Any Lender claiming any additional amounts payable pursuant to
this Section 6.5 shall use its reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
applicable lending office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that would be payable
or may thereafter accrue and would not, in the sole determination of such
Lender, be otherwise disadvantageous to such Lender.
 
6.6           Authorization to Make Loans.  Agents and Lenders are authorized to
make the Loans based upon telephonic or other instructions received from anyone
purporting to be an officer of Administrative Borrower or any Borrower or other
authorized person or, at the discretion of Working Capital Agent, if such Loans
are necessary to satisfy any Obligations.  All requests for Loans or Letters of
Credit hereunder shall specify the date on which the requested advance is to be
made (which day shall be a Business Day) and the amount of the requested
Loan.  Requests received after 1 p.m. (Eastern time) on any day shall be deemed
to have been made as of the opening of business on the immediately following
Business Day.  All Loans and Letters of Credit under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, any Borrower or Guarantor when deposited to the credit of any
Borrower or Guarantor or otherwise disbursed or established in accordance with
the instructions of any Borrower or Guarantor or in accordance with the terms
and conditions of this Agreement.
 
 
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6.7           Use of Proceeds.
 
(a)           Borrowers shall use the proceeds of the Loans and Letters of
Credit hereunder only for:  (i) working capital and other general corporate
purposes not otherwise prohibited by the terms hereof and (ii) costs, expenses
and fees incurred in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements.
 
(b)           On the Amendment Effective Date, a portion of the Term B-2 Loans
shall be used to repay a portion of the Revolving Loans and upon such repayment
on the Amendment Effective Date, the Working Capital Agent shall implement a
Reserve in the amount of $8,207,195.00 (such Reserve, the “Cash Note Payment
Reserve”) for purposes of allowing the Borrowers to repay a portion of the
Borrowers’ floating rate secured notes under the Existing Indenture in an amount
equal to the Cash Note Payment Reserve (the “Cash Note Payment”) on or about
November 19, 2012 (the date of such repayment, the “Exchange Closing
Date”).  Subject to the terms and conditions set forth herein, a portion of the
Borrowers floating rate secured notes in an amount equal to $8,204,000.00 under
the Existing Indenture will not be repaid on the Exchange Closing Date, but will
be exchanged for floating rate secured notes under the Indenture (the “Exchange
Notes”) on the Exchange Closing Date upon terms and conditions acceptable to the
Agents.  The parties acknowledge that on the Amendment Effective Date, the
Working Capital Agent shall also implement a Reserve in an amount of not less
than $5,141,363.00 (such Reserve, the “Holdover Reserve”) for purposes of
repaying on the maturity date thereof (August 31, 2012) or redeeming prior to
such maturity date in accordance with the terms and conditions set forth herein
the floating rate secured notes under the Existing Indenture the holders of
which do not consent to receipt of a Cash Note Payment and Exchange Notes on the
Exchange Closing Date (collectively, the “Holdover Notes”).  Unless such
repayment constitutes a payment at stated maturity or an optional redemption
that in each case is made in compliance with and pursuant to the terms of the
Existng Indenture as in effect on the Amendment Effective Date and does not
involve any consensual exchange or other transaction not contemplated by the
Existing Indenture as so in effect, the terms of such repayment of the
Borrower’s floating rate secured notes under the Existing Indenture and
repayment or redemption of Holdover Notes (including without limitation the
terms of any exchange offer, tender offer, or other consensual transaction with
the holders of any Holdover Notes) shall in each case be on terms and conditions
acceptable to Agents.  Subject only to compliance with the terms set forth in
Section 9.28 (as applicable), compliance with the terms set forth in Section
9.11, the absence of any Default or any Event of Default before and after giving
effect to the applicable payment and the satisfaction of all conditions
precedent to borrowing Loans hereunder as set forth in Section 4.2, (i) the Cash
Note Payment Reserve will be released on the Exchange Closing Date and Borrowers
will wire the Cash Note Payment to Deutsche Bank National Trust Company, as
trustee, (with evidence of such wire in a form and substance satisfactory to
Agents to be promptly provided to Agents) under the Existing Indenture to effect
payment thereof and as required under the Exchange Notes Documents and (ii) the
Holdover Reserve will be released from time to time on the date of redemption or
repayment of any Holdover Notes and Borrowers will wire the redemption or
repayment amount to Deutsche Bank National Trust Company, as trustee, (with
evidence of such wire in a form and substance satisfactory to Agents to be
promptly provided to Agents) under the Existing Indenture to effect payment
thereof and as required or as may be permitted under the Existing Indenture as
in effect on the Amendment Effective Date.  Other than as provided in the
immediately preceding sentence, in no event shall the Cash Note Payment Reserve
or the Holdover Reserve be released without the prior written consent of the
Agents.
 
 
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(c)           Borrowers shall deliver to Agents a description of Borrowers’
sources and uses of funds as of the Amendment Effective Date, including Loans
and Letter of Credit Obligations to be made or incurred on that date, and a
funds flow memorandum detailing how funds from each source are to be transferred
to particular uses.  None of the proceeds will be used, directly or indirectly,
for the purpose of purchasing or carrying any margin security or for the
purposes of reducing or retiring any indebtedness which was originally incurred
to purchase or carry any margin security or for any other purpose which might
cause any of the Loans to be considered a “purpose credit” within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, as
amended.
 
6.8           Appointment of Administrative Borrower as Agent for Requesting
Loans and Receipts of Loans and Statements.
 
(a)           Each Borrower hereby irrevocably appoints and constitutes
Administrative Borrower as its agent and attorney-in-fact to request and receive
Loans and Letters of Credit pursuant to this Agreement and the other Financing
Agreements from Agents or any Lender in the name or on behalf of such
Borrower.  Agents and Lenders may disburse the Loans to such bank account of
Administrative Borrower or a Borrower or otherwise make such Loans to a Borrower
and provide such Letters of Credit to a Borrower as Administrative Borrower may
designate or direct, without notice to any other Borrower or
Guarantor.  Notwithstanding anything to the contrary contained herein, Working
Capital Agent may at any time and from time to time require that Loans to or for
the account of any Borrower be disbursed directly to an operating account of
such Borrower.
 
(b)           Administrative Borrower hereby accepts the appointment by
Borrowers to act as the agent and attorney-in-fact of Borrowers pursuant to this
Section 6.8.  Administrative Borrower shall ensure that the disbursement of any
Loans to each Borrower requested by or paid to or for the account of Parent, or
the issuance of any Letter of Credit for a Borrower hereunder, shall be paid to
or for the account of such Borrower.
 
(c)           Each Borrower and other Guarantor hereby irrevocably appoints and
constitutes Administrative Borrower as its agent to receive statements on
account and all other notices from Agents and Lenders with respect to the
Obligations or otherwise under or in connection with this Agreement and the
other Financing Agreements.
 
 
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(d)           Any notice, election, representation, warranty, agreement or
undertaking by or on behalf of any other Borrower or any Guarantor by
Administrative Borrower shall be deemed for all purposes to have been made by
such Borrower or Guarantor, as the case may be, and shall be binding upon and
enforceable against such Borrower or Guarantor to the same extent as if made
directly by such Borrower or Guarantor.
 
(e)           No purported termination of the appointment of Administrative
Borrower as agent as aforesaid shall be effective, except after ten (10) days’
prior written notice to Working Capital Agent.
 
6.9           Pro Rata Treatment.  Except to the extent otherwise provided in
this Agreement or as otherwise agreed by Lenders:  (a) the making and conversion
of Loans shall be made among the Lenders based on their respective Pro Rata
Shares as to the Loans and (b) each payment on account of any Obligations to or
for the account of one or more of Lenders in respect of any Obligations due on a
particular day shall be allocated among the Lenders entitled to such payments
based on their respective Pro Rata Shares and shall be distributed accordingly.
 
6.10           Sharing of Payments, Etc.
 
(a)           Each Borrower and Guarantor agrees that, in addition to (and
without limitation of) any right of setoff, banker’s lien or counterclaim Agents
or any Lender may otherwise have, each Lender shall be entitled, at its option
(but subject, as among Agents and Lenders, to the provisions of Section 12.3(b)
hereof), to offset balances held by it for the account of such Borrower or
Guarantor at any of its offices, in dollars or in any other currency, against
any principal of or interest on any Loans owed to such Lender or any other
amount payable to such Lender hereunder, that is not paid when due (regardless
of whether such balances are then due to such Borrower or Guarantor), in which
case it shall promptly notify Administrative Borrower and Working Capital Agent
thereof; provided, that, such Lender’s failure to give such notice shall not
affect the validity thereof.
 
(b)           If any Lender (including Agents) shall obtain from any Borrower or
Guarantor payment of any principal of or interest on any Loan owing to it or
payment of any other amount under this Agreement or any of the other Financing
Agreements through the exercise of any right of setoff, banker’s lien or
counterclaim or similar right or otherwise (other than from Working Capital
Agent as provided herein and other than pursuant to Permitted Overadvances and
Sections 6.5 and 13.8), and, as a result of such payment, such Lender shall have
received more than its Pro Rata Share of the principal of the Loans or more than
its share of such other amounts then due hereunder or thereunder by any Borrower
or Guarantor to such Lender than the percentage thereof received by any other
Lender, it shall promptly pay to Working Capital Agent, for the benefit of
Lenders, the amount of such excess and simultaneously purchase from such other
Lenders a participation in the Loans or such other amounts, respectively, owing
to such other Lenders (or such interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all Lenders shall share the benefit of such excess
payment (net of any expenses that may be incurred by such Lender in obtaining or
preserving such excess payment) in accordance with their respective Pro Rata
Shares or as otherwise agreed by Lenders.  To such end all Lenders shall make
appropriate adjustments among themselves (by the resale of participation sold or
otherwise) if such payment is rescinded or must otherwise be restored.
 
 
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(c)           Each Borrower and Guarantor agrees that any Lender purchasing a
participation (or direct interest) as provided in this Section may exercise, in
a manner consistent with this Section, all rights of setoff, banker’s lien,
counterclaim or similar rights with respect to such participation as fully as if
such Lender were a direct holder of Loans or other amounts (as the case may be)
owing to such Lender in the amount of such participation.
 
(d)           Nothing contained herein shall require any Lender to exercise any
right of setoff, banker’s lien, counterclaims or similar rights or shall affect
the right of any Lender to exercise, and retain the benefits of exercising, any
such right with respect to any other Indebtedness or obligation of any Borrower
or Guarantor.  If, under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a setoff to which this
Section applies, such Lender shall, to the extent practicable, assign such
rights to Working Capital Agent for the benefit of Lenders and, in any event,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of Lenders entitled under this Section to share in the benefits of
any recovery on such secured claim.
 
6.11         Settlement Procedures.
 
(a)           In order to administer the Credit Facility in an efficient manner
and to minimize the transfer of funds between Working Capital Agent and Lenders,
Working Capital Agent may, at its option, subject to the terms of this Section,
make available, on behalf of Lenders, the full amount of the Loans requested or
charged to any Borrower’s loan account(s) or otherwise to be advanced by Lenders
pursuant to the terms hereof, without requirement of prior notice to Lenders of
the proposed Loans.
 
(b)           With respect to all Loans made by Working Capital Agent on behalf
of Lenders as provided in this Section, the amount of each Lender’s Pro Rata
Share of the outstanding Loans shall be computed weekly, and shall be adjusted
upward or downward on the basis of the amount of the outstanding Loans as of
5:00 p.m. (Eastern time) on the Business Day immediately preceding the date of
each settlement computation; provided, that, Working Capital Agent retains the
absolute right at any time or from time to time to make the above described
adjustments at intervals more frequent than weekly.  Working Capital Agent shall
deliver to each of the Lenders after the end of each week, or at such lesser
period or periods as Working Capital Agent shall determine, a summary statement
of the amount of outstanding Loans for such period (such week or lesser period
or periods being hereinafter referred to as a “Settlement Period”).  If the
summary statement is sent by Working Capital Agent and received by a Lender
prior to 1:00 p.m. (Eastern time), then such Lender shall make the settlement
transfer described in this Section by no later than 3:00 p.m. (Eastern time) on
the same Business Day and if received by a Lender after 1:00 p.m. (Eastern
time), then such Lender shall make the settlement transfer by not later than
3:00 p.m. (Eastern time) on the next Business Day following the date of
receipt.  If, as of the end of any Settlement Period, the amount of a Lender’s
Pro Rata Share of the outstanding Loans is more than such Lender’s Pro Rata
Share of the outstanding Loans as of the end of the previous Settlement Period,
then such Lender shall forthwith (but in no event later than the time set forth
in the preceding sentence) transfer to Working Capital Agent by wire transfer in
immediately available funds the amount of the increase.  Alternatively, if the
amount of a Lender’s Pro Rata Share of the outstanding Loans in any Settlement
Period is less than the amount of such Lender’s Pro Rata Share of the
outstanding Loans for the previous Settlement Period, Working Capital Agent
shall forthwith transfer to such Lender by wire transfer in immediately
available funds the amount of the decrease.  The obligation of each of the
Lenders to transfer such funds and effect such settlement shall be irrevocable
and unconditional and without recourse to or warranty by Working Capital
Agent.  Working Capital Agent and each Lender agrees to mark its books and
records at the end of each Settlement Period to show at all times the dollar
amount of its Pro Rata Share of the outstanding Loans and Letters of
Credit.  Each Lender shall only be entitled to receive interest on its Pro Rata
Share of the Loans to the extent such Loans have been funded by such
Lender.  Because Working Capital Agent on behalf of Lenders may be advancing
and/or may be repaid Loans prior to the time when Lenders will actually advance
and/or be repaid such Loans, interest with respect to Loans shall be allocated
by Working Capital Agent in accordance with the amount of Loans actually
advanced by and repaid to each Lender and Working Capital Agent and shall accrue
from and including the date such Loans are so advanced to but excluding the date
such Loans are either repaid by Borrowers or actually settled with the
applicable Lender as described in this Section.
 
 
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(c)           To the extent that Working Capital Agent has made any such amounts
available and the settlement described above shall not yet have occurred, upon
repayment of any Loans by a Borrower, Working Capital Agent may apply such
amounts repaid directly to any amounts made available by Working Capital Agent
pursuant to this Section.  In lieu of weekly or more frequent settlements,
Working Capital Agent may, at its option, at any time require each Lender to
provide Working Capital Agent with immediately available funds representing its
Pro Rata Share of each Loan, prior to Working Capital Agent’s disbursement of
such Loan to Borrower.  In such event, all Loans under this Agreement shall be
made by the Lenders simultaneously and proportionately to their Pro Rata
Shares.  No Lender shall be responsible for any default by any other Lender in
the other Lender’s obligation to make a Loan requested hereunder nor shall the
Commitment of any Lender be increased or decreased as a result of the default by
any other Lender in the other Lender’s obligation to make a Loan hereunder.
 
(d)           If Working Capital Agent is not funding a particular Loan to a
Borrower (or Administrative Borrower for the benefit of such Borrower) pursuant
to Sections 6.11(a) and 6.11(b) above on any day, but is requiring each Lender
to provide Working Capital Agent with immediately available funds on the date of
such Loan as provided in Section 6.11(c) above, Working Capital Agent may assume
that each Lender will make available to Working Capital Agent such Lender’s Pro
Rata Share of the Loan requested or otherwise made on such day and Working
Capital Agent may, in its discretion, but shall not be obligated to, cause a
corresponding amount to be made available to or for the benefit of such Borrower
on such day.  If Working Capital Agent makes such corresponding amount available
to a Borrower and such corresponding amount is not in fact made available to
Working Capital Agent by such Lender, Working Capital Agent shall be entitled to
recover such corresponding amount on demand from such Lender together with
interest thereon for each day from the date such payment was due until the date
such amount is paid to Working Capital Agent at the Federal Funds Rate for each
day during such period (as published by the Federal Reserve Bank of New York or
at Working Capital Agent’s option based on the arithmetic mean determined by
Working Capital Agent of the rates for the last transaction in overnight Federal
funds arranged prior to 9:00 a.m. (Eastern time) on that day by each of the
three leading brokers of Federal funds transactions in New York, New York
selected by Working Capital Agent) and if such amounts are not paid within three
(3) days of Working Capital Agent’s demand, at the highest Interest Rate
provided for in Section 3.1 hereof applicable to Prime Rate Loans.  During the
period in which such Lender has not paid such corresponding amount to Working
Capital Agent, notwithstanding anything to the contrary contained in this
Agreement or any of the other Financing Agreements, the amount so advanced by
Working Capital Agent to or for the benefit of any Borrower shall, for all
purposes hereof, be a Loan made by Working Capital Agent for its own
account.  Upon any such failure by a Lender to pay Working Capital Agent,
Working Capital Agent shall promptly thereafter notify Administrative Borrower
of such failure and Borrowers shall immediately pay such corresponding amount to
Working Capital Agent for its own account.  A Lender who fails to pay Working
Capital Agent its Pro Rata Share of any Loans made available by Working Capital
Agent on such Lender’s behalf, or any Lender who fails to pay any other amount
owing by it to Working Capital Agent, is a “Defaulting Lender”.  Working Capital
Agent shall not be obligated to transfer to a Defaulting Lender any payments
received by Working Capital Agent for the Defaulting Lender’s benefit, nor shall
a Defaulting Lender be entitled to the sharing of any payments hereunder
(including any principal, interest or fees).  Amounts payable to a Defaulting
Lender shall instead be paid to or retained by Working Capital Agent.  Working
Capital Agent may hold and, in its discretion, relend to a Borrower the amount
of all such payments received or retained by it for the account of such
Defaulting Lender.  For purposes of voting or consenting to matters with respect
to this Agreement and the other Financing Agreements and determining Pro Rata
Shares, such Defaulting Lender shall be deemed not to be a “Lender” and such
Lender’s Commitment shall be deemed to be zero (0).  This Section shall remain
effective with respect to a Defaulting Lender until such default is cured.  The
operation of this Section shall not be construed to increase or otherwise affect
the Commitment of any Lender, or relieve or excuse the performance by any
Borrower or Guarantor of their duties and obligations hereunder.
 
 
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(e)           Nothing in this Section or elsewhere in this Agreement or the
other Financing Agreements shall be deemed to require Working Capital Agent to
advance funds on behalf of any Lender or to relieve any Lender from its
obligation to fulfill its Commitment hereunder or to prejudice any rights that
any Borrower may have against any Lender as a result of any default by any
Lender hereunder in fulfilling its Commitment.
 
6.12          Obligations Several; Independent Nature of Lenders’ Rights.  The
obligation of each Lender hereunder is several, and no Lender shall be
responsible for the obligation or commitment of any other Lender
hereunder.  Nothing contained in this Agreement or any of the other Financing
Agreements and no action taken by the Lenders pursuant hereto or thereto shall
be deemed to constitute the Lenders to be a partnership, an association, a joint
venture or any other kind of entity.  The amounts payable at any time hereunder
to each Lender shall be a separate and independent debt, and subject to Section
12.3 hereof, each Lender shall be entitled to protect and enforce its rights
arising out of this Agreement and it shall not be necessary for any other Lender
to be joined as an additional party in any proceeding for such purpose.
 
6.13          Bank Products.  Borrowers and Guarantors, or any of their
Subsidiaries, may (but no such Person is required to) request that the Bank
Product Providers provide or arrange for such Person to obtain Bank Products
from Bank Product Providers, and each Bank Product Provider may, in its sole
discretion, provide or arrange for such Person to obtain the requested Bank
Products.  Borrowers and Guarantors or any of their Subsidiaries that obtains
Bank Products shall indemnify and hold Working Capital Agent, each Lender and
their respective Affiliates harmless from any and all obligations now or
hereafter owing to any other Person by any Bank Product Provider in connection
with any Bank Products other than for gross negligence or willful misconduct on
the part of any such indemnified Person.  This Section 6.13 shall survive the
payment of the Obligations and the termination of this Agreement.  Borrower and
its Subsidiaries acknowledge and agree that the obtaining of Bank Products from
Bank Product Providers (a) is in the sole discretion of such Bank Product
Provider, and (b) is subject to all rules and regulations of such Bank Product
Provider.  Each Bank Product Provider shall be deemed a party hereto for
purposes of any reference in a Financing Agreement to the parties for whom
Working Capital Agent is acting, provided, that, the rights of such Bank Product
Provider hereunder and under any of the other Financing Agreements shall consist
exclusively of such Bank Product Provider’s right to share in payments and
collections out of the Collateral as set forth herein.  In connection with any
such distribution of payments and collections, Working Capital Agent shall be
entitled to assume that no amounts are due to any Bank Product Provider unless
such Bank Product Provider has notified Working Capital Agent in writing of any
such liability owed to it as of the date of any such distribution.
 
 
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SECTION 7          COLLATERAL REPORTING AND COVENANTS
 
7.1           Collateral Reporting.
 
(a)           Borrowers shall provide Agents with the following documents in a
form satisfactory to Agents:
 
(i)            as soon as possible after (1) the end of each Fiscal Month (but
in any event within fifteen (15) days after the end thereof) or (2) the end of
each week (but in any event by no later than Thursday of the immediately
following week) if Adjusted Excess Availability is less than the Specified
Amount as of the last day of the immediately preceding Fiscal Month or week, as
applicable, or (3) any request made by the Agents at any time or times, a
Borrowing Base Certificate setting forth the calculation of the Revolving Credit
Borrowing Base and Term Borrowing Base as of the last Business Day of the
immediately preceding weekly or monthly period, duly completed and executed by
the chief financial officer, vice president of finance, treasurer or controller
of Administrative Borrower, together with all schedules required pursuant to the
terms of the Borrowing Base Certificate duly completed, including but not
limited to (A) a monthly aging of Credit Card Receivables identifying those
outstanding more then five (5) Business Days since the sale date giving rise
thereto and (B) an inventory summary report by category (and upon Agents’
request, letter of credit inventory) and identifying where such Inventory is
located;
 
(ii)           as soon as possible after the end of each Fiscal Month (but in
any event within fifteen (15) days after the end thereof), on a monthly basis,
or more frequently as Agents may request, (A) rollforward inventory reports
supported by monthly updates of adjusted cost factors and intercompany
eliminations (and including the amounts of Inventory and the value thereof at
any leased locations and at premises of warehouses, processors or other third
parties), (B) list or agings of outstanding accounts payable (and including
information indicating the amounts owing to owners and lessors of leased
premises, warehouses, fulfillment centers, processors, custom brokers, freight
forwarders and other third parties from time to time in possession of any
Collateral), and (C) a certificate of an authorized officer of Administrative
Borrower certifying that sales and use tax collections, deposits and payments
are current;
 
 
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(iii)          as soon as possible after the end of each calendar month (but in
any event within five (5) days after the end thereof), on a monthly basis, or
more frequently as Agents may request, a duly completed Applicable Margin
Certificate, duly signed by an authorized officer of the Administrative
Borrower;
 
(iv)          as soon as possible after the end of each Fiscal Quarter (but in
any event within fifteen (15) Business Days after the end thereof), on a
quarterly basis or more frequently as Agents may request, reports by retail
store location of sales and operating profits for each such retail store
location;
 
(v)           upon Agents’ reasonable request, (A) reports of sales for each
category of Inventory, (B) reports of aggregate Inventory purchases and
identifying items of Inventory in transit to any Borrower or Guarantor related
to the applicable documentary letter of credit and/or bill of lading number, (C)
copies of remittance advices and reports, and copies of deposit slips and bank
statements, (D) copies of shipping and delivery documents, (E) copies of
purchase orders, invoices and delivery documents for Inventory and Equipment
acquired by Borrowers and Guarantor, (F) reports of inventory subject to a
license granted to a Borrower by a third party, identifying such inventory by
item, source, licensor, royalties paid, royalties payable and applicable license
agreement, and (G) a report of all Inventory purchased or sold by Borrowers on
consignment;
 
(vi)           upon Agents’ reasonable request, (A) copies of customer
statements, purchase orders, sales invoices, credit memos, remittance advices
and reports, and copies of deposit slips and bank statements, (B) copies of
shipping and delivery documents, and (C) copies of purchase orders, invoices and
delivery documents for Inventory and Equipment acquired by any Borrower or
Guarantor; and
 
(vii)           such other reports as to the Collateral as Agents shall
reasonably request from time to time.
 
(b)           Nothing contained in any Borrowing Base Certificate shall be
deemed to limit, impair or otherwise affect the rights of Agents contained
herein and in the event of any conflict or inconsistency between the calculation
of the Revolving Credit Borrowing Base and Term Borrowing Base as set forth in
any Borrowing Base Certificate and as determined by Working Capital Agent in
good faith, the determination of Working Capital Agent shall govern and be
conclusive and binding upon Borrowers and Guarantors.  Without limiting the
foregoing, Borrowers shall furnish to Agents any information which Agents may
reasonably request regarding the determination and calculation of any of the
amounts set forth in any Borrowing Base Certificate.  The Revolving Credit
Borrowing Base and Term Borrowing Base may be adjusted based on the information
set forth in the reports received by Agents under Section 7.1(a)(i) above.  If
any Borrower’s or Guarantor’s records or reports of the Collateral are prepared
or maintained by an accounting service, contractor, shipper or other agent, such
Borrower and Guarantor hereby irrevocably authorizes such service, contractor,
shipper or agent to deliver such records, reports, and related documents to
Agents and to follow Agents’ instructions with respect to further services.
 
 
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7.2           Accounts Covenants.
 
(a)           Borrowers shall notify Working Capital Agent promptly of the
assertion of (i) any claims, offsets, defenses or counterclaims by any account
debtor, Credit Card Issuer or Credit Card Processor or any disputes with any of
such persons or any settlement, adjustment or compromise thereof, to the extent
any of the foregoing exceeds $250,000 in any one case or $500,000 in the
aggregate, (ii) all material adverse information relating to the financial
condition of any account debtor, Credit Card Issuer or Credit Card Processor,
and (iii) any event or circumstance which, to the best of any Borrower’s or
Guarantor’s knowledge, which would cause Working Capital Agent to consider any
then existing Credit Card Receivables as no longer Eligible Credit Card
Receivables.  No credit, discount, allowance or extension or agreement for any
of the foregoing shall be granted to any account debtor, Credit Card Issuer or
Credit Card Processor except in the ordinary course of a Borrower’s business in
accordance with the current practices of such Borrower as in effect on the date
hereof.  So long as no Event of Default exists or has occurred and is
continuing, no Borrower shall settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor, Credit Card Issuer, Credit Card
Processor.  At any time that an Event of Default exists or has occurred and is
continuing, Working Capital Agent shall, at its option, have the exclusive right
to settle, adjust or compromise any claim, offset, counterclaim or dispute with
account debtors, Credit Card Issuers or Credit Card Processors or grant any
credits, discounts or allowances.
 
(b)           Borrowers shall notify Working Capital Agent promptly of:  (i) any
notice of a material default by such Borrower under any of the Credit Card
Agreements or of any default which has a reasonable likelihood of resulting in
the Credit Card Issuer or Credit Card Processor ceasing to make payments or
suspending payments to such Borrower, (ii) any notice from any Credit Card
Issuer or Credit Card Processor that such person is ceasing or suspending, or
will cease or suspend, any present or future payments due or to become due to
any Borrower from such person, or that such person is terminating or will
terminate any of the Credit Card Agreements, and (iii) the failure of such
Borrower to comply with any material terms of the Credit Card Agreements or any
terms thereof which has a reasonable likelihood of resulting in the Credit Card
Issuer or Credit Card Processor ceasing or suspending payments to such Borrower.
 
(c)           Working Capital Agent shall have the right at any time or times,
in Working Capital Agent’s name or in the name of a nominee of Working Capital
Agent, to verify the validity, amount or any other matter relating to any
Receivables or other Collateral, by mail, telephone, facsimile transmission or
otherwise.
 
7.3           Inventory Covenants.  With respect to the Inventory:  (a) each
Borrower and Guarantor shall at all times maintain inventory records reasonably
satisfactory to Agents, keeping correct and accurate records reasonably
describing the kind, type, quality and quantity of Inventory, such Borrower’s or
Guarantor’s cost therefor and daily withdrawals therefrom and additions thereto;
(b) Borrowers and Guarantors shall, at their expense, conduct a physical count
of the Inventory either through periodic cycle counts or wall to wall counts, so
that all Inventory is subject to such counts at least once each year, provided,
that Borrowers and Guarantors shall conduct additional physical counts of
Inventory as provided herein at any time or times as Agents may request, such
additional physical counts at such Agent’s expense unless an Event of Default
then exists, in which case at Borrowers’ and Guarantors’ expense, and promptly
following all such physical inventories (whether through periodic cycle counts
or wall to wall counts) Borrowers shall supply Agents with a report in the form
and with such specificity as may be reasonably satisfactory to Agents concerning
such physical count; (c) Borrowers and Guarantors shall not remove any Inventory
from the locations set forth or permitted herein, without the prior written
consent of Agents (which consent shall not be unreasonably withheld), except for
sales of Inventory in the ordinary course of its business and except to move
Inventory directly from one location set forth or permitted herein to another
such location and except for Inventory shipped from the manufacturer thereof to
such Borrower or Guarantor which is in transit to the locations set forth or
permitted herein and except to return defective or non-conforming Inventory to
the manufacturers or vendors thereof; (d) Borrowers shall, and shall cause their
Subsidiaries to, cooperate with any appraiser retained by Working Capital Agent
in the conduct of appraisals of Inventory, such appraisals (i) to be conducted
at such time or times as Working Capital Agent may request, (ii)(x) to be
conducted, at Borrower’s expense, no less than two (2) times in any twelve (12)
month period, unless Adjusted Excess Availability is less than the Specified
Amount, then no less than three (3) times in such twelve (12) month period and
(y) to be conducted, at Working Capital Agent’s expense unless an Event of
Default then exists in which case at Borrowers’ expense, and (iii) to be in
form, scope and methodology acceptable to Agents, addressed to Agents and
Lenders and upon which Agents and Lenders are expressly permitted to rely; (e)
Borrowers and Guarantors shall produce, use, store and maintain the Inventory
with all reasonable care and caution and in accordance with applicable standards
of any insurance and in conformity with applicable laws (including the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto); (f) none of the Inventory or
other Collateral constitutes farm products or the proceeds thereof; (g) each
Borrower and Guarantor assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory; (h)
Borrowers and Guarantors shall not sell Inventory to any customer on approval,
or any other basis which entitles the customer to return or may obligate any
Borrower or Guarantor to repurchase such Inventory except for the right of
return given to retail customers of such Borrower or Guarantor in the ordinary
course of the business of such Borrower or Guarantor in accordance with the then
current return policy of such Borrower or Guarantor; (i) Borrowers and
Guarantors shall keep the Inventory in good and marketable condition; and (j)
Borrowers and Guarantors shall not, without prior written notice to Working
Capital Agent or the specific identification of such Inventory in a report with
respect thereto provided by Administrative Borrower to Working Capital Agent
pursuant to Section 7.1(a) hereof, acquire or accept any Inventory on
consignment or approval.
 
 
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7.4           Equipment and Real Property Covenants.  (a) The Borrowers and
Guarantors shall, and shall cause their Subsidiaries to, cooperate with any
appraiser retained by Working Capital Agent in the conduct of appraisals of the
Eligible Real Property, such appraisals (i) to be conducted at the Borrowers’
and Guarantors’ expense no more than one (1) time in any twelve (12) month
period, but at any time or times as Working Capital Agent may request at the
Working Capital Agent’s expense unless an Event of Default then exists in which
case at the Borrowers’ and Guarantors’ expense and (ii) to be in form, scope and
methodology (including, without limitation the FIRREA requirements) acceptable
to Agents, addressed to Agents and upon which Agents are expressly permitted to
rely; (b) Borrowers and Guarantors shall keep the Equipment in good order,
repair, and operating condition (ordinary wear and tear excepted); (c) Borrowers
and Guarantors shall use the Equipment and Real Property with all reasonable
care and caution and in accordance with applicable standards of any insurance
and in material conformity with all applicable laws; (d) the Equipment is and
shall be used in the business of Borrowers and Guarantors and not for personal,
family, household or farming use; (e) Borrowers and Guarantors shall not remove
any Equipment from the locations set forth or permitted herein, except to the
extent necessary to have any Equipment repaired or maintained in the ordinary
course of its business (or to return defective or non-conforming Equipment to
the manufacturers or vendors thereof) or to move Equipment directly from one
location set forth or permitted herein to another such location and except for
the movement of motor vehicles used by or for the benefit of such Borrower or
Guarantor in the ordinary course of business; (f) the Equipment is now and shall
remain personal property and Borrowers and Guarantors shall not permit any of
the Equipment to be or become a part of or affixed to real property; and (g)
each Borrower and Guarantor assumes all responsibility and liability arising
from the use of the Equipment and Real Property.
 
 
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7.5           Collateral Audit.  With respect to the Collateral, Borrowers and
Guarantors shall, and shall cause their Subsidiaries to, cooperate with any
auditor retained by the Working Capital Agent in the conduct of an audit of the
Collateral, such audit to occur (i) no less than two (2) times in any twelve
(12) month period, unless Adjusted Excess Availability is less than the
Specified Amount, then three (3) times in such twelve (12) month period, in
either case, at the Borrowers’ and Guarantors’ expense, and (ii) at such time or
times as Working Capital Agent may request at Working Capital Agent’s expense
unless an Event of Default then exists in which case at Borrowers’ and
Guarantors’ expense.  Such audit shall in form, scope and methodology acceptable
to Agents, addressed to Agents and Lenders and upon which Agents and Lenders are
expressly permitted to rely.
 
7.6           Power of Attorney.  Each Borrower and Guarantor hereby irrevocably
designates and appoints Working Capital Agent (and all persons designated by
Working Capital Agent) as such Borrower’s and Guarantor’s true and lawful
attorney-in-fact, and authorizes Working Capital Agent, in such Borrower’s,
Guarantor’s or Working Capital Agent’s name, to:  (a) at any time an Event of
Default exists or has occurred and is continuing (i) demand payment on any
Collateral, (ii) enforce payment of any of the Collateral by legal proceedings
or otherwise, (iii) exercise all of such Borrower’s or Guarantor’s rights and
remedies to collect any Collateral, (iv) sell or assign any Collateral upon such
terms, for such amount and at such time or times as Working Capital Agent deems
advisable, (v) settle, adjust, compromise, extend or renew any of the
Collateral, (vi) discharge and release any Collateral, (vii) prepare, file and
sign such Borrower’s or Guarantor’s name on any proof of claim in bankruptcy or
other similar document against an account debtor or other obligor in respect of
any Collateral, (viii) notify the post office authorities to change the address
for delivery of remittances from account debtors or other obligors in respect of
Collateral to an address designated by Working Capital Agent, and open and
dispose of all mail addressed to such Borrower or Guarantor and handle and store
all mail relating to the Collateral; and (ix) do all acts and things which are
necessary, in Working Capital Agent’s determination, to fulfill such Borrower’s
or Guarantor’s obligations under this Agreement and the other Financing
Agreements and (b) at any time to (i) take control in any manner of any item of
payment constituting Collateral or otherwise received in or for deposit in the
Blocked Accounts or any item of payment constituting Collateral is otherwise
received by Agents or any Lender, (ii) have access to any lockbox or postal box
into which remittances from account debtors or other obligors in respect of
Collateral are sent or received, (iii) endorse such Borrower’s or Guarantor’s
name upon any items of payment in respect of Collateral received by Agents and
any Lender and deposit the same in Working Capital Agent’s account for
application to the Obligations, (iv) endorse such Borrower’s or Guarantor’s name
upon any chattel paper, document, instrument, invoice, or similar document or
agreement relating to any Receivable or any goods pertaining thereto or any
other Collateral, including any warehouse or other receipts, or bills of lading
and other negotiable or non-negotiable documents, (v) clear Inventory the
purchase of which was financed with a Letter of Credit through U.S. Customs or
foreign export control authorities in such Borrower’s or Guarantor’s name,
Working Capital Agent’s name or the name of Working Capital Agent’s designee,
and to sign and deliver to customs officials powers of attorney in such
Borrower’s or Guarantor’s name for such purpose, and to complete in such
Borrower’s or Guarantor’s or Working Capital Agent’s name, any order, sale or
transaction, obtain the necessary documents in connection therewith and collect
the proceeds thereof, and (vi) sign such Borrower’s or Guarantor’s name on any
verification of amounts owing constituting Collateral and notices thereof to
account debtors or any secondary obligors or other obligors in respect
thereof.  Each Borrower and Guarantor hereby releases Agents and Lenders and
their respective officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Agents’ or any Lender’s
own gross negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
 
 
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7.7           Right to Cure.  Working Capital Agent may, at its option, upon
notice to Administrative Borrower, (a) cure any default by any Borrower or
Guarantor under any material agreement with a third party that affects the
Collateral, its value or the ability of Working Capital Agent to collect, sell
or otherwise dispose of the Collateral or the rights and remedies of Working
Capital Agent or any Lender therein or the ability of any Borrower or Guarantor
to perform its obligations hereunder or under any of the other Financing
Agreements, (b) pay or bond on appeal any judgment entered against any Borrower
or Guarantor, (c) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and (d) pay any amount, incur any expense or perform any act which, in Working
Capital Agent’s judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Agents and Lenders with
respect thereto.  Working Capital Agent may add any amounts so expended to the
Obligations and charge any Borrower’s account therefor, such amounts to be
repayable by Borrowers on demand.  Agents and Lenders shall be under no
obligation to effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of any Borrower or
Guarantor.  Any payment made or other action taken by Agents or any Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
 
7.8           Access to Premises.  From time to time as requested by Working
Capital Agent, at the cost and expense of Borrowers, (a) Working Capital Agent
or its designee shall have complete access to all of each Borrower’s and
Guarantor’s premises during normal business hours and after notice to Parent
(unless an Event of Default exists or shall have occurred and be continuing, in
which event no notice shall be required and each Agent shall have access at any
and all times during the continuance thereof) for the purposes of inspecting,
verifying and auditing the Collateral and all of each Borrower’s and Guarantor’s
books and records, including the Records, and (b) each Borrower and Guarantor
shall promptly furnish to each Agent such copies of such books and records or
extracts therefrom as such Agent may request, and Agents or any Lender or
Agents’ designee may use during normal business hours such of any Borrower’s and
Guarantor’s personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Receivables and realization of other
Collateral.  Furthermore, so long as any Event of Default has occurred and is
continuing, Borrowers shall provide Agents with access to their suppliers,
provided that the each Agent will afford the Borrowers a reasonable opportunity
to participate in any discussions with such suppliers.  Each Borrower and
Guarantor shall deliver any document or instrument necessary for each Agent, as
it may from time to time reasonably request, to obtain records from any service
bureau or other Person that maintains records for such Borrower or Guarantor,
and shall maintain duplicate records or supporting documentation on media,
including computer tapes and discs owned by such Borrower or Guarantor.
 
 
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SECTION 8          REPRESENTATIONS AND WARRANTIES
 
Each Borrower and Guarantor hereby represents and warrants to Agents, Lenders
and Issuing Bank the following (which shall survive the execution and delivery
of this Agreement):
 
8.1           Existence, Power and Authority.  Each Borrower and Guarantor is a
corporation or limited liability company duly organized and in good standing
under the laws of its jurisdiction of organization or formation and is duly
qualified as a foreign corporation or limited liability company and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a Material Adverse Effect.  The execution, delivery and
performance of this Agreement, the other Financing Agreements and the
transactions contemplated hereunder and thereunder (a) are all within each
Borrower’s and Guarantor’s powers, (b) have been duly authorized, (c) are not in
contravention of law or the terms of any Borrower’s or Guarantor’s certificate
of incorporation or formation, by laws, operating agreements or other
organizational documentation, or any indenture, agreement or undertaking to
which any Borrower or Guarantor is a party or by which any Borrower or Guarantor
or its property are bound and (d) will not result in the creation or imposition
of, or require or give rise to any obligation to grant, any lien, security
interest, charge or other encumbrance upon any property of any Borrower or
Guarantor.  This Agreement and the other Financing Agreements to which any
Borrower or Guarantor is a party constitute legal, valid and binding obligations
of such Borrower and Guarantor enforceable in accordance with their respective
terms.
 
8.2           Name; State of Organization; Chief Executive Office; Collateral
Locations.
 
(a)           The exact legal name of each Borrower and Guarantor is as set
forth on the signature page of this Agreement and on Schedule 8.2.  No Borrower
or Guarantor has, during the five years prior to the date of this Agreement,
been known by or used any other corporate or fictitious name or been a party to
any merger or consolidation, or acquired all or substantially all of the assets
of any Person, or acquired any of its property or assets out of the ordinary
course of business, except as set forth on Schedule 8.2.
 
 
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(b)           Each Borrower and Guarantor is an organization of the type and
organized in the jurisdiction set forth on Schedule 8.2.  Schedule 8.2
accurately sets forth the organizational identification number of each Borrower
and Guarantor or accurately states that such Borrower or Guarantor has none and
accurately sets forth the federal employer identification number of each
Borrower and Guarantor.
 
(c)            The chief executive office and mailing address of each Borrower
and Guarantor and each Borrower’s and Guarantor’s Records concerning Accounts
are located only at the address identified as such on Schedule 8.2 and its only
other places of business and the only other locations of Collateral, if any, are
the addresses set forth on Schedule 8.2, subject to the rights of any Borrower
or Guarantor to establish new locations in accordance with Section 9.2
below.  Schedule 8.2 correctly identifies any of such locations which are not
owned by a Borrower or Guarantor and sets forth the owners and/or operators
thereof.
 
8.3           Financial Statements; No Material Adverse Change.  All financial
statements relating to any Borrower or Guarantor which have been or may
hereafter be delivered by any Borrower or Guarantor to Agents and Lenders have
been prepared in accordance with GAAP (except as to any interim financial
statements, to the extent such statements are subject to normal year-end
adjustments and do not include any notes) and fairly present in all material
respects the financial condition and the results of operation of such Borrower
and Guarantor as at the dates and for the periods set forth therein.  Except as
disclosed in any interim financial statements furnished by Borrowers and
Guarantors to Agents prior to the date of this Agreement, there has been no act,
condition or event which has had or is reasonably likely to have a Material
Adverse Effect since the date of the most recent audited financial statements of
any Borrower or Guarantor furnished by any Borrower or Guarantor to Agents prior
to the date of this Agreement.  The projections dated November 8, 2012 for the
Fiscal Years ending February 2, 2013 through February 1, 2014 that have been
delivered to Agents or any projections hereafter delivered to Agents have been
prepared in light of the past operations of the businesses of Borrowers and
Guarantors and are based upon estimates and assumptions stated therein, all of
which Borrowers and Guarantors have determined to be reasonable and fair in
light of the then current conditions and current facts and reflect the good
faith and reasonable estimates of Borrowers and Guarantors of the future
financial performance of Parent and its Subsidiaries and of the other
information projected therein for the periods set forth therein.
 
8.4           Priority of Liens; Title to Properties.  The security interests
and liens granted to Working Capital Agent under this Agreement and the other
Financing Agreements constitute valid and perfected first priority liens and
security interests in and upon the Collateral subject only to the liens
indicated on Schedule 8.4 and the other liens permitted under Section 9.8
hereof.  Each Borrower and Guarantor has good and marketable fee simple title to
or valid leasehold interests in all of its Real Property and good, valid and
merchantable title to all of its other properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Working Capital Agent and such others as are
specifically listed on Schedule 8.4 or permitted under Section 9.8 hereof.
 
8.5           Tax Returns.  Each Borrower and Guarantor has filed, or caused to
be filed, in a timely manner (including, subject to any extensions permitted by
applicable law) all tax returns, reports and declarations which are required to
be filed by it.  All information in such tax returns, reports and declarations
is complete and accurate in all material respects.  Each Borrower and Guarantor
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower or Guarantor and with respect to which adequate
reserves have been set aside on its books.  Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
 
 
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8.6           Litigation.  Except as set forth on Schedule 8.6, (a) there is no
investigation by any Governmental Authority pending, or to the best of any
Borrower’s or Guarantor’s knowledge threatened, against or affecting any
Borrower or Guarantor, its or their assets or business and (b) there is no
action, suit, proceeding or claim by any Person pending, or to the best of any
Borrower’s or Guarantor’s knowledge threatened, against any Borrower or
Guarantor or its or their assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, in each case, which if adversely
determined against such Borrower or Guarantor has or could reasonably be
expected to have a Material Adverse Effect.
 
8.7           Compliance with Other Agreements and Applicable Laws.
 
(a)           Borrowers and Guarantors are not in default in any respect under,
or in violation in any respect of the terms of, any material agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound.  Borrowers and Guarantors are in
compliance with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority relating to their respective businesses,
including, without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards
Act of 1938, as amended, ERISA, the Code, as amended, and the rules and
regulations thereunder, all Environmental Laws, all Federal, State and local
statutes, regulations, rules and orders relating to consumer credit (including,
without limitation, as each has been amended, the Truth-in-Lending Act, the Fair
Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act, and regulations, rules and orders promulgated thereunder), and
all Federal, State and local states, regulations, rules and orders pertaining to
sales of consumer goods (including, without limitation, the Consumer Products
Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914, as
amended, and all regulations, rules and orders promulgated thereunder).
 
(b)           Borrowers and Guarantors have obtained all material permits,
licenses, approvals, consents, certificates, orders or authorizations of any
Governmental Authority required for the lawful conduct of its business (the
“Permits”).  All of the Permits are valid and subsisting and in full force and
effect.  There are no actions, claims or proceedings pending or to the best of
any Borrower’s or Guarantor’s knowledge, threatened that seek the revocation,
cancellation, suspension or modification of any of the Permits.
 
8.8           Environmental Compliance.
 
(a)           Except as set forth on Schedule 8.8, Borrowers, Guarantors and any
Subsidiary of any Borrower or Guarantor have not generated, used, stored,
treated, transported, manufactured, handled, produced or disposed of any
Hazardous Materials, on or off its premises (whether or not owned by it) in any
manner which at any time violates in any material respect any applicable
Environmental Law or Permit, and the operations of Borrowers, Guarantors and any
Subsidiary of any Borrower or Guarantor complies in all material respects with
all Environmental Laws and all Permits.
 
 
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(b)           Except as set forth on Schedule 8.8, there has been no
investigation by any Governmental Authority or any proceeding, complaint, order,
directive, claim, citation or notice by any Governmental Authority or any other
person nor is any pending or to the best of any Borrower’s or Guarantor’s
knowledge threatened, with respect to any non compliance with or violation of
the requirements of any Environmental Law by any Borrower or Guarantor or the
release, spill or discharge, threatened or actual, of any Hazardous Material or
the generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials or any other environmental,
health or safety matter, which adversely affects or could reasonably be expected
to adversely affect in any material respect any Borrower or Guarantor or its or
their business, operations or assets or any properties at which such Borrower or
Guarantor has transported, stored or disposed of any Hazardous Materials.
 
(c)           Except as set forth on Schedule 8.8, Borrowers and Guarantors have
no material liability (contingent or otherwise) in connection with a release,
spill or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
 
(d)           Borrowers and Guarantors have all Permits required to be obtained
or filed in connection with the operations of Borrowers and Guarantors under any
Environmental Law and all of such licenses, certificates, approvals or similar
authorizations and other Permits are valid and in full force and effect.
 
8.9           Employee Benefits.
 
(a)           Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other Federal or State law.  Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the Internal Revenue Service and to the
best of any Borrower’s or Guarantor’s knowledge, nothing has occurred which
would cause the loss of such qualification.  Each Borrower and its ERISA
Affiliates have made all required contributions to any Plan subject to Section
412 of the Code, and no application for a funding waiver or for an extension of
any amortization period pursuant to the Pension Funding Rules has been made with
respect to any Plan.
 
(b)           There are no pending, or to the best of any Borrower’s or
Guarantor’s knowledge, threatened claims, actions or lawsuits, or action by any
Governmental Authority, with respect to any Plan.  There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan.
 
(c)           (i) No ERISA Event has occurred or since January 1, 2007 has ever
occurred or is reasonably expected to occur; (ii) based on the latest valuation
of each Pension Plan and on the actuarial methods and assumptions employed for
such valuation (determined in accordance with the assumptions used for funding
such Pension Plan pursuant to the Pension Funding Rules), the Pension Plan has
made the minimum required contributions to date applicable to the Pension Plan
under Sections 412 and 430 of the Code; (iii) each Borrower and Guarantor, and
their ERISA Affiliates, have not incurred and do not reasonably expect to incur,
any liability under Title IV of ERISA with respect to any Plan (other than
premiums due and not delinquent under Section 4007 of ERISA); (iv) each Borrower
and Guarantor, and their ERISA Affiliates, have not incurred and do not
reasonably expect 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 Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) each Borrower and Guarantor, and their ERISA Affiliates, have not
engaged in a transaction that would be subject to Section 4069 or 4212(c) of
ERISA.
 
 
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8.10         Bank Accounts.  All of the deposit accounts, investment accounts or
other accounts in the name of or used by any Borrower or Guarantor maintained at
any bank or other financial institution are set forth on Schedule 8.10 (as such
Schedule may be updated from time to time pursuant to Section 9.6(g)), subject
to the right of each Borrower and Guarantor to establish new accounts in
accordance with Section 5.2 hereof.
 
8.11         Intellectual Property.  Each Borrower and Guarantor owns or
licenses or otherwise has the right to use all Intellectual Property necessary
for the operation of its business as presently conducted or proposed to be
conducted.  Borrowers and Guarantors do not have any Intellectual Property
registered, or subject to pending applications, in the U.S. Patent and Trademark
Office or any similar office or agency in the United States, any State thereof,
any political subdivision thereof or in any other country, other than those
described on Schedule 8.11 (as such Schedule may be updated from time to time
pursuant to Section 9.6(g)) and has not granted any licenses with respect
thereto other than as set forth on Schedule 8.11 (as such Schedule may be
updated from time to time pursuant to Section 9.6(g)).  No event has occurred
which permits or would permit after notice or passage of time or both, the
revocation, suspension or termination of such rights.  To the best of any
Borrower’s and Guarantor’s knowledge, no slogan or other advertising device,
product, process, method, substance or other Intellectual Property or goods
bearing or using any Intellectual Property presently contemplated to be sold by
or employed by any Borrower or Guarantor infringes any patent, trademark,
servicemark, tradename, copyright, license or other Intellectual Property owned
by any other Person presently and no claim or litigation is pending or
threatened against or affecting any Borrower or Guarantor contesting its right
to sell or use any such Intellectual Property.  Schedule 8.11 sets forth all of
the agreements or other arrangements of each Borrower and Guarantor pursuant to
which such Borrower or Guarantor has a license or other right to use any
trademarks, logos, designs, representations or other Intellectual Property owned
by another person as in effect on the date hereof and the dates of the
expiration of such agreements or other arrangements of such Borrower or
Guarantor as in effect on the date hereof (collectively, together with such
agreements or other arrangements as may be entered into by any Borrower or
Guarantor after the date hereof, collectively, the “License Agreements” and
individually, a “License Agreement”).  No trademark, servicemark, copyright or
other Intellectual Property at any time used by any Borrower or Guarantor which
is owned by another person, or owned by such Borrower or Guarantor subject to
any security interest, lien, collateral assignment, pledge or other encumbrance
in favor of any person other than Working Capital Agent, is affixed to any
Eligible Inventory, except (a) to the extent permitted under the term of the
license agreements listed on Schedule 8.11 and (b) to the extent the sale of
Inventory to which such Intellectual Property is affixed is permitted to be sold
by such Borrower or Guarantor under applicable law (including the United States
Copyright Act of 1976).
 
 
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8.12         Subsidiaries; Affiliates; Capitalization; Solvency; Material
Adverse Effect.
 
(a)           As of the Amendment Effective Date, each Borrower and Guarantor
does not have any direct or indirect Subsidiaries and is not engaged in any
joint venture or partnership except as set forth on Schedule 8.12.
 
(b)           As of the Amendment Effective Date, each Borrower and Guarantor is
the record and beneficial owner of all of the issued and outstanding shares of
Capital Stock of each of the Subsidiaries listed on Schedule 8.12 as being owned
by such Borrower or Guarantor and there are no proxies, irrevocable or
otherwise, with respect to such shares and no equity securities of any of the
Subsidiaries are or may become required to be issued by reason of any options,
warrants, rights to subscribe to, calls or commitments of any kind or nature and
there are no contracts, commitments, understandings or arrangements by which any
Subsidiary is or may become bound to issue additional shares of its Capital
Stock or securities convertible into or exchangeable for such shares.
 
(c)           As of the Amendment Effective Date, the issued and outstanding
shares of Capital Stock of each Borrower (other than Parent) and Guarantor are
directly and beneficially owned and held by the Persons indicated on Schedule
8.12, and in each case all of such shares have been duly authorized and are
fully paid and non-assessable, free and clear of all claims, liens, pledges and
encumbrances of any kind, except as disclosed in writing to Working Capital
Agent prior to the date hereof.
 
(d)           Each Borrower and Guarantor (other than with respect to Fabrics MI
and Merchandising and, as to Merchandising, solely on account of the
Intercompany Indebtedness) is Solvent and will continue to be Solvent after the
creation of the Obligations, the security interests of Working Capital Agent and
the other transaction contemplated hereunder.
 
(e)           Since January 28, 2012, no event has occurred, that alone or
together with other events, could reasonably be expected to have a Material
Adverse Effect.
 
8.13         Labor Disputes.
 
(a)           As of the Closing Date, set forth on Schedule 8.13 is a list
(including dates of termination) of all collective bargaining or similar
agreements between or applicable to each Borrower and Guarantor and any union,
labor organization or other bargaining agent in respect of the employees of any
Borrower or Guarantor on the date hereof.
 
(b)           There is (i) no significant unfair labor practice complaint
pending against any Borrower or Guarantor or, to the best of any Borrower’s or
Guarantor’s knowledge, threatened against it, before the National Labor
Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is
pending on the date hereof against any Borrower or Guarantor or, to best of any
Borrower’s or Guarantor’s knowledge, threatened against it, and (ii) no
significant strike, labor dispute, slowdown or stoppage is pending against any
Borrower or Guarantor or, to the best of any Borrower’s or Guarantor’s
knowledge, threatened against any Borrower or Guarantor.
 
 
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8.14         Restrictions on Subsidiaries.  Except for restrictions contained in
this Agreement or any other agreement with respect to Indebtedness of any
Borrower or Guarantor permitted hereunder, there are no contractual or
consensual restrictions on any Borrower or Guarantor or any of its Subsidiaries
which prohibit or otherwise restrict (a) the transfer of cash or other assets
(i) between any Borrower or Guarantor and any of its or their Subsidiaries or
(ii) between any Subsidiaries of any Borrower or Guarantor or (b) the ability of
any Borrower or Guarantor or any of its or their Subsidiaries to incur
Indebtedness or grant security interests to Working Capital Agent or any Lender
in the Collateral.
 
8.15         Material Contracts.  Schedule 8.15 sets forth all Material
Contracts to which any Borrower or Guarantor is a party or is bound as of the
date hereof.  Borrowers and Guarantors have delivered true, correct and complete
copies of such Material Contracts to Working Capital Agent on or before the date
hereof.  Borrowers and Guarantors are not in breach or in default in any
material respect of or under any Material Contract and have not received any
notice of the intention of any other party thereto to terminate any Material
Contract.
 
8.16         Credit Card Agreements.  Set forth on Schedule 8.16 is a correct
and complete list of all of the Credit Card Agreements and all other agreements,
documents and instruments existing as of the date hereof between or among any
Borrower, any of its Subsidiaries, the Credit Card Issuers, the Credit Card
Processors and any of their Affiliates.  The Credit Card Agreements constitute
all of such agreements necessary for each Borrower to operate its business as
presently conducted with respect to credit cards and debit cards and no
Receivables of any Borrower arise from purchases by customers of Inventory with
credit cards or debit cards, other than those which are issued by Credit Card
Issuers with whom such Borrower has entered into one of the Credit Card
Agreements set forth on Schedule 8.16 (as such Schedule may be updated from time
to time pursuant to Section 9.6(g)) hereto or with whom Borrower has entered
into a Credit Card Agreement in accordance with Section 9.18 hereof.  Each of
the Credit Card Agreements constitutes the legal, valid and binding obligations
of the Borrower that is party thereto and to the best of each Borrower’s and
Guarantor’s knowledge, the other parties thereto, enforceable in accordance with
their respective terms and is in full force and effect.  No material default or
material event of default, or act, condition or event which after notice or
passage of time or both, would constitute a material default or a material event
of default under any of the Credit Card Agreements exists or has occurred that
would entitle the other party thereto to suspend, withhold or reduce amounts
that would otherwise be payable to a Borrower.  Each Borrower and the other
parties thereto have complied in all material respects with all of the terms and
conditions of the Credit Card Agreements to the extent necessary for such
Borrower to be entitled to receive all payments thereunder.  Borrowers have
delivered, or caused to be delivered to Working Capital Agent, true, correct and
complete copies of all of the Credit Card Agreements.
 
8.17           Interrelated Businesses.  Borrowers and Guarantors make up a
related organization of various entities constituting a single economic and
business enterprise so that Borrowers and Guarantors share an identity of
interests such that any benefit received by any one of them benefits the
others.  Borrowers and Guarantors render services to or for the benefit of the
other Borrowers and/or Guarantors, as the case may be, purchase or sell and
supply goods to or from or for the benefit of the others, make loans, advances
and provide other financial accommodations to or for the benefit of the other
Borrowers and Guarantors (including inter alia, the payment by Borrowers and
Guarantors of creditors of the other Borrowers or Guarantors and guarantees by
Borrowers and Guarantors of indebtedness of the other Borrowers and Guarantors
and provide administrative, marketing, payroll and management services to or for
the benefit of the other Borrowers and Guarantors).  Substantially all of the
Inventory is paid for pursuant to Letters of Credit funded by Merchandising on
behalf of the other Borrowers or are otherwise paid for by Merchandising, and
Borrowers use substantially all of the proceeds from the disposition of the
Inventory so purchased to repay the amounts owing to Merchandising as a result
of such arrangements.  Borrowers and Guarantors have centralized accounting and
legal services, certain common officers and directors and generally do not
provide consolidating financial statements to creditors and certain Borrowers
and Guarantors have the same chief executive office.
 
 
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8.18         Payable Practices.  Each Borrower and Guarantor have not made any
material change in the historical accounts payable practices from those in
effect immediately prior to the date hereof.
 
8.19         Accuracy and Completeness of Information.  All information
furnished by or on behalf of any Borrower or Guarantor in writing to Agents or
any Lender in connection with this Agreement or any of the other Financing
Agreements or any transaction contemplated hereby or thereby, including all
information on the Schedules hereto and in the Information Certificate is true
and correct in all material respects on the date as of which such information is
dated or certified and does not omit any material fact necessary in order to
make such information not misleading.  No event or circumstance has occurred
which has had or could reasonably be expected to have a Material Adverse Affect,
which has not been fully and accurately disclosed to Agents in writing prior to
the date hereof.
 
8.20         Intercompany Indebtedness.  As of the Closing Date, Schedule 8.20
sets forth a list of all intercompany Indebtedness of the Parent and its
Subsidiaries (such Indebtedness hereinafter referred to as the “Intercompany
Indebtedness”), identifying the payor and payee in respect thereof, the
outstanding principal amount of such Intercompany Indebtedness, and whether or
not such Intercompany Indebtedness is evidenced by a note or other document.
 
8.21         Survival of Warranties; Cumulative.  All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Agents and Lenders on the date of each additional
borrowing or other credit accommodation hereunder and shall be conclusively
presumed to have been relied on by Agents and Lenders regardless of any
investigation made or information possessed by Agents or any Lender.  The
representations and warranties set forth herein shall be cumulative and in
addition to any other representations or warranties which any Borrower or
Guarantor shall now or hereafter give, or cause to be given, to Agents or any
Lender.
 
8.22         Obligations as Senior Debt.  The Obligations constitute Credit
Facility Debt (as defined in the Existing Indenture and Indenture). As such, all
of the Obligations (and the Agents and Lenders) are entitled to the benefits of
each of the subordination and other provisions contained in the Existing
Indenture and Indenture which are available in respect of Credit Facility Debt
(and to the holders thereof), and each of such subordination and other
provisions is in full force and effect and is enforceable in accordance with its
terms.
 
 
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SECTION 9          AFFIRMATIVE AND NEGATIVE COVENANTS
 
9.1           Maintenance of Existence.
 
(a)           Each Borrower and Guarantor shall at all times preserve, renew and
keep in full force and effect its existence and rights and franchises with
respect thereto and maintain in full force and effect all licenses, trademarks,
tradenames, approvals, authorizations, leases, contracts and Permits necessary
to carry on the business as presently or proposed to be conducted, other than as
permitted in Section 9.7 hereto and other than the termination or expiration of
leases in the ordinary course of business.
 
(b)           No Borrower or Guarantor shall change its name unless each of the
following conditions is satisfied:  (i) Working Capital Agent shall have
received not less than thirty (30) days prior written notice from Administrative
Borrower of such proposed change in its corporate name, which notice shall
accurately set forth the new name; and (ii) Working Capital Agent shall have
received a copy of the amendment to the certificate of incorporation or
formation of such Borrower or Guarantor providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation or organization
of such Borrower or Guarantor as soon as it is available.
 
(c)           No Borrower or Guarantor shall change its chief executive office
or its mailing address or organizational identification number (or if it does
not have one, shall not acquire one) unless Working Capital Agent shall have
received not less than thirty (30) days’ prior written notice from
Administrative Borrower of such proposed change, which notice shall set forth
such information with respect thereto as Working Capital Agent may require and
Working Capital Agent shall have received such agreements as Working Capital
Agent may reasonably require in connection therewith.  No Borrower or Guarantor
shall change its type of organization, jurisdiction of organization or other
legal structure.
 
9.2           New Collateral Locations.  Each Borrower and Guarantor may only
open any new location, provided (a) such Borrower or Guarantor (i) gives Working
Capital Agent ten (10) days prior written notice of the intended opening of any
such new location, (ii) prior to the opening of any new location and the
relocation of any Collateral or other assets or properties thereto, takes all
steps Working Capital Agent deems necessary or desirable to grant to the Working
Capital Agent, for the benefit of the Secured Parties, a first priority,
perfected security interest in and lien on such assets or properties and (iii)
executes and delivers, or causes to be executed and delivered, to Working
Capital Agent such agreements, documents, and instruments, including opinions of
local counsel, as Working Capital Agent may deem reasonably necessary or
desirable to protect its interests in the Collateral, assets and properties at
such location.
 
9.3           Compliance with Laws, Regulations, Etc.
 
(a)           Each Borrower and Guarantor shall, and shall cause any Subsidiary
to, at all times, comply in all material respects with all laws, rules,
regulations, licenses, approvals, orders and other Permits applicable to it and
duly observe all requirements of any foreign, Federal, State or local
Governmental Authority.
 
 
 
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(b)           Borrowers and Guarantors shall give written notice to Working
Capital Agent immediately upon any Borrower’s or Guarantor’s receipt of any
notice of, or any Borrower’s or Guarantor’s otherwise obtaining knowledge of,
(i) the occurrence of any event involving the release, spill or discharge,
threatened or actual, of any Hazardous Material or (ii) any investigation,
proceeding, complaint, order, directive, claims, citation or notice with respect
to:  (A) any non-compliance with or violation of any Environmental Law by any
Borrower or Guarantor or (B) the release, spill or discharge, threatened or
actual, of any Hazardous Material other than in the ordinary course of business
and other than as permitted under any applicable Environmental Law.  Copies of
all environmental surveys, audits, assessments, feasibility studies and results
of remedial investigations shall be promptly furnished, or caused to be
furnished, by such Borrower or Guarantor to Working Capital Agent.  Each
Borrower and Guarantor shall take prompt action to respond to any material
non-compliance with any of the Environmental Laws and shall regularly report to
Working Capital Agent on such response.
 
(c)           Without limiting the generality of the foregoing, whenever Working
Capital Agent reasonably determines that there is non-compliance, or any
condition which requires any action by or on behalf of any Borrower or Guarantor
in order to avoid any non compliance, with any Environmental Law, Borrowers
shall, at Working Capital Agent’s request and Borrowers’ expense:  (i) cause an
independent environmental engineer reasonably acceptable to Working Capital
Agent to conduct such tests of the site where non-compliance or alleged non
compliance with such Environmental Laws has occurred as to such non-compliance
and prepare and deliver to Working Capital Agent a report as to such
non-compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof and (ii) provide to Working Capital Agent a supplemental
report of such engineer whenever the scope of such non-compliance, or such
Borrower’s or Guarantor’s response thereto or the estimated costs thereof, shall
change in any material respect.
 
(d)           Each Borrower and Guarantor shall indemnify and hold harmless
Agents and Lenders and their respective directors, officers, employees, agents,
invitees, representatives, successors and assigns, from and against any and all
losses, claims, damages, liabilities, costs, and expenses (including reasonable
attorneys’ fees and expenses) directly or indirectly arising out of or
attributable to the use, generation, manufacture, reproduction, storage,
release, threatened release, spill, discharge, disposal or presence of a
Hazardous Material, including the costs of any required or necessary repair,
cleanup or other remedial work with respect to any property of any Borrower or
Guarantor and the preparation and implementation of any closure, remedial or
other required plans.  All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination of this Agreement.
 
9.4           Payment of Taxes and Claims.  Each Borrower and Guarantor shall,
and shall cause any Subsidiary to, promptly pay and discharge all material
taxes, assessments, contributions and governmental charges upon or against it or
its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower, Guarantor or Subsidiary, as the case may be;
provided, that (i) adequate reserves with respect to such contest are maintained
on the books of such Borrower or Guarantor, in accordance with GAAP; (ii) no
lien shall be imposed to secure payment of such charges (other than payments to
warehousemen and/or bailees) that is superior to any of the liens securing the
Obligations and such contest is maintained and prosecuted continuously and with
diligence and operates to suspend collection or enforcement of such charges;
(iii) none of the Collateral becomes subject to forfeiture or loss as a result
of such contest; and (iv) such Borrower or Guarantor shall promptly pay or
discharge such contested charges, Taxes or claims and all additional charges,
interest, penalties and expenses, if any, and shall deliver to Agents evidence
reasonably acceptable to Agents of such compliance, payment or discharge, if
such contest is terminated or discontinued adversely to such Borrower or
Guarantor or the conditions set forth in this Section 9.4 are no longer met.
 
 
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9.5           Insurance.  Each Borrower and Guarantor shall, and shall cause any
Subsidiary to, at all times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against loss or damage and all
other insurance of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated.  Said policies of insurance shall be
reasonably satisfactory to Agents as to form, amount and insurer.  Borrowers and
Guarantors shall furnish certificates, policies or endorsements to Agents as
Agents shall reasonably require as proof of such insurance, and, if any Borrower
or Guarantor fails to do so, any Agent is authorized, but not required, to
obtain such insurance at the expense of Borrowers.  All policies shall provide
for at least thirty (30) days prior written notice to Working Capital Agent of
any cancellation or reduction of coverage and that Working Capital Agent may act
as attorney for each Borrower and Guarantor in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance.  Borrowers and Guarantors shall cause
Working Capital Agent to be named as a lender loss payee and an additional
insured (but without any liability for any premiums) under such insurance
policies and Borrowers and Guarantors shall obtain non-contributory lender’s
loss payable endorsements to all insurance policies in form and substance
satisfactory to Agents.  Such lender’s loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Working Capital Agent as
its interests may appear and further specify that Agents and Lenders shall be
paid regardless of any act or omission by any Borrower, Guarantor or any of its
or their Subsidiaries.  Without limiting any other rights of Agents or Lenders,
any insurance proceeds received by Working Capital Agent at any time may be
applied to payment of the Obligations, whether or not then due, in any order and
in such manner as Working Capital Agent may determine.  Upon application of such
proceeds to the Revolving Loans, Revolving Loans may be available subject and
pursuant to the terms hereof to be used for the costs of repair or replacement
of the Collateral lost or damages resulting in the payment of such insurance
proceeds.
 
9.6           Financial Statements and Other Information.
 
(a)           Each Borrower and Guarantor shall, and shall cause any Subsidiary
to, keep proper books and records in which true and complete entries shall be
made of all dealings or transactions of or in relation to the Collateral and the
business of such Borrower, Guarantor and its Subsidiaries in accordance with
GAAP.  Borrowers and Guarantors shall promptly furnish to Agents and Lenders all
such financial and other information as Agents shall reasonably request relating
to the Collateral and the assets, business and operations of Borrowers and
Guarantors, and the Administrative Borrower shall notify the auditors and
accountants of Borrowers and Guarantors that Working Capital Agent is authorized
to obtain such information directly from them.  Without limiting the foregoing,
Borrowers shall furnish or cause to be furnished to Agents, the following:
 
 
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(i)            within thirty (30) days after the end of each Fiscal Month,
consolidated unaudited balance sheets as of the close of such Fiscal Month and
the related statements of income (including a calculation of EBITDA) and cash
flows for such Fiscal Month and for that portion of the Fiscal Year ending as of
the close of such Fiscal Month, together with a comparison of the figures for
the corresponding periods in the prior Fiscal Year and the figures contained in
the projections for such Fiscal Year, all prepared in accordance with GAAP
(subject to normal year-end adjustments).  Such financial information shall be
accompanied by a certificate substantially in the form of Exhibit D hereto
signed by the chief financial officer of Parent certifying that (a) such
financial information presents fairly in accordance with GAAP (subject to normal
year-end adjustments) the financial position and results of operations of Parent
and its Subsidiaries, on a consolidated basis, in each case as at the end of
such Fiscal Month and for that portion of the Fiscal Year then ended, (b) any
other information presented is true, correct and complete in all material
respects and that there was no Default or Event of Default in existence as of
such time or, if a Default or Event of Default has occurred and is continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default, and (c) whether Borrowers and Guarantors were in compliance
with the covenants set forth in Section 9.19 of this Agreement for such Fiscal
Month and attaching a schedule in form reasonably satisfactory to Agents showing
calculations used in determining, as of the end of such Fiscal Month, whether
Borrowers and Guarantors were in compliance with the covenant set forth in
Section 9.19 of this Agreement for such Fiscal Month.
 
(ii)           within ninety (90) days after the end of each Fiscal Year,
audited consolidated financial statements and unaudited consolidating financial
statements of Parent and its Subsidiaries (including, in each case, balance
sheets, statements of income and loss, statements of cash flow and statements of
shareholders’ equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting in all material respects the financial position and
the results of the operations of Parent and its Subsidiaries as of the end of
and for such Fiscal Year, together with the unqualified opinion of independent
certified public accountants with respect to the audited consolidated financial
statements, which accountants shall be an independent accounting firm selected
by the audit committee of Parent and acceptable to Agents (it being understood
that any of the “Big Four” accounting firms, Burr, Pilger & Mayer, LLP or Horne,
LLP is acceptable to Agents), that such audited consolidated financial
statements have been prepared in accordance with GAAP, and present fairly in all
material respects the results of operations and financial condition of Parent
and its Subsidiaries as of the end of and for the Fiscal Year then ended, and
 
(iii)          at such time as available, but in no event later than fifteen
(15) days prior to the end of each Fiscal Year (commencing with the Fiscal Year
of Borrowers ending on or about February 2, 2013), projected consolidated
financial statements (including, in each case, forecasted balance sheets and
statements of income and loss, statements of cash flow, and statements of
shareholders’ equity) of Parent and its Subsidiaries for the next Fiscal Year
and a projected availability model, all in reasonable detail, and in a format
consistent with the projections delivered by Borrowers to Agents prior to the
date hereof, together with such supporting information as Agents may reasonably
request.  Such projected financial statements and availability model shall be
prepared on a monthly basis for the next succeeding year.  Such projections and
availability model shall represent the reasonable best estimate by Borrowers and
Guarantors of the future financial performance of Parent and its Subsidiaries
for the periods set forth therein and shall have been prepared on the basis of
the assumptions set forth therein which Borrowers and Guarantors believe are
fair and reasonable as of the date of preparation in light of current and
reasonably foreseeable business conditions (it being understood that actual
results may differ from those set forth in such projected financial statements
and availability model).  Each year Borrowers shall provide to Agents a
semi-annual update with respect to such projections and availability model or,
at any time a Default or Event of Default exists or has occurred and is
continuing, more frequently as Agents may require.
 
 
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(b)           Borrowers and Guarantors shall promptly notify Agents in writing
of the details of (i) any loss, damage, investigation, action, suit, proceeding
or claim relating to Collateral having a value of more than $250,000 or which if
adversely determined would result in any material adverse change in any
Borrower’s or Guarantor’s business, properties, assets, goodwill or condition,
financial or otherwise, (ii) any Material Contract being terminated or amended
or any new Material Contract entered into (in which event Borrowers and
Guarantors shall provide Agents with a copy of such Material Contract), (iii)
any order, judgment or decree in excess of $250,000 shall have been entered
against any Borrower or Guarantor any of its or their properties or assets, (iv)
any notification of a material violation of laws or regulations received by any
Borrower or Guarantor, (v) any ERISA Event, and (vi) the occurrence of any
Default or Event of Default.
 
(c)           Promptly after the sending or filing thereof, Borrowers shall send
to Agents copies of (i) all reports which Parent or any of its Subsidiaries
sends to its security holders generally, (ii) all reports and registration
statements which Parent or any of its Subsidiaries files with the Securities
Exchange Commission, any national or foreign securities exchange or the National
Association of Securities Dealers, Inc., and such other reports as Agents may
hereafter specifically identify to Administrative Borrower that Agents will
require be provided to Agents, (iii) all press releases and (iv) all other
statements concerning material changes or developments in the business of a
Borrower or Guarantor made available by any Borrower or Guarantor to the public.
 
(d)           Borrowers and Guarantors shall furnish or cause to be furnished to
Agents such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrowers and Guarantors, as Agents may, from
time to time, reasonably request.  Each Agent is hereby authorized to deliver a
copy of any financial statement or any other information relating to the
business of Borrowers and Guarantors to any court or other Governmental
Authority or to any Lender or Participant or prospective Lender or Participant
or any Affiliate of any Lender or Participant.  Each Borrower and Guarantor
hereby irrevocably authorizes and directs all accountants or auditors to deliver
to Agents, at Borrowers’ expense, copies of the financial statements of any
Borrower and Guarantor and any reports or management letters prepared by such
accountants or auditors on behalf of any Borrower or Guarantor and to disclose
to Agents and Lenders such information as they may have regarding the business
of any Borrower and Guarantor.  Any documents, schedules, invoices or other
papers delivered to Agents or any Lender may be destroyed or otherwise disposed
of by Agents or such Lender one (1) year after the same are delivered to Agents
or such Lender, except as otherwise designated by Administrative Borrower to
Agents or such Lender in writing.
 
 
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(e)           Borrowers and Guarantors shall promptly notify Agents in advance
in writing of any proposed material amendment to the Elavon Processor Agreement
(it is understood and agreed that any amendment to Section B.6 of the Elavon
Processor Agreement, any grant of the security interests and liens made by
Parent thereunder or in respect thereof or the obligations secured by such
security interests and liens shall be deemed to be a material amendment to the
Elavon Processor Agreement) and/or replacement of the Elavon Member.
 
(f)           As soon as practicable after the end of each Fiscal Month (but in
any event within thirty (30) days after the end thereof), on a monthly basis or
more frequently as Agents may request, Administrative Borrower shall furnish or
cause to be furnished to Agents a certificate of the chief financial officer or
chief executive officer of Administrative Borrower setting forth the calculation
of the Fixed Charge Coverage Ratio of Parent and its Subsidiaries for the
trailing 12-month period then ended for the Fiscal Month of determination
calculated as of the Borrowers’ most recently ended Fiscal Month for which
financials were required to be delivered.
 
(g)           As soon as available, but in any event within 60 days after the
end of the second and fourth Fiscal Quarters of Borrowers, a report
supplementing Schedules 1.4, 5.2(d), 8.2, 8.4, 8.10, 8.11, 8.12, and 8.16 and
containing a description of all changes in the information included in such
Schedules as may be necessary for such Schedules to be accurate and complete as
of the date such supplements are delivered, each such report to be signed by a
chief executive officer, chief financial officer, president or vice president of
the Administrative Borrower and to be in a form and substance reasonably
satisfactory to the Working Capital Agent.
 
9.7           Sale of Assets, Consolidation, Merger, Dissolution, Etc.  Each
Borrower and Guarantor shall not, and shall not permit any Subsidiary to,
directly or indirectly,
 
(a)           merge into or with or consolidate with any other Person or permit
any other Person to merge into or with or consolidate with it except that any
wholly-owned Subsidiary of Parent (other than any Borrower) may merge with and
into or consolidate with any other wholly-owned Subsidiary of Parent (other than
any Borrower, and including any such Subsidiary that only becomes a Subsidiary
after giving effect to such merger or consolidation subject to the conditions
set forth herein) and any Borrower may merge with and into or consolidate with
any other Borrower, provided, that, in each case each of the following
conditions is satisfied as determined by Agents:  (i) Agents shall have received
not less than ten (10) Business Days’ prior written notice of the intention of
such Subsidiaries to so merge or consolidate, which notice shall set forth in
reasonable detail satisfactory to Agents, the Persons that are merging or
consolidating, which Person will be the surviving entity, the locations of the
assets of the Persons that are merging or consolidating, and the material
agreements and documents relating to such merger or consolidation, (ii) Agents
shall have received such other information with respect to such merger or
consolidation as Agents may reasonably request, (iii) as of the effective date
of the merger or consolidation and after giving effect thereto, no Default or
Event of Default shall exist or have occurred, (iv) Agents shall have received,
true, correct and complete copies of all agreements, documents and instruments
relating to such merger or consolidation, including, but not limited to, the
certificate or certificates of merger to be filed with each appropriate
Secretary of State (with a copy as filed promptly after such filing), and (v)
the surviving corporation shall expressly confirm, ratify and assume the
Obligations and the Financing Agreements to which it is a party in writing, in
form and substance reasonably satisfactory to Agents, and Borrowers and
Guarantors shall execute and deliver such other agreements, documents and
instruments as Agents may request in connection therewith;
 
 
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(b)           sell, issue, assign, lease, license, transfer, abandon or
otherwise dispose of any Capital Stock or Indebtedness to any other Person or
any of its assets to any other Person, except for:
 
(i)            Permitted Dispositions; provided, that, in the event of a sale of
Real Property (other than the Baldwyn Real Property) by any Borrower or
Guarantor, (A) Agents shall have received not less than ten (10) Business Days’
prior written notice of such sale by such Borrower or Guarantor, which notice
shall specify the parties to whom such Real Property is to be sold, the terms of
such sale, the total amount which it is anticipated will be realized from the
sale of such Real Property and the net cash proceeds which it is anticipated
will be received by such Borrower or Guarantor from such sale, (B) the terms and
conditions of the sale thereof shall be acceptable to Agents, (C) except as
Agents may otherwise agree in writing, all of the proceeds of the sale of such
Real Property shall be paid to Working Capital Agent for application to the
Obligations in accordance with the terms hereof and (D) as of the date of such
sale and after giving effect thereto, no Default or Event of Default shall exist
or have occurred,
 
(ii)           the issuance of Capital Stock of Parent consisting of common
stock pursuant to a restricted stock award, an employee stock option or grant or
similar equity plan or 401(k) plans of Parent for the benefit of its employees,
directors and consultants, provided, that, in no event shall Parent be required
to issue, or shall Parent issue, Capital Stock pursuant to such stock plans or
401(k) plans which would result in a Change of Control or other Event of
Default,
 
(iii)          the sublease by any Borrower or Guarantor of any Real Property
leased by such Borrower or Guarantor; provided, that, as to any such sublease,
(A) after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing, and (B) such sublease shall be on commercially
reasonable prices and terms in a bona fide arm’s length transaction,
 
(iv)          Licenses and sublicenses of Intellectual Property by a Borrower or
Guarantor to another Borrower or Guarantor in the ordinary course of business
and consistent with past practices,
 
(v)           the issuance of the Specified Subordinated Indebtedness, the
Specified Warrants and the Specified Common Stock in accordance with the term of
the Specified Subordinated Indebtedness Documents, or
 
 
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(vi)          the Baldwyn Real Property Sale-Leaseback.
 
(c)           wind up, liquidate or dissolve except that any Guarantor or
Subsidiary of Parent (other than a Borrower) may wind up, liquidate and
dissolve, provided, that, each of the following conditions is satisfied:  (i)
the winding up, liquidation and dissolution of such Guarantor or other
Subsidiary shall not violate any law or any order or decree of any court or
other Governmental Authority in any material respect and shall not conflict with
or result in the breach of, or constitute a default under, any indenture,
mortgage, deed of trust, or any other agreement or instrument to which any
Borrower or Guarantor is a party or may be bound, (ii) such winding up,
liquidation or dissolution shall be done in accordance with the requirements of
all applicable laws and regulations, (iii) effective upon such winding up,
liquidation or dissolution, all of the assets and properties of such Guarantor
or other Subsidiary shall be duly and validly transferred and assigned to its
shareholders, free and clear of any liens, restrictions or encumbrances other
than the security interest and liens of Working Capital Agent (and Working
Capital Agent shall have received such evidence thereof as Working Capital Agent
may require) and Working Capital Agent shall have received such deeds,
assignments or other agreements as Working Capital Agent may request to evidence
and confirm the transfer of such assets of such Guarantor to a Borrower, (iv)
Working Capital Agent shall have received all documents and agreements that any
Borrower or Guarantor has filed with any Governmental Authority or as are
otherwise required to effectuate such winding up, liquidation or dissolution,
(v) no Borrower or Guarantor shall assume any Indebtedness, obligations or
liabilities as a result of such winding up, liquidation or dissolution, or
otherwise become liable in respect of any obligations or liabilities of the
entity that is winding up, liquidating or dissolving, unless such Indebtedness
is otherwise expressly permitted hereunder, (vi) Working Capital Agent shall
have received not less than ten (10) Business Days prior written notice of the
intention of such Guarantor or Subsidiary to wind up, liquidate or dissolve, and
(vii) as of the date of such winding up, liquidation or dissolution and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred; or
 
(d)           agree to do any of the foregoing.
 
9.8           Encumbrances.  Each Borrower and Guarantor shall not, and shall
not permit any Subsidiary to, create, incur, assume or suffer to exist any
security interest, mortgage, pledge, lien, charge or other encumbrance of any
nature whatsoever on any of its assets or properties, including the Collateral,
or file or permit the filing of, or permit to remain in effect, any financing
statement or other similar notice of any security interest or lien with respect
to any such assets or properties, except:
 
(a)           the security interests and liens of Working Capital Agent for
itself and the benefit of the Secured Parties;
 
(b)           liens securing the payment of taxes, assessments or other
governmental charges or levies either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to such Borrower, or Guarantor or Subsidiary, as the case may be
and with respect to which adequate reserves have been set aside on its books;
 
(c)            non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of such Borrower’s, Guarantor’s
or Subsidiary’s business to the extent:  (i) such liens secure Indebtedness
which is not overdue or (ii) such liens secure Indebtedness relating to claims
or liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to such Borrower,
Guarantor or such Subsidiary, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books;
 
 
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(d)           zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of Real Property which do not interfere in any
material respect with the use of such Real Property or ordinary conduct of the
business of such Borrower, Guarantor or such Subsidiary as presently conducted
thereon or materially impair the value of the Real Property which may be subject
thereto;
 
(e)           purchase money security interests in Equipment (including Capital
Leases) and purchase money mortgages on Real Property to secure Indebtedness
permitted under Section 9.9(b) hereof;
 
(f)           pledges and deposits of cash by any Borrower or Guarantor after
the date hereof in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other types of social security benefits
consistent with the current practices of such Borrower or Guarantor as of the
date hereof;
 
(g)           pledges and deposits of cash by any Borrower or Guarantor after
the date hereof to secure the performance of tenders, bids, leases, trade
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations in each case in the ordinary course of business
consistent with the current practices of such Borrower or Guarantor as of the
date hereof; provided, that, in connection with any performance bonds issued by
a surety or other person, the issuer of such bond shall have waived in writing
any rights in or to, or other interest in, any of the Collateral in an
agreement, in form and substance reasonably satisfactory to Working Capital
Agent;
 
(h)           liens arising from (i) operating leases and the precautionary UCC
financing statement filings in respect thereof and (ii) equipment or other
materials which are not owned by any Borrower or Guarantor located on the
premises of such Borrower or Guarantor (but not in connection with, or as part
of, the financing thereof) from time to time in the ordinary course of business
and consistent with current practices of such Borrower or Guarantor and the
precautionary UCC financing statement filings in respect thereof;
 
(i)            liens or rights of setoff against credit balances of Borrowers
with Credit Card Issuers or Credit Card Processors or amounts owing by such
Credit Card Issuers or Credit Card Processors to Borrower in the ordinary course
of business, but not liens on or rights of setoff against any other property or
assets of Borrowers, pursuant to the Credit Card Agreements (as in effect on the
date hereof) to secure the obligations of Borrowers to the Credit Card Issuers
or Credit Card Processors as a result of fees and chargebacks;
 
(j)            statutory or common law liens or rights of setoff of depository
banks with respect to funds of Borrowers or Guarantors at such banks to secure
fees and charges in connection with returned items or the standard fees and
charges of such banks in connection with the deposit accounts maintained by
Borrowers and Guarantors at such banks (but not any other Indebtedness or
obligations);
 
 
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(k)            judgments and other similar liens arising in connection with
court proceedings that do not constitute an Event of Default, provided, that,
(i) such liens are being contested in good faith and by appropriate proceedings
diligently pursued, (ii) adequate reserves or other appropriate provision, if
any, as are required by GAAP have been made therefor, (iii) a stay of
enforcement of any such liens is in effect and (iv) Working Capital Agent may
establish a Reserve with respect thereto;
 
(l)            the security interests and liens set forth on Schedule 8.4 which
are not permitted by the other provisions of Section 9.8 above;
 
(m)          non-consensual security interests and liens which are not permitted
by the other provisions of Section 9.8 above to secure Indebtedness and other
liabilities in an amount not to exceed $100,000 in the aggregate; and
 
(n)           liens of the trustee for the holders of the Specified Subordinated
Indebtedness securing the Specified Subordinated Indebtedness, provided that
such liens are junior in rank to the security interests and liens of Working
Capital Agent for itself and the benefit of the Secured Parties and subject to
the Subordination Provisions.
 
9.9           Indebtedness.  Each Borrower and Guarantor shall not, and shall
not permit any Subsidiaries to, incur, create, assume, become or be liable in
any manner with respect to, or permit to exist, any Indebtedness, or guarantee,
assume, endorse, or otherwise become responsible for (directly or indirectly),
the Indebtedness, performance, obligations or dividends of any other Person,
except:
 
(a)           the Obligations;
 
(b)           purchase money Indebtedness (including Capital Leases) arising
after the date hereof to the extent secured by purchase money security interests
in Equipment (including Capital Leases) and purchase money mortgages on Real
Property not to exceed $2,500,000 in the aggregate at any time outstanding so
long as such security interests and mortgages do not apply to any property of
such Borrower, Guarantor or Subsidiary other than the Equipment or Real Property
so acquired, and the Indebtedness secured thereby does not exceed the cost of
the Equipment or Real Property so acquired, as the case may be;
 
(c)           guarantees by any Borrower or Guarantor of the Obligations of the
other Borrowers or Guarantors in favor of Working Capital Agent for the benefit
of Lenders;
 
(d)           the Indebtedness of any Borrower or Guarantor to any other
Borrower or Guarantor arising pursuant to loans permitted under Section 9.10(d)
or (e) hereof, provided, that, as to any such Indebtedness at any time owing by
a Borrower to a Guarantor, (i) the Indebtedness arising pursuant to such loans
shall be subject to, and subordinate in right of payment to, the right of Agents
and Lenders to receive the prior final payment and satisfaction in full of all
of the Obligations on terms and conditions acceptable to Agents, (ii) such
Borrower or such Guarantor shall join the Intercompany Subordination Agreement
pursuant to a joinder agreement in form and substance reasonably satisfactory to
the Working Capital Agent, (iii) such Borrower shall not, directly or indirectly
make, or be required to make, any payments in respect of such Indebtedness prior
to the end of the then current term of this Agreement, except that Parent and
Merchandising may make regularly scheduled payments of interest to Resources on
a semi-annual basis at the end of the second and fourth Fiscal Quarters of
Parent in respect of intercompany loans made by Resources to Parent or
Merchandising, as the case may be, so long as Resources immediately applies all
of the proceeds of such interest payments to make an intercompany loan in cash
to Parent or Merchandising in accordance with the terms of Section 9.10(d)
hereof; and (iv) in the case of any Indebtedness owing to a Borrower or
Guarantor, the Indebtedness arising pursuant to any such loan shall not be
evidenced by a promissory note or other instrument, unless the single original
of such note or other instrument is promptly delivered to Working Capital Agent
upon its request to hold as part of the Collateral, with such endorsement and/or
assignment by the payee of such note or other instrument as Working Capital
Agent may require;
 
 
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(e)           Indebtedness of any Borrower or Guarantor entered into in the
ordinary course of business pursuant to a Hedge Agreement; provided, that, (i)
such arrangements are with a Bank Product Provider, (ii) such arrangements are
not for speculative purposes, and (iii) such Indebtedness shall be unsecured,
except to the extent such Indebtedness constitutes part of the Obligations
arising under or pursuant to Hedge Agreements with any Bank Product Provider
that are secured under the terms hereof;
 
(f)           unsecured guarantees by Parent or a Borrower of the obligations of
a Borrower arising pursuant to a lease from a third party in a bona fide arm’s
length transaction of real property for use as a retail store location in the
ordinary course of the business of such Borrower; provided, that, (i) the Person
issuing such guarantee is permitted hereunder to incur directly the obligation
that is being guaranteed and (ii) as of the date on which such guarantee is
issued no Event of Default exists or has occurred and is continuing;
 
(g)           Specified Subordinated Indebtedness and unsecured Indebtedness of
any Borrower or Guarantor arising after the Amendment Effective Date to any
third person (but not to any other Borrower or Guarantor), provided, that, in
each case, each of the following conditions is satisfied as determined by
Working Capital Agent:  (i) such Indebtedness shall be on terms and conditions
acceptable to Working Capital Agent and shall be subject and subordinate in
right of payment to the right of Agents and Lenders to receive the prior
indefeasible payment and satisfaction in full payment of all of the Obligations
pursuant to the terms of an intercreditor agreement between Working Capital
Agent and such third party, in form and substance satisfactory to Agents,
(ii) Working Capital Agent shall have received not less than ten (10) days prior
written notice of the intention of such Borrower or Guarantor to incur such
Indebtedness, which notice shall set forth in reasonable detail satisfactory to
Working Capital Agent the amount of such Indebtedness, the person or persons to
whom such Indebtedness will be owed, the interest rate, the schedule of
repayments and maturity date with respect thereto and such other information as
Working Capital Agent may request with respect thereto, (iii) Working Capital
Agent shall have received true, correct and complete copies of all Subordinated
Debt Documents evidencing or otherwise related to such Indebtedness, (iv) except
as Working Capital Agent may otherwise agree in writing, and except with respect
to the Specified Subordinated Indebtedness, all of the proceeds of the loans or
other accommodations giving rise to such Indebtedness shall be paid to Working
Capital Agent for application to the Obligations in accordance with Section
6.4(a), (v) as of the date of incurring such Indebtedness and after giving
effect thereto, no Default or Event of Default shall exist or have occurred,
(vi) such Borrower and Guarantor shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto, except, that, such Borrower or Guarantor
may, after prior written notice to Working Capital Agent, amend, modify, alter
or change the terms thereof so as to extend the maturity thereof, or defer the
timing of any payments in respect thereof, or to forgive or cancel any portion
of such Indebtedness (other than pursuant to payments thereof), or to reduce the
interest rate or any fees in connection therewith, or (B) redeem, retire,
defease, purchase or otherwise acquire such Indebtedness (except as otherwise
expressly permitted under Section 9.11(g)), or set aside or otherwise deposit or
invest any sums for such purpose, and (vii) Borrowers and Guarantors shall
furnish to Working Capital Agent all notices or demands in connection with such
Indebtedness either received by any Borrower or Guarantor or on its behalf
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf concurrently with the sending thereof, as the case may be;
 
 
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(h)          Indebtedness arising from lease payments in connection with one or
more sale-leaseback transactions in respect of (i) the Owned Real Properties,
and (ii) the Real Properties formerly owned by Borrowers located at 3245 South
Florida Avenue, Lakeland, Florida 33803 and 4705 Navarro Street, Victoria, Texas
77904;
 
(i)           the Indebtedness set forth on Schedule 9.9 which are not permitted
by the other provisions of Section 9.9 above; provided, that, (i) Borrowers and
Guarantors may only make regularly scheduled payments of principal and interest
in respect of such Indebtedness in accordance with the terms of the agreement or
instrument evidencing or giving rise to such Indebtedness as in effect on the
date hereof, (ii) Borrowers and Guarantors shall not, directly or indirectly,
(A) amend, modify, alter or change the terms of such Indebtedness or any
agreement, document or instrument related thereto as in effect on the date
hereof except, that, Borrowers and Guarantors may, after prior written notice to
Working Capital Agent, amend, modify, alter or change the terms thereof so as to
extend the maturity thereof, or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or (B) redeem, retire, defease, purchase or otherwise
acquire such Indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and (iii) Borrowers and Guarantors shall furnish to Working
Capital Agent all notices or demands in connection with such Indebtedness either
received by any Borrower or Guarantor or on its behalf, promptly after the
receipt thereof, or sent by any Borrower or Guarantor or on its behalf,
concurrently with the sending thereof, as the case may be; and
 
(j)           unsecured Indebtedness of any Borrower or Guarantor arising after
the date hereof to any third person which is not permitted by the other
provisions of Section 9.9 above in an aggregate outstanding amount not to exceed
$100,000 at any time.
 
9.10         Loans, Investments, Etc.  Each Borrower and Guarantor shall not,
and shall not permit any Subsidiary to, directly or indirectly, purchase, hold
or acquire (including pursuant to any merger with any Person that was not a
wholly owned Subsidiary immediately prior to such merger) any Capital Stock,
evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, or make or permit to exist any investment or any other
interest in, any other Person, or purchase or otherwise acquire (in one
transaction or a series of transactions) any assets of any other Person
constituting a business unit or all or a substantial part of the assets or
property of any other Person (whether through purchase of assets, merger or
otherwise), or form or acquire any Subsidiaries, or agree to do any of the
foregoing (each of the foregoing an “Investment”), except:
 
 
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(a)           Permitted Investments;
 
(b)           Permitted Acquisitions;
 
(c)           Investments by a Borrower, Guarantor or other Subsidiary of Parent
in a Borrower or by a Guarantor or other Subsidiary of Parent (other than a
Borrower) in another Guarantor, in each case after the date hereof, provided,
that, to the extent that such Investment gives rise to any Indebtedness, such
Indebtedness is permitted hereunder and to the extent that such Investment gives
rise to the issuance of any shares of Capital Stock, such issuance is permitted
hereunder;
 
(d)          loans by a Borrower or Guarantor to another Borrower or Guarantor
after the date hereof, provided, that,
 
(i)            as to all of such loans, (A) within thirty (30) days after the
end of each Fiscal Month, Borrowers shall provide to Working Capital Agent a
report in form and substance reasonably satisfactory to Working Capital Agent of
the outstanding amount of such loans as of the last day of the immediately
preceding month and indicating any loans made and payments received during the
immediately preceding month, (B) the Indebtedness arising pursuant to any such
loan shall not be evidenced by a promissory note or other instrument, unless the
single original of such note or other instrument (and any amendment or
modification thereto) is promptly delivered to Working Capital Agent to hold as
part of the Collateral, with such endorsement and/or assignment by the payee of
such note or other instrument as Working Capital Agent may require,
 
(ii)           as to loans by a Borrower to a Guarantor or by a Guarantor to
another Guarantor, (A) as of the date of any such loan and after giving effect
thereto, the Borrower or Guarantor making such loan shall be Solvent, and (B) as
of the date of any such loan and after giving effect thereto, as of the date of
any such loan and after giving effect thereto, no Default or Event of Default
shall exist or have occurred and be continuing,
 
(iii)          as to loans by a Guarantor to a Borrower, (A) the Indebtedness
arising pursuant to such loan shall be subject to, and subordinate in right of
payment to, the right of Agents and Lenders to receive the prior final payment
and satisfaction in full of all of the Obligations on terms and conditions
acceptable to Agents, (B) promptly upon Working Capital Agent’s request, Working
Capital Agent shall have received a subordination agreement, in form and
substance satisfactory to Agents, providing for the terms of the subordination
in right of payment of such Indebtedness of such Borrower to the prior final
payment and satisfaction in full of all of the Obligations, duly authorized,
executed and delivered by such Guarantor and such Borrower, and (C) such
Borrower shall not, directly or indirectly make, or be required to make, any
payments in respect of such Indebtedness prior to the end of the then current
term of this Agreement, except that Parent and Merchandising may make regularly
scheduled payments of interest to Resources on a semi-annual basis at the end of
the second and fourth Fiscal Quarters of Parent in respect of intercompany loans
made by Resources to Parent or Merchandising, as the case may be, so long as
Resources immediately applies all of the proceeds of such interest payments to
make an intercompany loan in cash to Parent or Merchandising in accordance with
the terms of Section 9.10(d) hereof; and
 
 
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(iv)          the aggregate outstanding principal amount of all loans made by
Borrowers to Guarantors shall not exceed $100,000 at any time; and
 
(e)           the loans and advances set forth on Schedule 9.10 which are not
permitted by the other provisions of Section 9.10 above; provided, that:
 
(i)           as to all such loans and advances, (A) Borrowers and Guarantors
shall not, directly or indirectly, amend, modify, alter or change the terms of
such loans and advances or any agreement, document or instrument related
thereto, except that Borrowers and Guarantors may amend any such agreement,
document or instrument to increase the principal amount of any loans made by a
Guarantor to a Borrower so long as the single original of any amendment to any
note or other instrument shall be promptly delivered to Working Capital Agent to
hold as part of the Collateral with such endorsement and/or assignment by the
payee of such note or other instrument as Working Capital Agent may require, and
(B) Borrowers and Guarantors shall furnish to Working Capital Agent all notices
or demands in connection with such loans and advances either received by any
Borrower or Guarantor or on its behalf, promptly after the receipt thereof, or
sent by any Borrower or Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be; and
 
(ii)           as to loans by a Guarantor to a Borrower, (A) the Indebtedness
arising pursuant to such loan shall be subject to, and subordinate in right of
payment to, the right of Agents and Lenders to receive the prior final payment
and satisfaction in full of all of the Obligations on terms and conditions
acceptable to Agents, (B) Working Capital Agent shall have received the
Intercompany Subordination Agreement duly authorized, executed and delivered by
such Guarantor and such Borrower, and (C) such Borrower shall not, directly or
indirectly make, or be required to make, any payments in respect of such
Indebtedness prior to the end of the then current term of this Agreement, except
that Parent and Merchandising may make payments of interest to Resources on a
quarterly basis in respect of intercompany loans by Resources to Parent or
Merchandising, as the case may be, so long as Resources immediately applies all
of the proceeds of such interest payments to make an intercompany loan in cash
to Parent or Merchandising in accordance with the terms of Section 9.10(d)
hereof.
 
9.11         Restricted Payments.  Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except:
 
 
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(a)           Parent may make Restricted Payments with respect to its Capital
Stock payable solely in additional shares of its Capital Stock that satisfies
the requirements for issuance of Capital Stock by Parent under Section
9.7(b)(ii) hereof;
 
(b)           Subsidiaries of any Borrower or Guarantor may make Restricted
Payments to a Borrower;
 
(c)           Enterprises may make Restricted Payments to Resources for the
purpose of paying dividends in respect of the Capital Stock of Enterprises so
long as Resources immediately applies all of the proceeds of such Restricted
Payments to make an intercompany loan in cash to Parent in accordance with the
terms of Section 9.10(d) hereof;
 
(d)           Borrowers and Guarantors may repurchase Capital Stock consisting
of common stock held by employees pursuant to any employee stock ownership plan
thereof upon the termination, retirement or death of any such employee in
accordance with the provisions of such plan or upon the vesting of restricted
stock in any such employee in accordance with the provisions of the restricted
stock plan, provided, that, as to any such repurchase, each of the following
conditions is satisfied:  (i) as of the date of the payment for such repurchase
and after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing, (ii) such repurchase shall be paid with funds
legally available therefor, (iii) such repurchase shall not violate any law or
regulation or the terms of any indenture, agreement or undertaking to which such
Borrower or Guarantor is a party or by which such Borrower or Guarantor or its
or their property are bound, and (iv) the aggregate amount of all payments for
such repurchases in any calendar year shall not exceed $1,000,000, except that
the aggregate amount of all payments for such repurchases in any calendar year
may exceed $1,000,000 (but shall not exceed $4,000,000) if (A) Adjusted Excess
Availability shall have been equal to or greater than $25,000,000 for each of
the two consecutive months immediately prior to the date of such payment based
on the Revolving Credit Borrowing Base as of the end of each of such months and
after giving effect to the payment of such repurchases, on a pro forma basis
using Adjusted Excess Availability as of the end of the month immediately prior
to the date of such repurchases, and Adjusted Excess Availability shall be not
less than $25,000,000, and (B) as of the date of any such payment and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred;
 
(e)           Parent may make Restricted Payments for the purpose of paying
dividends and paying other distributions in respect of its Capital Stock or the
repurchase of its Capital Stock in an amount not to exceed $1,000,000 in the
aggregate in any calendar year and not to exceed $3,000,000 in the aggregate
during the term of this Agreement, provided, that, each of the following
conditions is satisfied as determined by Agents:  (i) Administrative Borrower
shall have provided to Agents not less than ten (10) Business Days’ prior
written notice of the intention of such Borrower or Guarantor to pay such
dividends or other distributions or make such other repurchases (specifying the
amount to be paid by Borrowers or Guarantors), (ii) such dividends,
distributions or repurchases shall paid with funds legally available therefor,
(iii) such repurchase shall not violate any law or regulation or the terms of
any indenture, agreement or undertaking to which such Borrower or Guarantor is a
party or by which such Borrower or Guarantor or its or their property are bound,
(iv) Adjusted Excess Availability shall have been not less than $40,000,000 for
each of the two consecutive months immediately prior to the date of any such
payment based on the Revolving Credit Borrowing Base as of the end of each of
such months and after giving effect to the payment of such dividends or other
distributions or repurchases, on a pro forma basis using Adjusted Excess
Availability as of the end of the month immediately prior to the date of such
dividends or other distributions or repurchases, Adjusted Excess Availability
shall be not less than $40,000,000, and (v) as of the date of any such payment
and after giving effect thereto, no Default or Event of Default shall exist or
have occurred;
 
 
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(f)            Parent may (i) make scheduled payments of interest (whether in
cash or in kind) with respect to the Specified Subordinated Indebtedness,
provided, that, (x) no Default or Event of Default is continuing or would result
after giving effect to such Restricted Payment, and (y) for any payment of
interest in kind, such payment shall accrue prior to the first anniversary of
such Specified Subordinated Indebtedness; and (ii) pay the trustee under the
Indenture its usual and customary fees and expenses arising in the ordinary
course of business as set forth in Section 7.7 of the Indenture (as in effect on
the date hereof) and indemnification obligations arising under such Section 7.7
thereof;
 
(g)           Parent may make the Cash Note Payment, provided, that, each of the
following conditions is satisfied as determined by Working Capital Agent: (i) no
Default or Event of Default is continuing or would result after giving effect to
such Restricted Payment and (ii) the conditions set forth in Section 9.28 shall
have been satisfied;
 
(h)           Parent may make payments of principal with respect to the Exchange
Notes, provided, that, each of the following conditions is satisfied as
determined by Working Capital Agent: (i) Administrative Borrower shall have
provided to Working Capital Agent not less than ten (10) Business Days’ prior
written notice of the intention of Parent to make such payments of principal
with respect to the Exchange Notes (specifying the amount to be paid by Parent),
(ii) no Default or Event of Default is continuing or would result after giving
effect to such Restricted Payment, (iii) the Fixed Charge Coverage Ratio of the
Parent and its Subsidiaries on a consolidated basis as at the end of the most
recently ended Fiscal Month for which financials were required to be delivered
pursuant to Section 9.6(a)(i), for the trailing 12 month period then ended and
on a pro forma basis after giving effect to such Restricted Payment shall not be
less than 1.00:1.00, (iv) Adjusted Excess Availability shall be greater than
$17,500,000 after giving effect to such Restricted Payment as of the effective
date of such Restricted Payment, and after giving effect to such Restricted
Payment, on a pro forma basis using Adjusted Excess Availability as of the end
of the month for the immediately preceding month prior to the date of such
Restricted Payment, Adjusted Excess Availability shall be not less than
$17,500,000 for the following six month period and (v) prior to the making of
any such Restricted Payment, Administrative Borrower shall have delivered to
Agents a certificate executed by its chief financial officer demonstrating in
reasonable detail (including all applicable calculations) the Fixed Charge
Coverage Ratio and the Adjusted Excess Availability calculation required above;
or
 
(i)            Parent may (i) repay the Holdover Notes at par on the maturity
date thereof (for the avoidance of doubt, such date to be August 31, 2013), (ii)
optionally redeem the Holder Notes at par prior to such maturity in accordance
with the terms of the Existing Indenture as in effect on the date hereof or
(iii) subject to terms and conditions satisfactory to the Agents, otherwise
repay the Holdover Notes; provided, that, in each case, (i) no Default or Event
of Default has occurred or is continuing or would result after giving effect to
such Restricted Payment and (ii) the conditions set forth in Section 9.28(b)
shall have been satisfied (any such transaction, a “Holdover Note Payment”).
 
 
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9.12         Transactions with Affiliates.  Each Borrower and Guarantor shall
not, directly or indirectly, purchase, acquire or lease any property from, or
sell, transfer or lease any property to, any officer, director or other
Affiliate of such Borrower or Guarantor, except (a) in the ordinary course of
such Borrower’s or Guarantor’s business and upon terms no less favorable to such
Borrower or Guarantor than such Borrower or Guarantor would obtain in a
comparable arm’s length transaction with an unaffiliated person, (b) for any
purchase or acquisition by any Borrower from another Borrower, any sale or
transfer by any Borrower to another Borrower, or any lease of any property by
any Borrower from another Borrower or lease of any property from any Borrower to
another Borrower and (c) transactions expressly permitted by Section 9.7, 9.9,
9.10 or 9.11 hereof.
 
9.13         Compliance with ERISA.  Each Borrower and Guarantor shall, and
shall cause each of its ERISA Affiliates to:  (a) maintain each Plan in
compliance in all material respects with the applicable provisions of ERISA, the
Code and other Federal and State law; (b) cause each Plan which is qualified
under Section 401(a) of the Code to maintain such qualification; (c) not
terminate any Pension Plan so as to incur any material liability to the Pension
Benefit Guaranty Corporation; (d) not allow or suffer to exist any prohibited
transaction involving any Plan or any trust created thereunder which would
subject such Borrower, Guarantor or such ERISA Affiliate to a material tax or
other liability on prohibited transactions imposed under Section 4975 of the
Code or Section 406 of ERISA; (e) make all required contributions to any Plan
which it is obligated to pay under the Pension Funding Rules or the terms of
such Plan; (f) not engage in a transaction that could be subject to Section 4069
or 4212(c) of ERISA; or (g) not allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any Pension Plan
that is a single employer plan, which termination could result in any material
liability to the Pension Benefit Guaranty Corporation.
 
9.14         End of Fiscal Years; Fiscal Quarters.  Each Borrower and Guarantor
shall, for financial reporting purposes, cause its, and each of its
Subsidiaries’ (a) fiscal years to end on the last Saturday closest to January
31st of each year and (b) fiscal quarters to end on or about each April 30th,
July 31st, October 31st and January 31st of each year.
 
9.15         Change in Business.  Each Borrower and Guarantor shall not engage
in any business other than the business of such Borrower or Guarantor on the
date hereof and any business reasonably related, ancillary or complimentary to
the business in which such Borrower or Guarantor is engaged on the date hereof.
 
9.16         Limitation of Restrictions Affecting Subsidiaries.  Each Borrower
and Guarantor shall not, directly, or indirectly, create or otherwise cause or
suffer to exist any encumbrance or restriction which prohibits or limits the
ability of any Subsidiary of such Borrower or Guarantor to (a) pay dividends or
make other distributions or pay any Indebtedness owed to such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor; (b) make loans or
advances to such Borrower or Guarantor or any Subsidiary of such Borrower or
Guarantor, (c) transfer any of its properties or assets to such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor; or (d) create, incur,
assume or suffer to exist any lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, except for encumbrances and
restrictions arising under (i) applicable law, (ii) this Agreement, (iii)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of such Borrower or Guarantor or any Subsidiary of such
Borrower or Guarantor, (iv) customary restrictions on dispositions of real
property interests found in reciprocal easement agreements of such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor, (v) any agreement
relating to Indebtedness incurred by a Subsidiary of such Borrower or Guarantor
prior to the date on which such Subsidiary was acquired by such Borrower or such
Guarantor and outstanding on such acquisition date, and (vi) the extension or
continuation of contractual obligations in existence on the date hereof;
provided, that, any such encumbrances or restrictions contained in such
extension or continuation are no less favorable to Agents and Lenders than those
encumbrances and restrictions under or pursuant to the contractual obligations
so extended or continued.
 
 
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9.17         License Agreements.
 
(a)           With respect to a License Agreement applicable to Intellectual
Property that is owned by a third party and licensed to a Borrower or Guarantor
and that is affixed to or otherwise used in connection with the manufacture,
sale or distribution of any Inventory, each Borrower and Guarantor shall (i)
give Working Capital Agent not less than ninety (90) days prior written notice
of its intention to not renew or to terminate, cancel, surrender or release its
rights under any such License Agreement, or to amend any such License Agreement
or related arrangements to limit the scope of the right of such Borrower or
Guarantor to use the Intellectual Property subject to such License Agreement in
any material respect, either with respect to product, territory, term or
otherwise, or to increase in any material respect the amounts to be paid by such
Borrower or Guarantor thereunder or in connection therewith (and Working Capital
Agent may establish such Reserves as a result of any of the foregoing as Working
Capital Agent may reasonably determine), (ii) give Working Capital Agent prompt
written notice of any such License Agreement entered into by such Borrower or
Guarantor after the date hereof, or any material amendment to any such License
Agreement existing on the date hereof, in each case together with a true,
correct and complete copy thereof and such other information with respect
thereto as Working Capital Agent may in good faith request, (iii) give Working
Capital Agent prompt written notice of any material breach of any obligation, or
any default, by the third party that is the licensor or by the Borrower or
Guarantor that is the licensee or any other party under any such License
Agreement, and deliver to Working Capital Agent (promptly upon the receipt
thereof by such Borrower or Guarantor in the case of a notice to such Borrower
or Guarantor and concurrently with the sending thereof in the case of a notice
from such Borrower or Guarantor) a copy of each notice of default and any other
notice received or delivered by such Borrower or Guarantor in connection with
any such a License Agreement that relates to the scope of the right, or the
continuation of the right, of such Borrower or Guarantor to use the Intellectual
Property subject to such License Agreement or the amounts required to be paid
thereunder.
 
(b)           With respect to a License Agreement applicable to Intellectual
Property that is owned by a third party and licensed to a Borrower or Guarantor
and that is affixed to or otherwise used in connection with the manufacture,
sale or distribution of any Inventory, at any time an Event of Default shall
exist or have occurred and be continuing, or if after giving effect to any
Reserves or the reduction in the Revolving Credit Borrowing Base or Term
Borrowing Base as a result of Eligible Inventory using such licensed
Intellectual Property ceasing to be Eligible Inventory, the Excess Availability
is less than the amount required pursuant to Section 9.19 hereof, Working
Capital Agent shall have, and is hereby granted, the irrevocable right and
authority, at its option, to renew or extend the term of such License Agreement,
whether in its own name and behalf, or in the name and behalf of a designee or
nominee of Working Capital Agent or in the name and behalf of such Borrower or
Guarantor, subject to and in accordance with the terms of such License
Agreement.  Working Capital Agent may, but shall not be required to, perform any
or all of such obligations of such Borrower or Guarantor under any of the
License Agreements, including, but not limited to, the payment of any or all
sums due from such Borrower or Guarantor thereunder.  Any sums so paid by
Working Capital Agent shall constitute part of the Obligations.
 
 
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9.18         Credit Card Agreements.  Each Borrower shall (a) observe and
perform all material terms, covenants, conditions and provisions of the Credit
Card Agreements to be observed and performed by it at the times set forth
therein; and (b) at all times maintain in full force and effect the Credit Card
Agreements and not terminate, cancel, surrender, modify, amend, waive or release
any of the Credit Card Agreements, or consent to or permit to occur any of the
foregoing; except, that, (i) any Borrower may terminate or cancel any of the
Credit Card Agreements in the ordinary course of the business of such Borrower;
provided, that, such Borrower shall give Working Capital Agent not less than
thirty (30) days prior written notice of its intention to so terminate or cancel
any of the Credit Card Agreements; (d) not enter into any new Credit Card
Agreements with any new Credit Card Issuer unless (i) Working Capital Agent
shall have received not less than thirty (30) days prior written notice of the
intention of such Borrower to enter into such agreement (together with such
other information with respect thereto as Working Capital Agent may request) and
(ii) such Borrower delivers, or causes to be delivered to Working Capital Agent,
a Credit Card Acknowledgment in favor of Working Capital Agent, (e) give Working
Capital Agent immediate written notice of any Credit Card Agreement entered into
by such Borrower after the date hereof, together with a true, correct and
complete copy thereof and such other information with respect thereto as Working
Capital Agent may request; and (f) furnish to Working Capital Agent, promptly
upon the request of Working Capital Agent, such information and evidence as
Working Capital Agent may require from time to time concerning the observance,
performance and compliance by such Borrower or the other party or parties
thereto with the terms, covenants or provisions of the Credit Card Agreements.
 
9.19         Minimum Excess Availability.  Borrowers shall at all times maintain
Excess Availability of not less than $7,500,000; provided, that, if at any time
an Event of Default has occurred under Section 9.27 and not been waived by the
Working Capital Agent and Required Lenders pursuant to the Interlender
Provisions, such amount shall increase to $15,000,000.
 
9.20         After Acquired Real Property.  If any Borrower or Guarantor
hereafter acquires any Real Property, fixtures or any other property that is of
the kind or nature described in the Baldwyn Real Property Mortgage and such Real
Property, fixtures or other property is adjacent to, contiguous with or
necessary or related to or used in connection with any Real Property then
subject to the Baldwyn Real Property Mortgage, or if such Real Property is not
adjacent to, contiguous with or related to or used in connection with such Real
Property, then if such Real Property, fixtures or other property at any location
(or series of adjacent, contiguous or related locations, and regardless of the
number of parcels) has a fair market value in an amount equal to or greater than
$250,000 (or if an Event of Default exists, then regardless of the fair market
value of such assets), without limiting any other rights of Agents or any
Lender, or duties or obligations of any Borrower or Guarantor, reasonably
promptly upon Agents’ request, such Borrower or Guarantor shall execute and
deliver to Working Capital Agent a Mortgage, as Working Capital Agent may
determine, in form and substance reasonably satisfactory to the Working Capital
Agent and in form appropriate for recording in the real estate records of the
jurisdiction in which such Real Property or other property is located granting
to Working Capital Agent a first and only lien and mortgage on and security
interest in such Real Property, fixtures or other property (except as such
Borrower or Guarantor would otherwise be permitted to incur hereunder or under
the Mortgage or as otherwise consented to in writing by Working Capital Agent)
and such other agreements, documents and instruments as Working Capital Agent
may require in connection therewith provided, that, as to any such Real Property
that is not adjacent, contiguous or related to Real Property then subject to the
Baldwyn Real Property Mortgage, if the purchase price for such Real Property is
paid with the initial proceeds of a loan from a financial institution giving
rise to Indebtedness permitted under Section 9.9(b) hereof, then such Borrower
or Guarantor shall not be required to execute and deliver such mortgage, deed of
trust or deed to secure debt in favor of Working Capital Agent with respect to
such Real Property.
 
 
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9.21         Foreign Assets Control Regulations, Etc.  None of the requesting or
borrowing of the Loans or the requesting or issuance, extension or renewal of
any Letter of Credit or the use of the proceeds of any thereof will violate the
Trading With the Enemy Act (50 USC §1 et seq., as amended) (the “Trading With
the Enemy Act”) or any of the foreign assets control regulations of the United
States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) (the
“Foreign Assets Control Regulations”) or any enabling legislation or executive
order relating thereto (including, but not limited to (a) Executive order 13224
of September 21, 2001 Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079
(2001)) (the “Executive Order”) and (b) the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (Public Law 107-56).  None of Borrowers or any of their Subsidiaries is or
will become a “blocked person” as described in the Executive Order, the Trading
with the Enemy Act or the Foreign Assets Control Regulations or engages or will
engage in any dealings or transactions, or be otherwise associated, with any
such “blocked person”.
 
9.22         Costs and Expenses.  Borrowers and Guarantors shall pay to Agents
reasonably promptly after demand all costs, expenses, filing fees and taxes paid
or payable in connection with the preparation, negotiation, execution, delivery,
recording, syndication, administration, collection, liquidation, enforcement and
defense of the Obligations, Working Capital Agent’s rights in the Collateral,
this Agreement, the other Financing Agreements and all other documents related
hereto or thereto, including any amendments, supplements or consents which may
hereafter be contemplated (whether or not executed) or entered into in respect
hereof and thereof, including:  (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) costs and expenses and fees for insurance premiums,
environmental audits, title insurance premiums, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees, background
checks, costs and expenses of remitting loan proceeds, collecting checks and
other items of payment, and establishing and maintaining the Blocked Accounts,
together with Working Capital Agent’s customary charges and fees with respect
thereto; (c) charges, fees or expenses charged by any Lender in connection with
any Letter of Credit; (d) costs and expenses of preserving and protecting the
Collateral; (e) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Working Capital Agent, selling or otherwise realizing upon the Collateral, and
otherwise enforcing the provisions of this Agreement and the other Financing
Agreements or defending any claims made or threatened against Agents or any
Lender arising out of the transactions contemplated hereby and thereby
(including preparations for and consultations concerning any such matters); (f)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Working Capital Agent during the course of periodic field
examinations of the Collateral and such Borrower’s or Guarantor’s operations,
plus a per diem charge at Working Capital Agent’s then standard rate for Working
Capital Agent’s examiners in the field and office; (g) costs and expenses
incurred in connection with any workout or restructuring of the Loans during the
pendency of one or more Events of Default, provided, that in the case of
reimbursement of counsel for the Lenders (other than the Agents), such
reimbursement shall be limited to one counsel for all such Lenders, and (h) the
fees and disbursements of counsel to Agents in connection with any of the
foregoing.
 
 
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9.23         Further Assurances.  (a) In the case of the formation or
acquisition by a Borrower or Guarantor of any Subsidiary that is a Domestic
Subsidiary after the date hereof, as to any such Subsidiary, (i) the Borrower or
Guarantor forming such Subsidiary shall cause any such Subsidiary to execute and
deliver to Working Capital Agent, the following (each in form and substance
reasonably satisfactory to Working Capital Agent), (A) an absolute and
unconditional guarantee of payment of the Obligations, (B) a security agreement
granting to Working Capital Agent a first security interest and lien (except as
otherwise consented to in writing by Working Capital Agent) upon all of the
assets of any such Subsidiary of the type or category of the assets of Borrowers
subject to the security interests and liens pursuant hereto, and (C) such other
agreements, documents and instruments as Working Capital Agent may require in
connection with the documents referred to above in order to make such Subsidiary
a party to this Agreement as a “Borrower” or as a “Guarantor” as Working Capital
Agent may determine, including, but not limited to, supplements and amendments
hereto, authorization to file UCC financing statements, Collateral Access
Agreements and other consents, waivers, acknowledgments and other agreements
from third persons which Working Capital Agent may deem necessary or desirable
in order to permit, protect and perfect its security interests in and liens upon
the assets purchased, corporate resolutions and other organization and
authorizing documents of such Person, and favorable opinions of counsel to such
person and (ii) the Borrower or Guarantor forming such Subsidiary shall (A)
execute and deliver to Working Capital Agent, a pledge and security agreement,
in form and substance reasonably satisfactory to Working Capital Agent, granting
to Working Capital Agent a first pledge of and lien on all of the issued and
outstanding shares of Capital Stock of any such Subsidiary, and (B) deliver the
original stock certificates evidencing such shares of Capital Stock (or such
other evidence as may be issued in the case of a limited liability company),
together with stock powers with respect thereto duly executed in blank (or the
equivalent thereof in the case of a limited liability company in which such
interests are certificated, or otherwise take such actions as Working Capital
Agent shall require with respect to Working Capital Agent’s security interests
therein).
 
 
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(b)           In the case of an acquisition of assets (other than Capital Stock)
by a Borrower or Guarantor pursuant to a Permitted Acquisition after the date
hereof, Working Capital Agent shall have received, in form and substance
reasonably satisfactory to Working Capital Agent, (i) evidence that Working
Capital Agent has valid and perfected security interests in and liens upon all
purchased assets, (ii) all Collateral Access Agreements and other consents,
waivers, acknowledgments and other agreements from third persons which Working
Capital Agent may deem necessary or desirable in order to permit, protect and
perfect its security interests in and liens upon the assets purchased, (iii) the
agreement of the seller consenting to the collateral assignment by the Borrower
or Guarantor purchasing such assets of all rights and remedies and claims for
damages of such Borrower or Guarantor relating to the Collateral (including,
without limitation, any bulk sales indemnification) under the agreements,
documents and instruments relating to such acquisition and (iv) such other
agreements, documents and instruments as Working Capital Agent may require in
connection with the documents referred to above, including, but not limited to,
supplements and amendments hereto, corporate resolutions and other organization
and authorizing documents and favorable opinions of counsel to such person.
 
(c)           At the request of Working Capital Agent at any time and from time
to time, Borrowers and Guarantors shall, at their expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done such further acts as may
be necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Financing
Agreements.  Working Capital Agent may at any time and from time to time request
a certificate from an officer of any Borrower or Guarantor representing that all
conditions precedent to the making of Loans and providing Letters of Credit
contained herein are satisfied.  In the event of such request by Working Capital
Agent, Agents and Lenders may, at Working Capital Agent’s option, cease to make
any further Loans or provide any further Letters of Credit until Working Capital
Agent has received such certificate and, in addition, Working Capital Agent has
determined that such conditions are satisfied.
 
9.24         Leasehold Estates.  The Borrowers shall not, and shall not permit
any of their Subsidiaries to, enter into any leasehold mortgage, deed of trust
or any other agreement irrespective of how so identified which grants to any
third party a leasehold mortgage in such leasehold estate and the properties and
assets located therein.
 
9.25         Specified Subordinated Debt Documents.  The Borrowers shall not,
and shall not permit any of their Subsidiaries to, consent to any amendment,
supplement, waiver or other modification of any Specified Subordinated Debt
Document without the prior written consent of the Agents.
 
9.26         Credit Card Agreements.  The Borrowers shall not, and shall not
permit any of their Subsidiaries to, consent to any material amendment,
supplement, waiver or other modification of any Credit Card Agreement without
the prior written consent of the Agents.
 
9.27         Minimum Fixed Charge Coverage Ratio.  If at any time during any
Fiscal Month of the Borrowers’, Adjusted Excess Availability as determined by
Working Capital Agent in its reasonable discretion, is less than or equal to
$7,500,000, Parent and its Subsidiaries shall have on a consolidated basis as at
the end of the immediately preceding Fiscal Month for which financial statements
were required to be delivered pursuant to Section 9.6(a)(i), a Fixed Charge
Coverage Ratio for the trailing 12-month period ended as of such Fiscal Month
for which financials were required to be delivered of not less than 1.00 to
1.00.  Pursuant to Section 9.6(f), the Borrowers shall immediately deliver to
the Agents a certificate of the chief financial officer setting forth reasonably
detailed calculations of the Fixed Charge Coverage Ratio.
 
 
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9.28         Exchange Offering; Holdover Notes.
 
(a)
 
(i)            Substantially concurrently with the transactions to occur on the
Exchange Closing Date, the Agents shall have received a certificate signed by
the chief executive officer or chief financial officer of Parent (x) certifying
that holders tendered for exchange the Floating Rate Series A Secured Notes Due
2013 (as defined in the Existing Indenture) representing an aggregate principal
amount of $8,207,195 for the Exchange Notes and that no portion of such tender
was withdrawn, (y) certifying that the principal amount of the Floating Rate
Series A Secured Notes Due 2013 (as defined in the Existing Indenture) delivered
to Deutsche Bank National Trust Company, as trustee, for cancellation pursuant
to the Existing Indenture were cancelled and are no longer outstanding, and (z)
certifying that the Exchange Agreements and Master Warrant Agreement have not
been amended, modified, suspended, revoked or rescinded since the Amendment
Effective Date.  As soon as practicable and in any event within two (2) Business
Days following the Exchange Closing Date, the Agents shall have received a
certificate certifying and attaching a securities position listing from Deutsche
Bank National Trust Company, as trustee under the Existing Indenture and the
Indenture, showing the new reduced principal amount of the Floating Rate Series
A Secured Notes Due 2013 (as defined in the Existing Indenture) and the
principal amount of the Exchange Notes outstanding immediately following the
consummation of the exchange offer pursuant to the Exchange Agreement and
Indenture.  On the Exchange Closing Date, Agents shall have received evidence
satisfactory to Agents that Borrowers shall have received the Exchange Notes,
together with copies, certified by the chief executive officer or chief
financial officer of the Administrative Borrower of the Exchange Notes and
Indenture.  The terms of the Exchange Notes and the Exchange Notes Documents
shall be reasonably acceptable to Agents, including, without limitation, with
respect to payment subordination and blockage, remedy standstill periods, cross
default provisions and agreement not to contest the Obligations and the liens
granted to Agents under the Financing Agreements, and the Obligations arising
under the Financing Agreements and the liens granted to Agents under the
Financing Agreements shall be senior and first in priority, as applicable, in
all respects.
 
(ii)           On or before the Exchange Closing Date, the Agents shall have
received a certificate signed by the chief executive officer or chief financial
officer of Parent certifying that (x) the Form T-3 relating to the Indenture has
been declared effective by the Securities Exchange Commission, and (y) attaching
thereto evidence of the effectiveness of the Form T-3 relating to the Indenture
from the Securities Exchange Commission, each to be in form and substance
satisfactory to Agents.
 
 
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(b)           Substantially concurrently with the closing date of any Holdover
Note Payment (each, a “Holdover Closing Date”), the Agents shall have received a
certificate signed by the chief executive officer or chief financial officer of
Parent certifying, (A) in the case of a repayment at maturity or an optional
redemption in accordance with terms of the Existing Indenture, that (i) the
repayment or redemption is being made at par, (ii) the repayment or redemption
complies with all applicable requirements under the Existing Indenture and (iii)
that upon the receipt of the repayment or redemption price by Deutsche Bank
National Trust Company, as trustee, all Holdover Notes will be repaid or
redeemed in full and will no longer be outstanding  and (B) in the case of any
other Holdover Note Payment, certifying as to all such matters as the Agents may
request in connection with such Holdover Note Payment.  As soon as practicable
and in any event within two (2) Business Days following any Holdover Closing
Date, the Agents shall have received a certificate certifying and attaching a
securities position listing from Deutsche Bank National Trust Company, as
trustee under the Existing Indenture and the Indenture, showing the new reduced
principal amount of the Floating Rate Series A Secured Notes Due 2013 (as
defined in the Existing Indenture), or showing other evidence reasonably
satisfactory to the Agents regarding the retirement of the Holdover Notes.  The
terms of any Holdover Note Payment of the type described in the preceding clause
(B) and any indenture issued in connection with the Holdover Note Payment shall
be reasonably acceptable to Agents, including, without limitation, with respect
to payment subordination and blockage, remedy standstill periods, cross default
provisions and agreement not to contest the Obligations and the liens granted to
Agents under the Financing Agreements, and the Obligations arising under the
Financing Agreements and the liens granted to Agents under the Financing
Agreements shall be senior and first in priority, as applicable, in all
respects.
 
9.29           Post-Closing Requirements.  The Borrowers shall, and shall cause
their Subsidiaries to, cause the following actions to be taken or documents
executed and/or delivered or, caused to be taken, executed and/or delivered, on
or prior to the dates set forth below (or such later date agreed to by Working
Capital Agent in its reasonable discretion in writing or as may be waived by
Working Capital Agent in its reasonable discretion in writing):
 
(a)           On or before a date which is thirty (30) days following the
Amendment Effective Date, the Borrowers shall deliver to the Working Capital
Agent a signed Credit Card Acknowledgement with respect to the Elavon Processor
Agreement in form and substance satisfactory to Working Capital Agent.
 
(b)           On or before a date which is thirty (30) days following the
Amendment Effective Date, the Borrowers shall deliver to the Working Capital
Agent freight forwarder agreements with each of Averitt Express, Inc. and J&B
Services, Inc. in form and substance satisfactory to Working Capital Agent.
 
(c)           On or before a date which is thirty (30) days following the
Amendment Effective Date, Borrowers shall deliver to Working Capital Agent a
certificate of foreign qualification or the equivalent certificate from the
Secretary of State of the State of New Mexico evidencing Parent as being
qualified to do business in such State, such certificate of foreign
qualification to be in form satisfactory to the Working Capital Agent.
 
 
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(d)           On or before a date which is thirty (30) days following the
Amendment Effective Date, Borrowers shall deliver to Working Capital Agent a
certificate of foreign qualification or the equivalent certificate from the
Secretary of State of the State of Tennessee evidencing Parent as being
qualified to do business in such State, such certificate of foreign
qualification to be in form satisfactory to the Working Capital Agent.
 
(e)           On or before a date which is sixty (60) days following the
Amendment Effective Date, Working Capital Agent shall have received, in form and
substance reasonably satisfactory to Working Capital Agent:
 
(i)            a duly executed and effective amendment to the Mortgage with
respect to each Closing Date Mortgaged Property;
 
(ii)           a favorable opinion of counsel to the Credit Parties covering
such matters as to the applicable Mortgage as the Working Capital Agent may
reasonably request; and
 
(iii)           a valid and effective title insurance policy or bring-down title
insurance policy issued by a company and agent acceptable to Working Capital
Agent: (i) insuring the priority, amount and sufficiency of the Closing Date
Mortgaged Properties, (ii) insuring against matters that would be disclosed by
surveys and (iii) containing any legally available endorsements, assurances or
affirmative coverage requested by Working Capital Agent for protection of its
interests.
 
(f)           On or before a date which is sixty (60) days following the
Amendment Effective Date, the Borrowers shall deliver to the Working Capital
Agent insurance certificates in form and substance satisfactory to the Working
Capital Agent.
 
SECTION 10        EVENTS OF DEFAULT AND REMEDIES
 
10.1         Events of Default.  The occurrence or existence of any one or more
of the following events are referred to herein individually as an “Event of
Default”, and collectively as “Events of Default”:
 
(a)           (i) any Borrower fails to pay any of the Obligations when due; or
(ii) any Borrower or Guarantor fails to perform any of the covenants contained
in Sections 9.2, 9.3, 9.4, 9.13, 9.14, 9.15, and 9.16 of this Agreement and such
failure shall continue for twenty (20) days; provided, that, such twenty (20)
day period shall not apply in the case of:  (A) any failure to observe any such
covenant which is not capable of being cured at all or within such twenty (20)
day period or which has been the subject of a prior failure within a six (6)
month period or (B) an intentional breach by any Borrower or Guarantor of any
such covenant; or (iii) any Borrower or Guarantor fails to perform any of the
terms, covenants, conditions or provisions contained in this Agreement other
than those described in Sections 10.1(a)(i) and 10.1(a)(ii) above; or (iv) any
Borrower or Guarantor fails to perform any of the terms, covenants, conditions
or provisions contained in any of the other Financing Agreements other than
those described in Sections 10.1(a)(i) and 10.1(a)(ii) above;
 
(b)           any representation, warranty or statement of fact made by any
Borrower or Guarantor to Agents in this Agreement, the other Financing
Agreements or any other written agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or misleading in any material
respect;
 
 
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(c)           any Guarantor revokes or terminates or purports to revoke or
terminate or fails to perform any of the terms, covenants, conditions or
provisions of any guarantee, endorsement or other agreement of such party in
favor of Agents or any Lender;
 
(d)           one or more judgments for the payment of money is or are rendered
against any Borrower or Guarantor in excess of $750,000 in the aggregate (to the
extent not covered by insurance where the insurer has assumed responsibility in
writing for such judgment) and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against any
Borrower or Guarantor or any of the Collateral having a value in excess of
$750,000;
 
(e)           any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or any Borrower or Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
 
(f)           any Borrower or Guarantor makes an assignment for the benefit of
creditors, makes or sends notice of a bulk transfer of any of their respective
assets or calls a meeting of its creditors or principal creditors in connection
with a moratorium or adjustment of the Indebtedness due to them;
 
(g)           a case or proceeding under the bankruptcy laws of the United
States now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against any Borrower or Guarantor or all or any part of its properties and
such petition or application is not dismissed within thirty (30) days after the
date of its filing or any Borrower or Guarantor shall file any answer admitting
or not contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;
 
(h)           a case or proceeding under the bankruptcy laws of the United
States now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by any Borrower or Guarantor or for all or any part of its property;
 
(i)            any default by any Borrower or Guarantor under any agreement,
document or instrument relating to any Indebtedness owing to any person other
than Lenders, or any capitalized lease obligations, contingent indebtedness in
connection with any guarantee, letter of credit, indemnity or similar type of
instrument in favor of any person other than Lenders, in an amount in excess of
$750,000 which default continues for more than the applicable cure period, if
any, with respect thereto, or any default by any Borrower or Guarantor under any
Material Contract, which default continues for more than the applicable cure
period, if any, with respect thereto and/or is not waived in writing by the
other parties thereto or any Credit Card Issuer or Credit Card Processor
withholds payment of amounts otherwise payable to a Borrower to fund a reserve
account or otherwise hold as collateral, or shall require a Borrower to pay
funds into a reserve account or for such Credit Card Issuer or Credit Card
Processor to otherwise hold as collateral, or any Borrower shall provide a
letter of credit, guarantee, indemnity or similar instrument to or in favor of
such Credit Card Issuer or Credit Card Processor such that in the aggregate all
of such funds in the reserve account, other amounts held as collateral and the
amount of such letters of credit, guarantees, indemnities or similar instruments
shall exceed $750,000 or any such Credit Card Issuer or Credit Card Processor
shall debit or deduct any amounts in excess of $750,000 in the aggregate in any
Fiscal Year of Borrowers and Guarantors from any deposit account of any
Borrower;
 
 
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(j)            any Credit Card Issuer or Credit Card Processor shall send notice
to Borrower that it is ceasing to make or suspending payments to Borrower of
amounts due or to become due to Borrower or shall cease or suspend such
payments, or shall send notice to Borrower that it is terminating its
arrangements with Borrower or such arrangements shall terminate as a result of
any event of default under such arrangements, which continues for more than the
applicable cure period, if any, with respect thereto, unless (in the case of any
of the foregoing) Borrower shall have entered into arrangements with another
Credit Card Issuer or Credit Card Processor, as the case may be, within sixty
(60) days after the date of any such notice;
 
(k)           any bank at which any deposit account of Borrower or Guarantor is
maintained shall fail to comply with any of the material terms of any Deposit
Account Control Agreement to which such bank is a party or any securities
intermediary, commodity intermediary or other financial institution at any time
in custody, control or possession of any investment property of Borrower or
Guarantor shall fail to comply with any of the material terms of any Investment
Property Control Agreement to which such person is a party;
 
(l)            any material provision hereof or of any of the other Financing
Agreements shall for any reason cease to be valid, binding and enforceable with
respect to any party hereto or thereto (other than Agents) in accordance with
its terms, or any such party shall challenge the enforceability hereof or
thereof, or shall assert in writing, or take any action or fail to take any
action based on the assertion that any provision hereof or of any of the other
Financing Agreements has ceased to be or is otherwise not valid, binding or
enforceable in accordance with its terms, or any security interest provided for
herein or in any of the other Financing Agreements shall cease to be a valid and
perfected first priority security interest in any of the Collateral purported to
be subject thereto except as otherwise permitted herein or therein and except as
to Collateral having an aggregate value of not more than $250,000;
 
(m)          an ERISA Event shall occur which results in or could reasonably be
expected to result in liability of any Borrower in an aggregate amount in excess
of $750,000;
 
(n)           any Change of Control;
 
(o)           the indictment by any Governmental Authority, or as Agents may
reasonably and in good faith determine, the threatened indictment by any
Governmental Authority of any Borrower or Guarantor of which any Borrower,
Guarantor or any Agent receives notice, in either case, as to which there is a
reasonable possibility of an adverse determination, in the good faith
determination of Agents, under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against such Borrower
or Guarantor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of (i) any of the Collateral having a
value in excess of $750,000 or (ii) any other property of any Borrower or
Guarantor which is necessary or material to the conduct of its business;
 
 
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(p)           intentionally omitted;
 
(q)           Elavon or Elavon Member shall exercise any right of offset,
deduction, chargeback or withdraw against any deposit account or securities
account of any Borrower or any Guarantor other than from the Elavon Deposit
Account or the Elavon Reserve Account; or
 
(r)           the Obligations shall cease for any reason to rank senior in right
of payment to any Specified Subordinated Indebtedness.
 
10.2           Remedies.
 
(a)           At any time an Event of Default exists or has occurred and is
continuing, Working Capital Agent shall have all rights and remedies provided in
this Agreement, the other Financing Agreements, the UCC and other applicable
law, all of which rights and remedies may be exercised without notice to or
consent by any Borrower or Guarantor, except as such notice or consent is
expressly provided for hereunder or required by applicable law.  All rights,
remedies and powers granted to Working Capital Agent hereunder, under any of the
other Financing Agreements, the UCC or other applicable law, are cumulative, not
exclusive and enforceable, in Working Capital Agents’ discretion, alternatively,
successively, or concurrently on any one or more occasions, and shall include,
without limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by any Borrower or Guarantor of this
Agreement or any of the other Financing Agreements.  Subject to Section 12
hereof, Working Capital Agent may, and at the direction of the Required Lenders
shall, at any time or times, proceed directly against any Borrower or Guarantor
to collect the Obligations without prior recourse to the Collateral.
 
(b)           Without limiting the generality of the foregoing, at any time an
Event of Default exists or has occurred and is continuing, Working Capital Agent
may, at its option and shall upon the direction of the Required Lenders, (i)
upon notice to Administrative Borrower, accelerate the payment of all
Obligations and demand immediate payment thereof to Working Capital Agent for
itself and the benefit of Lenders (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(f), 10.1(g) and 10.1(h), all
Obligations shall automatically become immediately due and payable), and (ii)
terminate the Commitments whereupon the obligation of each Lender to make any
Loan and Issuing Bank to issue any Letter of Credit shall immediately terminate
(provided, that, upon the occurrence of any Event of Default described in
Sections 10.1(f), 10.1(g) and 10.1(h), the Commitments and any other obligation
of Agents or a Lender hereunder shall automatically terminate).
 
 
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(c)           Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Working Capital Agent may, in its
discretion (i) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (ii) require
any Borrower or Guarantor, at Borrowers’ expense, to assemble and make available
to Working Capital Agent any part or all of the Collateral at any place and time
designated by Working Capital Agent, (iii) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (iv) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (v) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker’s board,
at any office of Working Capital Agent or elsewhere) at such prices or terms as
Working Capital Agent may deem reasonable, for cash, upon credit or for future
delivery, with Working Capital Agent having the right to purchase the whole or
any part of the Collateral at any such public sale, all of the foregoing being
free from any right or equity of redemption of any Borrower or Guarantor, which
right or equity of redemption is hereby expressly waived and released by
Borrowers and Guarantors and/or (vi) terminate this Agreement.  If any of the
Collateral is sold or leased by Working Capital Agent upon credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Working Capital Agent.  If notice of
disposition of Collateral is required by law, ten (10) days prior notice by
Working Capital Agent to Administrative Borrower designating the time and place
of any public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrowers and Guarantors waive any other notice.  In the event
Working Capital Agent institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy, each Borrower and
Guarantor waives the posting of any bond which might otherwise be required.  At
any time an Event of Default exists or has occurred and is continuing, upon
Working Capital Agent’s request, Borrowers will either, as Working Capital Agent
shall specify, furnish cash collateral to Issuing Bank to be used to secure and
fund the reimbursement obligations to Issuing Bank in connection with any Letter
of Credit Obligations or furnish cash collateral to Issuing Bank for the Letter
of Credit Obligations.  Such cash collateral shall be in the amount equal to one
hundred five (105%) percent of the amount of the Letter of Credit Obligations
plus the amount of any fees and expenses payable in connection therewith through
the end of the latest expiration date of such Letter of Credit Obligations.
 
(d)           At any time or times that an Event of Default exists or has
occurred and is continuing, Working Capital Agent may, in its discretion,
enforce the rights of any Borrower or Guarantor against any account debtor,
secondary obligor or other obligor in respect of any of the Accounts or other
Receivables.  Without limiting the generality of the foregoing, Working Capital
Agent may, in its discretion, at such time or times (i) notify any or all
account debtors (including Credit Card Issuers and Credit Card Processors),
secondary obligors or other obligors in respect thereof that the Receivables
have been assigned to Working Capital Agent and that Working Capital Agent has a
security interest therein and Working Capital Agent may direct any or all
account debtors (including Credit Card Issuers and Credit Card Processors),
secondary obligors and other obligors to make payment of Receivables directly to
Working Capital Agent, (ii) extend the time of payment of, compromise, settle or
adjust for cash, credit, return of merchandise or otherwise, and upon any terms
or conditions, any and all Receivables or other obligations included in the
Collateral and thereby discharge or release the account debtor or any secondary
obligors or other obligors in respect thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment of any Receivables or such
other obligations, but without any duty to do so, and Agents and Lenders shall
not be liable for any failure to collect or enforce the payment thereof nor for
the negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Working Capital Agent may deem necessary or desirable for
the protection of its interests and the interests of Lenders.  At any time that
an Event of Default exists or has occurred and is continuing, at Working Capital
Agent’s request, all invoices and statements sent to any account debtor shall
state that the Accounts and such other obligations have been assigned to Working
Capital Agent and are payable directly and only to Working Capital Agent and
Borrowers and Guarantors shall deliver to Working Capital Agent such originals
of documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Working Capital Agent may require.  In
the event any account debtor returns Inventory when an Event of Default exists
or has occurred and is continuing, Borrowers shall, upon Working Capital Agent’s
request, hold the returned Inventory in trust for Working Capital Agent,
segregate all returned Inventory from all of its other property, dispose of the
returned Inventory solely according to Working Capital Agent’s instructions, and
not issue any credits, discounts or allowances with respect thereto without
Working Capital Agent’s prior written consent.
 
 
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(e)           To the extent that applicable law imposes duties on Working
Capital Agent or any Lender to exercise remedies in a commercially reasonable
manner (which duties cannot be waived under such law), each Borrower and
Guarantor acknowledges and agrees that it is not commercially unreasonable for
Working Capital Agent or any Lender (i) to fail to incur expenses reasonably
deemed significant by Agents or any Lender to prepare Collateral for disposition
or otherwise to complete raw material or work in process into finished goods or
other finished products for disposition, (ii) to fail to obtain third party
consents for access to Collateral to be disposed of, or to obtain or to fail to
obtain consents of any Governmental Authority or other third party for the
collection or disposition of Collateral to be collected or disposed of, except
to the extent such failure violates applicable law, (iii) to fail to exercise
collection remedies against account debtors, secondary obligors or other persons
obligated on Collateral or to remove liens or encumbrances on or any adverse
claims against Collateral, (iv) to exercise collection remedies against account
debtors and other persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vi) to contact other
persons, whether or not in the same business as any Borrower or Guarantor, for
expressions of interest in acquiring all or any portion of the Collateral, (vii)
to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, (xi) to purchase insurance or credit enhancements to
insure Agents or Lenders against risks of loss, collection or disposition of
Collateral or to provide to Agents or Lenders a guaranteed return from the
collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by Agents, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist Working Capital Agent in
the collection or disposition of any of the Collateral.  Each Borrower and
Guarantor acknowledges that the purpose of this Section is to provide
non-exhaustive indications of what actions or omissions by Agents or any Lender
would not be commercially unreasonable in the exercise by Agents or any Lender
of remedies against the Collateral and that other actions or omissions by Agents
or any Lender shall not be deemed commercially unreasonable solely on account of
not being indicated in this Section.  Without limitation of the foregoing,
nothing contained in this Section shall be construed to grant any rights to any
Borrower or Guarantor or to impose any duties on Agents or Lenders that would
not have been granted or imposed by this Agreement or by applicable law in the
absence of this Section.
 
 
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(f)           For the purpose of enabling Working Capital Agent to exercise the
rights and remedies hereunder, each Borrower and Guarantor hereby grants to
Working Capital Agent, to the extent assignable, an irrevocable, non-exclusive
license (exercisable at any time an Event of Default shall exist or have
occurred and for so long as the same is continuing) without payment of royalty
or other compensation to any Borrower or Guarantor, to use, assign, license or
sublicense any of the trademarks, service-marks, trade names, business names,
trade styles, designs, logos and other source of business identifiers and other
Intellectual Property and general intangibles now owned or hereafter acquired by
any Borrower or Guarantor, wherever the same maybe located, including in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof.
 
(g)           At any time an Event of Default exists or has occurred and is
continuing, Working Capital Agent may apply the cash proceeds of Collateral
actually received by Working Capital Agent from any sale, lease, foreclosure or
other disposition of the Collateral to payment of the Obligations, in whole or
in part and in accordance with the terms hereof, whether or not then due or may
hold such proceeds as cash collateral for the Obligations.  Borrowers and
Guarantors shall remain liable to Agents and Lenders for the payment of any
deficiency with interest at the highest rate provided for herein and all costs
and expenses of collection or enforcement, including attorneys’ fees and
expenses.
 
(h)           Without limiting the foregoing, upon the occurrence of a Default
or an Event of Default, (i) Agents and Lenders may, at Working Capital Agent’s
option, and upon the occurrence of an Event of Default at the direction of the
Required Lenders, Agents and Lenders shall, without notice, (A) cease making
Loans or arranging for Letters of Credit or reduce the lending formulas or
amounts of Loans and Letters of Credit available to Borrowers and/or (B)
terminate any provision of this Agreement providing for any future Loans to be
made by Agents and Lenders or Letters of Credit to be issued by Issuing Bank and
(ii) Working Capital Agent may, at its option, establish such Reserves as
Working Capital Agent determines, without limitation or restriction,
notwithstanding anything to the contrary contained herein.
 
SECTION 11        JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
 
11.1         Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
 
(a)           The validity, interpretation and enforcement of this Agreement and
the other Financing Agreements (except as otherwise provided therein) and any
dispute arising out of the relationship between the parties hereto, whether in
contract, tort, equity or otherwise, shall be governed by the internal laws of
the State of New York but excluding any principles of choice of law and
conflicts of law (other than Section 5-1401 and Section 5-1402 of the General
Obligations Laws of the State of New York).
 
 
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(b)           Borrowers, Guarantors, Agents, Lenders and Issuing Bank
irrevocably consent and submit to the non-exclusive jurisdiction of the Supreme
Court of the State of New York in New York County and the United States District
Court for the Southern District of New York, whichever Working Capital Agent may
elect, and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Agents and Lenders shall have the right to bring any action or proceeding
against any Borrower or Guarantor or its or their property in the courts of any
other jurisdiction which Working Capital Agent deems necessary or appropriate in
order to realize on the Collateral or to otherwise enforce its rights against
any Borrower or Guarantor or its or their property).
 
(c)           Each Borrower and Guarantor hereby waives personal service of any
and all process upon it and consents that all such service of process may be
made by U.S. certified mail (return receipt requested) directed to its address
set forth herein and service so made shall be deemed to be completed immediately
upon receipt thereof by the applicable Borrower or Guarantor, or, at Working
Capital Agent’s option, by service upon any Borrower or Guarantor (or
Administrative Borrower on behalf of such Borrower or Guarantor) in any other
manner provided under the rules of any such courts.  Within thirty (30) days
after such service, such Borrower or Guarantor shall appear in answer to such
process, failing which such Borrower or Guarantor shall be deemed in default and
judgment may be entered by Working Capital Agent against such Borrower or
Guarantor for the amount of the claim and other relief requested.
 
(d)           BORROWERS, GUARANTORS, AGENTS, LENDERS AND ISSUING BANK EACH
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS
OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING
AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE.  BORROWERS, GUARANTORS, AGENTS, LENDERS AND ISSUING BANK EACH HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER, ANY GUARANTOR,
AGENTS, ANY LENDER OR ISSUING BANK MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF
THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
 
 
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(e)           Agents, Lenders and Issuing Bank shall not have any liability to
any Borrower or Guarantor (whether in tort, contract, equity or otherwise) for
losses suffered by such Borrower or Guarantor in connection with, arising out
of, or in any way related to the transactions or relationships contemplated by
this Agreement, or any act, omission or event occurring in connection herewith,
unless it is determined by a final and non-appealable judgment or court order
binding on Agents, such Lender and Issuing Bank, that the losses were the result
of acts or omissions constituting gross negligence or willful misconduct.  In
any such litigation, Agents, Lenders and Issuing Bank shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement.  Each Borrower and Guarantor:  (i) certifies that neither Working
Capital Agent, Term Loan Agent, any Lender, nor any representative, agent or
attorney acting for or on behalf of Working Capital Agent, Term Loan Agent, any
Lender or Issuing Bank has represented, expressly or otherwise, that Agents,
Lenders and Issuing Bank would not, in the event of litigation, seek to enforce
any of the waivers provided for in this Agreement or any of the other Financing
Agreements and (ii) acknowledges that in entering into this Agreement and the
other Financing Agreements, Agents, Lenders and Issuing Bank are relying upon,
among other things, the waivers and certifications set forth in this Section
11.1 and elsewhere herein and therein.
 
11.2         Waiver of Notices.  Each Borrower and Guarantor hereby expressly
waives demand, presentment, protest and notice of protest and notice of dishonor
with respect to any and all instruments and chattel paper, included in or
evidencing any of the Obligations or the Collateral, and any and all other
demands and notices of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein.  No notice to or demand on any Borrower or Guarantor which
Agents or any Lender may elect to give shall entitle such Borrower or Guarantor
to any other or further notice or demand in the same, similar or other
circumstances.
 
11.3         Amendments and Waivers.
 
(a)           Neither this Agreement nor any other Financing Agreement nor any
terms hereof or thereof may be amended, waived, discharged or terminated unless
such amendment, waiver, discharge or termination is in writing signed by Working
Capital Agent and the Required Lenders or at Working Capital Agent’s option, by
Working Capital Agent with the authorization or consent of the Required Lenders,
and as to amendments to any of the Financing Agreements (other than with respect
to any provision of Section 12 hereof), by any Borrower and such amendment,
waiver, discharger or termination shall be effective and binding as to all
Lenders only in the specific instance and for the specific purpose for which
given; except, that, no such amendment, waiver, discharge or termination shall:
 
(i)            reduce the interest rate or any fees or extend the time of
payment of principal, interest or any fees or reduce the principal amount of any
Loan or Letter of Credit, in each case without the consent of each Lender
directly affected thereby,
 
 
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(ii)           increase the Commitment of any Lender over the amount thereof
then in effect or provided hereunder, in each case without the consent of the
Lender directly affected thereby,
 
(iii)          release any Collateral (except as expressly required hereunder or
under any of the other Financing Agreements or applicable law and except as
permitted under Section 12.11(b) hereof), without the consent of Agents and all
of Lenders,
 
(iv)           reduce any percentage specified in the definition of Required
Lenders or Required Revolving Lenders, without the consent of Agents and all of
Lenders or, in the case of a change to the definition of “Required Revolving
Lenders”, all Revolving Lenders,
 
(v)           consent to the assignment or transfer by any Borrower or Guarantor
of any of their rights and obligations under this Agreement, without the consent
of Agents and all of Lenders,
 
(vi)          amend, modify or waive any terms of this Section 11.3 hereof,
without the consent of Agents and all of Lenders,
 
(vii)         amend, modify or waive any terms of Section 9.19 to reduce the
minimum Excess Availability required thereunder, without the consent of the
Agents,
 
(viii)        increase the advance rates constituting part of the Revolving
Credit Borrowing Base or Term Borrowing Base, without the consent of Agents and
all of Lenders,
 
(ix)           amend or modify any of the following definitions without the
consent of the Agents and all of Lenders: Revolving Credit Borrowing Base (and
any component definition thereof), Term Borrowing Base (and any component
definition thereof), Term Loan Reserve, Adjusted Excess Availability or
Applicable Adjusted Excess Availability Amount,
 
(x)            amend or modify the definition of “Pro Rata Share” or Section
6.10 in any manner that would alter the pro rata sharing of payments required
thereby or Section 6.4(a)(i) or (ii) in any manner that would alter the order of
treatment required thereby, without the consent of the Agents,
 
(xi)           subordinate (i) all or substantially all of the Liens granted
pursuant to the Financing Agreements or (ii) the Obligations, in each case other
than pursuant to the Interlender Provisions or as otherwise permitted hereunder,
without the consent of Term Loan Agent,
 
(xii)          amend or modify any terms of Section 9.7(b)(i) (subject to the
Interlender Provisions), without the consent of Agents,
 
(xiii)         amend or modify any terms of Section 13.8 or the definition of
Eligible Transferee, without the consent of Agents,
 
 
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(xiv)         discharge any Credit Party from its respective payment Obligations
under the Financing Agreements, except as otherwise may be provided in this
Agreement, the other Financing Agreements and the Interlender Provisions,
without the consent of Agents,
 
(xv)          create or permit to exist a class or tranche of the Working
Capital Facility or Term B-1 Loans that is junior or subordinate in right of
payment or application of proceeds of Collateral (or other collection actions)
to any other class or tranche of the Working Capital Facility or Term B-1 Loans,
without the consent of Agents, or
 
(xvi)         amend or modify any terms of Sections 9.11(g) or 9.11(i), without
the consent of Agents.
 
Nothing contained herein shall limit or restrict or impair the discretionary
rights and ability of the Working Capital Agent to impose or establish any and
all Reserves and to thereafter reduce or eliminate Reserves or to determine the
eligibility of collateral for inclusion in the calculation of the Revolving
Borrowing Base or Term Borrowing Base consistent with Working Capital Agent’s
usual business practices.
 
(b)           Agents, Lenders and Issuing Bank shall not, by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of its
or their rights, powers and/or remedies unless such waiver shall be in writing
and signed as provided herein.  Any such waiver shall be enforceable only to the
extent specifically set forth therein.  A waiver by any Agent, any Lender or
Issuing Bank of any right, power and/or remedy on any one occasion shall not be
construed as a bar to or waiver of any such right, power and/or remedy which any
Agent, any Lender or Issuing Bank would otherwise have on any future occasion,
whether similar in kind or otherwise.
 
(c)           Notwithstanding anything to the contrary contained in Section
11.3(a) above, in connection with any amendment, waiver, discharge or
termination, in the event that any Lender whose consent thereto is required
shall fail to consent or fail to consent in a timely manner (such Lender being
referred to herein as a “Non-Consenting Lender”), but the consent of any other
Lenders to such amendment, waiver, discharge or termination that is required are
obtained, if any, then GE Capital shall have the right, but not the obligation,
at any time thereafter, and upon the exercise by GE Capital of such right, such
Non-Consenting Lender shall have the obligation, to sell, assign and transfer to
GE Capital or such Eligible Transferee as GE Capital may specify, the Commitment
of such Non-Consenting Lender and all rights and interests of such
Non-Consenting Lender pursuant thereto.  GE Capital shall provide the
Non-Consenting Lender with prior written notice of its intent to exercise its
right under this Section, which notice shall specify on date on which such
purchase and sale shall occur.  Such purchase and sale shall be pursuant to the
terms of an Assignment and Acceptance (whether or not executed by the
Non-Consenting Lender), except that on the date of such purchase and sale, GE
Capital, or such Eligible Transferee specified by GE Capital, shall pay to the
Non-Consenting Lender (except as GE Capital and such Non-Consenting Lender may
otherwise agree) the amount equal to:  (i) the principal balance of the Loans
held by the Non-Consenting Lender outstanding as of the close of business on the
business day immediately preceding the effective date of such purchase and sale,
plus (ii) amounts accrued and unpaid in respect of interest and fees payable to
the Non-Consenting Lender to the effective date of the purchase (but in no event
shall the Non-Consenting Lender be deemed entitled to any early termination
fee).  Such purchase and sale shall be effective on the date of the payment of
such amount to the Non-Consenting Lender and the Commitment of the
Non-Consenting Lender shall terminate on such date.
 
 
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(d)           The consent of Working Capital Agent or Term Loan Agent shall be
required for any amendment, waiver or consent affecting the rights or duties of
Working Capital Agent or Term Loan Agent hereunder or under any of the other
Financing Agreements, in addition to the consent of the Lenders otherwise
required by this Section and the exercise by Working Capital Agent of any of its
rights hereunder with respect to Reserves or Eligible Accounts or Eligible
Inventory shall not be deemed an amendment to the advance rates provided for in
this Section 11.3.  The consent of Issuing Bank shall be required for any
amendment, waiver or consent affecting the rights or duties of Issuing Bank
hereunder or under any of the other Financing Agreements, in addition to the
consent of the Lenders otherwise required by this Section, provided, that, the
consent of Issuing Bank shall not be required for any other amendments, waivers
or consents.  Notwithstanding anything to the contrary contained in Section
11.3(a) above, (i) in the event that Working Capital Agent shall agree that any
items otherwise required to be delivered to Agent as a condition of the Loans
and Letters of Credit hereunder may be delivered after the date hereof, Working
Capital Agent may, in its discretion, agree to extend the date for delivery of
such items or take such other action as Working Capital Agent may deem
appropriate as a result of the failure to receive such items as Working Capital
Agent may determine or may waive any Event of Default as a result of the failure
to receive such items, in each case without the consent of any Lender and (ii)
Working Capital Agent may consent to any change in the type of organization,
jurisdiction of organization or other legal structure of any Borrower, Guarantor
or any of their Subsidiaries and amend the terms hereof or of any of the other
Financing Agreements as may be necessary or desirable to reflect any such
change, in each case without the approval of any Lender.
 
(e)           The consent of Working Capital Agent and any Bank Product Provider
that is providing Bank Products and has outstanding any such Bank Products at
such time that are secured hereunder shall be required for any amendment to the
priority of payment of Obligations arising under or pursuant to any Hedge
Agreements of a Borrower or Guarantor or other Bank Products as set forth in
Section 6.4(a) hereof.
 
(f)           No amendment, modification or waiver of this Agreement or any
Financing Agreement altering the ratable treatment of Obligations arising under
Secured Rate Contracts resulting in such Obligations being junior in right of
payment to principal on the Loans or resulting in Obligations owing to any
Secured Swap Provider becoming unsecured (other than release of Liens in
accordance with the terms hereof), in each case in a manner adverse to any
Secured Swap Provider, shall be effective without the written consent of GE
Capital.
 
11.4         Waiver of Counterclaims.  Each Borrower and Guarantor waives all
rights to interpose any claims, deductions, setoffs or counterclaims of any
nature (other then compulsory counterclaims) in any action or proceeding
involving any Agent, Issuing Bank or any Lender with respect to this Agreement,
the Obligations, the Collateral or any matter arising therefrom or relating
hereto or thereto.
 
 
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11.5         Indemnification.  Each Borrower and Guarantor shall, jointly and
severally, indemnify and hold each Agent, each Lender and Issuing Bank and their
respective officers, directors, agents, employees, advisors and counsel and
their respective Affiliates (each such person being an “Indemnitee”), harmless
from and against any and all losses, claims, damages, liabilities, costs or
expenses (including attorneys’ fees and expenses) imposed on, incurred by or
asserted against any of them in connection with any litigation, investigation,
claim or proceeding commenced or threatened related to the negotiation,
preparation, execution, delivery, enforcement, performance or administration of
this Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in
settlement, court costs, and the fees and expenses of counsel except that
Borrowers and Guarantors shall not have any obligation under this Section 11.5
to indemnify an Indemnitee with respect to a matter covered hereby resulting
from the gross negligence or willful misconduct of such Indemnitee as determined
pursuant to a final, non-appealable order of a court of competent jurisdiction
(but without limiting the obligations of Borrowers or Guarantors as to any other
Indemnitee).  To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section may be unenforceable because it violates any
law or public policy, Borrowers and Guarantors shall pay the maximum portion
which it is permitted to pay under applicable law to Agents and Lenders in
satisfaction of indemnified matters under this Section.  To the extent permitted
by applicable law, no Borrower or Guarantor shall assert, and each Borrower and
Guarantor hereby waives, any claim against any Indemnitee, on any theory of
liability for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement, any of the other Financing Agreements or any undertaking or
transaction contemplated hereby.  No Indemnitee referred to above shall be
liable for any damages arising from the use by unintended recipients of any
information or other materials distributed by it through telecommunications,
electronic or other information transmission systems in connection with this
Agreement or any of the other Financing Agreements or the transaction
contemplated hereby or thereby, except for damages resulting from the gross
negligence or willful misconduct of such Indemnitee as determined pursuant to a
final, non-appealable order of a court of competent jurisdiction.  All amounts
due under this Section shall be payable upon demand.  The foregoing indemnity
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
 
SECTION 12        THE AGENTS
 
12.1         Appointment, Powers and Immunities.  Each Secured Party irrevocably
designates, appoints and authorizes GE Capital to act as Working Capital Agent
and GA Capital as Term Loan Agent hereunder and under the other Financing
Agreements with such powers as are specifically delegated to such Agent by the
terms of this Agreement and of the other Financing Agreements, together with
such other powers as are reasonably incidental thereto.  Agents (a) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and in the other Financing Agreements, and shall not by reason of this Agreement
or any other Financing Agreement be a trustee or fiduciary for any Secured
Party; (b) shall not be responsible to Lenders for any recitals, statements,
representations or warranties contained in this Agreement or in any of the other
Financing Agreements, or in any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or any other
Financing Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Financing Agreement
or any other document referred to or provided for herein or therein or for any
failure by any Borrower or any Guarantor or any other Person to perform any of
its obligations hereunder or thereunder; and (c) shall not be responsible to
Lenders for any action taken or omitted to be taken by it hereunder or under any
other Financing Agreement or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct as determined by a final
non-appealable judgment of a court of competent jurisdiction.  Agents may employ
agents and attorneys in fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys in fact selected by it in good
faith.  Agents may deem and treat the payee of any note as the holder thereof
for all purposes hereof unless and until the assignment thereof pursuant to an
agreement (if and to the extent permitted herein) in form and substance
satisfactory to Agent shall have been delivered to and acknowledged by
Agents.  GE Capital Markets, Inc. is hereby designated as the sole lead
arranger, manager and bookrunner with respect to the Working Capital Facility
and joint term loan lead arranger and joint bookrunner with respect to the Term
B Facility.  GA Capital is hereby designated as the joint term loan lead
arranger and joint bookrunner with respect to the Term B Facility.  The
designation of (i) GE Capital Markets, Inc. as sole lead arranger, manager and
bookrunner for the Working Capital Facility and joint term loan lead arranger
and joint bookrunner with respect to the Term B Facility and (ii) GA Capital as
the joint term loan lead arranger and joint bookrunner with respect to the Term
B Facility shall not create any rights in favor of them in such capacity nor
subject them to any duties or obligations in such capacity.
 
 
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12.2         Reliance by Agents.  Agents shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agents.  As to any matters not
expressly provided for by this Agreement or any other Financing Agreement,
Agents shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or thereunder in accordance with instructions given by the
Required Lenders or all of Lenders as is required in such circumstance, and such
instructions of such Agents and any action taken or failure to act pursuant
thereto shall be binding on all Lenders.
 
12.3         Events of Default.
 
(a)           Agents shall not be deemed to have knowledge or notice of the
occurrence of a Default or an Event of Default or other failure of a condition
precedent to the Loans and Letters of Credit hereunder, unless and until Agents
have received written notice from a Lender, or Borrower specifying such Event of
Default or any unfulfilled condition precedent, and stating that such notice is
a “Notice of Default or Failure of Condition”.  In the event that Agents receive
such a Notice of Default or Failure of Condition, Agents shall give prompt
notice thereof to the Lenders.  Agents shall (subject to Section 12.7) take such
action with respect to any such Event of Default or failure of condition
precedent as shall be directed by the Required Lenders to the extent provided
for herein; provided, that, unless and until Agents shall have received such
directions, Agents may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to or by reason of such Event of
Default or failure of condition precedent, as it shall deem advisable in the
best interest of Lenders.  Without limiting the foregoing, and notwithstanding
the existence or occurrence and continuance of an Event of Default or any other
failure to satisfy any of the conditions precedent set forth in Section 4 of
this Agreement to the contrary, unless and until otherwise directed by the
Required Lenders (but subject to the Interlender Provisions), Agents may, but
shall have no obligation to, continue to make Revolving Loans and Issuing Bank
may, but shall have no obligation to, issue or cause to be issued any Letter of
Credit for the ratable account and risk of Lenders from time to time if Agents
(but subject to the Interlender Provisions) believe making such Revolving Loans
or issuing or causing to be issued such Letter of Credit is in the best
interests of Lenders.
 
 
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(b)           Except with the prior written consent of Working Capital Agent, no
Lender or Issuing Bank may assert or exercise any enforcement right or remedy in
respect of the Loans, Letters of Credit or other Obligations, as against any
Borrower or Guarantor or any of the Collateral or other property of any Borrower
or Guarantor.
 
12.4         GE Capital or GA Capital in its Individual Capacity.  With respect
to its Commitment and the Loans made and Letters of Credit issued or caused to
be issued by it (and any successor acting as Agent), so long as GE Capital or GA
Capital shall be a Lender hereunder, it shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as Agent, and the term “Lender” or “Lenders” shall, unless the context
otherwise indicates, include GE Capital or GA Capital in its individual capacity
as Lender hereunder.  GE Capital (and any successor acting as Working Capital
Agent), GA Capital (and any successor as Term Loan Agent) and their Affiliates
may (without having to account therefor to any Lender) lend money to, make
investments in and generally engage in any kind of business with any Borrower
(and any of its Subsidiaries or Affiliates) as if it were not acting as Agent,
and GE Capital, GA Capital and their Affiliates may accept fees and other
consideration from any Borrower or Guarantor and any of its Subsidiaries and
Affiliates for services in connection with this Agreement or otherwise without
having to account for the same to Lenders.
 
12.5         Indemnification.  Lenders agree to indemnify Agents and Issuing
Bank (to the extent not reimbursed by Borrowers hereunder and without limiting
any obligations of Borrowers hereunder) ratably, in accordance with their Pro
Rata Shares, for any and all claims of any kind and nature whatsoever that may
be imposed on, incurred by or asserted against Agents (including by any Lender)
arising out of or by reason of any investigation in or in any way relating to or
arising out of this Agreement or any other Financing Agreement or any other
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that Agents is
obligated to pay hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided, that, no Lender shall be
liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined by
a final non-appealable judgment of a court of competent jurisdiction.  The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
 
12.6         Non-Reliance on Agents and Other Lenders.  Each Secured Party
agrees that it has, independently and without reliance on Agents or any other
Secured Party, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Borrowers and Guarantors and has
made its own decision to enter into this Agreement and that it will,
independently and without reliance upon Agents or any other Secured Party, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under this Agreement or any of the other Financing Agreements.  Agents
shall not be required to keep itself informed as to the performance or
observance by any Borrower or Guarantor of any term or provision of this
Agreement or any of the other Financing Agreements or any other document
referred to or provided for herein or therein or to inspect the properties or
books of any Borrower or Guarantor.  Agents will use reasonable efforts to
provide Lenders with any information received by Agents from any Borrower or
Guarantor which is required to be provided to Lenders or deemed to be requested
by Lenders hereunder and with a copy of any Notice of Default or Failure of
Condition received by Agents from any Borrower or any Lender; provided, that,
Agents shall not be liable to any Lender for any failure to do so, except to the
extent that such failure is attributable to Agents’ own gross negligence or
willful misconduct as determined by a final non-appealable judgment of a court
of competent jurisdiction.  Except for notices, reports and other documents
expressly required to be furnished to Lenders by Agents or deemed requested by
Lenders hereunder (including the documents provided for in Section 12.10
hereof), Agents shall not have any duty or responsibility to provide any Lender
with any other credit or other information concerning the affairs, financial
condition or business of any Borrower or Guarantor that may come into the
possession of Agents.
 
 
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12.7         Failure to Act.  Except for action expressly required of Agents
hereunder and under the other Financing Agreements, Agents shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction from Lenders of their
indemnification obligations under Section 12.5 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.
 
12.8         Intentionally Omitted.
 
12.9         Concerning the Collateral and the Related Financing
Agreements.  Each Secured Party authorizes and directs Working Capital Agent to
enter into this Agreement and the other Financing Agreements.  Each Secured
Party agrees that any action taken by Working Capital Agent or Required Lenders
in accordance with the terms of this Agreement or the other Financing Agreements
and the exercise by Working Capital Agent or Required Lenders of their
respective powers set forth therein or herein, together with such other powers
that are reasonably incidental thereto, shall be binding upon all Secured
Parties.
 
12.10       Field Audit, Examination Reports and other Information; Disclaimer
by Lenders.
 
By signing this Agreement, each Lender:
 
(a)            is deemed to have requested that Working Capital Agent furnish
such Lender (and Working Capital Agent agrees that it will furnish to such
Lender), promptly after it becomes available, a copy of each field audit or
examination report and report with respect to the Borrowing Base prepared or
received by Working Capital Agent (each field audit or examination report and
report with respect to the Borrowing Base being referred to herein as a “Report”
and collectively, “Reports”), appraisals with respect to the Collateral and
financial statements with respect to Parent and its Subsidiaries received by
Working Capital Agent;
 
 
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(b)           expressly agrees and acknowledges that Working Capital Agent (i)
does not make any representation or warranty as to the accuracy of any Report,
appraisal or financial statement or (ii) shall not be liable for any information
contained in any Report, appraisal or financial statement;
 
(c)           expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Working Capital Agent or any other
party performing any audit or examination will inspect only specific information
regarding Borrowers and Guarantors and will rely significantly upon Borrowers’
and Guarantors’ books and records, as well as on representations of Borrowers’
and Guarantors’ personnel; and
 
(d)           agrees to keep all Reports confidential and strictly for its
internal use in accordance with the terms of Section 13.5 hereof, and not to
distribute or use any Report in any other manner.
 
12.11       Collateral Matters.
 
(a)           Intentionally Omitted.
 
(b)           Lenders hereby irrevocably authorize Working Capital Agent, at its
option and in its discretion to release any security interest in, mortgage or
lien upon, any of the Collateral (i) upon termination of the Commitments and
payment and satisfaction of all of the Obligations and delivery of cash
collateral to the extent required under Section 13.1 below, or (ii) constituting
property being sold or disposed of if Administrative Borrower or any Borrower or
Guarantor certifies to Working Capital Agent that the sale or disposition is
made in compliance with Section 9.7 hereof (and Working Capital Agent may rely
conclusively on any such certificate, without further inquiry), or (iii)
constituting property in which any Borrower or Guarantor did not own an interest
at the time the security interest, mortgage or lien was granted or at any time
thereafter, or (iv) having a value in the aggregate in any twelve (12) month
period of less than $5,000,000, and to the extent Working Capital Agent may
release its security interest in and lien upon any such Collateral pursuant to
the sale or other disposition thereof, such sale or other disposition shall be
deemed consented to by Lenders, or (v) if required or permitted under the terms
of any of the other Financing Agreements, including any intercreditor agreement,
or (vi) approved, authorized or ratified in writing by all of Lenders.  Except
as provided above, Working Capital Agent will not release any security interest
in, mortgage or lien upon, any of the Collateral without the prior written
authorization of all of Lenders.  Upon request by Working Capital Agent at any
time, Lenders will promptly confirm in writing Working Capital Agent’s authority
to release particular types or items of Collateral pursuant to this Section.  In
no event shall the consent or approval of Issuing Bank to any release of
Collateral be required.  Except as provided in Section 11.3(f), nothing
contained herein shall be construed to require the consent of any Bank Product
Provider to any release of any Collateral or termination of security interests
in any Collateral.
 
 
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(c)           Without any manner limiting Working Capital Agent’s authority to
act without any specific or further authorization or consent by the Required
Lenders, each Lender agrees to confirm in writing, upon request by Working
Capital Agent, the authority to release Collateral conferred upon Working
Capital Agent under this Section.  Working Capital Agent shall (and is hereby
irrevocably authorized by Lenders to) execute such documents as may be necessary
to evidence the release of the security interest, mortgage or liens granted to
Working Capital Agent upon any Collateral to the extent set forth above;
provided, that, (i) Working Capital Agent shall not be required to execute any
such document on terms which, in Working Capital Agent’s opinion, would expose
Working Capital Agent to liability or create any obligations or entail any
consequence other than the release of such security interest, mortgage or liens
without recourse or warranty and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any security interest, mortgage
or lien upon (or obligations of any Borrower or Guarantor in respect of) the
Collateral retained by such Borrower or Guarantor.
 
(d)           Working Capital Agent shall have no obligation whatsoever to any
Lender, Issuing Bank or any other Person to investigate, confirm or assure that
the Collateral exists or is owned by any Borrower or Guarantor or is cared for,
protected or insured or has been encumbered, or that any particular items of
Collateral meet the eligibility criteria applicable in respect of the Loans or
Letters of Credit hereunder, or whether any particular reserves are appropriate,
or that the liens and security interests granted to Working Capital Agent
pursuant hereto or any of the Financing Agreements or otherwise have been
properly or sufficiently or lawfully created, perfected, protected or enforced
or are entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Working Capital Agent in this Agreement or in any of the other
Financing Agreements, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, subject to the other
terms and conditions contained herein, Working Capital Agent may act in any
manner it may deem appropriate, in its discretion, given Working Capital Agent’s
own interest in the Collateral as a Lender and that Working Capital Agent shall
have no duty or liability whatsoever to any other Lender or Issuing Bank.
 
12.12       Agency for Perfection.  Each Secured Party hereby appoints Working
Capital Agent and each other Secured Party as agent and bailee for the purpose
of perfecting the security interests in and liens upon the Collateral of Working
Capital Agent in assets which, in accordance with Article 9 of the UCC can be
perfected only by possession (or where the security interest of a secured party
with possession has priority over the security interest of another secured
party) and Working Capital Agent and each Secured Party hereby acknowledges that
it holds possession of any such Collateral for the benefit of Working Capital
Agent as secured party.  Should any Secured Party obtain possession of any such
Collateral, such Lender shall notify Working Capital Agent thereof, and,
promptly upon Working Capital Agent’s request therefor shall deliver such
Collateral to Working Capital Agent or in accordance with Working Capital
Agent’s instructions.
 
12.13       Successor Agent.  Either Agent may resign as Agent upon thirty (30)
days’ notice to Lenders and Parent.  If an Agent resigns under this Agreement,
the Required Revolving Lenders or Term Loan Lenders shall appoint from among the
Lenders a successor Working Capital Agent or Term Loan Agent, respectively.  If
no successor agent is appointed prior to the effective date of the resignation
of such Agent, the retiring Agent may appoint, after consulting with Lenders and
Parent, a successor agent from among Lenders.  Upon the acceptance by the Lender
so selected of its appointment as successor agent hereunder, such successor
agent shall succeed to all of the rights, powers and duties of the retiring
Agent and the term “Working Capital Agent” or “Term Loan Agent” as used herein
and in the other Financing Agreements shall mean such successor agent and the
retiring Agent’s appointment, powers and duties as Agent shall be
terminated.  After any retiring Agent’s resignation hereunder as Agent, the
provisions of this Section 12 shall inure to its benefit as to any actions taken
or omitted by it while it was Agent under this Agreement.  If no successor agent
has accepted appointment as Agent by the date which is thirty (30) days after
the date of a retiring Agent’s notice of resignation, the retiring Agent’s
resignation shall nonetheless thereupon become effective and Lenders shall
perform all of the duties of Agent hereunder until such time, if any, as the
Required Lenders appoint a successor agent as provided for above.
 
 
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12.14           Other Agent Designations.  Working Capital Agent may at any time
and from time to time determine that a Lender may, in addition, be a “Co-Agent”,
“Syndication Agent”, “Documentation Agent” or similar designation hereunder and
enter into an agreement with such Lender to have it so identified for purposes
of this Agreement.  Any such designation shall be effective upon written notice
by Working Capital Agent to Administrative Borrower of any such
designation.  Any Lender that is so designated as a Co-Agent, Syndication Agent,
Documentation Agent or such similar designation by Working Capital Agent shall
have no right, power, obligation, liability, responsibility or duty under this
Agreement or any of the other Financing Agreements other than those applicable
to all Lenders as such.  Without limiting the foregoing, the Lenders so
identified shall not have or be deemed to have any fiduciary relationship with
any Lender and no Lender shall be deemed to have relied, nor shall any Lender
rely, on a Lender so identified as a Co-Agent, Syndication Agent, Documentation
Agent or such similar designation in deciding to enter into this Agreement or in
taking or not taking action hereunder.
 
SECTION 13        TERM OF AGREEMENT; MISCELLANEOUS
 
13.1         Term.
 
(a)           This Agreement and the other Financing Agreements shall become
effective as of the Amendment Effective Date and shall continue in full force
and effect for a term ending on the Maturity Date, unless sooner terminated
pursuant to the terms hereof.  In addition, Borrowers may terminate this
Agreement at any time upon ten (10) days prior written notice to Working Capital
Agent (which notice shall be irrevocable) and Working Capital Agent may, at its
option, and shall at the direction of Required Lenders, terminate this Agreement
at any time on or after an Event of Default.  Upon the Commitment Termination
Date, Borrowers shall pay to Working Capital Agent all outstanding and unpaid
Obligations and shall furnish cash collateral to Working Capital Agent (or at
Working Capital Agent’s option, a letter of credit issued for the account of
Borrowers and at Borrowers’ expense, in form and substance satisfactory to
Working Capital Agent, by an issuer acceptable to Working Capital Agent and
payable to Working Capital Agent as beneficiary) in such amounts as Working
Capital Agent determines are reasonably necessary to secure Agents, Lenders and
Issuing Bank from loss, cost, damage or expense, including attorneys’ fees and
expenses, in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Obligations and checks or other payments
provisionally credited to the Obligations and/or as to which Agents or any
Lender has not yet received final and indefeasible payment (and including any
contingent liability of Working Capital Agent to any bank at which deposit
accounts of Borrowers and Guarantors are maintained under any Deposit Account
Control Agreement) and for any of the Obligations arising under or in connection
with any Bank Products in such amounts as the party providing such Bank Products
may require (unless such Obligations arising under or in connection with any
Bank Products are paid in full in cash and terminated in a manner satisfactory
to such other party).  The amount of such cash collateral (or letter of credit,
as Working Capital Agent may determine) as to any Letter of Credit Obligations
shall be in the amount equal to one hundred five (105%) percent of the amount of
the Letter of Credit Obligations plus the amount of any fees and expenses
payable in connection therewith through the end of the latest expiration date of
the then outstanding Letters of Credit.  Such payments in respect of the
Obligations and cash collateral shall be remitted by wire transfer in Federal
funds to Agent Payment Account or such other bank account of Working Capital
Agent, as Working Capital Agent may, in its discretion, designate in writing to
Administrative Borrower for such purpose.  Interest shall be due until and
including the next Business Day, if the amounts so paid by Borrowers to Agent
Payment Account or other bank account designated by Working Capital Agent are
received in such bank account later than 1:00 p.m. (Eastern time).
 
 
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(b)           No termination of the Commitments, this Agreement or any of the
other Financing Agreements shall relieve or discharge any Borrower or Guarantor
of its respective duties, obligations and covenants under this Agreement or any
of the other Financing Agreements until all Obligations have been fully and
finally discharged and paid, and Working Capital Agent’s continuing security
interest in the Collateral and the rights and remedies of Agents and Lenders
hereunder, under the other Financing Agreements and applicable law, shall remain
in effect until all such Obligations have been fully and finally discharged and
paid.  Accordingly, each Borrower and Guarantor waives any rights it may have
under the UCC to demand the filing of termination statements with respect to the
Collateral and Working Capital Agent shall not be required to send such
termination statements to Borrowers or Guarantors, or to file them with any
filing office, unless and until this Agreement shall have been terminated in
accordance with its terms and all Obligations paid and satisfied in full in
immediately available funds.
 
13.2         Interpretative Provisions.
 
(a)           All terms used herein which are defined in Article 1, Article 8 or
Article 9 of the UCC shall have the meanings given therein unless otherwise
defined in this Agreement.
 
(b)           All references to the plural herein shall also mean the singular
and to the singular shall also mean the plural unless the context otherwise
requires.
 
(c)           All references to any Borrower, Guarantor, Agents and Lenders
pursuant to the definitions set forth in the recitals hereto, or to any other
person herein, shall include their respective successors and assigns.
 
 
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(d)           The words “hereof”, “herein”, “hereunder”, “this Agreement” and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement and as
this Agreement now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
 
(e)           The word “including” when used in this Agreement shall mean
“including, without limitation” and the word “will” when used in this Agreement
shall be construed to have the same meaning and effect as the word “shall”.
 
(f)           An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Working Capital Agent, if such Event of Default is
capable of being cured as determined by Working Capital Agent.
 
(g)           All references to the term “good faith” used herein when
applicable to Agents or any Lender shall mean, notwithstanding anything to the
contrary contained herein or in the UCC, honesty in fact in the conduct or
transaction concerned.  Borrowers and Guarantors shall have the burden of
proving any lack of good faith on the part of Agents or any Lender alleged by
any Borrower or Guarantor at any time.
 
(h)           Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given in
accordance with GAAP, and all financial computations hereunder shall be computed
unless otherwise specifically provided herein, in accordance with GAAP as
consistently applied and using the same method for inventory valuation as used
in the preparation of the financial statements of Parent most recently received
by Working Capital Agent prior to the date hereof.  Notwithstanding anything to
the contrary contained in GAAP or any interpretations or other pronouncements by
the Financial Accounting Standards Board or otherwise, the term “unqualified
opinion” as used herein to refer to opinions or reports provided by accountants
shall mean an opinion or report that is unqualified and also does not include
any explanation, supplemental comment or other comment concerning the ability of
the applicable person to continue as a going concern or the scope of the audit.
 
(i)            In the computation of periods of time from a specified date to a
later specified date, the word “from” means “from and including”, the words “to”
and “until” each mean “to but excluding” and the word “through” means “to and
including”.
 
(j)            Unless otherwise expressly provided herein, (i) references herein
to any agreement, document or instrument shall be deemed to include all
subsequent amendments, modifications, supplements, extensions, renewals,
restatements or replacements with respect thereto, but only to the extent the
same are not prohibited by the terms hereof or of any other Financing Agreement,
and (ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, recodifying, supplementing or interpreting the statute or regulation.
 
(k)           The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
 
 
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(l)            This Agreement and other Financing Agreements may use several
different limitations, tests or measurements to regulate the same or similar
matters.  All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
 
(m)          This Agreement and the other Financing Agreements are the result of
negotiations among and have been reviewed by counsel to Agents and the other
parties, and are the products of all parties.  Accordingly, this Agreement and
the other Financing Agreements shall not be construed against Agents or Lenders
merely because of Agents’ or any Lender’s involvement in their preparation.
 
13.3           Notices.
 
(a)           All notices, requests and demands hereunder shall be in writing
and deemed to have been given or made:  if delivered in person, immediately upon
delivery; if by telex, telegram or facsimile transmission, immediately upon
sending and upon confirmation of receipt; if by nationally recognized overnight
courier service with instructions to deliver the next Business Day, one (1)
Business Day after sending; and if by certified mail, return receipt requested,
five (5) days after mailing by deposit (postage prepaid) in the U.S.
mail.  Notices delivered through electronic communications shall be effective to
the extent set forth in Section 13.3(b) below.  All notices, requests and
demands upon the parties are to be given to the following addresses (or to such
other address as any party may designate by notice in accordance with this
Section):
 
If to any Borrower or Guarantor:
Hancock Fabrics, Inc.
 
One Fashion Way
 
Baldwyn, MS 38824
 
Attention:  Rob Driskell, CFO
 
Telephone No.:  (662) 365-6112
 
Telecopy No.:  (662) 365-6025
   
with a copy to:
O’Melveny & Myers LLP
 
Times Square Tower
 
7 Times Square
 
New York, New York 10036
 
Attention:  Sung Pak, Esq.
 
Telephone No.:  212-408-2456
 
Telecopy No.:  212-326-2061
   
If to Working Capital Agent:
General Electric Capital Corporation
 
401 Merritt 7, P.O. Box 5201
 
Norwalk, CT 06856-5201
 
Attention:  Hancock Fabrics Account Manager
 
Telephone No.:  (203) 956-4598
 
Telecopy No.:  (203) 956-4002

 
 
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With copies to:
   
Morgan, Lewis & Bockius LLP
 
225 Franklin Street, 16th Floor
 
Boston, MA 02110
 
Attention:  Sandra J. Vrejan, Esq.
 
Telephone No.:  (617) 341-7750
 
Telecopy No.:  (617) 341-7701
and
   
General Electric Capital Corporation
 
401 Merritt 7
 
Norwalk, CT  06851
 
Attention:  Corporate Counsel - Corporate Lending
 
Telephone No.:  (203) 956-4001
 
Telecopy No.:  (203) 229-1800
   
If to Term Loan Agent:
GA Capital, LLC
 
101 Merritt 7
 
Norwalk, CT  06851
 
Attention:  Robert Louzan, Managing Director
 
Telephone No.:  (203) 663-5103
 
Telecopy No.:  (203) 663-5096
With copies to:
   
Paul Hastings LLP
 
75 East 55th Street
 
New York, NY  10022
 
Attention:  Leslie Plaskon, Esq.
 
Telephone No.:  (212) 318-6421
 
Telecopy No.:  (212) 230-5137

 
(b)           Notices and other communications to Lenders and Issuing Bank
hereunder may be delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures approved by
Working Capital Agent or as otherwise determined by Working Capital Agent,
provided, that, the foregoing shall not apply to notices to any Lender pursuant
to Section 2 hereof if such Lender or Issuing Bank, as applicable, has notified
Working Capital Agent that it is incapable of receiving notices under such
Section by electronic communication.  Unless Working Capital Agent otherwise
requires, (i) notices and other communications sent to an e-mail address shall
be deemed received upon the sender’s receipt of an acknowledgement from the
intended recipient (such as by the “return receipt requested” function, as
available, return e-mail or other written acknowledgement), provided, that, if
such notice or other communication is not given during the normal business hours
of the recipient, such notice shall be deemed to have been sent at the opening
of business on the next Business Day for the recipient, and (ii) notices or
communications posted to an Internet or intranet website shall be deemed
received upon the deemed receipt by the intended recipient at its e-mail address
as described in the foregoing clause (i) of notification that such notice or
communications is available and identifying the website address therefor.
 
 
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13.4         Partial Invalidity.  If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
 
13.5         Confidentiality.
 
(a)           Each Agent, each Lender and Issuing Bank shall use all reasonable
efforts to keep confidential, in accordance with its customary procedures for
handling confidential information and safe and sound lending practices, any
non-public information supplied to it by any Borrower pursuant to this Agreement
which is clearly and conspicuously marked as confidential at the time such
information is furnished by such Borrower to Agents, such Lender or Issuing
Bank, provided, that, nothing contained herein shall limit the disclosure of any
such information:  (i) to the extent required by statute, rule, regulation,
subpoena or court order, (ii) to bank examiners and other regulators, auditors
and/or accountants, in connection with any litigation to which Agents, such
Lender or Issuing Bank is a party, (iii) to any Lender or Participant (or
prospective Lender or Participant) or to any Affiliate of any Lender or Issuing
Bank so long as such Lender, Participant (or prospective Lender or Participant
or Issuing Bank) shall have agreed to treat such information as confidential in
accordance with this Section 13.5 and such Lender, Participant (or prospective
Lender or Participant or Issuing Bank) shall have caused such Affiliate to treat
such information as confidential in accordance with this Section 13.5, or (iv)
to counsel for Agents, any Lender, Issuing Bank or Participant (or prospective
Lender or Participant).
 
(b)           In the event that any Agent, any Lender or Issuing Bank receives a
request or demand to disclose any confidential information pursuant to any
subpoena or court order, such Agent, such Lender or Issuing Bank, as the case
may be, agrees (i) to the extent permitted by applicable law or if permitted by
applicable law, to the extent such Agent, such Lender or Issuing Bank determines
in good faith that it will not create any risk of liability to such Agent,
Issuing Bank or such Lender, such Agent or such Lender or Issuing Bank will
promptly notify Administrative Borrower of such request so that Administrative
Borrower may seek a protective order or other appropriate relief or remedy and
(ii) if disclosure of such information is required, disclose such information
and, subject to reimbursement by Borrowers of such Agent’s or Issuing Bank’s or
such Lender’s expenses, cooperate with Administrative Borrower in the reasonable
efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to such portion of the disclosed information which
Administrative Borrower so designates, to the extent permitted by applicable law
or if permitted by applicable law, to the extent such Agent, such Lender or
Issuing Bank determines in good faith that it will not create any risk of
liability to such Agent, such Lender or Issuing Bank.
 
(c)           In no event shall this Section 13.5 or any other provision of this
Agreement, any of the other Financing Agreements or applicable law be
deemed:  (i) to apply to or restrict disclosure of information that has been or
is made public by any Borrower, Guarantor or any third party or otherwise
becomes generally available to the public other than as a result of a disclosure
in violation hereof, (ii) to apply to or restrict disclosure of information that
was or becomes available to any Agent, any Lender, Issuing Bank (or any
Affiliate of any Lender or Issuing Bank) on a non-confidential basis from a
person other than a Borrower or Guarantor (unless such Agent, Issuing Bank or
such Lender knows that such information was disclosed in violation of a
confidentiality agreement or applicable law), (iii) to require any Agent, any
Lender or Issuing Bank to return any materials furnished by a Borrower or
Guarantor to an Agent, a Lender or Issuing Bank or prevent an Agent, a Lender or
Issuing Bank from responding to routine informational requests in accordance
with the Code of Ethics for the Exchange of Credit Information promulgated by
The Robert Morris Associates or other applicable industry standards relating to
the exchange of credit information.  The obligations of Agents, Lenders and
Issuing Bank under this Section 13.5 shall supersede and replace the obligations
of Agents, Lenders or Issuing Bank under any confidentiality letter signed prior
to the date hereof or any other arrangements concerning the confidentiality of
information provided by any Borrower or Guarantor to any Agent, any Lender or
Issuing Bank.  In addition, Agents, Lenders and Issuing Bank may disclose
information relating to the Credit Facility to Gold Sheets and other similar
publications with such information to consist of deal terms and other
information customarily found in such publications and that Agents and their
affiliates may otherwise use the corporate name and logo of Borrowers and
Guarantors in “tombstones” or other advertisements or public statements.
 
 
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13.6         Publicity.  Each Borrower and Guarantor agrees that neither it nor
its Affiliates will in the future issue any press releases or other public
disclosure (other than any disclosures required by the Securities and Exchange
Commission) using the name of GE Capital or its affiliates or referring to this
Agreement, the other Financing Agreements without at least two (2) Business
Days’ prior notice to GE Capital and without the prior written consent of GE
Capital unless (and only to the extent that) such Borrower, Guarantor or
Affiliate is required to do so under law and then, in any event, such Borrower,
Guarantor or Affiliate will consult with GE Capital before issuing such press
release or other public disclosure.  GE Capital hereby agrees that neither it
nor its Affiliates will in the future issue any press releases or other public
disclosure (other than any disclosures required by the Securities and Exchange
Commission) using the name of the Borrowers or their affiliates or referring to
this Agreement, the other Financing Agreements without at least two (2) Business
Days’ prior notice to the Administrative Borrower without the prior written
consent of the Administrative Borrower unless (and only to the extent that) GE
Capital or such Affiliate is required to do so under law and then, in any event,
GE Capital or such Affiliate will consult with the Administrative Borrower
before issuing such press release or other public disclosure.  Notwithstanding
the foregoing to the contrary, Agents reserve the right to provide to industry
trade organizations information necessary and customary for inclusion in league
table measurements.
 
13.7         Successors.  This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Agents, Secured Parties, Issuing Bank,
Borrowers, Guarantors and their respective successors and assigns, except that
Borrower may not assign its rights under this Agreement, the other Financing
Agreements and any other document referred to herein or therein without the
prior written consent of Agents and Lenders.  Any such purported assignment
without such express prior written consent shall be void.  No Lender may assign
its rights and obligations under this Agreement without the prior written
consent of each Agent, except as provided in Section 13.8 below.  The terms and
provisions of this Agreement and the other Financing Agreements are for the
purpose of defining the relative rights and obligations of Borrowers,
Guarantors, Agents, Issuing Bank and Lenders with respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of any of
the terms and provisions of this Agreement or any of the other Financing
Agreements.

 
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13.8         Assignments; Participations.
 
(a)           Each (i) Revolving Lender may, with the prior written consent of
Working Capital Agent, assign all or, if less than all, a portion equal to at
least $7,500,000 in the aggregate for the assigning Revolving Lender and (ii)
Term Loan Lender may assign all or, if less than all, a portion equal to at
least $2,500,000 in the aggregate for the assigning Term Loan Lender, of such
rights and obligations under this Agreement to one or more Eligible Transferees
(but not including for this purpose any assignments in the form of a
participation), each of which assignees shall become a party to this Agreement
as a Lender by execution of an Assignment and Acceptance; provided, that, (i)
such transfer or assignment will not be effective until recorded by Working
Capital Agent on the Register and (ii) Working Capital Agent shall have received
for its sole account payment of a processing fee from the assigning Lender or
the assignee in the amount of $5,000.  In connection with any proposed transfer,
within five (5) Business Days of the receipt by Administrative Borrower of a
written request (if any) by a Lender requesting a determination of whether a
proposed assignee is not an Eligible Transferee due to such proposed assignee
constituting a Competitor, the Administrative Borrower shall respond in writing
to such Lender with its good faith determination as to whether such proposed
assignee is a Competitor and any failure by Administrative Borrower to respond
during such period shall be deemed an acknowledgment by Administrative Borrower
that such proposed assignee is not a Competitor.  Such requesting Lender agrees
to provide such cooperation as may be reasonably requested by Administrative
Borrower in connection with obtaining information relevant to such
determination.
 
(b)           Working Capital Agent shall maintain a register of the names and
addresses of Lenders, their Commitments and the principal amount of their Loans
(the “Register”).  Working Capital Agent shall also maintain a copy of each
Assignment and Acceptance delivered to and accepted by it and shall modify the
Register to give effect to each Assignment and Acceptance.  The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and any Borrowers, Guarantors, Agents and Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement.  The Register shall be available for inspection by
Administrative Borrower and any Lender at any reasonable time and from time to
time upon reasonable prior notice.
 
(c)           Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, the
assignee thereunder shall be a party hereto and to the other Financing
Agreements and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations (including, without limitation, the obligation to participate in
Letter of Credit Obligations) of a Lender hereunder and thereunder and the
assigning Lender shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under this Agreement.
 
 
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(d)           By execution and delivery of an Assignment and Acceptance, the
assignor and assignee thereunder confirm to and agree with each other and the
other parties hereto as follows:  (i) other than as provided in such Assignment
and Acceptance, the assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or any of the other
Financing Agreements or the execution, legality, enforceability, genuineness,
sufficiency or value of this Agreement or any of the other Financing Agreements
furnished pursuant hereto, (ii) the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Borrower, Guarantor or any of their Subsidiaries or the performance or
observance by any Borrower or Guarantor of any of the Obligations; (iii) such
assignee confirms that it has received a copy of this Agreement and the other
Financing Agreements, together with such other documents and information it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance, (iv) such assignee will, independently and
without reliance upon the assigning Lender or Working Capital Agent and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Financing Agreements, (v) such assignee appoints
and authorizes Working Capital Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement and the other Financing
Agreements as are delegated to Working Capital Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto, and
(vi) such assignee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement and the other
Financing Agreements are required to be performed by it as a Lender.  Agents and
Lenders may furnish any information concerning any Borrower or Guarantor in the
possession of Agents or any Lender from time to time to assignees and
Participants.
 
(e)           Each Lender may sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement and the other Financing Agreements (including, without limitation, all
or a portion of its Commitments and the Loans owing to it and its participation
in the Letter of Credit Obligations, without the consent of Agents or the other
Lenders); provided, that, (i) such Lender’s obligations under this Agreement
(including, without limitation, its Commitment hereunder) and the other
Financing Agreements shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, and Borrowers, Guarantors, the other Lenders and Agents shall
continue to deal solely and directly with such Lender in connection with such
Lender’s rights and obligations under this Agreement and the other Financing
Agreements, and (iii) the Participant shall not have any rights under this
Agreement or any of the other Financing Agreements (the Participant’s rights
against such Lender in respect of such participation to be those set forth in
the agreement executed by such Lender in favor of the Participant relating
thereto) and all amounts payable by any Borrower or Guarantor hereunder shall be
determined as if such Lender had not sold such participation.
 
(f)            Nothing in this Agreement shall prevent or prohibit any Lender
from pledging its Loans hereunder to a Federal Reserve Bank in support of
borrowings made by such Lenders from such Federal Reserve Bank; provided, that,
no such pledge shall release such Lender from any of its obligations hereunder
or substitute any such pledgee for such Lender as a party hereto.
 
 
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(g)           Borrowers and Guarantors shall assist Agents or any Lender
permitted to sell assignments or participations under this Section 13.8 in
whatever manner reasonably necessary in order to enable or effect any such
assignment or participation, including (but not limited to) the execution and
delivery of any and all agreements, notes and other documents and instruments as
shall be requested and the delivery of informational materials, appraisals or
other documents for, and the participation of relevant management in meetings
and conference calls with, potential Lenders or Participants.  Borrowers shall
certify the correctness, completeness and accuracy, in all material respects, of
all descriptions of Borrowers and Guarantors and their affairs provided,
prepared or reviewed by any Borrower or Guarantor that are contained in any
selling materials and all other information provided by it and included in such
materials.
 
(h)           Any Lender that is an Issuing Bank may at any time assign all of
its Commitments pursuant to this Section 13.8.  If such Issuing Bank ceases to
be Lender, it may, at its option, resign as Issuing Bank and such Issuing Bank’s
obligations to issue Letters of Credit shall terminate but it shall retain all
of the rights and obligations of Issuing Bank hereunder with respect to Letters
of Credit outstanding as of the effective date of its resignation and all Letter
of Credit Obligations with respect thereto (including the right to require
Lenders to make Revolving Loans or fund risk participations in outstanding
Letter of Credit Obligations), shall continue.
 
13.9         Entire Agreement.  This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.  In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
 
13.10       USA PATRIOT Act.  Each Lender subject to the USA PATRIOT Act (Title
III of Pub.L. 107-56 (signed into law October 26, 2001) (the “Act”) hereby
notifies Borrowers and Guarantors that pursuant to the requirements of the Act,
it is required to obtain, verify and record information that identifies each
person or corporation who opens an account and/or enters into a business
relationship with it, which information includes the name and address of
Borrowers and Guarantors and other information that will allow such Lender to
identify such person in accordance with the Act and any other applicable
law.  Borrowers and Guarantors are hereby advised that any Loans or Letters of
Credit hereunder are subject to satisfactory results of such verification.
 
13.11       Counterparts, Etc.  This Agreement or any of the other Financing
Agreements may be executed in any number of counterparts, each of which shall be
an original, but all of which taken together shall constitute one and the same
agreement.  Delivery of an executed counterpart of this Agreement or any of the
other Financing Agreements by telefacsimile or other electronic method of
transmission shall have the same force and effect as the delivery of an original
executed counterpart of this Agreement or any of such other Financing
Agreements.  Any party delivering an executed counterpart of any such agreement
by telefacsimile or other electronic method of transmission shall also deliver
an original executed counterpart, but the failure to do so shall not affect the
validity, enforceability or binding effect of such agreement.
 
 
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13.12       Designated Senior Debt.  All Obligations shall be “Designated Senior
Indebtedness” for purposes of and as defined in the Indenture.
 
13.13       Amendment and Restatement.  On the Amendment Effective Date, this
Agreement shall amend, restate and supersede the Existing Loan Agreement in its
entirety, except as provided in this Section 13.13.  On the Amendment Effective
Date, the rights and obligations of the parties evidenced by the Existing Loan
Agreement shall be evidenced by this Agreement and the other Financing
Agreements and the grant of security interest in the Collateral by the relevant
Borrowers and Guarantors under the Existing Loan Agreement and the other
“Financing Agreements” (as defined in the Existing Loan Agreement) shall
continue hereunder but as amended by this Agreement and the other Financing
Agreements, and shall not in any event be terminated, extinguished or annulled
but shall hereafter be governed by this Agreement and the other Financing
Agreements.  All references to the Existing Loan Agreement in any Financing
Agreement or other document or instrument delivered in connection therewith
shall be deemed to refer to this Agreement and the provisions hereof.  As of the
Amendment Effective Date, the rights and obligations of the parties under the
Existing Loan Agreement shall be subsumed within and be governed by this
Agreement.  Each of the “Loans” (as defined in the Existing Loan Agreement)
advanced by the existing Lenders and outstanding under the Existing Loan
Agreement immediately prior to the effectiveness of this Agreement shall
continue to be Loans hereunder, provided that all interest, fees and expenses
owing or accruing under or in respect of the Existing Loan Agreement through the
Amendment Effective Date shall be calculated as of the Amendment Effective Date
(pro rated in the case of any fractional periods), and shall be paid on the
Amendment Effective Date.  As of the Amendment Effective Date, the Letters of
Credit under the Existing Loan Agreement shall be deemed to be Letters of Credit
issued hereunder, and the Borrowers hereby affirm their respective obligations
thereunder.  Without limiting the generality of the foregoing and to the extent
necessary, the existing lenders, the Lenders and the Working Capital Agent
reserve all of their rights under the Existing Loan Agreement and the other
“Financing Agreements” (as defined in the Existing Loan Agreement) which by
their express terms survive the termination of the Existing Loan Agreement and
each of the Guarantors hereby obligates itself again in respect of all such
present and future “Obligations” (as defined in the Existing Loan
Agreement).  Nothing contained herein shall be construed as a novation of the
“Obligations” outstanding under and as defined in the Existing Loan Agreement,
which shall remain in full force and effect, except as modified hereby.
 
13.14       Existing Loan Agreement and Financing Agreements.  Each of the
Credit Parties hereby ratifies and confirms all of its Obligations to the
Working Capital Agent, the Lenders and the other Secured Parties under the
Existing Loan Agreement, as amended hereby, and the other Financing Agreements
(as defined in the Existing Loan Agreement), as amended hereby, including,
without limitation, the Loans, and each of the Credit Parties hereby affirms its
absolute and unconditional promise to pay to the Lenders, the Working Capital
Agent, and the other Secured Parties, as applicable, the Loans, reimbursement
obligations and all other amounts due or to become due and payable to the
Lenders, the Working Capital Agent, and the other Secured Parties, as
applicable, under the Existing Loan Agreement and the other Financing Agreements
(as defined in the Existing Loan Agreement), as amended hereby, and it is the
intent of the parties hereto that nothing contained herein shall constitute a
novation or accord and satisfaction.  The parties hereto acknowledge and agree
that (i) each reference to the Existing Loan Agreement, however so defined, in
the Financing Agreements (as defined in the Existing Loan Agreement) from and
after the date hereof shall mean the Existing Loan Agreement as amended and
restated pursuant to this Agreement, and (ii) each of the Financing Agreements
(as defined in the Existing Loan Agreement) is hereby amended by (a)
substituting a reference to this Agreement as herein defined in place of each
reference to the Existing Loan Agreement (whether referred to by the full name
of the Existing Loan Agreement or by any other name which refers thereto by
definition), (b) substituting for the definition of each capitalized term
defined by reference to the Existing Loan Agreement the definition of such
capitalized term set forth in this Agreement, including without limitation the
definition of the term “Obligations” and (c) each reference to the word “Agent”
in each of the Financing Agreements and instruments delivered thereunder
(including, without limitation, UCC financing statements and insurance
certificates) shall be deemed a reference to “Working Capital Agent” as herein
defined in place of each reference to “Agent” in such Financing
Agreements.  Each of the parties hereto agrees that each Financing Agreement (as
defined in the Existing Loan Agreement), as amended hereby, to which such party
is a party shall remain in full force and effect.  Each of the parties listed as
signatories hereto ratifies and reaffirms the continued validity of, and all of
the terms and conditions of, and all of the warranties and representations set
forth in, each such Financing Agreement (as defined in the Existing Loan
Agreement), as amended hereby, to which it is a party and agrees and confirms
that the Obligations are secured under and in accordance with the Financing
Agreements (as defined in the Existing Loan Agreement), as amended hereby, to
which such party is a party.  Each of the Credit Parties hereby acknowledges,
confirms and agrees that the Liens, pledges and security interests granted
pursuant to the Financing Agreements (as defined in the Existing Loan
Agreement), as amended hereby, are and continue to be valid, perfected and
enforceable first priority liens, pledges and security interests that secure all
of the Obligations on and after the date hereof.  All references in each of the
Financing Agreements (as defined in the Existing Loan Agreement) or any related
agreement or instrument, as amended hereby, to the Financing Agreements (as
defined in the Existing Loan Agreement) hereafter refer to each of the Financing
Agreements (as defined in the Existing Loan Agreement), as amended hereby.
 
 
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13.15           Interlender Provisions.  Notwithstanding anything to the
contrary contained in this Agreement, the Liens, security interests and rights
granted pursuant to this Agreement or any other Financing Agreement shall be
subject to the terms and conditions of (and the exercise of any right or remedy
by the Working Capital Agent and the other Secured Parties hereunder or
thereunder shall be subject to the terms and conditions of), the Interlender
Provisions.  In the event of any conflict between this Agreement or any other
Financing Agreement and the Interlender Provisions, the Interlender Provisions
shall control, and no right, power, or remedy granted to the Working Capital
Agent or the other Secured Parties hereunder or under any other Financing
Agreement shall be exercised by the Working Capital Agent or any other Secured
Party, and no direction shall be given by the Working Capital Agent or any other
Secured Party in contravention of the Interlender Provisions.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
 
 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
 

 
BORROWERS:
         
HANCOCK FABRICS, INC.
   
HF MERCHANDISING, INC.
   
HANCOCK FABRICS OF MI, INC.
                       
By:
/s/ Robert W. Driskell       Name: Robert W. Driskell       Title: Executive
Vice President and ChiefFinancial Officer  

 
 

 
HANCOCKFABRICS.COM, INC.
                       
By:
/s/ Robert W. Driskell       Name: Robert W. Driskell       Title: Treasurer  

 

 
HANCOCK FABRICS, LLC
                       
By:
/s/ Robert W. Driskell       Name: Robert W. Driskell       Title: President  

 
 
[Hancock – Signature Page to Amended and Restated Loan and Security Agreement]

 
 
 

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

 
 

 
GUARANTORS:
         
HF ENTERPRISES, INC.
   
HF RESOURCES, INC.
                       
By:
/s/ Robert W. Driskell        Name: Robert W. Driskell       Title: Vice
President  

 
 
 
[Hancock – Signature Page to Amended and Restated Loan and Security Agreement]
 
 
 
 

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

 
 

 
WORKING CAPITAL AGENT:
         
GENERAL ELECTRIC CAPITAL CORPORATION,
    as Working Capital Agent and Issuing Bank                        
By:
/s/ Authorized Signatory            Name:         Title:    

 
 
 
[Hancock – Signature Page to Amended and Restated Loan and Security Agreement]
 
 
 

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

 
 

 
TERM LOAN AGENT:
         
GA CAPITAL, LLC, as Term Loan Agent
                       
By:
/s/ Authorized Signatory            Name:         Title:    

 
 
 
[Hancock – Signature Page to Amended and Restated Loan and Security Agreement]
 
 
 

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

 
 

 
LENDERS:
         
GENERAL ELECTRIC CAPITAL
    CORPORATION, as a Lender                        
By:
/s/ Authorized Signatory            Name:         Title:    

 
 
 
[Hancock – Signature Page to Amended and Restated Loan and Security Agreement]
 
 
 

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

 
 

 
LENDERS (cont’d):
         
APOLLO CENTRE STREET PARTNERSHIP,
   
L.P., as a Lender
          By: Apollo Centre Street Advisors (APO DC), L.P.,    
its General Partner
              By: Apollo Centre Street Advisors (APO DC-GP), LLC,      
its General Partner
                           
By:
/s/ Authorized Signatory            Name:         Title:    

 
 
 
[Hancock – Signature Page to Amended and Restated Loan and Security Agreement]
 
 
 

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

 
 

 
LENDERS (cont’d):
         
APOLLO CENTRE STREET PARTNERSHIP,
   
L.P., as a Lender
          By: Apollo Centre Street Advisors (APO DC), L.P.,    
its General Partner
              By: Apollo Centre Street Advisors (APO DC-GP), LLC,      
its General Partner
                           
By:
/s/ Authorized Signatory            Name:         Title:    

 
 
 
[Hancock – Signature Page to Amended and Restated Loan and Security Agreement]
 
 
 

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

 
 

 
LENDERS (cont’d):
         
STONE TOWER CREDIT SOLUTIONS FUND
   
LP, as a Lender
          By: Stone Tower Credit Solutions GP LLC, its     General Partner      
                 
By:
/s/ Authorized Signatory            Name:         Title:    

 
 
 
[Hancock – Signature Page to Amended and Restated Loan and Security Agreement]