**Exhibit 10.4**

 

CREDIT AGREEMENT

 

dated as ofOctober 31, 2006

 

MICHAELS STORES, INC.

 

The Lead BorrowerForTHE BORROWERS NAMED HEREIN

 

THE FACILITY GUARANTORS PARTY HERETO

 

BANK OF AMERICA, N.A.As Administrative Agent and Collateral Agent

 

DEUTSCHE BANK SECURITIES INC. As Syndication Agent

 

CREDIT SUISSEJPMORGAN CHASE BANK, N.A.WELLS FARGO RETAIL FINANCE, LLC As Co-Documentation Agents

 

THE LENDERSNAMED HEREIN

 

And

 

BANC OF AMERICA SECURITIES LLCDEUTSCHE BANK SECURITIES INC.

J.P. MORGAN SECURITIES INC.As Joint Lead Arrangers and Joint Book Runners

 

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**TABLE OF CONTENTS**

 
| ARTICLE I                                   | 1                                                                        |
|---------------------------------------------|--------------------------------------------------------------------------|
|                                        |                                                                     |   |
| SECTION 1.01                                | Definitions                                                              | 1 |
| SECTION 1.02                                | Terms  Generally                                                         | 57 |
| SECTION 1.03                                | Accounting  Terms                                                        | 58 |
| SECTION 1.04                                | Rounding                                                                 | 59 |
| SECTION 1.05                                | Times of Day                                                             | 59 |
| SECTION 1.06                                | Letter of  Credit Amounts                                                | 59 |
| SECTION 1.07                                | Certifications                                                           | 59 |
| SECTION 1.08                                | Currency  Equivalents Generally                                          | 60 |
| SECTION 1.09                                | Change of  Currency                                                      | 60 |
|                                        |                                                                     |
| ARTICLE II  Amount and Terms of Credit      | 60                                                                       |
|                                        |                                                                     |   |
| SECTION 2.01                                | Commitment  of the Lenders                                               | 60 |
| SECTION 2.02                                | Increase in  Tranche A Commitments                                       | 61 |
| SECTION 2.03                                | Reserves;  Changes to Reserves                                           | 63 |
| SECTION 2.04                                | Making of  Revolving Credit Loans                                        | 64 |
| SECTION 2.05                                | Overadvances                                                             | 66 |
| SECTION 2.06                                | Swingline  Loans                                                         | 66 |
| SECTION 2.07                                | Notes                                                                    | 67 |
| SECTION 2.08                                | Interest on  Revolving Credit Loans                                      | 67 |
| SECTION 2.09                                | Conversion  and Continuation of Revolving Credit Loans                   | 68 |
| SECTION 2.10                                | Alternate  Rate of Interest for Revolving Credit Loans                   | 69 |
| SECTION 2.11                                | Change in  Legality                                                      | 69 |
| SECTION 2.12                                | Default Interest                                                         | 70 |
| SECTION 2.13                                | Letters of  Credit                                                       | 70 |
| SECTION 2.14                                | Increased  Costs                                                         | 75 |
| SECTION 2.15                                | Optional  Termination or Reduction of Commitments                        | 77 |
| SECTION 2.16                                | Optional  Prepayment of Revolving Credit Loans; Reimbursement of Lenders | 77 |
| SECTION 2.17                                | Mandatory  Prepayment; Commitment Termination; Cash Collateral           | 79 |
| SECTION 2.18                                | Cash  Management                                                         | 81 |
| SECTION 2.19                                | Fees                                                                     | 85 |
| SECTION 2.20                                | Maintenance  of Loan Account; Statements of Account                      | 86 |
| SECTION 2.21                                | Payments;  Sharing of Setoff                                             | 86 |
| SECTION 2.22                                | Settlement  Amongst Lenders                                              | 87 |
| SECTION 2.23                                | Taxes                                                                    | 89 |
| SECTION 2.24                                | Mitigation  Obligations; Replacement of Lenders                          | 92 |
| SECTION 2.25                                | Designation  of Lead Borrower as Borrowers’ Agent                   | 93 |
| SECTION 2.26                                | Provisions  Applicable to Canadian Loan Parties                          | 93 |
|                                        |                                                                     |
| ARTICLE III  Representations and Warranties | 94                                                                       |
|                                        |                                                                     |   |   |
| SECTION 3.01                                | Existence,  Qualification and Power; Compliance with Laws                | 94 |
| SECTION 3.02                                | Authorization;  No Contravention                                         | 95 |
| SECTION 3.03                                | Governmental  Authorization; Other Consents                              | 95 |
|                                             |                                                                          |  |  |

 

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| SECTION 3.04                     | Binding  Effect                                                               | 95     |
|----------------------------------|-------------------------------------------------------------------------------|--------|
| SECTION 3.05                     | Financial  Statements; No Material Adverse Effect                             | 95     |
| SECTION 3.06                     | Litigation                                                                    | 97     |
| SECTION 3.07                     | No Default                                                                    | 97     |
| SECTION 3.08                     | Ownership of  Property; Liens                                                 | 97     |
| SECTION 3.09                     | Environmental  Compliance                                                     | 97     |
| SECTION 3.10                     | Taxes                                                                         | 99     |
| SECTION 3.11                     | ERISA; Plan  Compliance                                                       | 99     |
| SECTION 3.12                     | Subsidiaries;  Equity Interests                                               | 99     |
| SECTION 3.13                     | Margin Regulations;  Investment Company Act                                   | 100    |
| SECTION 3.14                     | Disclosure                                                                    | 100    |
| SECTION 3.15                     | Intellectual  Property; Licenses, Etc                                         | 100    |
| SECTION 3.16                     | Solvency                                                                      | 101    |
| SECTION 3.17                     | Subordination  of Junior Financing                                            | 101    |
| SECTION 3.18                     | Labor Matters                                                                 | 101    |
| SECTION 3.19                     | Compliance  with Laws and Agreements                                          | 102    |
| SECTION 3.20                     | Security  Documents                                                           | 102    |
|                             |                                                                          |
| ARTICLE IV  Conditions           | 102                                                                           |
|                             |                                                                          |   |
| SECTION 4.01                     | Conditions  of Initial Credit Extension                                       | 102    |
| SECTION 4.02                     | Conditions  Precedent to Each Revolving Credit Loan and Each Letter of Credit | 105    |
|                             |                                                                          |
| ARTICLE V  Affirmative Covenants | 107                                                                           |
|                             |                                                                          |   |
| SECTION 5.01                     | Financial  Statements                                                         | 107    |
| SECTION 5.02                     | Certificates;  Other Information                                              | 109    |
| SECTION 5.03                     | Notices                                                                       | 111    |
| SECTION 5.04                     | Payment of  Taxes, Etc                                                        | 112    |
| SECTION 5.05                     | Preservation  of Existence, Etc                                               | 112    |
| SECTION 5.06                     | Maintenance  of Properties                                                    | 112    |
| SECTION 5.07                     | Maintenance  of Insurance                                                     | 112    |
| SECTION 5.08                     | Compliance  with Laws                                                         | 113    |
| SECTION 5.09                     | Books and  Records                                                            | 113    |
| SECTION 5.10                     | Inspection  Rights                                                            | 114    |
| SECTION 5.11                     | Covenant to  Become a Loan Party and Give Security                            | 115    |
| SECTION 5.12                     | Compliance  with Environmental Laws                                           | 117    |
| SECTION 5.13                     | Further  Assurances and Post-Closing Conditions                               | 117    |
| SECTION 5.14                     | Designation  of Subsidiaries                                                  | 118    |
| SECTION 5.15                     | Information  Regarding Collateral                                             | 118    |
| SECTION 5.16                     | Physical  Inventories                                                         | 118    |
| SECTION 5.17                     | Use of  Proceeds of Credit Extensions                                         | 119    |
| SECTION 5.18                     | Proceeds  From Surplus Cash Deposits                                          | 119    |
| SECTION 5.19                     | Excess  Collections, Canadian Investments, Etc                                | 119    |
| SECTION 5.20                     | Pension  Plans                                                                | 119    |
| SECTION 5.21                     | Corporate  Separateness                                                       | 119    |
| SECTION 5.22                     | Holdco                                                                        | 120    |

 

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| ARTICLE VI  Negative Covenants         | 120                                                                |
|----------------------------------------|--------------------------------------------------------------------|
|                                   |                                                               |   |   |
| SECTION 6.01                           | Liens                                                              | 120 |
| SECTION 6.02                           | Investments                                                        | 124 |
| SECTION 6.03                           | Indebtedness                                                       | 126 |
| SECTION 6.04                           | Fundamental  Changes                                               | 130 |
| SECTION 6.05                           | Dispositions                                                       | 131 |
| SECTION 6.06                           | Restricted  Payments                                               | 134 |
| SECTION 6.07                           | Change in  Nature of Business                                      | 137 |
| SECTION 6.08                           | Transactions  with Affiliates                                      | 137 |
| SECTION 6.09                           | Burdensome  Agreements                                             | 138 |
| SECTION 6.10                           | Accounting  Changes                                                | 138 |
| SECTION 6.11                           | Prepayments,  Etc., of Indebtedness                                | 139 |
| SECTION 6.12                           | Equity  Interests of the Lead Borrower and Restricted Subsidiaries | 140 |
| SECTION 6.13                           | Amendment of  Material Documents                                   | 140 |
| SECTION 6.14                           | Designated  Account                                                | 140 |
|                                   |                                                               |
| ARTICLE VII  Events of Default         | 140                                                                |
|                                   |                                                               |   |
| SECTION 7.01                           | Events of  Default                                                 | 140 |
| SECTION 7.02                           | Remedies  Upon Event of Default                                    | 144 |
| SECTION 7.03                           | Exclusion of  Immaterial Subsidiaries                              | 145 |
| SECTION 7.04                           | Application  of Proceeds                                           | 145 |
|                                   |                                                               |
| ARTICLE VIII  The Administrative Agent | 146                                                                |
|                                   |                                                               |   |
| SECTION 8.01                           | Appointment  of Administrative Agent                               | 146 |
| SECTION 8.02                           | Appointment  of Collateral Agent                                   | 147 |
| SECTION 8.03                           | Solidary Interests/Quebec  Liens (Hypothecs)                       | 147 |
| SECTION 8.04                           | Sharing of  Excess Payments                                        | 148 |
| SECTION 8.05                           | Agreement of  Applicable Lenders                                   | 148 |
| SECTION 8.06                           | Liability of  Agents                                               | 149 |
| SECTION 8.07                           | Notice of  Default                                                 | 150 |
| SECTION 8.08                           | Credit  Decisions                                                  | 150 |
| SECTION 8.09                           | Reimbursement  and Indemnification                                 | 150 |
| SECTION 8.10                           | Rights of  Agents                                                  | 151 |
| SECTION 8.11                           | Notice of  Transfer                                                | 151 |
| SECTION 8.12                           | Successor  Agents                                                  | 151 |
| SECTION 8.13                           | Relation  Among the Lenders                                        | 152 |
| SECTION 8.14                           | Reports and  Financial Statements                                  | 152 |
| SECTION 8.15                           | Agency for  Perfection                                             | 153 |
| SECTION 8.16                           | Delinquent  Lender                                                 | 153 |
| SECTION 8.17                           | Collateral  Matters                                                | 154 |
| SECTION 8.18                           | Syndication  Agent, Co-Documentation Agents, and Arrangers         | 155 |
|                                   |                                                               |
| ARTICLE IX  Miscellaneous              | 155                                                                |
|                                   |                                                               |   |
| SECTION 9.01                           | Amendments,  Etc                                                   | 155 |
| SECTION 9.02                           | Notices and  Other Communications; Facsimile Copies                | 157 |
| SECTION 9.03                           | No Waiver;  Cumulative Remedies                                    | 158 |
|                                        |                                                                    |  |  |  |  |

 

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| SECTION 9.04 | Attorney  Costs and Expenses            | 159 |
|--------------|-----------------------------------------|-----|
| SECTION 9.05 | Indemnification  by the Lead Borrower   | 159 |
| SECTION 9.06 | Payments Set  Aside                     | 160 |
| SECTION 9.07 | Successors  and Assigns                 | 161 |
| SECTION 9.08 | Confidentiality                         | 164 |
| SECTION 9.09 | Setoff                                  | 165 |
| SECTION 9.10 | Interest  Rate Limitation               | 165 |
| SECTION 9.11 | Counterparts                            | 166 |
| SECTION 9.12 | Integration                             | 166 |
| SECTION 9.13 | Severability                            | 166 |
| SECTION 9.14 | GOVERNING  LAW                          | 166 |
| SECTION 9.15 | WAIVER OF  RIGHT TO TRIAL BY JURY       | 167 |
| SECTION 9.16 | Binding  Effect                         | 167 |
| SECTION 9.17 | Judgment  Currency                      | 167 |
| SECTION 9.18 | Lender  Action                          | 168 |
| SECTION 9.19 | USA PATRIOT  ACT; PROCEEDS OF CRIME ACT | 168 |
| SECTION 9.20 | Foreign  Asset Control Regulations      | 169 |
| SECTION 9.21 | Survival                                | 169 |
| SECTION 9.22 | Press  Releases and Related Matters     | 169 |
| SECTION 9.23 | Additional  Waivers                     | 170 |
| SECTION 9.24 | Intercreditor  Agreement                | 172 |

 

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**EXHIBITS**

 
| Exhibit A-1: | Form of  Assignment and Acceptance (Tranche A)   |   |
|--------------|--------------------------------------------------|--------|
| Exhibit A-2: | Form of  Assignment and Acceptance (Tranche A-1) |   |
| Exhibit B:   | Form of  Customs Broker Agreement                |   |
| Exhibit C:   | Notice of  Borrowing                             |   |
| Exhibit D:   | Form of  Revolving Credit Note                   |   |
| Exhibit E:   | Form of  Swingline Note                          |   |
| Exhibit F:   | Form of  Joinder                                 |   |
| Exhibit G:   | Form of  Credit Card Notification                |   |
| Exhibit H:   | Form of  Compliance Certificate                  |   |
| Exhibit I:   | Form of  Borrowing Base Certificate              |   |
| Exhibit J:   | Closing  Agenda                                  |   |

 

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**SCHEDULES**

 
| Schedule  1.1:         | Lenders and  Commitments         |   |
|------------------------|----------------------------------|--------|
| Schedule  2.13(k):     | Existing  Letters of Credit      |   |
| Schedule  2.18(b):     | Credit Card  Arrangements        |   |
| Schedule  2.18(c):     | Blocked  Accounts                |   |
| Schedule  3.01:        | Organization  Information        |   |
| Schedule  3.05:        | Financial  Statement Exceptions  |   |
| Schedule  3.08(b)(i):  | Owned Real  Estate               |   |
| Schedule  3.08(b)(ii): | Leased Real  Estate              |   |
| Schedule  3.09(b):     | Environmental  Matters           |   |
| Schedule  3.09(d):     | Environmental  Investigation     |   |
| Schedule  3.10:        | Taxes                            |   |
| Schedule  3.11:        | ERISA and  Other Pension Matters |   |
| Schedule  3.12:        | Subsidiaries;  Equity Interests  |   |
| Schedule  3.15:        | Intellectual  Property           |   |
| Schedule  4.01(b):     | Local  Counsel Opinions          |   |
| Schedule  5.02(f):     | Reporting  Requirements          |   |
| Schedule  5.02:        | Lead  Borrower’s Website    |   |
| Schedule  5.07:        | Insurance                        |   |
| Schedule  5.14:        | Unrestricted  Subsidiaries       |   |
| Schedule  6.01:        | Permitted  Encumbrances          |   |
| Schedule  6.02:        | Permitted  Investments           |   |
| Schedule  6.03:        | Existing  Indebtedness           |   |
| Schedule  6.05:        | Permitted  Dispositions          |   |
| Schedule  6.08:        | Affiliate  Transactions          |   |
| Schedule  6.09:        | Burdensome  Agreements           |   |

 

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**CREDIT AGREEMENT**dated as of October 31, 2006 among:

 

**MICHAELS STORES, INC.**(in such capacity, the “Lead Borrower”), a corporation organized underthe laws of the State of Delaware, with its principal executive offices at 8000Bent Branch Drive, Irving, Texas 75261, for itself and as agent for theBorrowers; and

 

**THE BORROWERS AND THE FACILITY GUARANTORS**from time to time party hereto; and

 

**BANK OF AMERICA, N.A.**,a national banking association, having a place of business at 40 Broad Street,Boston, Massachusetts 02109, as administrative agent (in such capacity, the “AdministrativeAgent”), and as collateral agent (in such capacity, the “CollateralAgent”), for its own benefit and the benefit of the other Secured Parties;

 

The **LENDERS** party hereto;

 

**DEUTSCHE BANK SECURITIES INC.**,as Syndication Agent; and

 

**CREDIT SUISSE, JPMORGAN CHASE BANK, N.A.**and **WELLS FARGO RETAIL FINANCE, LLC**,as Co-Documentation Agents;

 

in consideration of the mutual covenants herein contained and benefitsto be derived herefrom, the parties hereto agree as follows:

 

ARTICLE I

 

SECTION 1.01                                                                    Definitions.

 

As used in this Agreement, the following terms have the meaningsspecified below:

 

“ABL Priority Collateral” has the meaning set forth in theIntercreditor Agreement.

 

“ACH” means automated clearing house transfers.

 

“Accommodation Payment” has the meaning provided in SECTION9.23.

 

“Account(s)” means “accounts” as defined in the UCC or the PPSA,as applicable, and also means a right to payment of a monetary obligation,whether or not earned by performance, (a) for property that has been or is tobe sold, leased, licensed, assigned, or otherwise disposed of, (b) for servicesrendered or to be rendered, or (c) arising out of the use of a credit or chargecard or information contained on or for use with the card. The term “Account”does not include (a) rights to payment evidenced by chattel paper or aninstrument, (b) commercial tort claims, (c) deposit accounts, (d) investmentproperty, or (e) letter-of-credit rights or letters of credit.

 

“Accrual Amount” means the accrual made by the Loan Parties intheir general ledger in the ordinary course of business for Inventoryin-transit to the Loan Parties from domestic and foreign vendors (but notInventory accounted for as “in transit” by the Lead Borrower by virtue of suchInventory’s being in transit between the Loan Parties’ locations or in storagetrailers at

 

1

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the Loan Parties’ locations), in accordance with past accountingpractices (or other practices reasonably acceptable to the AdministrativeAgent, whose consent shall not be unreasonably withheld).

 

“Acquisition” means, with respect to a specified Person, (a) anInvestment in or a purchase of a 50% or greater interest in the Capital Stockof any other Person, (b) a purchase or acquisition of all or substantially allof the assets of any other Person, (c) a purchase or acquisition of a RealEstate portfolio or Stores from any other Person or assets constituting abusiness unit, line of business or division of any other Person, or (d) anymerger, amalgamation or consolidation of such Person with any other Person orother transaction or series of transactions resulting in the acquisition of allor substantially all of the assets, or a 50% or greater interest in the CapitalStock of, any Person, in each case in any transaction or group of transactionswhich are part of a common plan.

 

 “Additional Commitment Lender”shall have the meaning provided in SECTION 2.02(a).

 

“Adjusted Availability Condition” shall mean, for any date ofcalculation with respect to any Specified Payment, Availability following, andafter giving effect to, such Specified Payment (calculated based on the TrancheA Borrowing Base) will be equal to or greater than $125,000,000.

 

“Adjusted LIBO Rate” means, with respect to any LIBO Borrowingfor any Interest Period, an interest rate per annum (rounded upwards, ifnecessary, to the next 1/100 of one percent) equal to (a) the LIBO Rate forsuch Interest Period multiplied by (b) the Statutory Reserve Rate. TheAdjusted LIBO Rate will be adjusted automatically as to all LIBO Borrowingsthen outstanding as of the effective date of any change in the StatutoryReserve Rate.

 

“Adjustment Date” has the meaning provided in clause (b) of thedefinition of “Applicable Margin.”

 

“Administrative Agent” has the meaning provided in the preambleto this Agreement.

 

“Advisory Agreements” means collectively, (i) the AdvisoryAgreement dated as of October 31, 2006 by and among Michaels Stores, Inc., aDelaware corporation, and Bain Capital Partners, LLC and Blackstone ManagementPartners V LLC, as amended and in effect from time to time in a manner notprohibited hereunder, and (ii) the Advisory Agreement dated as of October 31,2006 by and among Michaels Stores, Inc., a Delaware corporation, and HighfieldsCapital, as amended and in effect from time to time in a manner not prohibitedhereunder.

 

“Advisory Fees” means management, monitoring, consulting andadvisory fees, closing, and termination fees, payments by the Lead Borrower andits Restricted Subsidiaries to the Sponsors made for any financial advisory,financing, underwriting or placement services or in respect of other investmentbanking activities (including in connection with Acquisitions or divestitures),and related indemnities and related expenses payable by the Loan Partiespursuant to the Advisory Agreements, as they are in effect on the Closing Dateor such increased amount as may be agreed to in writing by the AdministrativeAgent in its sole reasonable discretion.

 

2

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“Affiliate” means, with respect to a specified Person, any otherPerson that directly or indirectly through one or more intermediaries Controls,is Controlled by or is under common Control with the Person specified.

 

“Agents” means collectively, the Administrative Agent and theCollateral Agent.

 

“Agreement” means this Credit Agreement, as modified, amended,supplemented or restated, and in effect from time to time.

 

“Applicable Law” means as to any Person: (a) any and allfederal, state, provincial, local, and foreign statutes, laws, regulations,ordinances, rules, judgments, orders, codes, ordinances, decrees, permits,concessions, grants, franchises, licenses, agreements, governmentalrestrictions or other requirements having the force of law; and (b) all courtorders, decrees, judgments, injunctions, enforceable notices, bindingagreements and/or rulings, in each case of or by any Governmental Authoritywhich has jurisdiction over such Person, or any property of such Person.

 

“Applicable Lenders” means the Required Lenders or all Lenders,as applicable.

 

“Applicable Margin” means:

 

(a)                                  From and after theClosing Date until the first Adjustment Date after the Closing Date, thepercentages set forth in Level III of the pricing grid below; and

 

(b)                                 On the first day ofeach Fiscal Quarter (each, an “Adjustment Date”), commencing with theFiscal Quarter beginning on February 4, 2007, the Applicable Margin shall bedetermined from such pricing grid based upon average daily Availability for themost recently ended Fiscal Quarter immediately preceding such Adjustment Date.

 
| **Level** | ** ** | **Average Daily  Availability**                                    | ** ** | **Tranche A  LIBO  Applicable  Margin** | ** ** | **Tranche A  Prime Rate  Applicable  Margin** | ** ** | **Tranche A-  1 LIBO  Applicable  Margin** | ** ** | **Tranche A-  1 Prime  Rate  Applicable  Margin** | ** ** |
|-----------|------------|--------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| I         |       | Greater than  $500,000,000                                         |       | 1.00                                    | %          | 0                                             | %          | 2.00                                       | %          | 1.00                                              | %          |
| II        |       | Less than or  equal to  $500,000,000 but greater than $300,000,000 |       | 1.25                                    | %          | 0.25                                          | %          | 2.25                                       | %          | 1.25                                              | %          |
| III       |       | Less than or  equal to $300,000,000                                |       | 1.50                                    | %          | 0.50                                          | %          | 2.50                                       | %          | 1.50                                              | %          |

 

“Appraised Value” means the net appraised recovery value of theBorrowers’ Inventory as set forth in the Borrowers’ stock ledger (expressed asa percentage of the Cost of such Inventory) as reasonably determined from timeto time by reference to the most recent appraisal received by the Agentsconducted by an independent appraiser reasonably satisfactory to the Agents.

 

3

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“Approved Bank” has the meaning specified in clause (iii) of thedefinition of “Cash Equivalents.”

 

“Arrangers” means, collectively, Banc of America Securities LLC,Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc.

 

“Assignmentand Acceptance” means an assignment and acceptance entered into by a Lenderand an assignee (with the consent of any party whose consent is required bySECTION 9.07), and accepted by the Administrative Agent, in substantially theform of Exhibit A-1 or Exhibit A-2, as applicable, or any otherform approved by the Administrative Agent.

 

“AttributableIndebtedness” means, on any date, in respect of any Capitalized Lease ofany Person, the capitalized amount thereof that would appear on a balance sheetof such Person prepared as of such date in accordance with GAAP.

 

“Availability”means the lesser of (a) and (b), where:

 

(a)                                  is the result of:

 

(i)                                     The RevolvingCredit Ceiling,

 

Minus

 

(ii)                                  The aggregateoutstanding amount of Credit Extensions to, or for the account of, theBorrowers; and

 

(b)                                 is the result of thefollowing, as applicable:

 

(i)                                     if the Tranche A-1Commitments have been terminated, the result of:

 

(A)          TheTranche A Borrowing Base, as determined from the most recent Borrowing BaseCertificate (delivered by the Lead Borrower to the Administrative Agentpursuant to SECTION 5.01(e) hereof (as may be adjusted from time to timepursuant to SECTION 2.03 hereof));

 

Minus

 

(B)                                The aggregateoutstanding amount of Credit Extensions to, or for the account of, theBorrowers; or

 

(ii)                                  as long as theTranche A-1 Commitments are outstanding, the result of:

 

(A)          TheTranche A-1 Borrowing Base, as determined from the most recent Borrowing BaseCertificate (delivered by the Lead Borrower to the Administrative Agentpursuant to SECTION 5.01(e) hereof (as may be adjusted from time to timepursuant to SECTION 2.03 hereof)),

 

4

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Minus

 

(B)                                The aggregateoutstanding amount of Credit Extensions to, or for the account of, theBorrowers.

 

“Availability Reserves” means, without duplication of any otherReserves or items that are otherwise addressed or excluded through eligibilitycriteria, such reserves as the Administrative Agent, from time to timedetermines in its reasonable commercial discretion exercised in good faith asbeing appropriate (a) to reflect any impediments to the realization upon theCollateral included in the Tranche A Borrowing Base or the Tranche A-1Borrowing Base (including, without limitation, claims that the AdministrativeAgent determines will need to be satisfied in connection with the realizationupon such Collateral), and (b) to reflect any restrictions in the Senior NoteDocuments, the Senior Subordinated Note Documents, the Subordinated DiscountNote Documents, or the Term Loan Agreement on the incurrence of Indebtedness bythe Loan Parties, but only to the extent that such restrictions reduce, or withthe passage of time could reduce, the amounts available to be borrowedhereunder (including, without limitation as a result of the Loan Parties’receipt of net proceeds from asset sales) in order for the Loan Parties tocomply with the Senior Note Documents, the Senior Subordinated Note Documents,the Subordinated Discount Note Documents and the Term Loan Agreement. AvailabilityReserves shall include, without limitation, the Priority Payable Reserves, theCash Management Reserves and Bank Product Reserves.

 

“Bank of America” means Bank of America, N.A., a nationalbanking association, and its Subsidiaries and Affiliates.

 

“Bank Products” means any services or facilities (other thanCash Management Services) provided to any Loan Party by any Lender or anyAffiliate of a Lender (and with respect to Swap Contracts, any Lender orAffiliate of a Lender who (x) was a Lender or an Affiliate of a Lender at thetime such Swap Contract was entered into and who is no longer a Lender or anAffiliate of a Lender, and (y) is, and at all times remains, in compliance withthe provisions of SECTION 8.14(a) and (z) agrees in writing that the Agents andthe other Secured Parties shall have no duty to such Person (other than thepayment of any amounts to which such Person may be entitled under SECTION 7.04)and acknowledges that the Agents and the other Secured Parties may deal withthe Loan Parties and the Collateral as they deem appropriate (including therelease of any Loan Party or all or any portion of the Collateral) withoutnotice or consent from such Person, whether or not such action impairs theability of such Person to be repaid its Other Liabilities) on account of (a) creditcards, (b) purchase cards, (c) merchant services constituting a line of credit,and (d) Swap Contracts designated by the Lead Borrower at the time such SwapContract is entered into as being Obligations under this Agreement, providedfurther that any Bank Product for the benefit of Michaels of Canada, ULC or anyForeign Subsidiary shall name the Lead Borrower as the party thereto.

 

“Bank Product Reserves” means such reserves as theAdministrative Agent, from time to time after the occurrence and during thecontinuation of a Cash Dominion Event, determines in its reasonable commercialdiscretion exercised in good faith as being appropriate to reflect thereasonably anticipated liabilities and obligations of the Loan Parties withrespect to Bank Products then provided or outstanding.

 

5

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“Bankruptcy Code” means Title 11 of the United States Code (11U.S.C. Section 101 et seq.) as now or hereafter in effect, or any successorthereto and (ii) the Bankruptcy and Insolvency Act (Canada), the Companies’Creditors Arrangement Act (Canada) and the Winding-up Act (Canada), as now orhereafter in effect, or any successor thereto.

 

“Blocked Account” has the meaning provided in SECTION 2.18(c).

 

“Blocked Account Agreement” has the meaning provided in SECTION2.18(c).

 

“Blocked Account Banks” means the banks with whom depositaccounts are maintained in which material amounts (as reasonably determined bythe Administrative Agent) of funds of any of the Loan Parties from one or moreDDAs are concentrated and with whom a Blocked Account Agreement has been, or isrequired to be, executed in accordance with the terms hereof.

 

“Borrowers” means, collectively, the Lead Borrower, theBorrowers identified on the signature pages hereto and each other Person (otherthan a Canadian Loan Party or a Foreign Subsidiary) who owns assets of the typeincluded in the Tranche A Borrowing Base or the Tranche A-1 Borrowing Base andbecomes a Loan Party hereunder in accordance with the terms of this Agreement.

 

“Borrowing” means (a) the incurrence of Revolving Credit Loans(other than Swingline Loans) of a single Type, on a single date and having, inthe case of LIBO Loans, a single Interest Period, or (b) a Swingline Loan.

 

“Borrowing Base Certificate” has the meaning provided in SECTION5.01(e).

 

“Borrowing Request” means a request by the Lead Borrower onbehalf of any of the Borrowers for a Borrowing in accordance with SECTION 2.04.

 

“Breakage Costs” has the meaning provided in SECTION 2.16(c).

 

“Business Day” means any day that is not a Saturday, Sunday orother day on which commercial banks in Boston, Massachusetts are authorized orrequired by law to remain closed (or are in fact closed), provided, however,that when used in connection with a LIBO Loan, the term “Business Day” shallalso exclude any day on which banks are not open for dealings in dollardeposits in the London interbank market.

 

“Canadian Dollars” or “CD$” means lawful currency ofCanada.

 

“Canadian Guarantee” means the Facility Guarantee, dated as ofthe date hereof and executed and delivered by Michaels of Canada, ULC to theAdministrative Agent for the benefit of the Secured Parties, as amended and ineffect from time to time, and any other Facility Guaranty executed and deliveredby any other Canadian Loan Party pursuant to SECTION 5.11.

 

“CanadianLoan Party” means a Loan Party that is organized under the laws of Canadaor any province thereof.

 

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“CanadianSecurity Agreements” means the Security Agreements dated as of the datehereof and executed and delivered by Michaels of Canada, ULC to theAdministrative Agent for the benefit of the Secured Parties, as amended and ineffect from time to time and any Deed of Immovable and Moveable Hypothec orother Security Document hereafter executed and delivered by any Canadian LoanParty to the Administrative Agent for the benefit of the Secured Parties asprovided in SECTION 5.11.

 

“CanadianSubsidiary” means any Subsidiary that is organized under the laws of Canadaor any province thereof.

 

“CapitalExpenditures” means, with respect to the Loan Parties for any period, allexpenditures by the Lead Borrower and its Restricted Subsidiaries during suchperiod that, in conformity with GAAP, are or are required to be included asadditions to property, plant and equipment that are set forth in a Consolidatedbalance sheet of the Lead Borrower and its Restricted Subsidiaries for suchperiod prepared in accordance with GAAP; provided that “Capital Expenditures”shall not include (i) any additions to property and equipment and other capitalexpenditures made with the proceeds of any equity securities issued or capitalcontributions received by any Loan Party or any Subsidiary, (ii) expendituresmade in connection with the replacement, substitution, restoration or repair ofassets to the extent financed with (x) insurance proceeds paid on account ofthe loss of or damage to the assets being replaced, restored or repaired, or(y) awards of compensation arising from the taking by eminent domain orcondemnation of the assets being replaced, (iii) the purchase price ofequipment that is purchased simultaneously with the trade-in of existingequipment to the extent that the gross amount of such purchase price is reducedby the credit granted by the seller of such equipment for the equipment beingtraded in at such time, (iv) the purchase of property, plant or equipmentto the extent financed with the proceeds of Permitted Dispositions that are notrequired to be applied to prepay the Obligations or the Term Loan Facility, (v)expenditures that are accounted for as capital expenditures by the LeadBorrower or any Restricted Subsidiary and that actually are paid for by aPerson other than the Lead Borrower or any Restricted Subsidiary to the extentneither the Lead Borrower nor any Restricted Subsidiary has provided or isrequired to provide or incur, directly or indirectly, any consideration orobligation to such Person or any other Person (whether before, during or aftersuch period), (vi) any expenditures which are contractually required to be, andare, advanced or reimbursed to the Loan Parties in cash by a third party(including landlords) during such period of calculation, (vii) the book valueof any asset owned by the Lead Borrower or any Restricted Subsidiary prior toor during such period to the extent that such book value is included as aCapital Expenditure during such period as a result of such Person reusing orbeginning to reuse such asset during such period without a correspondingexpenditure actually having been made in such period, *provided*that(A) any expenditure necessary in order to permit such asset to be reusedshall be included as a Capital Expenditure during the period in which suchexpenditure actually is made and (B) such book value shall have beenincluded in Capital Expenditures when such asset was originally acquired,(viii) expenditures that constitute Permitted Acquisitions, or (ix) thatportion of interest on Indebtedness incurred for Capital Expenditures which ispaid in cash and capitalized in accordance with GAAP.

 

“CapitalizedLeases” means all leases that have been or should be, in accordance withGAAP, recorded as capitalized leases; *provided* thatfor all purposes hereunder the amount of

 

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obligationsunder any Capitalized Lease shall be the amount thereof accounted for as aliability in accordance with GAAP.

 

“CapitalStock” shall mean, as to any Person that is a corporation, the authorizedshares of such Person’s capital stock, including all classes of common,preferred, voting and nonvoting capital stock, and, as to any Person that isnot a corporation or an individual, the membership or other ownership interestsin such Person, including, without limitation, the right to share in profitsand losses, the right to receive distributions of cash and other property, andthe right to receive allocations of items of income, gain, loss, deduction andcredit and similar items from such Person, whether or not such interestsinclude voting or similar rights entitling the holder thereof to exerciseControl over such Person, collectively with, in any such case, all warrants,options and other rights to purchase or otherwise acquire, and all otherinstruments convertible into or exchangeable for, any of the foregoing.

 

“CashCollateral Account” means an interest bearing account established by theLoan Parties with the Collateral Agent, for its own benefit and the benefit ofthe other Secured Parties, under the sole and exclusive dominion and control ofthe Collateral Agent, in the name of the Collateral Agent or as the CollateralAgent shall otherwise direct, in which deposits are required to be made inaccordance with SECTION 2.13(j).

 

“CashDominion Event” means either (a) the occurrence and continuance of anySpecified Default, or (b) the failure of the Borrowers to maintain Availabilityof at least $100,000,000 for five (5) consecutive Business Days. For purposesof this Agreement, the occurrence of a Cash Dominion Event shall be deemedcontinuing (unless the Administrative Agent otherwise agrees in its reasonablediscretion or the Administrative Agent, in its reasonable judgment, hasdetermined that circumstances surrounding such Specified Default cease toexist) (a) so long as such Specified Default is continuing or has not beenwaived, and/or (b) if the Cash Dominion Event arises as a result of theBorrowers’ failure to achieve Availability as required hereunder, untilAvailability has exceeded $100,000,000 for thirty (30) consecutive days, inwhich case a Cash Dominion Event shall no longer be deemed to be continuing forpurposes of this Agreement, provided, that a Cash Dominion Event may notbe so cured on more than three (3) occasions in any period of 365 consecutivedays.

 

“CashEquivalents” means any of the following types of Investments, to the extentowned by the Lead Borrower or any Restricted Subsidiary:

 

###### (i)                                     Dollars, Canadian Dollars, Euros (or anynational currency of any participating member state of the European Union) or,in the case of any Foreign Subsidiary, such local currencies held by it fromtime to time in the ordinary course of business;

######  

###### (ii)                                  readily marketable obligations issued ordirectly and fully guaranteed or insured by the government or any agency orinstrumentality of (i) the United States, or Canada, or (ii) any member nationof the European Union, in each case having average maturities of not more than24 months from the date of acquisition thereof; *provided*that the full faith and credit of the United States or Canada or a membernation of the European Union is pledged in support thereof;

 

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###### (iii)                               time deposits with, or insured certificatesof deposit or bankers’ acceptances of, any commercial bank that (i) is a Lenderor (ii) (A) is organized under the laws of the United States, any statethereof, the District of Columbia or any member nation of the Organization forEconomic Cooperation and Development or is the principal banking Subsidiary ofa bank holding company organized under the laws of the United States, any statethereof, the District of Columbia or any member nation of the Organization forEconomic Cooperation and Development, and is a member of the Federal ReserveSystem, and (B) has combined capital and surplus of at least $250,000,000 (anysuch bank in the foregoing clauses (i) or (ii) being an “Approved Bank”),in each case with average maturities of not more than 12 months from the dateof acquisition thereof;

######  

###### (iv)                              commercial paper and variable or fixed ratenotes issued by an Approved Bank (or by the parent company thereof) or anyvariable or fixed rate note issued by, or guaranteed by, a corporation ratedA-2 (or the equivalent thereof) or better by S&P or P-2 (or the equivalentthereof) or better by Moody’s, in each case with average maturities of not morethan 24 months from the date of acquisition thereof;

######  

###### (v)                                 repurchase agreements entered into by anyPerson with a bank or trust company (including any of the Lenders) orrecognized securities dealer, in each case, having capital and surplus inexcess of $250,000,000 for direct obligations issued by or fully guaranteed orinsured by the government or any agency or instrumentality of the United Statesor Canada or any member nation of the European Union, in which such Personshall have a perfected first priority security interest (subject to no otherLiens) and having, on the date of purchase thereof, a fair market value of atleast 100% of the amount of the repurchase obligations;

######  

###### (vi)                              securities with average maturities of 24months or less from the date of acquisition issued or fully guaranteed by anystate, commonwealth or territory of the United States, by any politicalsubdivision or taxing authority of any such state, commonwealth or territory orby any foreign government having an investment grade rating from either S&Por Moody’s (or the equivalent thereof);

######  

###### (vii)                           Investments with average maturities of 24months or less from the date of acquisition in money market funds rated AAA-(or the equivalent thereof) or better by S&P or Aaa3 (or the equivalentthereof) or better by Moody’s;

######  

###### (viii)                        instruments equivalent to those referred toin clauses (i) through (vii) above denominated in Canadian Dollars, Euros,Pounds Sterling or any other foreign currency comparable in credit quality andtenor to those referred to above and customarily used by corporations for cashmanagement purposes in any jurisdiction outside the United States to the extentreasonably required in connection with any business conducted by any RestrictedSubsidiary organized in such jurisdiction; and

######  

###### (ix)                                Investments, classified in accordance withGAAP as current assets of the Lead Borrower or any Restricted Subsidiary, inmoney market investment programs which are registered under the Investment CompanyAct of 1940 or which are

 

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###### administeredby financial institutions having capital of at least $250,000,000, and, ineither case, the portfolios of which are limited such that substantially all ofsuch investments are of the character, quality and maturity described inclauses (i) through (viii) of this definition.

 

“CashManagement Reserves” means such reserves as the Administrative Agent, fromtime to time after the occurrence and during the continuation of a CashDominion Event, determines in its reasonable commercial discretion exercised ingood faith as being appropriate to reflect the reasonably anticipatedliabilities and obligations of the Loan Parties with respect to Cash ManagementServices then provided or outstanding.

 

“CashManagement Services” means any one or more of the following types ofservices or facilities provided to any Loan Party by any Lender or anyAffiliate of a Lender: (a) ACH transactions, (b) treasury and/or cashmanagement services , including, without limitation, controlled disbursementservices, (c) foreign exchange facilities, (d) credit or debit cards, (e)deposit and other accounts and (f) merchant services (other than thoseconstituting a line of credit).

 

“CashReceipts” has the meaning provided in SECTION 2.18(d).

 

“CasualtyEvent” means any event that gives rise to the receipt by the Lead Borroweror any of its Restricted Subsidiaries of any insurance proceeds or condemnationawards in respect of any Inventory, equipment, fixed assets or Real Estate(including any improvements thereon).

 

“CERCLA”means the Comprehensive Environmental Response, Compensation, and LiabilityAct, 42 U.S.C. § 9601 et seq.

 

“CERCLIS”means the Comprehensive Environmental Response, Compensation and LiabilityInformation System maintained by the U.S. Environmental Protection Agency.

 

“Changein Control” means the earliest to occur of (a) the Permitted Holdersceasing to have the power, directly or indirectly, to vote or direct the votingof securities having a majority of the ordinary voting power for the electionof directors of the Parent; *provided* thatthe occurrence of the foregoing event shall not be deemed a Change in Controlif,

 

(i)                                     at any time prior to the consummation of aQualifying IPO, and for any reason whatsoever, (A) one or more of the PermittedHolders otherwise have the right, directly or indirectly, to designate (and doso designate) a majority of the board of directors of the Parent or (B) one ormore of the Permitted Holders own, directly or indirectly, of record andbeneficially an amount of common stock of the Parent equal to an amount morethan fifty percent (50%) of the amount of common stock of the Parent owned,directly or indirectly, by the Permitted Holders of record and beneficially asof the Closing Date and such ownership by one or more of the Permitted Holdersrepresents the largest single block of voting securities of the Parent held byany Person or related group for purposes of Section 13(d) of the ExchangeAct, or

 

(ii)                                  at any time after the consummation of aQualifying IPO, and for any reason whatsoever, (A) any Person or Persons (otherthan the Permitted Holders) that are together a “group” (within the meaning ofSections 13(d) and 14(d)(2) of the Exchange Act or

 

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areacting, for the purpose of acquiring, holding or disposing of securities, as agroup (within the meaning of Rule 13d-5(1) under the Exchange Act), but in anycase excluding any employee benefit plan of such Person and its Subsidiaries,and any Person or entity acting in its capacity as trustee, agent or otherfiduciary or administrator of any such plan), by way of purchase, merger, consolidation,or other business combination, shall not become the “beneficial owner” (asdefined in Rules 13(d)-3 and 13(d)-5 under such Act), directly or indirectly,of more than the greater of (x) thirty-five percent (35%) of the sharesoutstanding of the Parent and (y) the percentage of the then outstanding votingstock of the Parent owned, directly or indirectly, beneficially by thePermitted Holders, and (B) during each period of twelve (12) consecutivemonths, the board of directors of the Parent shall consist of a majority of theContinuing Directors; or

 

(b)                                 any “Change in Control” (or any comparableterm) in any document pertaining to the Term Loan Facility, the Senior Notes,the Senior Subordinated Notes, the Subordinated Discount Notes, or any otherMaterial Indebtedness; or

 

(c)                                  after the formation of Holdco, the failure ofHoldco to own 100% of the Capital Stock of the Lead Borrower.

 

“Changein Law” means (a) the adoption of any Applicable Law after the ClosingDate, (b) any change in any Applicable Law or in the interpretation orapplication thereof by any Governmental Authority after the Closing Date or (c)compliance by any Credit Party (or, for purposes of SECTION 2.14, by anylending office of such Credit Party or by such Credit Party’s holding company,if any) with any request, guideline or directive (whether or not having theforce of law) of any Governmental Authority made or issued after the ClosingDate applicable to the Loan Parties.

 

“CivilCode” means the Civil Code of Quebec and all regulations thereunder, asamended from time to time, and any successor statutes.

 

“ClosingDate” means October 31, 2006.

 

“Code”means the Internal Revenue Code of 1986 and the Treasury regulationspromulgated thereunder, as amended from time to time.

 

“Co-DocumentationAgents” has the meaning provided in the preamble to this Agreement.

 

“Collateral”means any and all “Collateral”, “Pledged Collateral” or words of similar intentas defined in any applicable Security Document.

 

“CollateralAccess Agreement” means an agreement reasonably satisfactory in form andsubstance to the Collateral Agent executed by (a) a bailee or other Person inpossession of Collateral, including, without limitation, any warehouseman, and(b) a landlord of Real Estate leased by any Loan Party (including, withoutlimitation, any warehouse or distribution center), pursuant to which suchPerson (i) acknowledges the Collateral Agent’s Lien on the Collateral, (ii)releases or subordinates such Person’s Liens in the Collateral held by suchPerson or located on such Real Estate, (iii) agrees to furnish the CollateralAgent with access to the Collateral in

 

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suchPerson’s possession or on the Real Estate for the purposes of conducting aLiquidation and (iv) makes such other agreements with the Collateral Agent asthe Collateral Agent may reasonably require.

 

“CollateralAgent” has the meaning provided in the preamble to this Agreement.

 

“CommercialLetter of Credit” means any Letter of Credit issued for the purpose ofproviding the primary payment mechanism in connection with the purchase of anymaterials, goods or services by a Borrower or a Restricted Subsidiary in theordinary course of business of such Borrower or Restricted Subsidiary.

 

“CommercialLetter of Credit Facility” means, with respect to the Lead Borrower or anyof its Restricted Subsidiaries, an unsecured facility or other unsecuredarrangement providing for the issuance of commercial letters of credit,including any instruments and agreements executed in connection therewith, andany amendments, supplements, modifications, extensions, renewals orrestatements thereof and any unsecured facility or arrangement that replacesall or any part of such facility or arrangement, including any such facility orarrangement that increases the aggregate face value of commercial letters ofcredit to be issued thereunder, whether by the same or any other issuing bank.

 

“Commitment” shall mean, with respect to each Lender, theaggregate commitments of such Lender hereunder to make Credit Extensions(including Tranche A Loans and Tranche A-1 Loans) to the Borrowers in the amountset forth opposite its name on Schedule 1.1 hereto or as maysubsequently be set forth in the Register from time to time, as the same may beincreased or reduced from time to time pursuant to SECTIONS 2.02 and 2.15 ofthis Agreement.

 

“CommitmentIncrease” shall have the meaning provided in SECTION 2.02(a).

 

“CommitmentIncrease Date” shall have the meaning provided in SECTION 2.02(c).

 

“CommitmentLetter” means the commitment letter dated July 13, 2006, from Bank ofAmerica, N.A., Banc of America Bridge LLC, Banc of America Securities LLC,Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Islands Branch,Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., JPMorgan ChaseBank, N.A., Credit Suisse Securities (USA) LLC and Credit Suisse to Bain PasteFinco, LLC, Blackstone Paste Finco, LLC, Bain Capital Fund IX, LLC andBlackstone Capital Partners V L.P.

 

“Commitment Percentage” shall mean, with respect to each Lender,that percentage of the Commitments of all Lenders hereunder to make CreditExtensions to the Borrowers, in the amount set forth opposite such Lender’sname on Schedule 1.1 hereto or as may subsequently be set forth in theRegister from time to time, as the same may be increased or reduced from timeto time pursuant to SECTIONS 2.02 and 2.15 of this Agreement, or if theCommitments have been terminated, such percentage as calculated immediately priorto such termination.

 

“ComplianceCertificate” has the meaning provided in SECTION 5.02(b).

 

“ConcentrationAccount” has the meaning provided in SECTION 2.18(d).

 

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“Consolidated”means, when used to modify a financial term, test, statement, or report of aPerson, the application or preparation of such term, test, statement or report(as applicable) based upon the consolidation, in accordance with GAAP, of thefinancial position, cash flows, or operating results of such Person and itsSubsidiaries.

 

“ConsolidatedDepreciation and Amortization Expense” means with respect to any Person forany period, the total amount of depreciation and amortization expense,including the amortization of deferred financing fees of such Person and itsRestricted Subsidiaries for such period on a Consolidated basis and otherwisedetermined in accordance with GAAP.

 

“ConsolidatedEBITDA” means, with respect to any Person for any period, the ConsolidatedNet Income of such Person for such period

 

(a)                                  increased (without duplication of either (1)any item described in any other clause, below, or (2) any item excluded in thecalculation of Consolidated Net Income) by:

 

(i)                                     provision for Consolidated Taxes paid oraccrued during such period to the extent the same were deducted (and not addedback) in computing Consolidated Net Income; *plus*

 

(ii)                                  Consolidated Interest Expense of such Personfor such period plus amounts excluded from Consolidated Interest Expense as setforth in clauses (i) through (viii) of the definition thereof, to the extentthe same were deducted (and not added back) in calculating such ConsolidatedNet Income; *plus*

 

(iii)                               Consolidated Depreciation and Amortization Expense of such Person forsuch period to the extent the same was deducted (and not added back) incomputing Consolidated Net Income; *plus*

 

(iv)                              any non-cash charges, including (i) any write offs or write downs, (ii)equity based awards compensation expense, (iii) losses on sales, disposals orabandonment of, or any impairment charges or asset write off, related tointangible assets, long-lived assets and investments in debt and equitysecurities, (iv) all losses from investments recorded using the equity method,and (v) other non-cash charges, non-cash expenses or non-cash losses reducingConsolidated Net Income for such period (*provided* thatif any such non-cash charges referred to in clauses (i) through (v) of thisclause represent an accrual or reserve for potential cash items in any futureperiod, the cash payment in respect thereof in such future period shall besubtracted from EBITDA to such extent, and excluding amortization of a prepaidcash item that was paid in a prior period); *plus*

 

(v)                                 the amount of any minority interest expenseconsisting of Subsidiary income attributable to minority equity interests ofthird parties in any non-wholly-owned Subsidiary deducted (and not added back)in such period in calculating Consolidated Net Income; *plus*

 

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(vi)                              Advisory Fees paid or accrued in such period to the Sponsors orHighfields Capital to the extent otherwise permitted hereunder; *plus*

 

(vii)                           the amount of net cost savings projected by the Lead Borrower in goodfaith to be realized as a result of specified actions taken during such period(calculated on a *pro forma* basis as though suchcost savings had been realized on the first day of such period), net of theamount of actual benefits realized during such period from such actions; *provided* that (x) such cost savings are reasonablyidentifiable and factually supportable, and (y) such cost savings do not exceedin the aggregate $40,000,000 in any four consecutive Fiscal Quarters, (or suchgreater amount reasonably approved in good faith by the Administrative Agent); *plus*

 

(viii)                        any costs or expense incurred by the Lead Borrower or a RestrictedSubsidiary pursuant to any management equity plan or stock option plan or anyother management or employee benefit plan or agreement or any stocksubscription or shareholder agreement, to the extent that such cost or expensesare funded with cash proceeds contributed to the capital of the Lead Borroweror net cash proceeds of an issuance of Capital Stock of the Lead Borrower(other than Disqualified Capital Stock); *plus*

 

(ix)                                any net loss from disposed or discontinued operations; *plus*

 

(x)                                   cash receipts (or reduced cash expenditures)to the extent non-cash gains relating to such income were deducted in thecalculation of Consolidated EBITDA pursuant to clause (b) below for anyprevious period,

 

(b)                                                         decreased by (without duplication)

 

(i)                                     non-cash gains increasing Consolidated NetIncome of such Person for such period, excluding any non-cash gains to theextent they represent the reversal of an accrual or reserve for a potentialcash item that reduced Consolidated EBITDA in any prior period and any non-cashgains with respect to cash actually received in such period or received in aprior period; plus

 

(ii)                                  any net income from disposed or discontinuedoperations; and

 

(c)                                                          increased or decreased by (withoutduplication), as applicable, any adjustments resulting from the application ofFASB Interpretation No. 45 (Guarantees).

 

Forpurposes of calculating Consolidated EBITDA for any period, the impact ofchanges in estimates for inventory cost capitalization and the initial adoptionof an accounting policy for gift card breakage made in the fourth quarter ofFiscal Year 2005 shall be excluded.

 

“ConsolidatedFixed Charge Coverage Ratio” means, with respect to the Lead Borrower andits Restricted Subsidiaries for any period, the ratio of (a) (i) ConsolidatedEBITDA for such period, plus (ii) Net Proceeds of capital contributionsreceived or Permitted Equity Issuances made during such period to the extentused to make payments on account of Debt Service Charges or Taxes, except thatonly Specified Equity Contributions (and no other equity contributions) may beincluded for purposes of the calculation of Consolidated Fixed Charge

 

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Coverage Ratio under, and asprovided in, SECTION 4.02(d) hereof, minus (iii) Capital Expenditurespaid in cash which are not financed with the Net Proceeds of PermittedIndebtedness (other than the Obligations) during such period, to (b) the sum of(i) Debt Service Charges payable in cash during such period plus (ii)federal, state and foreign income Taxes paid in cash (net of cash refundsreceived) during such period, plus (iii) Restricted Payments permittedby SECTION 6.06(l) paid in cash to the holders of Capital Stock of the LeadBorrower during such period (but excluding Restricted Payments to the extentfunded by an issuance by the Lead Borrower of Permitted Indebtedness, aPermitted Equity Issuance or a capital contribution to the Lead Borrower).

 

“ConsolidatedInterest Expense” means, with respect to the Lead Borrower and itsRestricted Subsidiaries on a Consolidated basis for any period, determined inaccordance with GAAP, (a) total interest expense payable in cash (includingthat attributable to obligations with respect to Capitalized Leases inaccordance with GAAP but excluding any imputed interest as a result of purchaseaccounting) of the Lead Borrower and its Restricted Subsidiaries on aConsolidated basis with respect to all outstanding Indebtedness of the LeadBorrower and its Restricted Subsidiaries, including, without limitation, theObligations and all commissions, discounts and other fees and charges owed withrespect thereto, but excluding (i) any non-cash interest or deferred financingcosts, (ii) any amortization or write-down of deferred financing fees, debtissuance costs, discounted liabilities, commissions, fees and expenses, (iii)the accretion or accrual of discounted liabilities, (iv) all non-recurring cashinterest expense including liquidated damages for failure to timely comply withregistration rights obligations and any non-recurring expense or lossattributable to the early extinguishment or conversion of Indebtedness, (v) anyexpensing of commitment and other fees in connection with the Senior Notes, theSenior Subordinated Notes and the Subordinated Discount Notes (and all bridgefinancing backstopping same), (vi) in connection with the determination of theConsolidated Fixed Charge Coverage Ratio for any purpose other than clause(vii) below, any expensing of bridge, commitment and other financing fees notcovered in clause (v) above, (vii) in connection with the determination ofsatisfaction of the provisions of SECTION 4.02(d) and with the determination ofthe Consolidated Fixed Charge Coverage Ratio for the purpose of determining theamount available for Restricted Payments under SECTION 6.06 and for prepaymentsof Indebtedness under SECTION 6.11, any expensing of bridge, commitment andother financing fees not covered in clause (v) above only to the extentreasonably approved in good faith by the Administrative Agent (which approvalfor purposes of SECTION 6.11 and SECTION 6.11 only, shall not be required ifAvailability at the time of determination and after giving effect to theSpecified Payment, is greater than or equal to 33.33% of the Tranche A-1Borrowing Base (or if the Tranche A-1 Commitments have been terminated, theTranche A Borrowing Base)), and (viii) penalties and interest related to Taxes,and reduced by interest income received or receivable in cash for such period. Forpurposes of the foregoing, interest expense of the Lead Borrower and itsRestricted Subsidiaries shall be determined after giving effect to any netpayments made or received by such Persons with respect to interest rate SwapContracts.

 

Forpurposes of determining Consolidated Interest Expense for any period endingprior to the first anniversary of the Closing Date after giving Pro FormaEffect to the Transactions, Consolidated Interest Expense shall be $84.3million for the Fiscal Quarter ended January 28, 2006, $83.2 million for theFiscal Quarter ended April 29, 2006 and $83.8 million for the Fiscal Quarterended July 29, 2006.

 

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“ConsolidatedNet Income” means, with respect to any Person for any period, the aggregateof the Net Income of such Person and its Restricted Subsidiaries for suchperiod, on a consolidated basis, and otherwise determined in accordance withGAAP; *provided*, *however*,that, without duplication,

 

(a)           (i) any after-tax effect ofextraordinary, non-recurring or unusual gains or losses (less all fees andexpenses relating thereto) or expenses; Transaction Expenses; severance;relocation costs; integration costs; pre-opening, opening, consolidation andclosing costs for facilities (including Stores); signing, retention orcompletion bonuses; transition costs; costs incurred in connection withacquisitions after the Closing Date; restructuring costs, charges or reserves;and curtailments or modifications to pension and post-retirement employeebenefit plans shall be excluded subject to the following, (1) in connectionwith the determination of satisfaction of the provisions of SECTION 4.02(d),any such items which are cash gains, losses, costs or expenses shall beexcluded only to the extent reasonably approved in good faith by theAdministrative Agent, and (2) in connection with the determination of theConsolidated Fixed Charge Coverage Ratio for the purpose of determining the amountavailable for Restricted Payments under SECTION 6.06 and for prepayments ofIndebtedness under SECTION 6.11, any such items which are cash gains, losses,costs or expenses shall be excluded only to the extent reasonably approved ingood faith by the Administrative Agent (which approval for purposes of SECTION6.06 and SECTION 6.11 shall not be required if Availability at the time ofdetermination and after giving effect to the Specified Payment, is greater thanor equal to 33.33% of the Tranche A-1 Borrowing Base (or if the Tranche A-1Commitments have been terminated, the Tranche A Borrowing Base)); and (ii)Specified Legal Expenses, Hybrid Distribution Network Costs, Public CompanyCosts, and costs related to the Perfect Store Initiative in an amount not toexceed $8,000,000 in any Fiscal Year shall be excluded;

 

(b)                                 the Net Income for such period shall notinclude the cumulative effect of a change in accounting principles during suchperiod,

 

(c)                                  any net after-tax gains or losses on disposalof disposed, abandoned or discontinued operations shall be excluded,

 

(d)                                 any after-tax effect of gains or losses (lessall fees and expenses relating thereto) attributable to asset dispositionsother than in the ordinary course of business shall be excluded,

 

(e)                                  the Net Income for such period of any Personthat is not a Subsidiary, or is an Unrestricted Subsidiary, or that isaccounted for by the equity method of accounting, shall be excluded; *provided* that Consolidated Net Income of the Lead Borrowershall be increased by the amount of dividends or distributions or otherpayments that are actually paid in cash (or to the extent converted into cash)to the referent Person or a Restricted Subsidiary thereof in respect of suchperiod by such Person,

 

(f)            solely for the purpose ofdetermining the amount available for Restricted Payments under SECTION 6.06 andfor prepayments of Indebtedness under SECTION 6.11, and compliance with SECTION4.02(d), the Net Income for such period of any Restricted Subsidiary (other thanany Facility Guarantor) shall be excluded to the extent that the declaration orpayment of dividends or similar distributions by that Restricted Subsidiary ofits Net Income is

 

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notat the date of determination permitted without any prior governmental approval(which has not been obtained) or, directly or indirectly, by the operation ofthe terms of its charter or any agreement, instrument, judgment, decree, order,statute, rule, or governmental regulation applicable to that RestrictedSubsidiary or its stockholders, unless such restriction with respect to thepayment of dividends or similar distributions has been legally waived, *provided* that Consolidated Net Income of the Lead Borrowerwill be increased by the amount of dividends or other distributions or otherpayments actually paid in cash (or to the extent converted into cash) to theLead Borrower or a Restricted Subsidiary thereof in respect of such period, tothe extent not already included therein,

 

(g)                                 effects of adjustments (including the effectsof such adjustments pushed down to the Lead Borrower and its RestrictedSubsidiaries) in the merchandise inventory, property and equipment, goodwill,intangible assets, deferred revenue and debt line items in such Person’sconsolidated financial statements pursuant to GAAP resulting from theapplication of purchase accounting in relation to the Transactions or anyconsummated acquisition or the amortization or write-off of any amountsthereof, net of taxes, shall be excluded,

 

(h)           any after-tax effect of income (loss)from the early extinguishment or conversion of Indebtedness or Swap Contractsor other derivative instruments shall be excluded, subject to the following:(1) in connection with the determination of satisfaction of the provisions ofSECTION 4.02(d), any such items shall be excluded only to the extent reasonablyapproved in good faith by the Administrative Agent, and (2) in connection withthe determination of the Consolidated Fixed Charge Coverage Ratio for thepurpose of determining the amount available for Restricted Payments underSECTION 6.06 and for prepayments of Indebtedness under SECTION 6.11, any suchitems shall be excluded only to the extent reasonably approved in good faith bythe Administrative Agent (which approval for purposes of SECTION 6.06 andSECTION 6.11 shall not be required if Availability at the time of determinationand after giving effect to the Specified Payment, is greater than or equal to33.33% of the Tranche A-1 Borrowing Base (or if the Tranche A-1 Commitmentshave been terminated, the Tranche A Borrowing Base)),

 

(i)                                     any impairment charge or asset write-off orwrite-down, in each case, pursuant to GAAP and the amortization of intangiblesarising pursuant to GAAP shall be excluded,

 

(j)                                     any non-cash compensation charge or expense,including any such charge or expense arising from the grant of stockappreciation or similar rights, stock options, restricted stock or otherequity-incentive programs shall be excluded,

 

(k)           any fees and expenses incurred duringsuch period, or any amortization thereof for such period, in connection withany Acquisition, Investment, Dispositions, issuance or repayment ofIndebtedness, issuance of Capital Stock, refinancing transaction or amendmentor modification of any debt instrument (in each case, including any suchtransaction consummated prior to the Closing Date and any such transactionundertaken but not completed) and any charges or non-recurring merger costsincurred during such period as a result of any such transaction shall beexcluded, subject to the following: (1) in connection with the determination ofsatisfaction of the provisions of SECTION 4.02(d), any such items which arecash fees, expenses, charges or costs shall be excluded only to the extentreasonably approved in good faith

 

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bythe Administrative Agent, and (2) in connection with the determination of theConsolidated Fixed Charge Coverage Ratio for the purpose of determining theamount available for Restricted Payments under SECTION 6.06 and for prepaymentsof Indebtedness under SECTION 6.11, any such items which are cash fees,expenses, charges or costs shall be excluded only to the extent reasonablyapproved in good faith by the Administrative Agent (which approval for purposesof SECTION 6.06 and SECTION 6.11 shall not be required if Availability at thetime of determination and after giving effect to the Specified Payment, isgreater than or equal to 33.33% of the Tranche A-1 Borrowing Base (or if theTranche A-1 Commitments have been terminated, the Tranche A Borrowing Base)),

 

(l)                                     accruals and reserves that are establishedwithin twelve months after the Closing Date that are so required to beestablished as a result of the Transactions in accordance with GAAP shall beexcluded,

 

(m)                               any net gain or loss resulting from currencytranslation gains or losses related to currency remeasurements of Indebtedness(including any net loss or gain resulting from hedge agreements for currencyexchange risk) and any foreign currency translation gains or losses shall beexcluded, and

 

(n)                                 any unrealized net gains and losses resultingfrom Swap Contracts and the application of Statement of Financial AccountingStandards No. 133 shall be excluded.

 

Inaddition, to the extent not already included in the Net Income of such Personand its Restricted Subsidiaries, notwithstanding anything to the contrary inthe foregoing, Consolidated Net Income shall include the amount of proceedsreceived from business interruption insurance and reimbursements of anyexpenses and charges that are covered by indemnification or other reimbursementprovisions in connection with any Permitted Investment or any sale, conveyance,transfer or other disposition of assets permitted under this Agreement.

 

“ConsolidatedTaxes” means, as of any date for the applicable period ending on such datewith respect to the Lead Borrower and its Restricted Subsidiaries on aConsolidated basis, the aggregate of all taxes based on income or profits orcapital, including, without limitation, state, franchise and similar taxes(such as the Pennsylvania capital tax and Texas margin tax) and foreignwithholding taxes of such Person as determined in accordance with GAAP, to theextent the same are paid (whether by the Lead Borrower, its RestrictedSubsidiaries or Holdco) or accrued during such period.

 

“ContinuingDirectors” means the directors of the Lead Borrower on the Closing Date, aselected or appointed after giving effect to the MIK Recapitalization and theother transactions contemplated hereby, and each other director, if, in eachcase, such other directors’ nomination for election to the board of directorsof the Parent is recommended by a majority of the then Continuing Directors orsuch other director receives the vote of one or more of the Sponsors in his orher election by the stockholders of the Parent.

 

“Control”means the possession, directly or indirectly, of the power to direct or causethe direction of the management or policies of a Person, whether through theability to exercise

 

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votingpower, by contract or otherwise. The terms “Controlling” and “Controlled”have meanings correlative thereto.

 

“Cost”means the cost of the Loan Parties’ Inventory as determined in accordance withthe Lead Borrower’s Accounting Policy dated as of October 30, 2005 furnished tothe Administrative Agent as reported on the Loan Parties’ stock ledger, as suchpolicy may be modified with the consent of the Administrative Agent, whoseconsent will not be unreasonably withheld.

 

“CreditCard Advance Rate” means (a) for Tranche A Loans, 90%, and (b) for TrancheA-1 Loans, 95%.

 

“CreditCard Notifications” has the meaning provided in SECTION 2.18(c).

 

“CreditExtensions” as of any day, shall be equal to the sum of (a) the principalbalance of all Revolving Credit Loans (including Swingline Loans) thenoutstanding, and (b) the then amount of the Letter of Credit Outstandings.

 

“CreditParty” means (a) the Lenders, (b) the Agents and their respectiveAffiliates and branches, (c) each Issuing Bank, (d) the Arrangers and (e) thesuccessors and permitted assigns of each of the foregoing.

 

“CreditParty Expenses” means, without limitation, all of the following to theextent incurred in connection with this Agreement and the other Loan Documents:(a) all reasonable out-of-pocket expenses incurred by the Agents and theArrangers, including the reasonable fees, charges and disbursements of onecounsel for the Agents and their Affiliates (plus local counsel in any otherjurisdiction to the extent reasonably necessary), outside consultants for theAgents consisting of one inventory appraisal firm and one commercial financeexamination firm in connection with the preparation and administration of theLoan Documents, the syndication of the credit facilities provided for herein,or any amendments, modifications or waivers requested by a Loan Party of theprovisions hereof or thereof (whether or not any such amendments, modificationsor waivers shall be consummated), (b) all reasonable out-of-pocket expensesincurred by any Issuing Bank in connection with the issuance, amendment,renewal or extension of any Letter of Credit or any demand for paymentthereunder, (c) all reasonable out-of-pocket expenses incurred by the Agentsor, subject to the proviso below any Lender and their respective Affiliates andbranches, including the reasonable fees, charges and disbursements of onecounsel for the Agents and their Affiliates (plus local counsel in any otherjurisdiction to the extent reasonably necessary) and outside consultants forthe Agents (including, without limitation, inventory appraisal firms andcommercial finance examination firms in connection with the enforcement andprotection of their rights in connection with the Loan Documents, including allsuch out-of-pocket expenses incurred during any workout, restructuring orrelated negotiations in respect of such Revolving Credit Loans or Letters ofCredit; provided that the Lenders who are not the Agents or Affiliatesof the Agents shall be entitled to reimbursement for no more than one counselrepresenting all such Lenders (absent a conflict of interest in which case theLenders may engage and be reimbursed for additional counsel). Credit PartyExpenses shall not include the allocation of any overhead expenses of anyCredit Party.

 

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“CustomerCredit Liabilities” means, at any time, the aggregate remaining balancereflected on the books and records of the Loan Parties at such time of (a)outstanding gift certificates and gift cards of the Loan Parties entitling theholder thereof to use all or a portion of the gift certificate or gift card topay all or a portion of the purchase price for any Inventory, and (b)outstanding merchandise credits and customer deposits of the Loan Parties.

 

“CustomsBroker Agreement” means an agreement in substantially the form attachedhereto as Exhibit B among a Loan Party, a customs broker or othercarrier, and the Collateral Agent, in which the customs broker or other carrieracknowledges that it has control over and holds the documents evidencingownership of the subject Inventory or other property for the benefit of theCollateral Agent, and agrees, upon notice from the Collateral Agent (whichnotice shall be delivered only upon the occurrence and during the continuanceof an Event of Default), to hold and dispose of the subject Inventory and otherproperty solely as directed by the Collateral Agent.

 

“DDAs”means any checking or other demand deposit account maintained by the LoanParties. All funds in such DDAs shall be conclusively presumed to be Collateraland proceeds of Collateral and the Agents or the Lenders shall have no duty toinquire as to the source of the amounts on deposit in the DDAs.

 

“DebtService Charges” means, for any period, the sum of (a) ConsolidatedInterest Expense required to be paid or paid in cash, plus (b) scheduledprincipal payments made or required to be made on account of Indebtedness forborrowed money, including the full amount of any non-recourse Indebtedness(after giving effect to any prepayments paid in cash that reduce the amount ofsuch required payments) (excluding the Obligations, but including, without limitation,obligations with respect to Capitalized Leases) for such period, plus(c) scheduled mandatory payments on account of Disqualified Capital Stock(whether in the nature of dividends, redemption, repurchase or otherwise)required to be made during such period, in each case determined in accordancewith GAAP.

 

Forpurposes of determining Debt Service Charges for any period ending prior to thefirst anniversary of the Closing Date after giving Pro Forma Effect to theTransactions, Debt Service Charges shall be $90.3 million for the FiscalQuarter ended January 28, 2006, $89.2 million for the Fiscal Quarter endedApril 29, 2006 and $89.8 million for the Fiscal Quarter ended July 29, 2006.

 

“Default”means any event or condition described in SECTION 7.01 that constitutes anEvent of Default or that upon notice, lapse of any cure period set forth inSECTION 7.01, or both, would, unless cured or waived, become an Event ofDefault.

 

“DefaultRate” has the meaning provided in SECTION 2.12.

 

“DelinquentLender” has the meaning provided in SECTION 8.16.

 

“DesignatedAccount” has the meaning provided in SECTION 2.18(d).

 

“DisbursementAccounts” has the meaning provided in SECTION 2.18(g).

 

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“Disposition”or “Dispose” means the sale, transfer, license, lease or otherdisposition (including any sale and leaseback transaction) of any property(including, without limitation, any Capital Stock of any other Person held by aspecified Person) by any Person, including any sale, assignment, transfer orother disposal, with or without recourse, of any notes or accounts receivableor any rights and claims associated therewith.

 

“DisqualifiedCapital Stock” means any Capital Stock which, by its terms (or by the termsof any security or other Capital Stock into which it is convertible or forwhich it is exchangeable), is putable or exchangeable, or upon the happening ofany event or condition (a) matures or is mandatorily redeemable (otherthan solely for Capital Stock (other than Disqualified Capital Stock)),pursuant to a sinking fund obligation or otherwise (except as a result of achange of control or asset sale so long as any rights of the holders thereofupon the occurrence of a change of control or asset sale event shall be subjectto the prior repayment in full of all Obligations and the termination of theCommitments), (b) is redeemable at the option of the holder thereof (other thansolely for Capital Stock (other than Disqualified Capital Stock)), in whole orin part, (c) provides for the scheduled payments of dividends in cash, or (d)is or becomes convertible into or exchangeable for Indebtedness or any otherCapital Stock that would constitute Disqualified Capital Stock, in each case,prior to the date that is ninety-one (91) days after the Maturity Date.

 

“Documents”has the meaning assigned to such term in the Security Agreement.

 

“Dollars”or “$” refers to lawful money of the United States of America.

 

“EligibleAssignee” means a commercial bank, insurance company, or company engaged inthe business of making commercial loans or a commercial finance company, whichPerson, together with its Affiliates, has a combined capital and surplus inexcess of $1,000,000,000, or any Affiliate of any Credit Party under common controlwith such Credit Party, or a Related Fund of any Credit Party, provided thatin any event, “Eligible Assignee” shall not include (x) any Loan Party, (y) anynatural person, or (z) the Sponsors or any of their respective Affiliates(other than Sponsor Affiliated Lenders). For the purposes of this Agreement, “RelatedFund” shall mean, with respect to any Credit Party which is a fund that investsin loans, any other such fund administered, managed or advised by the sameinvestment advisor as such Credit Party or by an Affiliate of such Credit Partyor such advisor under common control with such Credit Party or advisor, asapplicable.

 

“EligibleCredit Card Receivables” means, as of any date of determination, Accountsdue to a Loan Party from major credit card and debit card processors(including, but not limited to, JCB, VISA, Mastercard, American Express, DinersClub, DiscoverCard, Interlink, NYCE, Star/Mac, Tyme, Pulse, Accel, AFF, Shazam,CU244, Alaska Option and Maestro) as arise in the ordinary course of businessand which have been earned by performance and that are not excluded asineligible by virtue of one or more of the criteria set forth below (withoutduplication of any Reserves established by the Administrative Agent). None ofthe following shall be deemed to be Eligible Credit Card Receivables:

 

(a)                                  Accounts due from major credit card and debitcard processors that have been outstanding for more than five (5) Business Daysfrom the date of sale, or for such

 

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longerperiod(s) as may be approved by the Administrative Agent in its reasonablediscretion;

 

(b)                                 Accounts due from major credit card and debitcard processors with respect to which a Loan Party does not have good, validand marketable title thereto, free and clear of any Lien (other than Liensgranted to the Collateral Agent for its own benefit and the benefit of theother Secured Parties pursuant to the Security Documents, Liens in favor of theagent under the Term Loan Facility, and Permitted Encumbrances);

 

(c)                                  Accounts due from major credit card and debitcard processors that are not subject to a first priority security interest infavor of the Collateral Agent for its own benefit and the benefit of the otherSecured Parties (other than Permitted Encumbrances having priority by operationof Applicable Law over the Lien of the Collateral Agent) (the foregoing notbeing intended to limit the discretion of the Administrative Agent to change,establish or eliminate any Reserves on account of any such Liens);

 

(d)                                 Accounts due from major credit card and debitcard processors which are disputed, or with respect to which a claim,counterclaim, offset or chargeback (other than chargebacks in the ordinarycourse by the credit card processors) has been asserted, by the related creditcard processor (but only to the extent of such dispute, counterclaim, offset orchargeback);

 

(e)                                  Except as otherwise approved by theAdministrative Agent, Accounts due from major credit card and debit cardprocessors as to which the credit card processor or debit card processor hasthe right under certain circumstances to require a Loan Party to repurchase theAccounts from such credit card or debit card processor;

 

(f)                                    Except as otherwise approved by theAdministrative Agent (such approval not to be unreasonably withheld), Accountsarising from any private label credit card program of the Loan Parties; and

 

(g)                                 Accounts due from major credit card and debitcard processors (other than JCB, Visa, Mastercard, American Express, DinersClub, DiscoverCard, Interlink, NYCE, Star/Mac, Tyme, Pulse, Accel, AFF, Shazam,CU244, Alaska Option and Maestro) which the Administrative Agent determines inits commercial reasonable discretion acting in good faith to be unlikely to becollected.

 

“EligibleIn-Transit Inventory” means, as of any date of determination, withoutduplication of other Eligible Inventory, Inventory (a) which has been shippedfrom any location for receipt by a Loan Party within sixty (60) days of thedate of determination but which in either case has not yet been received by aLoan Party, (b) for which the purchase order is in the name of a Loan Party andtitle has passed to a Loan Party, (c) for which the document of title, to theextent applicable, reflects a Loan Party as consignee (along with delivery to aLoan Party of the documents of title, to the extent applicable, with respectthereto), (d) as to which the Collateral Agent has control over the documentsof title, to the extent applicable, which evidence ownership of the subjectInventory (such as by the delivery of a Customs Broker Agreement if thedocuments of title are negotiable), and (e) which otherwise is not excludedfrom the

 

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definitionof Eligible Inventory. Eligible In-Transit Inventory shall not includeInventory accounted for as “in transit” by the Lead Borrower by virtue of suchInventory’s being in transit between the Loan Parties’ locations or in storagetrailers at the Loan Parties’ locations; rather such Inventory shall be treatedas “Eligible Inventory” if it satisfies the conditions therefor.

 

“EligibleInventory” means, as of any date of determination, without duplication,items of Inventory of a Loan Party that are finished goods, merchantable andreadily saleable to the public in the ordinary course (including goodsmanufactured by the Lead Borrower pursuant to, and commodity goods of, itsArtistree division, custom floral goods and custom framing goods), or (ii)items of “non PI” Inventory that are finished goods, merchantable and readilysaleable to the public in the ordinary course, in each case, that are notexcluded as ineligible by virtue of one or more of the criteria set forth below(without duplication of any Reserves established by the Administrative Agent). Noneof the following shall be deemed to be Eligible Inventory:

 

(a)                                  Inventory with respect to which a Loan Partydoes not have good, valid and marketable title thereto, free and clear of anyLien (other than Liens granted to the Collateral Agent for its own benefit andthe benefit of the other Secured Parties pursuant to the Security Documents,Liens in favor of the agent under the Term Loan Facility, and PermittedEncumbrances), or is leased by or is on consignment to a Loan Party, or that isnot solely owned by a Loan Party;

 

(b)                                 Inventory (other than any Eligible In-TransitInventory) that (i) is not located in the United States of America or Canada or(ii) at a location that is not owned or leased by the Loan Parties, except tothe extent that the Loan Parties have furnished the Collateral Agent with (A)any UCC financing statements or PPSA registration statements or other filingsthat the Collateral Agent may reasonably determine to be necessary to perfectits security interest in such Inventory at such location, and (B) unlessotherwise agreed by the Agents (such agreement not to be unreasonablywithheld), a Collateral Access Agreement executed by the Person owning any suchlocation on terms reasonably acceptable to the Collateral Agent;

 

(c)                                  Inventory that represents goods which (i) aredamaged, defective, “seconds,” or otherwise unmerchantable, (ii) are to bereturned to the vendor and which is no longer reflected in the Loan Parties’stock ledger, (iii) are special-order items, work in process, raw materials, orthat constitute spare parts, shipping materials or supplies used or consumed ina Borrower’s business, or (iv) are bill and hold goods;

 

(d)                                 Except as otherwise agreed by the Agents,Inventory that represents goods that do not conform in all material respects tothe representations and warranties contained in this Agreement or any of theSecurity Documents;

 

(e)                                  Inventory that is not subject to a perfectedfirst priority security interest in favor of the Collateral Agent for its ownbenefit and the benefit of the other Secured Parties (subject only to PermittedEncumbrances having priority by operation of Applicable Law);

 

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(f)            Inventorywhich consists of samples, labels, bags, packaging materials, and other similarnon-merchandise categories (for greater clarity, display models are not deemeda non-merchandise category);

 

(g)                                 Inventory as to which casualty insurance incompliance with the provisions of SECTION 5.07 hereof is not in effect;

 

(h)                                 Inventory which has been sold but not yetdelivered or Inventory to the extent that any Loan Party has accepted a deposittherefor and which is no longer reflected in the Loan Parties’ stock ledger;and

 

(i)                                     Inventory acquired in a PermittedAcquisition, unless the Administrative Agent shall have received or conducted(A) appraisals, from appraisers reasonably satisfactory to the AdministrativeAgent, of such Inventory to be acquired in such Acquisition and (B) such otherdue diligence as the Agents may reasonably require, all of the results of theforegoing to be reasonably satisfactory to the Agents. As long as theAdministrative Agent has received reasonable prior notice of such PermittedAcquisition and the Loan Parties reasonably cooperate (and cause the Personbeing acquired to reasonably cooperate) with the Administrative Agent, theAdministrative Agent shall use reasonable best efforts to complete such duediligence and a related appraisal on or prior to the closing date of suchPermitted Acquisition.

 

“EligibleLetter of Credit” means, as of any date of determination thereof, aCommercial Letter of Credit which supports the purchase of Inventory, (i) whichInventory does not constitute Eligible In-Transit Inventory and for which nodocuments of title have then been issued; (ii) which Inventory when completedwould otherwise constitute Eligible Inventory, (iii) which Commercial Letter ofCredit has an initial expiry, subject to the proviso hereto, within 120 daysafter the date of initial issuance of such Commercial Letter of Credit, providedthat ninety percent (90%) of the maximum Stated Amount of all suchCommercial Letters of Credit shall not, at any time, have an initial expirygreater than ninety (90) days after the original date of issuance of suchCommercial Letters of Credit, and (iv) which Commercial Letter of Creditprovides that it may be drawn only after the Inventory is completed and afterdocuments of title have been issued for such Inventory reflecting a Loan Partyor the Collateral Agent as consignee of such Inventory.

 

“EnvironmentalLaws” means all Applicable Laws relating to pollution, the protection ofthe environment, natural resources, or, to the extent relating to exposure toHazardous Materials, human health or to the release of any materials into theenvironment, including those related to Hazardous Materials, air emissions anddischarges to waste or public systems.

 

“EnvironmentalLiability” means any liability, contingent or otherwise (including, withoutlimitation, any liability for damages, natural resource damage, costs ofenvironmental remediation, administrative oversight costs, fines, penalties orindemnities), of any Loan Party directly or indirectly resulting from or basedupon (a) violation of any Environmental Law, (b) the generation, use, handling,transportation, storage, treatment or disposal of any Hazardous Materials, (c)exposure to any Hazardous Materials, (d) the Release or threatened Release ofany Hazardous Materials into the environment or (e) any contract, agreement orother consensual 

 

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arrangementpursuant to which liability is assumed or imposed with respect to any of theforegoing.

 

“EquityContribution” means, collectively, the contribution in an aggregate amountof cash of not less than $1,630,000,000 to Bain Paste Mergerco, Inc. and toBlackstone Paste Mergerco, Inc.

 

“ERISA”means the Employee Retirement Income Security Act of 1974, as amended from timeto time and the regulations promulgated and rulings issued thereunder.

 

“ERISAAffiliate” means any trade or business (whether or not incorporated) that,together with Lead Borrower, is treated as a single employer under Section414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA andSection 412 of the Code, is treated as a single employer under Section 414 ofthe Code.

 

“ERISAEvent” means in the case of a Plan or Multiemployer Plan subject to ERISA,(a) any “reportable event”, as defined in Section 4043 of ERISA with respect toa Plan (other than an event for which the 30 day notice period is waived); (b)the existence with respect to any Plan of an “accumulated funding deficiency”(as defined in Section 412 of the Code or Section 302 of ERISA) that would reasonablybe expected to result in a Material Adverse Effect, whether or not waived; (c)the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA ofan application for a waiver of the minimum funding standard with respect to anyPlan; (d) the incurrence by the Lead Borrower or any ERISA Affiliate of anyliability under Title IV of ERISA with respect to the termination of any Plan;(e) the receipt by the Lead Borrower or any ERISA Affiliate from the PBGC or aplan administrator of any notice relating to an intention to terminate any Planor Plans or to appoint a trustee to administer any Plan; (f) the incurrence bythe Lead Borrower or any ERISA Affiliate of any liability that would reasonablybe expected to result in a Material Adverse Effect with respect to thewithdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g)the receipt by the Lead Borrower or any ERISA Affiliate of any notice, or thereceipt by any Multiemployer Plan from the Lead Borrower or any ERISA Affiliateof any notice, concerning the imposition of Withdrawal Liability that wouldreasonably be expected to result in a Material Adverse Effect or adetermination that a Multiemployer Plan is, or is expected to be, insolvent orin reorganization, within the meaning of Title IV of ERISA.

 

“Eventof Default” has the meaning provided in SECTION 7.01. An “Event of Default”shall be deemed to have occurred and to be continuing unless and until thatEvent of Default has been duly waived in writing by the Administrative Agent inaccordance with the terms of this Agreement.

 

“ExcessAmount” has the meaning provided in SECTION 2.13(f).

 

“ExcessSwingline Loans” has the meaning provided in SECTION 2.22(b).

 

“ExchangeAct” means the Securities Exchange Act of 1934, as amended.

 

“ExcludedSubsidiary” means (a) any Subsidiary that is not a wholly owned Subsidiary,(b) any Subsidiary that is prohibited by Applicable Law from guaranteeing theObligations, (c) any Foreign Subsidiary, (d) any Immaterial Subsidiary, and (e)any Unrestricted Subsidiary.

 

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“Excluded Taxes” means, with respect to the AdministrativeAgent, any Lender, any Issuing Bank or any other recipient of any payment to bemade by or on account of any obligation of the Borrowers hereunder, (a) incomeor franchise Taxes imposed on (or measured by) its gross or net income by theUnited States of America, or by the jurisdiction under the laws of which suchrecipient is organized or in which its principal office is located or imposedas a result of any present or former connection between the jurisdictionimposing such Tax and such recipient other than a connection arising solely asa result of such recipient having performed its obligations or received paymenthereunder or under any Loan Document, or, in the case of any Lender, in whichits applicable lending office is located, (b) any branch profits Taxes imposedby the United States of America or any similar Tax imposed by any otherjurisdiction in which any Borrower is located, and (c) in the case of a Foreign Lender (other than an assignee pursuantto a request by a Borrower under SECTION 2.24(b)), any United Stateswithholding Tax that is imposed on amounts payable to such Foreign Lender (i)at the time such Foreign Lender becomes a party to this Agreement (ordesignates a New Lending Office other than at the request of a Borrower underSECTION 2.24), except to the extent that such Foreign Lender (or its assignor,if any) was entitled, at the time of designation of a New Lending Office (orassignment), to receive additional amounts from the Borrowers with respect tosuch withholding Tax pursuant to SECTION 2.23(a), or (ii) is attributable tosuch Foreign Lender’s failure to comply with SECTION 2.23(e).

 

“Existing Credit Agreement” means the Credit Agreement dated asof November 18, 2005, among the Lead Borrower, the Subsidiaries of the LeadBorrower parties thereto, the lenders party thereto, and Bank of America, N.A.,as Administrative Agent.

 

“Existing Letters of Credit” means each of the letters of creditlisted on Schedule 2.13(k) hereto.

 

“Facility Guarantee” means any Guarantee of the Obligationsexecuted by the Parent and its Subsidiaries which are or hereafter becomeFacility Guarantors in favor of the Agents and the other Secured Parties.

 

“Facility Guarantors” means any Person executing a FacilityGuarantee, but in all events shall not include the Excluded Subsidiaries.

 

“Federal Funds Effective Rate” means, for any day, the rate perannum equal to the weighted average of the rates on overnight federal fundstransactions with members of the Federal Reserve System arranged by federalfunds brokers on such day, as published by the Federal Reserve Bank on theBusiness Day next succeeding such day; *provided* that(a) if such day is not a Business Day, the Federal Funds Effective Rate for suchday shall be such rate on such transactions on the next preceding Business Dayas so published on the next succeeding Business Day, and (b) if no such rate isso published on such next succeeding Business Day, the Federal Funds EffectiveRate for such day shall be the average rate (rounded upward, if necessary, to awhole multiple of 1/100 of 1%) charged to Bank of America on such day on suchtransactions as determined by the Administrative Agent.

 

“Fee Letters” means, collectively, (a) the Fee Letter dated July13, 2006 by and among Bain Paste Finco, LLC, Blackstone Paste Finco, LLC, Bankof America, N.A., Banc of America

 

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Bridge LLC, Banc of America Securities LLC, Deutsche Bank AG New YorkBranch, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank Securities Inc.,J.P. Morgan Securities Inc., JPMorgan Chase Bank, N.A., Credit SuisseSecurities (USA) LLC and Credit Suisse, and (b) the Agency Fee Letter dated asof the Closing Date, each as amended, supplemented or replaced and in effectfrom time to time.

 

“Financial Officer” means, with respect to any Loan Party, thechief financial officer, chief accounting officer, treasurer, assistanttreasurer, controller or assistant controller of such Loan Party.

 

“Fiscal Month”  means anyfiscal month of any Fiscal Year, which month shall generally consist of eitherfour (4) or five (5) weeks and shall generally end on the last Saturday of eachcalendar month in accordance with the fiscal accounting calendar of the LeadBorrower and its Subsidiaries.

 

“Fiscal Quarter” means any fiscal quarter of any Fiscal Year,which quarters shall generally consist of thirteen (13) weeks or fourteen (14)weeks and shall generally end on the last Saturday of each April, July, Octoberand January of such Fiscal Year in accordance with the fiscal accountingcalendar of the Lead Borrower and its Subsidiaries.

 

“Fiscal Year” means any period of twelve consecutive monthsending on the Saturday closest to January 31 of any calendar year.

 

“Foreign Lender” means any Lender that is organized under thelaws of a jurisdiction other than the United States of America or any Statethereof or the District of Columbia.

 

“Foreign Subsidiary” means any Subsidiary that is organizedunder the laws of a jurisdiction other than the United States of America or anyState thereof or the District of Columbia, or any of its territories orpossessions, *provided*, that Michaels ofCanada, ULC and any other Canadian Subsidiary designated by the Lead Borrowershall not be deemed a Foreign Subsidiary so long as it remains a FacilityGuarantor.

 

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

 

“Fronting Fee” shall have the meaning set forth in SECTION2.19(d) hereof.

 

“FSCO” means the Financial Services Commission of Ontario andany Person succeeding to the functions thereof and includes the Superintendentunder such statute and any other Governmental Authority empowered or created bythe PBA.

 

“GAAP” means generally accepted accounting principles in effectfrom time to time in the United States of America which are consistent withthose promulgated or adopted by the Financial Accounting Standards Board andits predecessors (or successors) in effect and applicable to that accountingperiod in respect of which reference to GAAP is being made.

 

“General Intangibles” has the meaning assigned to such term inthe Security Agreement.

 

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“Governmental Authority” means any nation or government, anystate, provincial, municipal or other political subdivision thereof, anyagency, authority, instrumentality, regulatory body, court, administrativetribunal, central bank or other entity exercising executive, legislative, judicial,taxing, regulatory or administrative powers or functions of or pertaining togovernment.

 

“Guarantee” means, as to any Person, without duplication, (a)any obligation, contingent or otherwise, of such Person guaranteeing or havingthe economic effect of guaranteeing any Indebtedness or other monetaryobligation payable or performable by another Person (the “primary obligor”) inany manner, whether directly or indirectly, and including any obligation ofsuch Person, direct or indirect, (i) to purchase or pay (or advance or supplyfunds for the purchase or payment of) such Indebtedness or other monetaryobligation, (ii) to purchase or lease property, securities or services for thepurpose of assuring the obligee in respect of such Indebtedness or other monetaryobligation of the payment or performance of such Indebtedness or other monetaryobligation, (iii) to maintain working capital, equity capital or any otherfinancial statement condition or liquidity or level of income or cash flow ofthe primary obligor so as to enable the primary obligor to pay suchIndebtedness or other monetary obligation, or (iv) entered into for the purposeof assuring in any other manner the obligee in respect of such Indebtedness orother monetary obligation of the payment or performance thereof or to protectsuch obligee against loss in respect thereof (in whole or in part), or (b) anyLien on any assets of such Person securing any Indebtedness or other monetaryobligation of any other Person, whether or not such Indebtedness or othermonetary obligation is assumed by such Person (or any right, contingent orotherwise, of any holder of such Indebtedness to obtain any such Lien); or (c)to be an account party in respect of any letter of credit or letter of guarantyissued to support such Indebtedness or obligation; *provided*that the term “Guarantee” shall not include endorsements for collection ordeposit, in either case in the ordinary course of business, or customary andreasonable indemnity obligations in effect on the Closing Date or entered intoin connection with any acquisition or Disposition of assets permitted underthis Agreement (other than such obligations with respect to Indebtedness). Theamount of any Guarantee shall be deemed to be an amount equal to the stated ordeterminable amount of the related primary obligation, or portion thereof, inrespect of which such Guarantee is made or, if not stated or determinable, themaximum reasonably anticipated liability in respect thereof as determined bythe guaranteeing Person in good faith. The term “Guarantee” as a verb has acorresponding meaning.

 

“Hazardous Materials” means all explosive or radioactivesubstances or wastes and all hazardous or toxic substances, wastes or otherpollutants, including petroleum or petroleum distillates, asbestos or asbestoscontaining materials, polychlorinated biphenyls, radon gas,  mold, fungi or similar bacteria, infectiousor medical wastes and all other substances or wastes of any nature regulated pursuantto any Environmental Law.

 

“Highfields Capital” means Highfields Capital I LP, HighfieldsCapital II LP and Highfields Capital III LP and each Affiliate thereof(excluding portfolio companies of any of the foregoing).

 

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“Holdco” means a holding company to be formed as the directparent company of the Lead Borrower, the primary purpose of which is to own100% of the Capital Stock of the Lead Borrower.

 

“Hybrid Distribution Network Costs” means non-recurring costsincurred due to the double-handling of Inventory in connection with theconsolidation and repositioning of such Inventory within the Lead Borrower’sand its Restricted Subsidiaries’ distribution network.

 

“Immaterial Subsidiary” means a Subsidiary of the Lead Borrowerfor which (a) the assets of such Subsidiary constitute less than or equal to 1%of the total assets of the Lead Borrower and its Restricted Subsidiaries on aConsolidated basis and collectively with all Immaterial Subsidiaries, less thanor equal to 5% of the total assets of the Lead Borrower and its RestrictedSubsidiaries on a Consolidated basis, and (b) the revenues of such Subsidiaryaccount for less than or equal to 1% of the total revenues of the Lead Borrowerand its Restricted Subsidiaries on a Consolidated basis and collectively withall Immaterial Subsidiaries, less than or equal to 5% of the total revenues ofthe Lead Borrower and its Restricted Subsidiaries on a Consolidated basis.

 

“Incremental Availability” means the additional amount availableto be borrowed by the Borrowers based upon the difference between the TrancheA-1 Borrowing Base and the Tranche A Borrowing Base, as reflected on the mostrecent Borrowing Base Certificate delivered by the Lead Borrower to theAdministrative Agent pursuant to SECTION 5.01(e) hereof.

 

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

 

(i)                                     allobligations of such Person for borrowed money and all obligations of suchPerson evidenced by bonds, debentures, notes, loan agreements or other similarinstruments;

 

(ii)                                  themaximum amount (after giving effect to any prior drawings which may have beenreimbursed or reductions) of all Letters of Credit (including Standby Lettersof Credit and Commercial Letters of Credit), bankers’ acceptances, bankguaranties, surety bonds, performance bonds and similar instruments issued orcreated by or for the account of such Person;

 

(iii)                               netobligations of such Person under any Swap Contract;

 

(iv)                              allobligations of such Person to pay the deferred purchase price of property orservices (other than (i) trade payables in the ordinary course of business and(ii) any earn-out obligation until such obligation becomes due and payableand only to the extent that the contingent consideration relating to suchearn-out is not paid within 30 days after such date);

 

(v)                                 indebtedness(excluding prepaid interest thereon) secured by a Lien on property owned orbeing purchased by such Person (including indebtedness arising underconditional sales or other title retention agreements and mortgage, industrialrevenue bond, industrial development bond and similar financings), whether ornot such indebtedness shall have been assumed by such Person or is limited inrecourse;

 

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(vi)                              allAttributable Indebtedness;

 

(vii)                           allobligations of such Person in respect of Disqualified Capital Stock;

 

(viii)                        Theprincipal and interest portions of all rental obligations of such Person underany Synthetic Lease, tax retention operating lease, off-balance sheet loan orsimilar off-balance sheet financing where such transaction is consideredborrowed money indebtedness for tax purposes but is classified as an operatinglease in accordance with GAAP; and

 

(ix)                                allGuarantees of such Person in respect of any of the foregoing.

 

For all purposes hereof, the Indebtedness ofany Person shall (A) include the Indebtedness of any partnership or jointventure (other than a joint venture that is itself a corporation or limitedliability company) in which such Person is a general partner or a jointventurer, except to the extent such Person’s liability for such Indebtedness isotherwise limited, and (B) in the case of the Parent and its Subsidiaries,exclude (i) any sale-leaseback transactions to the extent the lease or subleasethereunder is not required to be recorded under GAAP as a Capitalized Lease,(ii) any obligations relating to overdraft protection and netting services,(iii) any preferred stock required to be included as Indebtedness in accordancewith GAAP or (iv) items that would appear as a liability on a balance sheetprepared in accordance with GAAP as a result of the application of EITF 97-10,“The Effects of Lessee Involvement in Asset Construction”. The amount of anynet obligation under any Swap Contract on any date shall be deemed to be theSwap Termination Value thereof as of such date.

 

“Indemnified Taxes” means Taxes other than Excluded Taxes.

 

“Indemnitee” has the meaning provided in SECTION 9.05.

 

“Information” has the meaning provided in SECTION 9.08.

 

“Instruments” has the meaning assigned to such term in theSecurity Agreement.

 

“Intellectual Property” means all present and future: trade secrets,know-how and other proprietary information; trademarks, Internet domain names,service marks, trade dress, trade names, business names, designs, logos,slogans (and all translations, adaptations, derivations and combinations of theforegoing), indicia and other source and/or business identifiers, all of thegoodwill related thereto, and all registrations and applications forregistrations thereof; works of authorship and other copyrighted works(including copyrights for computer programs), and all registrations andapplications for registrations thereof; inventions (whether or not patentable)and all improvements thereto; patents and patent applications, together withall continuances, continuations, divisions, revisions, extensions, reissuances,and reexaminations thereof; industrial design applications and registeredindustrial designs; books, records, writings, computer tapes or disks, flowdiagrams, specification sheets, computer software, source codes, object codes,executable code, data, databases and other physical manifestations, embodimentsor incorporations of any of the foregoing; all other intellectual property; allrights to sue and recover at law or in equity for any past, present or futureinfringement, dilution or 

 

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misappropriation, or other violation thereof; and all common law andother rights throughout the world in and to all of the foregoing.

 

“Intercreditor Agreement” means that certain IntercreditorAgreement dated as of the date hereof by and among the Administrative Agent,Deutsche Bank AG New York Branch, as administrative agent and as collateralagent under the Term Loan Facility, and the Loan Parties.

 

“Interest Payment Date” means (a) with respect to any Prime RateLoan (including a Swingline Loan), the first day of each calendar quarter,beginning with the calendar quarter commencing February 4, 2007, and (b) withrespect to any LIBO Loan, on the last day of the Interest Period applicable tothe Borrowing of which such LIBO Loan is a part, and, in addition, if such LIBOLoan has an Interest Period of greater than ninety (90) days, on the last dayof every third month of such Interest Period.

 

“Interest Period” means, as to each LIBO Loan, the periodcommencing on the date such LIBO Loan is disbursed or converted to or continuedas a LIBO Loan and ending on the date one, two, three or six months thereafter,and, if agreed to by all of the Lenders, seven days, fourteen days, nine (9) ortwelve (12) months thereafter, as selected by the Lead Borrower in itsBorrowing Request; *provided* that:

 

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

######  

###### (b)                                                         anyInterest Period that begins on the last Business Day of a calendar month (or ona day for which there is no numerically corresponding day in the calendar monthat the end of such Interest Period) shall end on the last Business Day of thecalendar month at the end of such Interest Period;

######  

###### (c)                                                          noInterest Period shall extend beyond the Termination Date, and

######  

###### (d)                                                         thereshall not be more than two Borrowings having an Interest Period of seven orfourteen days outstanding at any time.

######  

“Inventory” has the meaning assigned to such term in theSecurity Agreement.

 

“Inventory Advance Rate” means the following percentages forInventory under the Tranche A Borrowing Base and the Tranche A-1 Borrowing Basefor the following periods:

 
| **Period**                                                                  | ** ** | **Advance Rate for Tranche A Borrowing Base** | ** ** | **Advance Rate for Tranche A-1 Borrowing Base** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                  | ** ** | ** **                                    | ** ** | ** **                                      | ** ** |
| Closing Date through October 31, 2007                                       |       | 90                                            | %          | 100                                             | %          |
|                                                                        |       |                                          |       |                                            |       |
| Each January 1 through August 31 thereafter  beginning January 1, 2008      |       | 85                                            | %          | 95                                              | %          |
|                                                                        |       |                                          |       |                                            |       |
| Each September 1 through December 31  thereafter beginning November 1, 2007 |       | 87.5                                          | %          | 97.5                                            | %          |

 

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“Inventory Reserves” means such reserves as may be establishedfrom time to time by the Administrative Agent, in its reasonable commercialdiscretion exercised in good faith and not inconsistent with past practice,with respect to changes in the determination of the saleability, at retail, ofthe Eligible Inventory or which reflect such other factors as negatively affectthe market value of the Eligible Inventory.

 

“Investment” means, as to any Person, any direct or indirectAcquisition or investment by such Person, whether by means of (a) the purchaseor other Acquisition of Capital Stock or debt or other securities or equityinterests of another Person, (b) a loan, advance or capital contribution to,Guarantee or assumption of Indebtedness of, or purchase or other acquisition ofany other debt or equity participation or interest in, another Person,including any partnership or joint venture interest in such other Person or (c)any other Acquisition. Notwithstanding the foregoing, neither the creation ofaccounts receivable, credit card receivables and debit card receivables due toa Loan Party nor the obtaining of trade credit and the deferred payment ofother expenses, in each case, incurred in the ordinary course of business, northe incurrence of contingent obligations or performance guaranties in theordinary course of business in respect of obligations not constitutingIndebtedness, shall be deemed “Investments.” For purposes of covenant compliance, the amount of any Investment shallbe the amount actually invested, without adjustment for subsequent increases ordecreases in the value of such Investment *less* all cashreturns, cash dividends and cash distributions (or the fair market value of anynon-cash returns, dividends and distributions) received by such Person).

 

“IP Rights” shall have the meaning given such term in SECTION3.15.

 

“Issuing Bank” means, individually and collectively, each ofBank of America, and no more than two other Lenders selected by the LeadBorrower and approved by the Administrative Agent in its reasonable discretion.Any Issuing Bank may, in its reasonable discretion, arrange for one or moreLetters of Credit to be issued by Affiliates of such Issuing Bank, in whichcase the term “Issuing Bank” shall include any such Affiliate with respect toLetters of Credit issued by such Affiliate.

 

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“ITA” means the *Income Tax Act*(Canada) and the regulations promulgated thereunder, as amended from time totime.

 

“Joinder Agreement” shall mean an agreement, in substantiallythe form attached hereto as Exhibit F, pursuant to which, among otherthings, a Person becomes a party to, and bound by the terms of, this Agreementand/or the other Loan Documents in the same capacity and to the same extent aseither a Borrower or a Facility Guarantor, as the Administrative Agent maydetermine.

 

“Junior Financing” shall mean the Senior Subordinated Notes, theSubordinated Discount Notes, and any other Indebtedness that is required to besubordinated to the Obligations pursuant to the terms of the Loan Documents.

 

“Landlord Lien State” means any state in which a landlord’sclaim for rent has priority by operation of Applicable Law over the lien of theCollateral Agent in any of the Collateral.

 

“Lead Borrower” has the meaning set forth in the preamble tothis Agreement.

 

“Lease” means any agreement pursuant to which a Loan Party isentitled to the use or occupancy of any space in a structure, land,improvements or premises for any period of time.

 

“Lenders” means the Lenders having Commitments from time to timeor at any time, and each assignee that becomes a party to this Agreement as setforth in SECTION 9.07 and each Additional Commitment Lender that becomes aparty to this Agreement as set forth in SECTION 2.02.

 

“Letter of Credit” means (a) each Existing Letter of Credit, and(b) a letter of credit that (i) is issued by an Issuing Bank pursuant to thisAgreement for the account of a Borrower, (ii) constitutes a Standby Letter ofCredit or Commercial Letter of Credit (and for which such Issuing Bank is nototherwise prohibited from issuing such letter of credit due to the internalgeneral policies of such Issuing Bank), and (iii) is in form reasonablysatisfactory to such Issuing Bank.

 

“Letter of Credit Disbursement” means a payment made by anyIssuing Bank to the beneficiary of, and pursuant to, a Letter of Credit.

 

“Letter of Credit Fees” means the fees payable in respect ofLetters of Credit pursuant to SECTION 2.19.

 

“Letter of Credit Outstandings” means, at any time, the sum of(a) the Stated Amount of all Letters of Credit outstanding at such time, plus,without duplication, (b) all amounts theretofore drawn or paid under Letters ofCredit for which the applicable Issuing Bank has not then been reimbursed.

 

“Letter-of-Credit Rights” has the meaning assigned to such termin the Security Agreement.

 

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“Letter of Credit Sublimit” means, at any time, $150,000,000, assuch amount may be increased or reduced in accordance with the provisions ofthis Agreement. The Letter of Credit Sublimit is part of, and not in additionto, the Commitments.

 

“LIBO Borrowing” means a Borrowing comprised of LIBO Loans.

 

“LIBO Loan” shall mean any Revolving Credit Loan bearinginterest at a rate determined by reference to the Adjusted LIBO Rate inaccordance with the provisions of Article II.

 

“LIBO Rate” means, with respect to any LIBO Borrowing for anyInterest Period,

 

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

 

(b)                                 ifthe rate referenced in the preceding clause (a) does not appear on such page orservice or such page or service shall not be available, the rate per annumequal to the offered rate on such other page or other service that displays anaverage British Bankers Association Interest Settlement Rate for deposits inDollars (for delivery on the first day of such Interest Period) with a termequivalent to such Interest Period, determined as of approximately 11:00 a.m.(London time) two Business Days prior to the first day of such Interest Period,or

 

(c)                                  ifthe rates referenced in the preceding clauses (a) and (b) are not available,the rate per annum determined by the Administrative Agent as the rate ofinterest at which deposits in Dollars for delivery on the first day of suchInterest Period in same day funds in the approximate amount of the LIBOBorrowing being made, continued or converted by Bank of America, N.A. and with aterm equivalent to such Interest Period would be offered by Bank of America’sLondon Branch to major banks in the London interbank eurodollar market at theirrequest at approximately 4:00 p.m. (London time) two Business Days prior to thefirst day of such Interest Period.

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation,assignment, deposit arrangement, encumbrance, lien (statutory or other),charge, or preference, priority or other security interest or preferentialarrangement of any kind or nature whatsoever (including any conditional sale orother title retention agreement, any easement, right of way or otherencumbrance on title to real property, and any Capitalized Lease havingsubstantially the same economic effect as any of the foregoing) whether or notfiled, recorded or perfected under Applicable Law, and in the case ofsecurities, any purchase option, call or similar right of a third party withrespect to such securities.

 

“Liquidation” means the exercise by the Agents of those rightsand remedies accorded to the Agents under the Loan Documents and Applicable Lawas a creditor of the Loan Parties, including (after the occurrence and duringthe continuation of an Event of Default) the conduct by any or all of the LoanParties, acting with the consent of the Administrative Agent, of any public,private or “Going-Out-Of-Business Sale” or other Disposition of Collateral forthe

 

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purpose of liquidating the Collateral. Derivations of the word“Liquidation” (such as “Liquidate”) are used with like meaning in thisAgreement.

 

“Loan Account” has the meaning provided in SECTION 2.20.

 

“Loan Documents” means this Agreement, the Notes, the Letters ofCredit, the Fee Letters, all Borrowing Base Certificates, the Blocked AccountAgreements, the Credit Card Notifications, the Security Documents, the FacilityGuarantees, the Canadian Guarantee, the Canadian Security Agreements, theIntercreditor Agreement, and any other agreement now or hereafter executed anddelivered in connection herewith (excluding agreements entered into inconnection with any transaction arising out of any Bank Products or CashManagement Services), each as amended and in effect from time to time.

 

“Loan Party” or “Loan Parties” means the Borrowers andthe Facility Guarantors.

 

“Margin Stock” has the meaning assigned to such term inRegulation U.

 

“Master Agreement” has the meaning specified in the definitionof “Swap Contract.”

 

“Material Adverse Effect” means any event, facts, development,circumstances, or effect that, individually or in the aggregate with all otherfacts, events, circumstances, developments, and effects has a material adverseeffect on (i) the business, operations, assets, liabilities (actual orcontingent) or financial condition of the Loan Parties taken as a whole, or(ii) the validity or enforceability of this Agreement or the other LoanDocuments, taken as a whole, or the rights or remedies of the Secured Partieshereunder or thereunder, taken as a whole.

 

“Material Indebtedness” means Indebtedness (other than theObligations) of the Loan Parties, individually or in the aggregate, having anaggregate principal amount exceeding $50,000,000. In any event, allIndebtedness under the Senior Notes, the Senior Subordinated Notes, theSubordinated Discount Notes, and the Term Loan Facility shall be deemedMaterial Indebtedness, regardless of the outstanding balance thereunder fromtime to time.

 

“Maturity Date” means October 31, 2011.

 

“Maximum Rate” has the meaning provided in SECTION 9.10.

 

“MIK Recapitalization” means the recapitalization of MichaelsStores, Inc. and its Subsidiaries in accordance with the Transaction Documents.

 

“Minority Lenders” has the meaning provided in SECTION 9.01.

 

“Moody’s” means Moody’s Investors Service, Inc. and anysuccessor thereto.

 

“Mortgages” means the mortgages, charge/mortgage of land,collateral mortgages, immovable hypothecs, and deeds of trust and any othersecurity documents granting a Lien on Real Estate between the Loan Party owningthe Real Estate encumbered thereby and the Collateral Agent for its own benefitand the benefit of the other Secured Parties.

 

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“Multiemployer Plan” means any employee benefit plan of the typedescribed in Section 4001(a)(3) of ERISA, to which any Loan Party or anyERISA Affiliate makes or is obligated to make contributions, or during thepreceding five plan years, has made or been obligated to make contributions.

 

“Net Income” means, with respect to any Person, the net income(loss) of such Person, determined in accordance with GAAP and before anyreduction in respect of Restricted Payments.

 

“Net Proceeds” means,

 

(a)                                  withrespect to the Disposition of any asset by the Parent or any Restricted Subsidiaryor any Casualty Event, the excess, if any, of (i) the sum of cash and CashEquivalents received in connection with such Disposition or Casualty Event(including any cash or Cash Equivalents received by way of deferred paymentpursuant to, or by monetization of, a note receivable or otherwise, but only asand when so received and, with respect to any Casualty Event, any insuranceproceeds or condemnation awards in respect of such Casualty Event actuallyreceived by or paid to or for the account of the Parent or any RestrictedSubsidiary) over (ii) the sum of (A) the principal amount, premium orpenalty, if any, interest and other amounts on any Indebtedness that is securedby the asset subject to such Disposition or Casualty Event, but only to the extentthat the Lien securing such Indebtedness is senior to the Lien of theCollateral Agent and that is required to be repaid (and is timely repaid) inconnection with such Disposition or Casualty Event (other than Indebtednessunder the Loan Documents), (B) the out-of-pocket expenses (including attorneys’fees, investment banking fees, survey costs, title insurance premiums, andrelated search and recording charges, transfer taxes, deed or mortgagerecording taxes, other customary expenses and brokerage, consultant and othercustomary fees) actually incurred by the Parent or such Restricted Subsidiaryin connection with such Disposition or Casualty Event, (C) taxes paid orreasonably estimated to be actually payable in connection therewith (aftertaking into account any available tax credits or deductions), providedthat the Administrative Agent may, in its commercially reasonable discretion,establish an Availability Reserve in the amount of any taxes so deducted incalculating Net Proceeds, and (D) any reserve for adjustment in respect of (x)the sale price of such asset or assets established in accordance with GAAP and(y) any liabilities associated with such asset or assets and retained by theParent or any Restricted Subsidiary after such sale or other Dispositionthereof, including pension and other post-employment benefit liabilities andliabilities related to environmental matters or against any indemnificationobligations associated with such transaction and it being understood that “NetProceeds” shall include any cash or Cash Equivalents (i) received upon theDisposition of any non-cash consideration received by the Parent or anyRestricted Subsidiary in any such Disposition and (ii) upon the reversal(without the satisfaction of any applicable liabilities in cash in acorresponding amount) of any reserve described in clause (D) of the precedingsentence or, if such liabilities have not been satisfied in cash and suchreserve is not reversed within three hundred and sixty-five (365) days aftersuch Disposition or Casualty Event, the amount of such reserve; and

 

(b)                                 withrespect to the incurrence or issuance of any Capital Stock or Indebtedness bythe Parent or any Restricted Subsidiary, the excess, if any, of (i) the sum ofthe cash received in connection with such incurrence or issuance over(ii) the investment banking fees, underwriting

 

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discounts, commissions, costs and other out-of-pocket expenses andother customary expenses, incurred by the Parent or such Restricted Subsidiaryin connection with such incurrence or issuance.

 

“New Lending Office” shall have the meaning provided in  SECTION 2.23(e)(i).

 

“Noncompliance Notice” shall have the meaning provided inSECTION 2.06(b).

 

“Notes” means, collectively, (i) Revolving Credit Notes and (ii)the Swingline Note, each as may be amended, supplemented or modified from timeto time.

 

“NPL” means the National Priorities List under CERCLA.

 

“Obligations” means (x) advances to, and debts, liabilities,obligations, covenants and duties of, any Loan Party and its Subsidiariesarising under any Loan Document or otherwise with respect to any RevolvingCredit Loan, Swingline Loan or Letter of Credit, whether direct or indirect(including those acquired by assumption), absolute or contingent, due or tobecome due, now existing or hereafter arising and including interest and feesthat accrue after the commencement by or against any Loan Party or Subsidiaryof any proceeding under the Bankruptcy Code or any other federal, state, orprovincial bankruptcy, insolvency, receivership or similar law, naming suchPerson as the debtor in such proceeding, regardless of whether such interestand fees are allowed claims in such proceeding, and (y) obligations of any LoanParty and its Subsidiaries arising with respect to any Other Liabilities.Without limiting the generality of the foregoing, the Obligations of the LoanParties under the Loan Documents (and of their Subsidiaries to the extent theyhave obligations under the Loan Documents) include (a) the obligation(including guarantee obligations) to pay principal, interest, Letter of Creditcommissions, reimbursement obligations, charges, expenses, fees, attorneys’fees, indemnities and other amounts payable by any Loan Party or itsSubsidiaries under any Loan Document and (b) the obligation of any Loan Partyor any of its Subsidiaries to reimburse any amount in respect of any of theforegoing that any Lender, in its sole discretion, may elect to pay or advanceon behalf of such Loan Party or such Subsidiary in accordance with, and to theextent permitted, by the Loan Documents.

 

“Organization Documents” means, (a) with respect to anycorporation, the certificate or articles of incorporation and the bylaws (orequivalent or comparable constitutive documents with respect to any non-U.S.jurisdiction); (b) with respect to any limited liability company, thecertificate or articles of formation or organization and operating agreement;(c) with respect to any unlimited liability company, the memorandum ofassociation, and (d) with respect to any partnership, joint venture, trust orother form of business entity, the partnership, joint venture or otherapplicable agreement of formation or organization and any agreement,instrument, filing or notice with respect thereto filed in connection with itsformation or organization with the applicable Governmental Authority in thejurisdiction of its formation or organization and, if applicable, anycertificate or articles of formation or organization of such entity.

 

“Other Liabilities” means outstanding liabilities with respectto or arising from (a) any Cash Management Services furnished to any of theLoan Parties or any of their Subsidiaries

 

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and/or (b) any transaction which arises out of any Bank Product enteredinto with any Loan Party, as each may be amended from time to time.

 

“Other Taxes” means any and all current or future stamp ordocumentary Taxes or any other excise or property Taxes, charges or similarlevies in the nature of a Tax arising from any payment made under any LoanDocument or from the execution, delivery or enforcement of, or otherwise withrespect to, any Loan Document, but not including, for the avoidance of doubt,any Excluded Taxes.

 

“Overadvance” means a Revolving Credit Loan, advance, orproviding of credit support (such as the issuance of a Letter of Credit) to theBorrowers to the extent that, immediately after the making of such loan oradvance or the providing of such credit support, Availability is less thanzero.

 

“Parent” shall mean the Lead Borrower unless and until Holdco isestablished from and after which “Parent” shall mean Holdco.

 

“Participant” shall have the meaning provided in SECTION9.07(d).

 

“Payment Conditions” means, at the time of determination withrespect to a Specified Payment, that (a) no Event of Default then exists orwould arise as a result of the entering into such transaction or the making ofsuch payment, (b) (i) if the Specified Payment is (A) less than or equal to$67,000,000 and (B) when aggregated with all other Specified Payments duringthe preceding twelve month period (after giving effect to the then proposedSpecified Payment) is less than or equal to $200,000,000, the Adjusted AvailabilityCondition shall have been satisfied, or (ii) in any case not covered by clause(b)(i) above (including, for clarity, the failure of the Loan Parties tosatisfy the Adjusted Availability Condition), the Pro Forma AvailabilityCondition shall have been satisfied after giving effect to such SpecifiedPayment, and (c) either (i) after giving effect to such Specified Payment, theConsolidated Fixed Charge Coverage Ratio, on a Pro Forma Basis for the fourFiscal Quarters most recently preceding such transaction or payment, was equalto or greater than 1.1:1.0, or (ii) the Loan Parties shall have provided theAdministrative Agent with a solvency opinion from an unaffiliated third partyvaluation firm reasonably acceptable to the Administrative Agent. Prior toundertaking any Specified Payment which is subject to the Payment Conditions,the Loan Parties shall deliver to the Administrative Agent (i) evidencereasonably satisfactory to the Administrative Agent that the conditionscontained in clause (b)(i) or (b)(ii), as applicable, have been satisfied, and(ii) either (x) evidence reasonably satisfactory to the Administrative Agentthat the conditions contained in clause (c)(i) have been satisfied, or (y) thesolvency opinion referred to in clause (c)(ii) has been provided, providedthat if Availability at the time of determination (after giving Pro FormaEffect to any Borrowings made in connection with such Specified Payment) isgreater than $175,000,000, Restricted Payments paid during such period shallnot be included for purposes of calculating the Consolidated Fixed ChargeCoverage Ratio.

 

“Payment Intangibles” has the meaning assigned to such term inthe Security Agreement.

 

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“PBA” means the *Pension Benefits Act*(Ontario) or similar legislation of any other Canadian federal or provincialjurisdiction, and the regulations promulgated thereunder, as amended from timeto time.

 

“PBGC” means the Pension Benefit Guaranty Corporation referredto and defined in ERISA and any successor entity performing similar functionsor any Governmental Authority of another jurisdiction exercising similarfunctions in respect of any Plan of a Loan Party (including the Pension BenefitGuarantee Fund of Ontario).

 

“Pension Event” means (a) the whole or partial withdrawal of aLoan Party or any Subsidiary from a Plan during a plan year; or (b) the filingof a notice of interest to terminate in whole or in part a Plan or thetreatment of a Plan amendment as a termination or partial termination; or (c)the institution of proceedings by any Governmental Authority to terminate inwhole or in part or have a trustee appointed to administer a Plan; or (d) anyother event or condition which might constitute grounds for the termination of,winding up or partial termination or winding up or the appointment of trusteeto administer, any Plan.

 

“Perfect Store Initiative” means the initiative related to theLead Borrower’s and its Restricted Subsidiaries’ store standardization andremodeling program, pursuant to which retail store layouts will be modifiedinto a configuration intended to enhance the customer in-store experience.

 

“Permitted Acquisition” means an Acquisition in which each ofthe following conditions are satisfied:

 

(a)                                  No Default or Eventof Default then exists or would arise from the consummation of suchAcquisition;

 

(b)                                 If the Acquisition isan Acquisition of Capital Stock, the Person being acquired shall become aSubsidiary of the Lead Borrower;

 

(c)                                  Any material assetsacquired shall be utilized in, and if the Acquisition involves a merger,amalgamation, consolidation or stock acquisition, the Person which is thesubject of such Acquisition shall be engaged in, a business otherwise permittedto be engaged in by a Borrower under this Agreement; and

 

(d)                                 The Borrowers shallhave satisfied the Payment Conditions.

 

“Permitted Disposition” shall have the meaning set forth in SECTION6.05.

 

“PermittedEncumbrances” has the meaning set forth in SECTION 6.01.

 

“PermittedEquity Issuance” means any sale or issuance of any Capital Stock of theParent to the extent permitted hereunder (including any capital contribution).

 

“PermittedHoldco Debt” means unsecured Indebtedness of Holdco that (A) is not subjectto any Guarantee by the Lead Borrower or any Restricted Subsidiary, (B) willnot mature prior to the date that is 91 days after the Maturity Date, (C) hasno scheduled amortization or mandatory

 

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redemptionof principal (excluding customary offers to purchase under certaincircumstances, such as a “change in control”) prior to the date that is 91 daysafter the Maturity Date, (D) does not permit payments in cash of interest orother amounts in the nature of interest prior to the earlier to occur of (A)the date that is four (4) years from the date of issuance or incurrencethereof, and (B) the date that is 91 days after the Maturity Date, and (E) hascovenants, defaults and remedies provisions customary for senior discount notesof an issuer that is the parent of a borrower under senior credit facilities,and in any event, are no more restrictive than those set forth in theIndentures governing the Senior Subordinated Notes and the SubordinatedDiscount Notes taken as a whole (other than more restrictive provisionscustomary for senior discount notes of a holding company), *provided*that a certificate of a Responsible Officer of the Lead Borrower delivered tothe Administrative Agent at least five (5) Business Days prior to theincurrence of such Indebtedness, together with a reasonably detaileddescription of the material terms and conditions of such Indebtedness or draftsof documentation relating thereto, stating that the Lead Borrower hasdetermined in good faith that such terms and conditions satisfy the foregoingrequirement shall be conclusive evidence that such terms and conditions satisfythe foregoing requirement unless the Administrative Agent notifies the LeadBorrower within such five (5) Business Day period that it disagrees with suchdetermination (except that the Administrative Agent shall not have the right tocontest the Lead Borrower’s determination if all of the Net Proceeds of suchIndebtedness are contributed to the Lead Borrower or its RestrictedSubsidiaries), and *provided* furtherthat any such Indebtedness shall constitute Permitted Holdco Debt only ifbefore and after giving effect to the issuance or the incurrence thereof, noEvent of Default shall have occurred and be continuing.

 

“PermittedHolders” means the Sponsors and any investment funds advised or managed byany of the Sponsors, and, subject to the proviso hereto, Highfields Capital andmembers of management of the Lead Borrower who are holders of Capital Stock ofthe Lead Borrower on the Closing Date; provided that Highfields Capitaland members of management of the Lead Borrower shall be considered PermittedHolders only as long as the aggregate number of shares of Capital Stock of theLead Borrower entitled to vote for the election of directors held directly or indirectlyby the Sponsors shall exceed the aggregate amount of such Capital Stock held bythe Permitted Holders who are not the Sponsors; and further providedthat for purposes of clause (i) of the definition of “Change in Control”, theterm “one of more of the Permitted Holders” shall always include at least oneof the Sponsors.

 

“PermittedIndebtedness” has the meaning set forth in SECTION 6.03.

 

“PermittedInvestments” has the meaning set forth in SECTION 6.02.

 

“PermittedOveradvance” means an Overadvance made by the Administrative Agent, in itsreasonable discretion, which:

 

(a)                                  Is made to maintain, protect or preserve theCollateral and/or the Secured Parties’ rights under the Loan Documents or whichis otherwise for the benefit of the Secured Parties; or

 

(b)                                 Is made to enhance the likelihood of, ormaximize the amount of, repayment of any Obligation; or

 

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(c)                                  Is made to pay any other amount chargeable toany Borrower hereunder; and

 

(d)                                 Together with all other PermittedOveradvances then outstanding, shall not (i) exceed five percent (5%) of theTranche A-1 Borrowing Base (or, if the Tranche A-1 Commitments have beenterminated, the then Tranche A Borrowing Base) each at the time, in theaggregate outstanding at any time or (ii) unless a Liquidation is taking place,remain outstanding for more than forty-five (45) consecutive Business Days;

 

providedhowever, that the foregoing shall not(i) modify or abrogate any of the provisions of SECTION 2.13(e) regarding anyLender’s obligations with respect to Letter of Credit Disbursements, or (ii)result in any claim or liability against the Administrative Agent (regardlessof the amount of any Overadvance) for “inadvertent Overadvances” (i.e. where anOveradvance results from changed circumstances beyond the control of theAdministrative Agent (such as a reduction in the collateral value)), and furtherprovided that in no event shall the Administrative Agent make anOveradvance, if after giving effect thereto, the principal amount of theRevolving Credit Extensions would exceed the aggregate of the Commitments (asin effect prior to any termination of the Commitments pursuant to SECTION 7.01hereof).

 

“PermittedRefinancing” means, with respect to any Person, any modification,refinancing, refunding, renewal or extension of any Indebtedness of suchPerson; *provided* that (a) the principal amount(or accreted value, if applicable) thereof does not exceed the principal amount(or accreted value, if applicable) of the Indebtedness so modified, refinanced,refunded, renewed or extended except by an amount equal to unpaid accruedinterest and premium thereon plus other reasonable amounts paid, and fees andexpenses reasonably incurred, in connection with such modification,refinancing, refunding, renewal or extension and by an amount equal to anyexisting commitments unutilized thereunder, (b) other than with respect to aPermitted Refinancing in respect of Indebtedness permitted pursuant to SECTION6.03(e), such modification, refinancing, refunding, renewal or extension has afinal maturity date equal to or later than the final maturity date of, and hasa Weighted Average Life to Maturity equal to or greater than the WeightedAverage Life to Maturity of, the Indebtedness being modified, refinanced,refunded, renewed or extended (except by virtue of prior amortization or priorprepayments of the Indebtedness being modified, refinanced, refunded, renewedor extended), (c) other than with respect to a Permitted Refinancing in respectof Indebtedness permitted pursuant to SECTION 6.03(e), at the time thereof, noEvent of Default shall have occurred and be continuing, (d) such modification,refinancing, refunding, renewal or extension shall not include: (i)Indebtedness of a Subsidiary of the Lead Borrower that is not a FacilityGuarantor that refinances Indebtedness of the Lead Borrower; (ii) Indebtednessof a Subsidiary of the Lead Borrower that is not a Facility Guarantor thatrefinances Indebtedness of a Facility Guarantor; or (iii) Indebtedness of theLead Borrower or a Restricted Subsidiary that refinances Indebtedness of anUnrestricted Subsidiary, (e) the collateral, if applicable, granted pursuant toany such refinancing Indebtedness is the same or less than the collateral underthe Indebtedness being extended, renewed or replaced, and (f) to the extentsuch Indebtedness being modified, refinanced, refunded, renewed or extended issubordinated in right of payment to the Obligations, (i) such modification,refinancing, refunding, renewal or extension is subordinated in right ofpayment to the Obligations on terms at least as favorable to the Lenders asthose contained in the documentation governing the Indebtedness being modified,refinanced, 

 

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refunded,renewed or extended, and (ii) the terms and conditions (including, ifapplicable, as to collateral but excluding as to subordination, interest rateand redemption premium) of any such modified, refinanced, refunded, renewed orextended Indebtedness, taken as a whole, are not materially less favorable tothe Loan Parties or the Lenders than the terms and conditions of theIndebtedness being modified, refinanced, refunded, renewed or extended.

 

“Person”means any natural person, corporation, limited liability company, unlimitedliability company, trust, joint venture, association, company, partnership,Governmental Authority or other entity.

 

“Plan”means (a) any “employee pension benefit plan” (as such term is defined inSection 3(2) of ERISA), other than a Multiemployer Plan, that is subjectto Title IV of ERISA and is sponsored or maintained by any Loan Party or anyERISA Affiliate or to which any Loan Party or any ERISA Affiliate contributesor has an obligation to contribute, or in the case of a multiple employer orother plan described in Section 4064(a) of ERISA, has made contributionsat any time during the immediately preceding five (5) plan years, or (b) anyplan, employee benefit plan or pension plan which is not subject to ERISA butwhich is covered by Applicable Laws (including the PBA and the ITA) other thanERISA in respect of which the failure by a Loan Party to remit payments orcontributions would give rise to a Lien on the assets of such Loan Party.

 

“PledgeAgreement” means the Pledge Agreement dated as of the Closing Date amongthe Loan Parties party thereto and the Collateral Agent for its own benefit andthe benefit of the other Secured Parties, as amended and in effect from time totime.

 

“PPSA”means the *Personal Property Security Act* ofOntario (or any successor statute) or similar legislation of any other Canadianjurisdiction, including, without limitation, the Civil Code of Quebec, the lawsof which are required by such legislation to be applied in connection with theissue, perfection, enforcement, opposability, validity or effect of securityinterests.

 

“PrepaymentEvent” means the occurrence of any of the following events:

 

(a)                                  Any sale, transfer or other Disposition(including pursuant to a sale and leaseback transaction) of any Collateral(other than the transfer of any Collateral among Stores and other locations ofthe Loan Parties) unless the proceeds therefrom are required to be paid to theholder of a Lien on such property or asset having priority over the Lien of theCollateral Agent; or

 

(b)                                 Any Casualty Event unless the proceedstherefrom are required to be paid to the holder of a Lien on such property orasset having priority over the Lien of the Collateral Agent.

 

“PrimeRate” means, as to any Borrowing, for any day, the higher of: (a) thevariable annual rate of interest then most recently announced by Bank ofAmerica, N.A. at its head office in Charlotte, North Carolina as its “PrimeRate”; and (b) the Federal Funds Effective Rate in effect on such day plus1⁄2 of 1% (0.50%) per annum. The Prime Rate is a reference rate and does notnecessarily represent the lowest or best rate being charged to any customer. ThePrime Rate is a rate set by Bank of America, N.A. based upon various factorsincluding Bank of

 

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America’scosts and desired return, general economic conditions and other factors, and isused as a reference point for pricing some loans, which may be priced at,above, or below such announced rate. If for any reason the Administrative Agentshall have determined (which determination shall be conclusive absent manifesterror) that it is unable to ascertain the Federal Funds Effective Rate for anyreason, including the inability or failure of the Administrative Agent toobtain sufficient quotations thereof in accordance with the terms hereof, thePrime Rate shall be determined without regard to clause (b) of the firstsentence of this definition, until the circumstances giving rise to such inabilityno longer exist. Any change in the Prime Rate due to a change in Bank ofAmerica’s Prime Rate or the Federal Funds Effective Rate shall be effective onthe effective date of such change in Bank of America’s Prime Rate or theFederal Funds Effective Rate, respectively.

 

“PrimeRate Loan” means any Revolving Credit Loan bearing interest at a ratedetermined by reference to the Prime Rate in accordance with the provisions ofArticle II.

 

“PriorityPayable Reserves” means reserves established in the good faith creditdiscretion of the Administrative Agent for amounts secured by any Liens, choateor inchoate, which rank or are capable of ranking in priority to the Agents’and/or Lenders’ Liens and/or for amounts which may represent costs relating tothe enforcement of the Agent’s Liens including, without limitation, in the goodfaith credit discretion of the Administrative Agent, any such amounts due andnot paid for vacation pay, amounts due and not paid under any legislationrelating to workers’ compensation or to employment insurance, all amountsdeducted or withheld and not paid and remitted when due under the ITA, amountscurrently or past due and not paid for realty, municipal or similar taxes (tothe extent impacting personal or moveable property) and all amounts currentlyor past due and not contributed, remitted or paid to any Plan or under theCanada Pension Plan, the PBA or any similar legislation.

 

“ProForma Availability” shall mean, for any date of calculation, the projectedaverage daily Availability for each Fiscal Month during any projected six (6)Fiscal Months (calculated based on the Tranche A-1 Borrowing Base (or if theTranche A-1 Commitments have been terminated, the Tranche A Borrowing Base)).

 

“ProForma Availability Condition” shall mean, for any date of calculation withrespect to any Specified Payment, the Pro Forma Availability following, andafter giving effect to, such Specified Payment, will be equal to or greaterthan $125,000,000.

 

“ProForma Balance Sheet” shall have the meaning given such term in SECTION3.05(a).

 

“ProForma Basis”, “Pro Forma Compliance” and “Pro Forma Effect”mean, with respect to compliance with any test or covenant hereunder, that allSpecified Transactions and the following transactions in connection therewithshall be deemed to have occurred as of the first day of the applicable periodof measurement in such test or covenant: (a) income statement items (whether positive or negative) attributableto the property or Person subject to such Specified Transaction, (i) in thecase of a Disposition of all or substantially all Capital Stock in or assets ofany Subsidiary of the Lead Borrower or any division, business unit, line ofbusiness or facility used for operations of the Lead Borrower or any of itsSubsidiaries, shall be excluded,

 

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and(ii) in the case of a Permitted Acquisition or Investment described in thedefinition of  “Specified Transaction”,shall be included, (b) any retirement of Indebtedness, and (c) any Indebtednessincurred or assumed by the Lead Borrower or any of its Restricted Subsidiariesin connection therewith and if such Indebtedness has a floating or formularate, shall have an implied rate of interest for the applicable period forpurposes of this definition determined by utilizing the rate which is or wouldbe in effect with respect to such Indebtedness as at the relevant date ofdetermination.

 

“ProForma Financial Statements” shall have the meaning given such term inSECTION 3.05(a).

 

“Proceedsof Crime Act” means the *Proceeds of Crime (MoneyLaundering) and Terrorist Financing Act* (Canada) and the regulationspromulgated thereunder, as amended from time to time.

 

“Projections”shall have the meaning given such term in SECTION 5.01(d).

 

“PublicCompany Costs” means costs relating to compliance with the Sarbanes-OxleyAct, and other expenses arising out of or incidental to the Lead Borrower’sstatus as a public company, including costs, fees and expenses (includinglegal, accounting and other professional fees) relating to compliance withprovisions of the Securities Act, as applicable to companies with equitysecurities held by the public, the Exchange Act, the rules of nationalsecurities exchange companies with listed equity securities, the portion ofdirectors’ compensation, fees and expense reimbursement; costs of shareholdermeetings and reports to shareholders; directors and officers’ insurance andother executive costs; legal and other professional fees; and listing fees, ineach case incurred or accrued prior to the Closing Date and that will notcontinue to be incurred immediately after the Closing Date.

 

“QualifiedCapital Stock” means any Capital Stock that is not Disqualified CapitalStock.

 

“QualifyingIPO” means the issuance by the Lead Borrower (or Holdco) of its commonCapital Stock in an underwritten primary public offering (other than a publicoffering pursuant to a registration statement on Form S-8) pursuant to aneffective registration statement filed with the SEC in accordance with theSecurities Act (whether alone or in connection with a secondary publicoffering), resulting in gross proceeds to the Lead Borrower (or, if applicable,Holdco) of at least $100,000,000.

 

“RealEstate” means all Leases and all land, tenements, hereditaments and anyestate or interest therein, together with the buildings, structures, parkingareas, and other improvements thereon (including all fixtures), now orhereafter owned by any Loan Party, including all easements, rights-of-way, andsimilar rights relating thereto and all leases, tenancies, and occupanciesthereof.

 

“RecapitalizationAgreement” means the Agreement and Plan of Merger among Bain PasteMergerco, Inc. Blackstone Paste Mergerco, Inc. Bain Paste Finco, LLC,Blackstone Paste Finco, LLC and Michaels Stores, Inc. dated as of June 30,2006, as amended by that certain First Amendment to Agreement and Plan ofMerger dated as of September 1, 2006.

 

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“Register”has the meaning provided in SECTION 9.07(c).

 

“RegulationU” means Regulation U of the FRB as from time to time in effect and allofficial rulings and interpretations thereunder or thereof.

 

“RegulationX” means Regulation X of the FRB as from time to time in effect and allofficial rulings and interpretations thereunder or thereof.

 

“RelatedFund” has the meaning provided in the definition of “Eligible Assignee.”

 

“RelatedParties” means, with respect to any specified Person, such Person’sAffiliates and the respective directors, officers, employees, agents andadvisors of such Person and such Person’s Affiliates.

 

“Release”has the meaning provided in Section 101(22) of CERCLA.

 

“Reports”has the meaning provided in SECTION 8.14.

 

“RequiredLenders” means, at any time, Lenders (other than Delinquent Lenders) havingCommitments aggregating more than 50% of the Total Commitments, or if theCommitments have been terminated, Lenders (other than Delinquent Lenders) whosepercentage of the outstanding Credit Extensions (calculated assuming settlementand repayment of all Swingline Loans by the Lenders) aggregate more than 50% ofall such Credit Extensions.

 

“Reserves”means all (if any) Inventory Reserves and Availability Reserves (including,without limitation, Priority Payable Reserves, Cash Management Reserves, BankProduct Reserves and reserves for Customer Credit Liabilities).

 

“ResponsibleOfficer” means the chief executive officer, president, vice president,chief financial officer, treasurer or assistant treasurer or other similar officerof a Loan Party and, as to any document delivered on the Closing Date, anysecretary or assistant secretary of a Loan Party. Any document deliveredhereunder that is signed by a Responsible Officer of a Loan Party shall beconclusively presumed to have been authorized by all necessary corporate,partnership and/or other action on the part of such Loan Party and suchResponsible Officer shall be conclusively presumed to have acted on behalf ofsuch Loan Party.

 

“RestrictedCash” means when referring to cash or Cash Equivalents of the Lead Borroweror any of its Subsidiaries, that such cash or Cash Equivalents (i) appears (orwould be required to appear) as “restricted” on a consolidated balance sheet ofthe Lead Borrower or of any such Subsidiary (unless such appearance is relatedto the Loan Documents or Liens created thereunder), (ii) are subject to anyLien in favor of any Person other than the Collateral Agent for the benefit ofthe Secured Parties (except for those Liens securing the Term Loan Facility orLiens securing any Other Pari Passu Lien Obligations (as defined in and to theextent permitted under the Term Loan Agreement as amended and in effect fromtime to time)) or (iii) are not otherwise generally available for use by theLead Borrower or such Subsidiary

 

“RestrictedPayment” means any dividend or other distribution (whether in cash,securities or other property) with respect to any Capital Stock of the Parentor any Restricted

 

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Subsidiary,or any payment (whether in cash, securities or other property), including anysinking fund or similar deposit, on account of the purchase, redemption,retirement, defeasance, acquisition, cancellation or termination of any suchCapital Stock, or on account of any return of capital to the Parent’sstockholders, partners or members (or the equivalent Persons thereof).

 

“RestrictedSubsidiary” means any Subsidiary of the Parent other than an UnrestrictedSubsidiary. For avoidance of doubt, until the formation of Holdco, a“Restricted Subsidiary” shall be limited to Subsidiaries of the Lead Borrower;upon the formation of Holdco, the Lead Borrower and its Restricted Subsidiariesshall each be a Restricted Subsidiary of Holdco.

 

“RevolvingCredit Ceiling” means $1,000,000,000, as such amount may be increased orreduced in accordance with the terms of this Agreement.

 

“RevolvingCredit Loans” means all loans at any time made by any Lender (including,without limitation, Tranche A Loans and Tranche A-1 Loans) pursuant to ArticleII and, to the extent applicable, shall include Swingline Loans made by theSwingline Lender pursuant to SECTION 2.06.

 

“RevolvingCredit Notes” means the promissory notes of the Borrowers substantially inthe form of Exhibit D, each payable to the order of a Lender, evidencingthe Revolving Credit Loans made to the Borrowers.

 

“Sarbanes-OxleyAct” means the Sarbanes-Oxley Act of 2002, as amended.

 

“S&P”means Standard & Poor’s Ratings Services, a division of The McGraw-HillCompanies, Inc. and any successor thereto.

 

“SEC”means the Securities and Exchange Commission or any Governmental Authoritysucceeding to any of its principal functions.

 

“SecuredParty” means (a) each Credit Party, (b) any Person providing CashManagement Services or entering into or furnishing any Bank Products to or withany Loan Party, (c) the beneficiaries of each indemnification obligationundertaken by any Loan Party under any Loan Document, and (d) the successorsand, subject to any limitations contained in this Agreement, assigns of each ofthe foregoing.

 

“SecuritiesAct” means the Securities Act of 1933, as amended.

 

“SecurityAgreement” means collectively, (i) the Security Agreement dated as of theClosing Date among the Loan Parties and the Collateral Agent for its benefitand for the benefit of the other Secured Parties, and (ii) the General SecurityAgreement dated as of the Closing Date among the Canadian Loan Parties and theCollateral Agent for its benefit and for the benefit of the other SecuredParties, each as amended and in effect from time to time.

 

“SecurityDocuments” means the Security Agreement, the Canadian Security Agreements,the Mortgages, the Pledge Agreement, the Facility Guarantee, the CanadianGuarantee, and each other security agreement or other instrument or documentexecuted and

 

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deliveredpursuant to this Agreement or any other Loan Document that creates a Lien infavor of the Collateral Agent to secure any of the Obligations.

 

“SeniorNotes” means collectively, the $750,000,000 aggregate principal amount ofthe Lead Borrower’s 10% Senior Notes due 2014 issued on the Closing Date andany senior notes issued in exchange or substitution therefor pursuant to theregistration rights agreement related thereto entered into by the Lead Borroweron the Closing Date.

 

“SeniorNote Documents” means the documents, instruments and other agreements nowor hereafter executed and delivered in connection with the Senior Notes,including, without limitation, the Indenture dated as of October 31, 2006 amongthe Lead Borrower, the guarantors party thereto and Wells Fargo Bank, NationalAssociation as Trustee or any supplemental indenture.

 

“SeniorSubordinated Notes” means the $400,000,000 aggregate principal amount ofthe Lead Borrower’s 11 3/8% Senior Subordinated Notes due 2016 issued on theClosing Date and any senior subordinated notes issued in exchange orsubstitution therefor pursuant to the registration rights agreement relatedthereto entered into by the Lead Borrower on the Closing Date.

 

“SeniorSubordinated Note Documents” means the documents, instruments and otheragreements now or hereafter executed and delivered in connection with theSenior Subordinated Notes, including, without limitation, the Indenture datedas of October 31, 2006 among the Lead Borrower, the guarantors party theretoand Wells Fargo Bank, National Association as Trustee or any supplementalindenture.

 

“SettlementDate” has the meaning provided in SECTION 2.22(b).

 

“Shrink”means Inventory identified by the Borrowers as lost, misplaced, or stolen.

 

“Software”has the meaning assigned to such term in the Security Agreement.

 

“Solvent”and “Solvency” mean, with respect to any Person on any date ofdetermination, that on such date (a) the fair value of the property of suchPerson is greater than the total amount of liabilities, including contingentliabilities, of such Person, (b) the present fair salable value of the assetsof such Person is not less than the amount that will be required to pay theprobable liability of such Person on its debts as they become absolute andmatured, (c) such Person does not intend to, and does not believe that it will,incur debts or liabilities beyond such Person’s ability to pay such debts and liabilitiesas they mature and (d) such Person is not engaged in business or a transaction,and is not about to engage in business or a transaction, for which suchPerson’s property would constitute an unreasonably small capital. The amount ofcontingent liabilities at any time shall be computed as the amount that, in thelight of all the facts and circumstances existing at such time, represents theamount that can reasonably be expected to become an actual or maturedliability.

 

“SpecifiedDefault” means the occurrence of any Event of Default specified in SECTION7.01(a), SECTION 7.01(f) or SECTION 7.01(g) hereof.

 

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“SpecifiedEquity Contribution” means cash equity contributions (which if in the formof preferred equity shall be on terms and conditions reasonably acceptable tothe Administrative Agent) made to the Lead Borrower after the Closing Date andon or prior to the day on which any borrowing hereunder is requested whenAvailability is less than $75,000,000, which equity contribution is added toConsolidated EBITDA for the purposes of calculating compliance with SECTION4.02(d).

 

“SpecifiedLegal Expenses” means all attorneys’ and experts’ fees and expenses and allother costs and expenses paid or payable in connection with investigating ordefending or preparing to investigate or defend any threatened, pending,completed or future claim, demand, action, suit, proceeding, inquiry orinvestigation (whether civil, criminal, administrative or investigative) arisingout of or related to (i) the Lead Borrower’s compensation practices (includingoption grants) prior to the Closing Date, (ii) any disclosure or alleged lackof disclosure on the part of the Lead Borrower or any of its directors orofficers regarding the beneficial ownership of any securities of the LeadBorrower prior to the Closing Date by any such director or officer (or anytrust established for the benefit of any such director or officer or any familymember thereof), (iii) any transaction prior to the Closing Date involving anysecurities of the Lead Borrower alleged to have been engaged in by any suchPerson, (iv) any alleged deficiencies in the Lead Borrower’s financialreporting, internal control over financial reporting or disclosure controlsprior to the Closing Date and procedures relating to any of the foregoing, and(v) any alleged bad faith, breach of fiduciary duty or other act or omission onthe part of any director or officer of the Lead Borrower relating to any of theforegoing, together in each case with all damages, losses, liabilities,judgments, fines, penalties and amounts paid in settlement arising out of orincurred in connection with any of the foregoing (including all amounts paid toor on behalf of other Persons in connection with any of the foregoing pursuantto any indemnification agreements, arrangements or obligations).

 

“SpecifiedPayment” means any Permitted Acquisition, Investment, loan, advance,Restricted Payment, incurrence of or payment with respect to Indebtedness orother transaction made subject to satisfaction of the Payment Conditions.

 

“SpecifiedTransaction” means, with respect to any period, any Investment, Dispositionof all or substantially all of the Capital Stock in or assets of any RestrictedSubsidiary of the Lead Borrower or any division, business unit, line ofbusiness or facility used for the operations of the Lead Borrower or any of itsRestricted Subsidiaries, incurrence or repayment of Indebtedness, the making ofany Restricted Payment, designation or redesignation of a Subsidiary as aRestricted Subsidiary or an Unrestricted Subsidiary, or any asset classified asdiscontinued operations by the Lead Borrower or any Restricted Subsidiary thatby the terms of this Agreement requires “Pro Forma Compliance” with a test orcovenant hereunder or requires such test or covenant to be tested on a “ProForma Basis.”

 

“SponsorAffiliated Lender” means financial institutions (including commercialfinance companies), investment funds or managed accounts with respect to whichany Sponsor or an Affiliate of such Sponsor is an Affiliate or an advisor ormanager in the ordinary course of business, provided, that, suchPerson executes a waiver in form and substance reasonably satisfactory to theAdministrative Agent which provides that, so long as such Person is anAffiliate of a Sponsor, it and other Sponsor Affiliated Lenders shall have noright whatsoever

 

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withrespect to that portion of the Commitments which all Sponsor Affiliated Lendershold in the aggregate in excess of twenty-five percent (25%) of the Commitmentsof all Lenders: (a) to consent to any amendment, modification, waiver, consentor other such action with respect to any of the terms of any Loan Document, (b)otherwise to vote on any matter related to any Loan Document, (c) to requireAgents or any Lender to undertake any action (or refrain from taking anyaction) with respect to any Loan Document, (d) to attend any meeting with theAdministrative Agent or any Lender or receive any information from theAdministrative Agent or any Lender or (e) make or bring any claim, in itscapacity as Lender, against any Agent with respect to the fiduciary duties ofsuch Agent or Lender and the other duties and obligations of the Agentshereunder; except, that, (i) no amendment, modification or waiver to any LoanDocument shall deprive any Sponsor Affiliated Lender of its pro rata share ofany payments to which such Lender is entitled to share hereunder, and (ii) in thecase of any Sponsor Affiliated Lender which is a financial institution,including a commercial finance company, investment fund or managed account(such type of Sponsor Affiliated Lender being referred to herein as, the“Voting Sponsor Affiliated Lenders”), none of the restrictions set forth inclauses (a) through (e) shall apply to a Voting Sponsor Affiliated Lender solong as any information obtained by such Voting Sponsor Affiliated Lender(s) inits capacity as a Lender is not provided to any Sponsor or other Affiliate ofSponsor. All Voting Sponsor Affiliated Lenders, are deemed to have agreed infavor of the Agents, the Issuing Bank and the other Lenders parties hereto, bytheir signatures below or to any Assignment and Acceptance in respect of thisAgreement in respect of which they become a Lender, that such financialinstitution/commercial finance company will not provide any of the informationit receives in its capacity as a Lender with any Sponsor or any Loan Party.

 

“Sponsors”means collectively, Bain Capital, LLC, The Blackstone Group, LP, and each oftheir respective Affiliates, and any fund administered, managed or advised byany such Person, but not including, however, any portfolio companies of any ofthe foregoing.

 

“Standby Letter of Credit” means any Letter of Credit other than a Commercial Letter of Credit.

 

“StatedAmount” means at any time the maximum amount for which a Letter of Creditmay be honored.

 

“StatutoryReserve Rate” means a fraction (expressed as a decimal), the numerator of whichis the number one and the denominator of which is the number one minusthe aggregate of the maximum reserve percentages (including any marginal,special, emergency or supplemental reserves) expressed as a decimal establishedby the FRB to which the Administrative Agent is subject with respect to theAdjusted LIBO Rate, for eurocurrency funding (currently referred to as“Eurocurrency Liabilities” in Regulation D of the FRB). Such reservepercentages shall include those imposed pursuant to such Regulation D. LIBOLoans shall be deemed to constitute eurocurrency funding and to be subject tosuch reserve requirements without benefit of or credit for proration,exemptions or offsets that may be available from time to time to any Lenderunder such Regulation D or any comparable regulation. The Statutory ReserveRate shall be adjusted automatically on and as of the effective date of anychange in any reserve percentage.

 

“Store”means any retail store (which includes any real property, fixtures, equipment,inventory and other property related thereto) operated, or to be operated, byany Loan Party.

 

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“SubordinatedDiscount Notes” means the $469,449,000 aggregate principal amount atmaturity of the Lead Borrower’s 13% Subordinated Discount Notes due 2016 issuedon the Closing Date and any notes issued in exchange or substitution thereforpursuant to the registration rights agreement related thereto entered into bythe Lead Borrower on the Closing Date.

 

“SubordinatedDiscount Note Documents” means the documents, instruments and otheragreements now or hereafter executed and delivered in connection with theSubordinated Discount Notes, including, without limitation, the SubordinatedDiscount Note Indenture or any supplemental indenture.

 

“SubordinatedDiscount Note Indenture” means the Indenture dated as of October 31, 2006among the Lead Borrower, the guarantors party thereto and Wells Fargo Bank,National Association as Trustee.

 

“SubordinatedIndebtedness” means Indebtedness which is expressly subordinated in rightof payment to the prior payment in full of the Obligations on terms reasonablyacceptable to the Agents, it being understood that subordination terms setforth in the Senior Subordinated Note Documents and the Subordinated DiscountNote Documents shall also be deemed to be acceptable for other SubordinatedIndebtedness incurred.

 

“Subsidiary”of a Person means a corporation, partnership, joint venture, limited liabilitycompany, unlimited liability company, or other business entity of which amajority of the shares of securities or other interests having ordinary votingpower for the election of directors or other governing body (other thansecurities or interests having such power only by reason of the happening of acontingency) are at the time beneficially owned, or the management of which isotherwise Controlled, directly, or indirectly through one or moreintermediaries, or both, by such Person. Unless otherwise specified, allreferences herein to a “Subsidiary” or to “Subsidiaries” shall refer to aSubsidiary or Subsidiaries of the Lead Borrower.

 

“SuccessfulSyndication” has the meaning set forth in the Fee Letters.

 

“SupportingObligations” has the meaning assigned to such term in the SecurityAgreement.

 

“SwapContract” means (a) any and all rate swap transactions, basis swaps, creditderivative transactions, forward rate transactions, commodity swaps, commodityoptions, forward commodity contracts, equity or equity index swaps or options,bond or bond price or bond index swaps or options or forward bond or forwardbond price or forward bond index transactions, interest rate options, forwardforeign exchange transactions, cap transactions, floor transactions, collartransactions, currency swap transactions, cross-currency rate swaptransactions, currency options, spot contracts, or any other similartransactions or any combination of any of the foregoing (including any optionsto enter into any of the foregoing), whether or not any such transaction isgoverned by or subject to any master agreement, and (b) any and alltransactions of any kind, and the related confirmations, which are subject tothe terms and conditions of, or governed by, any form of master agreementpublished by the International Swaps and Derivatives Association, Inc., anyInternational Foreign Exchange Master Agreement, 

 

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or any othermaster agreement (any such master agreement, together with any relatedschedules, a “Master Agreement”), including any such obligations orliabilities under any Master Agreement.

 

“SwapTermination Value” means, in respect of any one or more Swap Contracts,after taking into account the effect of any legally enforceable nettingagreement relating to such Swap Contracts, (a) for any date on or afterthe date such Swap Contracts have been closed out and termination value(s)determined in accordance therewith, such termination value(s), and (b) for anydate prior to the date referenced in clause (a), the amount(s) determined asthe mark-to-market value(s) for such Swap Contracts, as determined based uponone or more mid-market or other readily available quotations provided by anyrecognized dealer in such Swap Contracts (which may include a Lender or anyAffiliate of a Lender).

 

“SwinglineLender” means Bank of America, N.A., in its capacity as lender of SwinglineLoans hereunder to the Borrowers hereunder.

 

“SwinglineLoan” means a Revolving Credit Loan made by the Swingline Lender to theBorrowers pursuant to SECTION 2.06.

 

“SwinglineLoan Ceiling” means $75,000,000, as such amount may be increased or reducedin accordance with the provisions of this Agreement.

 

“SwinglineNote” means the promissory note of the Borrowers substantially in the formof Exhibit E, payable to the order of the Swingline Lender, evidencingthe Swingline Loans made by the Swingline Lender to the Borrowers.

 

“SyndicationAgent” has the meaning provided in the preamble to this Agreement.

 

“SyntheticLease” means any lease or other agreement for the use or possession ofproperty creating obligations which do not appear as Indebtedness on thebalance sheet of the lessee thereunder but which, upon the insolvency orbankruptcy of such Person, may be characterized as Indebtedness of such lesseewithout regard to the accounting treatment.

 

“Taxes”means any and all current or future taxes, levies, imposts, duties (includingstamp duties), deductions, charges (including ad valorem charges) orwithholdings in the nature of taxes imposed by any Governmental Authority, andany and all interest and penalties related thereto.

 

“TerminationDate” means the earlier to occur of (i) the Maturity Date, or (ii) the dateon which the maturity of the Obligations (other than the Other Liabilities) isaccelerated (or deemed accelerated) and the Commitments are irrevocablyterminated (or deemed terminated) in accordance with Article VII.

 

“Term LoanAgreement” means that certain Credit Agreement dated October 31, 2006 byand among the Lead Borrower, as borrower, Deutsche Bank AG New York Branch asadministrative agent and as collateral agent, and the lenders identifiedtherein.

 

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“Term LoanFacility” means the term loan facility established pursuant to the TermLoan Agreement in a principal amount not to exceed $2,400,000,000, as amended,modified, or supplemented from time to time to the extent permitted pursuant toSECTION 6.13 hereof and pursuant to the Intercreditor Agreement, and anyPermitted Refinancing thereof.

 

“TermPriority Collateral” has the meaning set forth in the IntercreditorAgreement.

 

“TotalCommitments” means the aggregate of the Commitments of all Lenders. On theClosing Date, the Total Commitments are $1,000,000,000.

 

“Tranche ABorrowing Base” means, at any time of calculation, an amount equal to:

 

(a)           the face amount ofEligible Credit Card Receivables of the Loan Parties multiplied by theCredit Card Advance Rate for Tranche A Loans;

 

plus

 

(b)           the Cost of EligibleInventory of the Loan Parties (other than Eligible In-Transit Inventory), netof Inventory Reserves, multiplied by the Inventory Advance Rate for theTranche A Borrowing Base multiplied by the Appraised Value of EligibleInventory of the Loan Parties;

 

plus

 

(c)           (i) (A) until theLead Borrower has updated its internal accounting systems so that they arecapable of accurately tracking when items of inventory have been shipped from avendor, where such items are located when on route to the Loan Parties, andwhen such items will actually be received and (B) the Lead Borrower hasprovided evidence reasonably satisfactory to the Administrative Agent of thesatisfaction of the condition set forth in the preceding clause (A), and (C)the Administrative Agent has consented to the application of clause (c)(ii)hereof (which consent shall not be unreasonably withheld), the Accrual Amountof Eligible In-Transit Inventory of the Loan Parties, net of InventoryReserves, multiplied by twenty-five percent (25%) multiplied bythe Inventory Advance Rate for the Tranche A Borrowing Base multipliedby the Appraised Value of Eligible Inventory; and (ii) (A) after the LeadBorrower has updated its internal accounting systems so that they are capableof accurately tracking when items of inventory have been shipped from a vendor,where such items are located when on route to the Loan Parties, and when suchitems will actually be received and (B) the Lead Borrower has provided evidencereasonably satisfactory to the Administrative Agent of the satisfaction of thecondition set forth in the preceding clause (A), and (C) the AdministrativeAgent has consented to the application of this clause (c)(ii) (which consentshall not be unreasonably withheld), the Cost of Eligible In-Transit Inventoryof the Loan Parties, net of Inventory Reserves, multiplied by theInventory Advance Rate for the Tranche A Borrowing Base multiplied bythe Appraised Value of Eligible Inventory of the Loan Parties;

 

plus

 

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(d)           with respect to anyEligible Letter of Credit, the lesser of (i) the Cost of Inventory of the LoanParties supported by such Eligible Letter of Credit, net of Inventory Reserves,multiplied by the Inventory Advance Rate for the Tranche A BorrowingBase for such Inventory when completed, multiplied by the AppraisedValue of the Inventory supported by such Eligible Letter of Credit or (ii) theStated Amount of such Eligible Letter of Credit, multiplied by theInventory Advance Rate for the Tranche A Borrowing Base, multiplied bythe Appraised Value of the Inventory supported by such Eligible Letter ofCredit;

 

minus

 

(e)           the then amount ofall Availability Reserves.

 

“Tranche ACommitment” shall mean, with respect to each Tranche A Lender, thecommitment of such Tranche A Lender hereunder set forth as its Tranche ACommitment opposite its name on Schedule 1.1 hereto or as maysubsequently be set forth in the Register from time to time, as the same may beincreased or reduced from time to time pursuant to this Agreement. As of theClosing Date, the Tranche A Commitments aggregate $900,000,000.

 

“Tranche ACommitment Percentage” shall mean, with respect to each Tranche A Lender,that percentage of the Tranche A Commitments of all Lenders hereunder to makeTranche A Loans to the Borrowers in the amount set forth opposite its name on Schedule1.1 hereto or as may subsequently be set forth in the Register from time totime, as the same may be increased or reduced from time to time pursuant toSECTION 2.02 or SECTION 2.15, or if the Tranche A Commitments have beenterminated, such percentage as calculated immediately prior to suchtermination.

 

“Tranche ACredit Extensions” means Tranche A Loans and Letters of Credit issuedhereunder.

 

“Tranche ALender” means each Lender which holds a Tranche A Commitment and any otherPerson who becomes a “Tranche A Lender” in accordance with the provisions ofthis Agreement.

 

“Tranche ALoans” means collectively, the Revolving Credit Loans (including SwinglineLoans) made by the Lenders pursuant to Article II, other than Tranche A-1Loans.

 

“TrancheA-1 Borrowing Base” means, at any time of calculation, an amount equal to:

 

(a)           the face amount ofEligible Credit Card Receivables of the Loan Parties multiplied by theCredit Card Advance Rate for Tranche A-1 Loans;

 

plus

 

(b)           the Cost of EligibleInventory of the Loan Parties (other than Eligible In-Transit Inventory), netof Inventory Reserves, multiplied by the Inventory Advance Rate for theTranche A-1 Borrowing Base multiplied by the Appraised Value of EligibleInventory of the Loan Parties;

 

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plus

 

(c)           (i) (A) until theLead Borrower has updated its internal accounting systems so that they arecapable of accurately tracking when items of inventory have been shipped from avendor, where such items are located when on route to the Loan Parties, andwhen such items will actually be received and (B) the Lead Borrower hasprovided evidence reasonably satisfactory to the Administrative Agent of thesatisfaction of the condition set forth in the preceding clause (A) and (C) theAdministrative Agent has consented to the application of clause (c)(ii) hereof(which consent shall not be unreasonably withheld), the Accrual Amount ofEligible In-Transit Inventory of the Loan Parties, net of Inventory Reserves, multipliedby twenty-five percent (25%) multiplied by the Inventory Advance Ratefor the Tranche A-1 Borrowing Base multiplied by the Appraised Value ofEligible Inventory; and (ii) (A) after the Lead Borrower has updated itsinternal accounting systems so that they are capable of accurately trackingwhen items of inventory have been shipped from a vendor, where such items arelocated when on route to the Loan Parties, and when such items will actually bereceived and (B) the Lead Borrower has provided evidence reasonablysatisfactory to the Administrative Agent of the satisfaction of the conditionset forth in the preceding clause (A), and (C) the Administrative Agent hasconsented to the application of this clause (c)(ii) (which consent shall not beunreasonably withheld), the Cost of Eligible In-Transit Inventory of the LoanParties, net of Inventory Reserves, multiplied by the Inventory AdvanceRate for the Tranche A-1 Borrowing Base multiplied by the AppraisedValue of Eligible Inventory of the Loan Parties;

 

plus

 

(d)           with respect to anyEligible Letter of Credit, the lesser of (i) the Cost of Inventory of the LoanParties supported by such Eligible Letter of Credit, net of Inventory Reserves,multiplied by the Inventory Advance Rate for the Tranche A-1 BorrowingBase for such Inventory when completed, multiplied by the AppraisedValue of the Inventory supported by such Eligible Letter of Credit or (ii) theStated Amount of such Eligible Letter of Credit, multiplied by theInventory Advance Rate for the Tranche A-1 Borrowing Base, multiplied bythe Appraised Value of the Inventory supported by such Eligible Letter ofCredit;

 

minus

 

(e)           the then amount ofall Availability Reserves.

 

“TrancheA-1 Commitment” shall mean, with respect to each Tranche A-1 Lender, thecommitment of such Tranche A-1 Lender hereunder set forth as its Tranche A-1Commitment opposite its name on Schedule 1.1 hereto or as maysubsequently be set forth in the Register from time to time, as the same may bereduced from time to time pursuant to this Agreement. As of the Closing Date,the Tranche A-1 Commitments aggregate $100,000,000.

 

“TrancheA-1 Commitment Percentage” shall mean, with respect to each Tranche A-1Lender, that percentage of the Tranche A-1 Commitments of all Lenders hereunderto make

 

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Tranche A-1Loans to the Borrowers in the amount set forth opposite its name on Schedule1.1 hereto or as may subsequently be set forth in the Register from time totime, as the same may be reduced from time to time pursuant to SECTION 2.15, orif the Tranche A-1 Commitments have been terminated, such percentage ascalculated immediately prior to such termination.

 

“TrancheA-1 Credit Extensions” means Tranche A-1 Loans and, if then applicable, theExcess Amount of Letter of Credits issued hereunder.

 

 “Tranche A-1 Lender” means each Lenderwhich holds a Tranche A-1 Commitment and any other Person who becomes a“Tranche A-1 Lender” in accordance with the provisions of this Agreement.

 

“TrancheA-1 Loan” means, collectively, the Revolving Credit Loans made by theTranche A-1 Lenders pursuant to SECTION 2.01(a)(vii).

 

“Transaction”means, collectively, (a) the Equity Contribution, (b) the MIK Recapitalization,(c) the issuance of the Senior Notes, the Senior Subordinated Notes, and theSubordinated Discount Notes, (d) the funding of the Term Loan Facility and upto $400,000,000 of Revolving Credit Loans on the Closing Date, (e) theconsummation of any other transactions in connection with the foregoing, and(f) the payment of the fees and expenses incurred in connection with any of theforegoing.

 

“TransactionDocuments” means the Recapitalization Agreement and all other materialdocuments, instruments and certificates contemplated by the RecapitalizationAgreement.

 

“TransactionExpenses” means any fees or expenses incurred or paid by the Lead Borroweror any Restricted Subsidiary in connection with the Transaction, includingpayments to officers, employees and directors of the Lead Borrower and itsRestricted Subsidiaries as change of control payments, severance payments orspecial or retention bonuses and any fees or expenses, includingpre-Transaction payments or other compensation made to employees of the LeadBorrower and its Restricted Subsidiaries.

 

“Type”,when used in reference to any Revolving Credit Loan or Borrowing, refers towhether the rate of interest on such Revolving Credit Loan, or on the RevolvingCredit Loans comprising such Borrowing, is determined by reference to theAdjusted LIBO Rate or the Prime Rate, as applicable.

 

“UCC”means the Uniform Commercial Code as in effect from time to time in the Stateof New York provided, however, that if a term is defined inArticle 9 of the Uniform Commercial Code differently than in another Articlethereof, the term shall have the meaning set forth in Article 9; providedfurther that, if by reason of mandatory provisions of law, perfection,or the effect of perfection or non-perfection, of a security interest in anyCollateral or the availability of any remedy hereunder is governed by theUniform Commercial Code as in effect in a jurisdiction other than New York,“Uniform Commercial Code” means the Uniform Commercial Code as in effect insuch other jurisdiction for purposes of the provisions hereof relating to suchperfection or effect of perfection or non-perfection or availability of suchremedy, as the case may be.

 

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“UnanimousConsent” means the consent of Lenders (other than Delinquent Lenders)holding 100% of the Commitments (other than Commitments held by a Delinquent Lender).

 

“UncontrolledCash” means an amount equal to the lesser of (a) the sum of $7,000,000 plusall Restricted Cash then held by Michaels Stores Card Services, LLC andMichaels Finance Company, Inc. which was received in the ordinary course ofbusiness, or (b) $50,000,000.

 

“UnfundedPension Liability” means, at a point in time, the excess of a Plan’sbenefit liabilities, over the current value of that Plan’s assets, determinedin accordance with the assumptions used for funding the Plan pursuant to applicablelaws for the applicable plan year and includes any unfunded liability orsolvency deficiency as determined for the purposes of the PBA.

 

“UnitedStates” and “U.S.” mean the United States of America.

 

“UnrestrictedSubsidiaries” means (i) each Subsidiary of the Parent listed on Schedule5.14 and (ii) any Subsidiary of the Parent designated by the board ofdirectors of the Parent as an Unrestricted Subsidiary pursuant to SECTION 5.14subsequent to the date hereof, provided that no Subsidiary may be designatedas an Unrestricted Subsidiary if any of its assets are included in thecalculation of the Tranche A Borrowing Base or the Tranche A-1 Borrowing Baseimmediately prior to such Subsidiary’s being designated as an UnrestrictedSubsidiary.

 

“UnusedCommitment” shall mean, on any day, (a) as to the Tranche A Lenders, exceptas provided in SECTION 2.19(b), (i) the then aggregate Tranche A Commitments, minus(ii) the sum of (A) the principal amount of Tranche A Loans (other thanSwingline Loans) of the Borrowers then outstanding, and (B) the then Letter ofCredit Outstandings; and (b) as to the Tranche A-1 Lenders, (i) the thenaggregate Tranche A-1 Commitments, minus (ii) the principal amount ofTranche A-1 Loans of the Borrowers then outstanding.

 

“Unused Fee”has the meaning provided in SECTION 2.19(b).

 

“US LoanParty” means a Loan Party that is organized under the laws of the UnitedStates, any state thereof or the District of Columbia.

 

“WeightedAverage Life to Maturity” means, when applied to any Indebtedness at anydate, the number of years obtained by dividing: (i) the sum of the products obtained by multiplying (a) the amount ofeach then remaining installment, sinking fund, serial maturity or otherrequired payments of principal, including payment at final maturity, in respectthereof, by (b) the number of years (calculated to the nearest one-twelfth)that will elapse between such date and the making of such payment; by(ii) the then outstanding principal amount of such Indebtedness.

 

“WithdrawalLiability” means liability to a Multiemployer Plan as a result of acomplete or partial withdrawal from such Multiemployer Plan, as such terms aredefined in Part 1 of Subtitle E of Title IV of ERISA.

 

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SECTION 1.02               TermsGenerally.

 

With referenceto this Agreement and each other Loan Document, unless otherwise specifiedherein or in such other Loan Document:

 

(a)           The definitions ofterms herein shall apply equally to the singular and plural forms of the termsdefined. Whenever the context may require, any pronoun shall include thecorresponding masculine, feminine and neuter forms. The words “include,”“includes” and “including” shall be deemed to be followed by thephrase “without limitation.”  The word “will”shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise, (i)any definition of or reference to any agreement, instrument or other document(including any Organization Document) shall be construed as referring to suchagreement, instrument or other document as from time to time amended,supplemented or otherwise modified (subject to any restrictions on suchamendments, supplements or modifications set forth herein or in any other LoanDocument), (ii) any reference herein to any Person shall be construed toinclude such Person’s successors and permitted assigns, (iii) the words “herein,”“hereof” and “hereunder,” and words of similar import when usedin any Loan Document, shall be construed to refer to such Loan Document in itsentirety and not to any particular provision thereof, (iv) all references in aLoan Document to Articles, Sections, Exhibits and Schedules shall be construedto refer to Articles and Sections of, and Exhibits and Schedules to, the LoanDocument in which such references appear, (v) any reference to any law shallinclude all statutory and regulatory provisions consolidating, amendingreplacing or interpreting such law and any reference to any law or regulationshall, unless otherwise specified, refer to such law or regulation as amended,modified or supplemented from time to time, (vi) the words “asset” and “property”shall be construed to have the same meaning and effect and to refer to any andall tangible and intangible assets and properties, including cash, securities,accounts and contract rights, (vii) all references to “$” or “dollars” or toamounts of money and all calculations of Availability, Tranche A BorrowingBase, Tranche A-1 Borrowing Base, permitted “baskets” and other similar mattersshall be deemed to be references to the lawful currency of the United States ofAmerica, and (viii) references to “knowledge” of any Loan Party means theactual knowledge of a Responsible Officer.

 

(b)           In the computationof 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 “toand including.”

 

(c)           For purposes of anyCollateral located in the Province of Quebec or charged by any deed of hypothec(or any other Loan Document) and for all other purposes pursuant to which theinterpretation or construction of a Loan Document may be subject to the laws ofthe Province of Quebec or a court or tribunal exercising jurisdiction in theProvince of Québec, (q) “personal property” shall be deemed to include “movableproperty”, (r) “real property” shall be deemed to include “immovable property”,(s) “tangible property” shall be deemed to include “corporeal property”, (t)“intangible property” shall be deemed to include “incorporeal property”, (u)“security interest” and “mortgage” shall be deemed to include a “hypothec”, (v)all references to

 

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filing, registeringor recording under the UCC or the PPSA shall be deemed to include publicationunder the Civil Code of Québec, (w) all references to “perfection” of or“perfected” Liens shall be deemed to include a reference to the “opposability”of such Liens to third parties, (x) any “right of offset”, “right of setoff” orsimilar expression shall be deemed to include a “right of compensation”, (y)“goods” shall be deemed to include “corporeal movable property” other thanchattel paper, documents of title, instruments, money and securities, and (z)an “agent” shall be deemed to include a “mandatary”.

 

(d)           Section headingsherein and in the other Loan Documents are included for convenience ofreference only and shall not affect the interpretation of this Agreement or anyother Loan Document.

 

(e)           This Agreement andthe other Loan Documents are the result of negotiation among, and have beenreviewed by counsel to, among others, the Loan Parties and the AdministrativeAgent and are the product of discussions and negotiations among all parties. Accordingly,this Agreement and the other Loan Documents are not intended to be construedagainst the Administrative Agent or any of the Lenders merely on account of theAdministrative Agent’s or any Lender’s involvement in the preparation of suchdocuments.

 

SECTION 1.03               AccountingTerms.

 

(a)           Generally. Allaccounting terms not specifically or completely defined herein shall beconstrued in conformity with, and all financial data (including financialratios and other financial calculations) required to be submitted pursuant tothis Agreement shall be prepared in conformity with, GAAP applied on aconsistent basis, as in effect from time to time, except as otherwisespecifically prescribed in SECTION 1.03(b) below. All amounts used for purposesof financial calculations required to be made shall be without duplication.

 

(b)           Issues Related toGAAP. If at any time any change in GAAP would affect the computation of anyfinancial ratio or requirement set forth in any Loan Document, and either theLead Borrower or the Required Lenders shall so request, the AdministrativeAgent, the Lenders and the Lead Borrower shall negotiate in good faith to amendsuch ratio or requirement to preserve the original intent thereof in light ofsuch change in GAAP (subject to the approval of the Required Lenders); providedthat, until so amended, (i) such ratio or requirement shall continue tobe computed in accordance with GAAP prior to such change therein and (ii) theLead Borrower shall provide to the Administrative Agent and the Lenders asreasonably requested hereunder a reconciliation between calculations of suchratio or requirement made before and after giving effect to such change in GAAP.In addition, the definitions set forth in the Loan Documents and any financialcalculations required by the Loan Documents shall be computed to exclude (a)the effect of purchase accounting adjustments to merchandise inventories,property and equipment, intangible assets, goodwill and deferred revenue anddeferred debt line items in connection with the MIK Recapitalization, anyPermitted Acquisition, any Acquisition consummated prior to the Closing Date orany merger, amalgamation, consolidation or other similar transaction permittedby this Agreement), or the 

 

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amortization,write-up, write-down or write-off of any amounts thereof, (b) the applicationof FAS 133, FAS 150, FASB Interpretation No. 45 or FAS 123r (to the extent thatthe pronouncements in FAS 123r result in recording an equity award as aliability on the Consolidated balance sheet of the Lead Borrower and itsSubsidiaries in the circumstance where, but for the application of thepronouncements, such award would have been classified as equity), (c) any mark-to-marketadjustments to any derivatives (including embedded derivatives contained inother debt or equity instruments under FAS 133), and (d) any non-cashcompensation charges resulting from the application of FAS 123r.

 

(c)           Notwithstanding anything to thecontrary herein, for purposes of determining compliance with any test orcovenant contained in this Agreement with respect to any period during whichany Specified Transaction occurs, the Consolidated Fixed Charge Coverage Ratioshall be calculated with respect to such period and such Specified Transactionon a Pro Forma Basis.

 

(d)           The principal amount of anynon-interest bearing or other discount security at any date shall be theprincipal amount thereof that would be shown on a balance sheet of the issuerdated such date prepared in accordance with GAAP.

 

SECTION 1.04               Rounding.

 

Any financialratios required to be maintained by the Borrowers pursuant to this Agreement(or required to be satisfied in order for a specific action to be permittedunder this Agreement) shall be calculated by dividing the appropriate componentby the other component, carrying the result to one place more than the numberof places by which such ratio is expressed herein and rounding the result up ordown to the nearest number (with a rounding-up if there is no nearest number).

 

SECTION 1.05               Timesof Day.

 

Unlessotherwise specified, all references herein to times of day shall be referencesto Eastern time (daylight or standard, as applicable).

 

SECTION 1.06               Letterof Credit Amounts.

 

Unlessotherwise specified, all references herein to the amount of a Letter of Creditat any time shall be deemed to mean the maximum face amount of such Letter ofCredit after giving effect to all increases thereof contemplated by such Letterof Credit, whether or not such maximum face amount is in effect at such time.

 

SECTION 1.07               Certifications.

 

Allcertifications to be made hereunder by an officer or representative of a LoanParty shall be made by such person in his or her capacity solely as an officeror a representative of such Loan Party, on such Loan Party’s behalf and not insuch person’s individual capacity.

 

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SECTION 1.08               CurrencyEquivalents Generally.

 

Any amountspecified in this Agreement (other than in Article 2) or any of the other LoanDocuments to be in Dollars shall also include the equivalent of such amount inany currency other than Dollars, such equivalent amount to be determined at therate of exchange quoted by the Reuters World Currency Page for the applicablecurrency at 11:00 a.m. (London time) on such day (or, in the event suchrate does not appear on any Reuters World Currency Page, by reference to suchother publicly available service for displaying exchange rates as may be agreedupon by the Administrative Agent and the Lead Borrower, or, in the absence ofsuch agreement, such rate shall instead be the arithmetic average of the spotrates of exchange of the Administrative Agent in the market where its foreigncurrency exchange operations in respect of such currency are then beingconducted, at or about 10:00 a.m. (New York City time) on such date forthe purchase of Dollars for delivery two Business Days later). Notwithstandingthe foregoing, for purposes of determining compliance with SECTION 6.01,SECTION 6.02, SECTION 6.03, SECTION 6.05 and SECTION 6.06, (i) any amount in acurrency other than Dollars will be converted to Dollars based on the exchangerate for such currency as determined above, and (ii) no Default shall be deemedto have occurred solely as a result of changes in rates of exchange occurringafter the time any transaction described in any of such Sections isconsummated; *provided* that, for the avoidanceof doubt, the foregoing provisions of this SECTION 1.08 shall otherwise applyto such Sections, including with respect to determining whether any suchtransaction described in such Sections may be consummated at any time undersuch Sections.

 

SECTION1.09               Change of Currency.

 

Each provision of thisAgreement shall be subject to such reasonable changes of construction as theAdministrative Agent may from time to time specify with the Lead Borrower’sconsent to appropriately reflect a change in currency of any country and anyrelevant market conventions or practices relating to such change in currency.

 

ARTICLEII

 

Amountand Terms of Credit

 

SECTION2.01               Commitment of theLenders.

 

(a)           Each Lender, severally and not jointly with any otherLender, agrees, upon the terms and subject to the conditions herein set forth,to make Credit Extensions to or for the benefit of the Borrowers, on arevolving basis, subject in each case to the following limitations:

 

(i)            The initial Revolving Credit Loansto be made on the Closing Date to the Lead Borrower to consummate the MIKRecapitalization shall not exceed $400,000,000.

 

(ii)           The aggregate outstanding amount ofthe Credit Extensions to the Borrowers shall not at any time cause Availabilityto be less than zero;

 

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(iii)          Letters of Credit shall be availablefrom the Issuing Banks to the Borrowers and their Restricted Subsidiaries, providedthat the Borrowers shall not at any time permit the aggregate Letter ofCredit Outstandings at any time to exceed the Letter of Credit Sublimit; and providedfurther that any Letter of Credit issued for the benefit of  Michaels of Canada, ULC or any ForeignSubsidiary shall be issued naming the Lead Borrower as the account party on anysuch Letter of Credit but such Letter of Credit may contain a statement that itis being issued for the benefit of Michaels of Canada, ULC or such Foreign Subsidiary;

 

(iv)          No Lender shall be obligated to makeany Credit Extension to the Borrowers in excess of such Lender’s Tranche ACommitment or Tranche A-1 Commitment, as applicable;

 

(v)           The aggregate outstanding amount ofthe Tranche A Credit Extensions shall not exceed the lesser of the Tranche ACommitments or the Tranche A Borrowing Base;

 

(vi)          The aggregate outstanding amount ofthe Tranche A-1 Credit Extensions shall not exceed the lesser of the TrancheA-1 Commitments or Incremental Availability;

 

(vii)         The Lead Borrower shall not request,and the Tranche A Lenders shall be under no obligation to fund, any Tranche ALoan unless the Borrowers have borrowed the full amount of the lesser of theTranche A-1 Commitments or Incremental Availability (to the extent that suchTranche A-1 Commitments have not been terminated). Except as otherwise providedin SECTION 2.13(f), all Tranche A-1 Credit Extensions shall be Tranche A-1Loans and all Letters of Credit and Swingline Loans shall constitute Tranche ACredit Extensions; and

 

(viii)        Subject to all of the other provisionsof this Agreement, Revolving Credit Loans to the Borrowers that are repaid maybe reborrowed prior to the Termination Date. No new Credit Extensions (otherthan Permitted Overadvances) shall be made to the Borrowers after theTermination Date.

 

(b)           Except as provided in SECTION2.01(a)(vii), each Borrowing of Revolving Credit Loans to the Borrowers (otherthan Swingline Loans) shall be made by the Lenders prorata inaccordance with their respective Tranche A Commitments or Tranche A-1Commitments, as applicable. The failure of any Lender to make any RevolvingCredit Loan to the Borrowers shall neither relieve any other Lender of itsobligation to fund its Revolving Credit Loan to the Borrowers in accordancewith the provisions of this Agreement nor increase the obligation of any suchother Lender.

 

SECTION2.02               Increase in TrancheA Commitments.

 

(a)           So long as no Default or Event of Default exists or wouldarise therefrom, the Lead Borrower shall have the right, at any time and fromtime to time after the completion of a Successful Syndication, to request anincrease of the aggregate of the then outstanding Tranche A Commitments(including the Letter of Credit Sublimit) by an amount not to exceed in the

 

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aggregate $200,000,000. TheAdministrative Agent and the Lead Borrower shall determine the effective dateof such requested increase and any such requested increase shall be first madeavailable to all existing Tranche A Lenders on a pro rata basis. To the extentthat the existing Tranche A Lenders decline to increase their Tranche ACommitments, or decline to increase their Tranche A Commitments to the amountrequested by the Lead Borrower, the Administrative Agent, in consultation withthe Lead Borrower, will use its reasonable best efforts to arrange for otherPersons to become a Tranche A Lender hereunder and to issue commitments in anamount equal to the amount of the increase in the Tranche A Commitmentsrequested by the Lead Borrower and not accepted by the existing Tranche ALenders (each such increase by either means, a “Commitment Increase,”and each Person issuing, or Lender increasing, its Tranche A Commitment, an “AdditionalCommitment Lender”), provided, however, that (i) no Tranche A Lendershall be obligated to provide a Commitment Increase as a result of any suchrequest by the Lead Borrower, (ii) any Additional Commitment Lender which isnot an existing Tranche A Lender shall be subject to the approval of theAdministrative Agent, the Issuing Banks and the Lead Borrower (which approvalshall not be unreasonably withheld), and (iii) without the consent of theAdministrative Agent, at no time shall the Tranche A Commitment of anyAdditional Commitment Lender under this Agreement be less than $5,000,000. EachCommitment Increase shall be in a minimum aggregate amount of at least $25,000,000and in integral multiples of $5,000,000 in excess thereof.

 

(b)           No Commitment Increase shall become effective unless anduntil each of the following conditions have been satisfied or waived:

 

(i)            The Borrowers, the AdministrativeAgent, and any Additional Commitment Lender shall have executed and delivered ajoinder to the Loan Documents in such form as the Administrative Agent shallreasonably require;

 

(ii)           The Borrowers shall have paid suchfees and other compensation to the Additional Commitment Lenders and to theAdministrative Agent as the Lead Borrower and such Additional CommitmentLenders and the Administrative Agent shall agree;

 

(iii)          The Borrowers shall deliver to theAdministrative Agent and the Lenders an opinion or opinions, in form and substancereasonably satisfactory to the Administrative Agent, from counsel to theBorrowers and dated such date;

 

(iv)          A Revolving Credit Note (to the extentrequested) will be issued at the Borrowers’ expense, to each such AdditionalCommitment Lender, to be in conformity with requirements of SECTION 2.07 (withappropriate modification) to the extent necessary to reflect the new Tranche ACommitment of each Additional Commitment Lender; and

 

(v)           The Borrowers and the AdditionalCommitment Lender shall have delivered such other instruments, documents andagreements as the Administrative Agent may reasonably have requested in orderto effectuate the foregoing.

 

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(c)           The Administrative Agent shall promptly notify each Lenderas to the effectiveness of each Commitment Increase (with each date of sucheffectiveness being referred to herein as a “Commitment Increase Date”),and at such time (i) the Tranche A Commitments under, and for all purposes of,this Agreement shall be increased by the aggregate amount of such CommitmentIncreases, (ii) Schedule 1.1 shall be deemed modified, without furtheraction,  to reflect the revised Tranche ACommitment Percentages and Commitment Percentages of the relevant Tranche A Lenders,and (iii) this Agreement shall be deemed amended, without further action, tothe extent necessary to reflect such increased Tranche A Commitments.

 

(d)           In connection with Commitment Increases hereunder, theLenders and the Borrowers agree that, notwithstanding anything to the contraryin this Agreement, (i) the Borrowers shall, in coordination with theAdministrative Agent, (x) repay outstanding Tranche A Loans of certain TrancheA Lenders, and obtain Tranche A Loans from certain other Tranche A Lenders(including the Additional Commitment Lenders), or (y) take such other actionsas reasonably may be required by the Administrative Agent, in each case to theextent necessary so that all of the Tranche A Lenders effectively participatein each of the outstanding Tranche A Loans pro rata on the basis of theirTranche A Commitment Percentages (determined after giving effect to anyincrease in the Tranche A Commitments pursuant to this SECTION 2.02), and (ii)the Borrowers shall pay to the Tranche A Lenders any costs of the type referredto in SECTION 2.16(c) in connection with any repayment and/or Tranche A Loansrequired pursuant to preceding clause (i). Without limiting the obligations ofthe Borrowers provided for in this SECTION 2.02, the Administrative Agent andthe Tranche A Lenders agree that they will use their best efforts to attempt tominimize the costs of the type referred to in SECTION 2.16(c) which theBorrowers would otherwise incur in connection with the implementation of anincrease in the Tranche A Commitments.

 

SECTION2.03               Reserves; Changes toReserves.

 

(a)           The initial Inventory Reserves and AvailabilityReserves as of the Closing Date are the following:

 

(i)            Shrink (an Inventory Reserve): (a)In an amount equal to the shrink reserve maintained by the Loan Parties intheir general ledger, consistent with past practices.

 

(ii)           Landlord Lien Reserve (anAvailability Reserve): (A) An amount equal to all past due rent for all of theBorrowers’ leased locations in the states of Washington, Virginia andPennsylvania, other than leased locations with respect to which the Agents havereceived a landlord’s waiver or subordination of lien in form reasonablysatisfactory to the Agents, plus (B) an amount equal to all past due rent forall of the Borrowers’ distribution centers or warehouses, other thandistribution centers or warehouses with respect to which the Agents havereceived a landlord’s waiver or subordination of lien in form reasonablysatisfactory to the Agents.

 

(iii)          Customer Credit Liabilities (anAvailability Reserve): As of any date, an amount equal to fifty percent (50%)of the Customer Credit Liabilities (other than on account of customerdeposits).

 

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(b)           The Administrative Agent may hereafter establishadditional Reserves or change any of the foregoing Reserves, in the exercise ofits reasonable business judgment acting in accordance with industry standardsfor asset based lending in the retail industry, provided that such Reserves shall not be established or changedexcept upon not less than six (6) Business Days notice to the Borrowers (duringwhich period the Agents shall be available to discuss any such proposed Reservewith the Borrowers and the Borrowers may take such action as may be required sothat the event, condition or matter that is the basis for such Reserve nolonger exists, in a manner and to the extent reasonably satisfactory to theAdministrative Agent). The amount of any Reserve established by theAdministrative Agent shall have a reasonable relationship to the event,condition or other matter that is the basis for the Reserve. Notwithstandinganything herein to the contrary, Reserves shall not duplicate eligibilitycriteria contained in the definition of Eligible Inventory, or reserves orcriteria deducted in computing the Appraised Value of Eligible Inventory.

 

SECTION2.04               Making of RevolvingCredit Loans.

 

(a)           Except as set forth in SECTION 2.09, SECTION 2.10 andSECTION 2.11, Revolving Credit Loans (other than Swingline Loans) shall beeither Prime Rate Loans or LIBO Loans as the Lead Borrower on behalf of theBorrowers may request (which request shall substantially be made in the formattached hereto as Exhibit C) subject to and in accordance with thisSECTION 2.04. All Swingline Loans shall be only Prime Rate Loans. All RevolvingCredit Loans made pursuant to the same Borrowing shall, unless otherwisespecifically provided herein, be Revolving Credit Loans of the same Type. EachLender may fulfill its Commitment with respect to any Revolving Credit Loan bycausing any lending office of such Lender to make such Revolving Credit Loan; provided,however, that any such use of a lending office shall not affect theobligation of the Borrowers to repay such Revolving Credit Loan in accordancewith the terms of the applicable Revolving Credit Note. Each Lender shall,subject to its overall policy considerations, use reasonable efforts to selecta lending office which will not result in the payment of increased costs by theBorrowers. Subject to the other provisions of this SECTION 2.04 and theprovisions of SECTION 2.10 and SECTION 2.11, Borrowings of Revolving CreditLoans of more than one Type may be incurred at the same time, but in any eventno more than ten (10) Borrowings of LIBO Loans may be outstanding at any time.

 

(b)           The Lead Borrower shall give the Administrative Agent (w)two (2) Business Days’ prior telephonic notice (thereafter confirmed inwriting) of each Borrowing of LIBO Loans, and (x) prior telephonic notice(thereafter confirmed in writing) of each Borrowing of Prime Rate Loans by theBorrowers on the same Business Day requested for such Borrowing. Any suchnotice, to be effective, must be received by the Administrative Agent not laterthan 12:30 p.m. on the second Business Day in the case of LIBO Loans, and notlater than 12:00 noon on the same Business Day in the case of Prime Rate Loans,prior to the date on which such Borrowing is to be made. Such notice shall beirrevocable (except to the extent set forth in SECTION 2.10 or SECTION 2.11hereof), shall contain disbursement instructions and shall specify: (i) whetherthe Borrowing then being requested is to be a Borrowing of Prime Rate Loans orLIBO Loans and, if LIBO Loans, the Interest Period with respect thereto; (ii)the amount of the proposed Borrowing (which shall be in an integral multiple of$1,000,000, but not less than $5,000,000 in the case of LIBO Loans); and (iii)the date of the proposed Borrowing (which shall be a Business Day). If noelection of Interest Period is specified in any such notice

 

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for a Borrowing of LIBOLoans, such notice shall be deemed a request for an Interest Period of one (1)month. If no election is made as to the Type of Revolving Credit Loan, suchnotice shall be deemed a request for Borrowing of Prime Rate Loans. TheAdministrative Agent shall promptly notify each Lender of its proportionateshare of such Borrowing, the date of such Borrowing, the Type of Borrowing beingrequested and the Interest Period or Interest Periods applicable thereto, asappropriate. On the borrowing date specified in such notice, each Lender shallmake its share of the Borrowing available at the office of the AdministrativeAgent at 100 Federal Street, Boston, Massachusetts 02110 (or such other placeas the Administrative Agent may request) no later than 3:00 p.m., inimmediately available funds. Unless the Administrative Agent shall havereceived notice from a Lender prior to the proposed date of any Borrowing thatsuch Lender will not make available to the Administrative Agent such Lender’sshare of such Borrowing, the Administrative Agent may assume that such Lenderhas made such share available on such date in accordance with this SECTION 2.04and may, in reliance upon such assumption, make available to the Borrowers acorresponding amount. In the event a Lender has not in fact made its share ofthe applicable Borrowing available to the Administrative Agent, then theapplicable Lender and the Borrowers severally agree to pay to theAdministrative Agent, forthwith on demand such corresponding amount, withinterest thereon for each day from and including the date such amount is madeavailable to the Borrowers to but excluding the date of payment to theAdministrative Agent, at (i) in the case of such Lender, the greater of theFederal Funds Effective Rate and a rate determined by the Administrative Agentin accordance with banking industry rules on interbank compensation, or (ii) inthe case of the Borrowers, the interest rate applicable to Prime Rate Loans. Ifsuch Lender pays such amount to the Administrative Agent, then such amountshall constitute such Lender’s Revolving Credit Loan included in such Borrowing.Upon receipt of the funds made available by the Lenders to fund any borrowinghereunder, the Administrative Agent shall disburse such funds in the mannerspecified in the notice of borrowing delivered by the Lead Borrower and shalluse reasonable efforts to make the funds so received from the Lenders availableto the Borrowers no later than 5:00 p.m.

 

(c)           Notwithstanding anything to the contrary herein contained,all Revolving Credit Loans to the Borrowers shall be Tranche A-1 Loans untilthe outstanding principal amount of such Revolving Credit Loans equal thelesser of Incremental Availability or the then Tranche A-1 Commitments. If anyTranche A-1 Loan is prepaid in part pursuant to SECTION 2.16(b), any RevolvingCredit Loans to the Borrowers thereafter requested shall be Tranche A-1 Loansuntil the maximum principal amount of Tranche A-1 Loans outstanding equals thelesser of Incremental Availability or Tranche A-1 Commitments and thereafterall Revolving Credit Loans shall be Tranche A Loans.

 

(d)           To the extent not paid by the Borrowers when due (aftertaking into consideration any applicable grace period), the AdministrativeAgent, without the request of the Lead Borrower, may advance any interest orfee payable pursuant to SECTION 2.19 or other payment to which any Credit Partyis entitled from the Loan Parties pursuant hereto or any other Loan Documentand may charge the same to the Loan Account notwithstanding that an Overadvancemay result thereby. The Administrative Agent shall advise the Lead Borrower ofany such advance or charge promptly after the making thereof. Such action onthe part of the Administrative Agent shall not constitute a waiver of theAdministrative Agent’s rights and the Borrowers’ obligations under SECTION2.17(a) or SECTION 2.17(b). Any amount which is

 

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added to the principalbalance of the Loan Account as provided in this SECTION 2.04(d) shall bearinterest at the interest rate then and thereafter applicable to Prime RateLoans.

 

SECTION2.05               Overadvances.

 

(a)           The Agents and the Lenders shall have no obligation tomake any Revolving Credit Loan (including, without limitation, any SwinglineLoan) or to provide any Letter of Credit if an Overadvance would result.

 

(b)           The Administrative Agent may, in its discretion, makePermitted Overadvances to the Borrowers without the consent of the Lenders andeach Lender shall be bound thereby. Any Permitted Overadvances may constituteSwingline Loans. The making of a Permitted Overadvance is for the benefit ofthe Borrowers and shall constitute a Revolving Credit Loan and an Obligation. Themaking of any such Permitted Overadvance on any one occasion shall not obligatethe Administrative Agent or any Lender to make or permit any PermittedOveradvance on any other occasion or to permit such Permitted Overadvances toremain outstanding, nor shall the making of any such Permitted Overadvancemodify or abrogate the Borrowers’ obligations under SECTION 2.17(a) and SECTION2.17(b) hereof.

 

(c)           The making by the Administrative Agent of a PermittedOveradvance shall not modify or abrogate any of the provisions of SECTION2.13(g) regarding the Lenders’ obligations to purchase participations withrespect to Letter of Credit Disbursements.

 

SECTION2.06               Swingline Loans.

 

(a)           The Swingline Lender is authorized by the Lenders to, andshall make, Swingline Loans at any time (subject to SECTION 2.06(b)) to theBorrowers up to the amount of the sum of (i) the Swingline Loan Ceiling, upon anotice of Borrowing from Lead Borrower received by the Administrative Agent andthe Swingline Lender (which notice, at the Swingline Lender’s discretion, maybe submitted prior to 3:00 p.m. on the Business Day on which such SwinglineLoan is requested), plus (ii) any Permitted Overadvances. SwinglineLoans shall be Prime Rate Loans and shall be subject to periodic settlementwith the Lenders under SECTION 2.22 below.

 

(b)           The Lead Borrower’s request for a Swingline Loan shall bedeemed a representation that the applicable conditions for borrowing underSECTION 4.02 are satisfied (unless such conditions have been waived). If theconditions for borrowing under SECTION 4.02 cannot in fact be fulfilled, (x)the Lead Borrower shall give immediate notice (a “Noncompliance Notice”)thereof to the Administrative Agent and the Swingline Lender, and theAdministrative Agent shall promptly provide each Lender with a copy of theNoncompliance Notice, and (y) the Required Lenders may direct the SwinglineLender to, and the Swingline Lender thereupon shall, cease making SwinglineLoans (other than Permitted Overadvances) until such conditions can besatisfied or are waived in accordance with SECTION 9.01. Unless the RequiredLenders so direct the Swingline Lender, the Swingline Lender may, but is notobligated to, continue to make Swingline Loans commencing one (1) Business Dayafter the Noncompliance Notice is furnished to the Lenders. Notwithstanding theforegoing, no Swingline Loans (other than Permitted Overadvances) shall be madepursuant to this SECTION 2.06(b) if

 

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the Tranche A CreditExtensions and/or the aggregate outstanding amount of the Credit Extensions andSwingline Loans would exceed the limitations set forth in SECTION 2.01.

 

SECTION2.07               Notes.

 

(a)           Upon the request of any Lender, the Revolving Credit Loansmade by such Lender shall be evidenced by a Revolving Credit Note, dulyexecuted on behalf of the Borrowers, dated the Closing Date, payable to theorder of such Lender in an aggregate principal amount equal to such Lender’sCommitment.

 

(b)           Upon the request of the Swingline Lender, the RevolvingCredit Loans made by the Swingline Lender with respect to Swingline Loans shallbe evidenced by a Swingline Note, duly executed on behalf of the Borrowers,dated the Closing Date, payable to the order of the Swingline Lender, in anaggregate principal amount equal to the Swingline Loan Ceiling.

 

(c)           Each Lender is hereby authorized by the Borrowers toendorse on a schedule attached to each Note delivered to such Lender (or on acontinuation of such schedule attached to such Note and made a part thereof),or otherwise to record in such Lender’s internal records, an appropriatenotation evidencing the date and amount of each Revolving Credit Loan from suchLender, each payment and prepayment of principal of any such Revolving CreditLoan, each payment of interest on any such Revolving Credit Loan and the otherinformation provided for on such schedule; provided, however,that the failure of any Lender to make such a notation or any error thereinshall not affect the obligation of any Borrower to repay the Revolving CreditLoans made by such Lender in accordance with the terms of this Agreement andthe applicable Notes.

 

(d)           Upon receipt of an affidavit and indemnity of a Lender asto the loss, theft, destruction or mutilation of such Lender’s Note and uponcancellation of such Note, the Borrowers will issue, in lieu thereof, areplacement Note in favor of such Lender, in the same principal amount thereofand otherwise of like tenor at such Lender’s expense.

 

SECTION2.08               Interest onRevolving Credit Loans.

 

(a)           Subject to SECTION 2.12, each Prime Rate Loan shall bearinterest (computed on the basis of the actual number of days elapsed over ayear of 365 or 366 days, as applicable) at a rate per annum that shall be equalto the then Prime Rate plus the Applicable Margin for Prime Rate Loans.

 

(b)           Subject to SECTION 2.09 through SECTION 2.12, each LIBOLoan shall bear interest (computed on the basis of the actual number of dayselapsed over a year of 360 days) at a rate per annum equal, during eachInterest Period applicable thereto, to the Adjusted  LIBO Rate for such Interest Period, plusthe Applicable Margin for LIBO Loans.

 

(c)           Accrued interest on all Revolving Credit Loans shall bepayable in arrears on each Interest Payment Date applicable thereto, atmaturity (whether by acceleration or otherwise) and after such maturity ondemand.

 

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SECTION2.09               Conversion andContinuation of Revolving Credit Loans.

 

(a)           The Lead Borrower shall have the right at any time, onthree (3) Business Days’ prior notice to the Administrative Agent (whichnotice, to be effective, must be received by the Administrative Agent not laterthan 12:30 p.m. on the third Business Day preceding the date of anyconversion), (i) to convert any outstanding Borrowings of Prime Rate Loans toBorrowings of LIBO Loans, or (ii) to continue an outstanding Borrowing of LIBOLoans for an additional Interest Period, or (iii) to convert any outstandingBorrowings of LIBO Loans to a Borrowing of Prime Rate Loans, subject in eachcase to the following:

 

(i)            No Borrowing of Revolving CreditLoans may be converted into, or continued as, LIBO Loans at any time when anyEvent of Default has occurred and is continuing (nothing contained herein beingdeemed to obligate the Borrowers to incur Breakage Costs upon the occurrenceand during the continuance of an Event of Default unless the Obligations areaccelerated);

 

(ii)           If less than a full Borrowing ofRevolving Credit Loans is converted, such conversion shall be made prorataamong the Lenders based upon their Tranche A Commitment Percentages (or TrancheA-1 Commitment Percentages as the case may be) in accordance with the respectiveprincipal amounts of the Revolving Credit Loans comprising such Borrowing heldby such Lenders immediately prior to such conversion;

 

(iii)          The aggregate principal amount ofPrime Rate  Loans being converted into orcontinued as LIBO Loans shall be in an integral of $1,000,000 and at least$5,000,000;

 

(iv)          Each Lender shall effect eachconversion by applying the proceeds of its new LIBO Loan or Prime Rate Loan, asthe case may be, to its Revolving Credit Loan being so converted;

 

(v)           The Interest Period with respect to aBorrowing of LIBO Loans effected by a conversion or in respect to the Borrowingof LIBO Loans being continued as LIBO Loans shall commence on the date ofconversion or the expiration of the current Interest Period applicable to suchcontinuing Borrowing, as the case may be;

 

(vi)          A Borrowing of LIBO Loans may not beconverted prior to the last day of an Interest Period applicable thereto,unless the applicable Borrower pays all Breakage Costs incurred in connectionwith such conversion; and

 

(vii)         Each request for a conversion orcontinuation of a Borrowing of LIBO Loans which fails to state an applicableInterest Period shall be deemed to be a request for an Interest Period of one(1) month.

 

(b)           If the Lead Borrower does not give notice to convert anyBorrowing of LIBO Loans, or does not give notice to continue, or does not havethe right to continue, any Borrowing as LIBO Loans, in each case as provided inSECTION 2.09(a) above, such Borrowing shall automatically be converted to, or continuedas, as applicable, a Borrowing of

 

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LIBO Loans with an InterestPeriod of one (1) month, at the expiration of the then-current Interest Period,provided that if an Event of Default then exists and is continuing, suchBorrowing shall be converted to, or continued as a Prime Rate Loan. TheAdministrative Agent shall, after it receives notice from the Lead Borrower,promptly give each Lender notice of any conversion, in whole or part, of anyRevolving Credit Loan made by such Lender.

 

SECTION2.10               Alternate Rate ofInterest for Revolving Credit Loans.

 

If prior to the commencementof any Interest Period for a LIBO Borrowing, the Administrative Agent:

 

(a)           Reasonably determines (whichdetermination shall be conclusive absent manifest error) that adequate andreasonable means do not exist for ascertaining the Adjusted LIBO Rate (inaccordance with the terms of the definition thereof) for such Interest Period;or

 

(b)           Is advised by the Required Lendersthat the Adjusted LIBO Rate for such Interest Period will not adequately andfairly reflect the cost to such Required Lenders of making or maintaining theirRevolving Credit Loans included in such Borrowing for such Interest Period;

 

then the Administrative Agentshall give notice thereof to the Lead Borrower and the Lenders by telephone ortelecopy as promptly as practicable thereafter and, until the AdministrativeAgent notifies the Lead Borrower and the applicable Lenders that thecircumstances giving rise to such notice no longer exist (which notice theAdministrative Agent shall deliver promptly upon obtaining knowledge of thesame), (i) any Borrowing Request that requests the conversion of any Borrowingto, or continuation of any Borrowing as, a LIBO Borrowing shall be ineffectiveand (ii) if any Borrowing Request requests a LIBO Borrowing, such Borrowingshall be made as a Borrowing of Prime Rate Loans unless withdrawn by the LeadBorrower.

 

SECTION2.11               Change in Legality.

 

(a)           Notwithstanding anything to the contrary containedelsewhere in this Agreement, if any Change in Law occurring after the ClosingDate shall make it unlawful for a Lender to make or maintain a LIBO Loan or togive effect to its obligations as contemplated hereby with respect to a LIBOLoan, then, by written notice to the Lead Borrower, such Lender may (x) declarethat LIBO Loans will not thereafter be made by such Lender hereunder, whereuponany request by the Lead Borrower for a LIBO Borrowing shall, as to such Lenderonly, be deemed a request for a Prime Rate Loan unless such declaration shallbe subsequently withdrawn; and (y) require that all outstanding LIBO Loans madeby such Lender be converted to Prime Rate Loans, in which event all such LIBOLoans shall be automatically converted to Prime Rate Loans as of the effectivedate of such notice as provided in SECTION 2.09(b). In the event any Lendershall exercise its rights hereunder, all payments and prepayments of principalwhich would otherwise have been applied to repay the LIBO Loans that would havebeen made by such Lender or the converted LIBO Loans of such Lender, shallinstead be applied to repay the Prime Rate Loans made by such Lender in lieuof, or resulting from the conversion of, such LIBO Loans.

 

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(b)           For purposes of this SECTION 2.11, a notice to the LeadBorrower pursuant to SECTION 2.11(a) above shall be effective, if lawful, andif any LIBO Loans shall then be outstanding, on the last day of thethen-current Interest Period; and otherwise such notice shall be effective onthe date of receipt by the Lead Borrower.

 

SECTION2.12               Default Interest.

 

Effective upon writtennotice from the Administrative Agent (which notice shall be given only at thedirection of the Required Lenders after the occurrence of any SpecifiedDefault) and at all times thereafter while such Specified Default iscontinuing, interest shall accrue on all overdue amounts owing by the Borrowers(after as well as before judgment, as and to the extent permitted by law) at arate per annum (computed on the basis of the actual number of days elapsed overa year of 365 or 366 days as applicable) (the “Default Rate”) equal tothe rate (including the Applicable Margin for Tranche A Loans or Tranche A-1Loans, as applicable) in effect from time to time plus two percent(2.00%) per annum and such interest shall be payable on each Interest PaymentDate (or any earlier maturity of the Revolving Credit Loans).

 

SECTION2.13               Letters of Credit.

 

(a)           Upon the terms and subject to the conditions herein setforth, at any time and from time to time after the date hereof and prior to theTermination Date, the Lead Borrower on behalf of the Borrowers may request anIssuing Bank to issue, and subject to the terms and conditions containedherein, the applicable Issuing Bank shall issue, for the account of the LeadBorrower or a Restricted Subsidiary, one or more Letters of Credit; provided,however, that no Letter of Credit shall be issued if after giving effectto such issuance (i) the aggregate Letter of Credit Outstandings shall exceedthe Letter of Credit Sublimit, or (ii) the Tranche A Credit Extensions and/orthe aggregate Credit Extensions (including Swingline Loans) would exceed thelimitations set forth in SECTION 2.01(a) provided, further, thatno Letter of Credit shall be issued unless an Issuing Bank shall have receivednotice from the Administrative Agent that the conditions to such issuance havebeen met (such notice shall be deemed given (x) if the Issuing Bank has notreceived notice that the conditions have not been met within two Business Daysof the initial request to the Issuing Bank and the Administrative Agentpursuant to SECTION 2.13(h), or (y) if the aggregate undrawn amount underLetters of Credit issued by such Issuing Bank then outstanding does not exceedthe amount theretofore agreed to by the Lead Borrower, the Administrative Agentand the Issuing Bank, and provided further that any Letter of Creditissued for the benefit of  Michaels ofCanada, ULC or any Foreign Subsidiary shall be issued naming the Lead Borroweras the account party on any such Letter of Credit but such Letter of Credit maycontain a statement that it is being issued for the benefit of  Michaels of Canada, ULC or such ForeignSubsidiary. A permanent reduction of the Tranche A Commitments shall notrequire a corresponding pro rata reduction in the Letter of Credit Sublimit; provided,however, that if the Tranche A Commitments are reduced to an amount lessthan the Letter of Credit Sublimit, then the Letter of Credit Sublimit shall bereduced to an amount equal to (or, at Lead Borrower’s option, less than) theTranche A Commitments. Any Issuing Bank (other than Bank of America or any ofits Affiliates) shall notify the Administrative Agent in writing on eachBusiness Day of all Letters of Credit issued on the prior Business Day by suchIssuing Bank, provided that until the aggregate amount of the Letters ofCredit issued in any such week exceeds such amount as shall be agreed by theAdministrative Agent and the Issuing Bank, such Issuing

 

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Bank shall be required to sonotify the Administrative Agent in writing only once each week of the Lettersof Credit issued by such Issuing Bank during the immediately preceding week aswell as the daily amounts outstanding for the prior week, such notice to befurnished on such day of the week as the Administrative Agent and such IssuingBank may agree.

 

(b)           Each Standby Letter of Credit shall expire at or prior tothe close of business on the earlier of the date which is (i) one (1) yearafter the date of the issuance of such Letter of Credit (or such other longerperiod of time as the Administrative Agent and the applicable Issuing Bank mayagree) (or, in the case of any renewal or extension thereof, one (1) year aftersuch renewal or extension) and (ii) unless cash collateralized or otherwisecredit supported to the reasonable satisfaction of the Administrative Agent andthe applicable Issuing Bank (in which case, the expiry may extend no longerthan twelve months after the Maturity Date), five (5) Business Days prior tothe Maturity Date; provided, however, that each Standby Letter ofCredit may, upon the request of the Lead Borrower, include a provision wherebysuch Letter of Credit shall be renewed automatically (unless the applicableIssuing Bank notifies the beneficiary thereof at least thirty (30) days priorto the then-applicable expiration date that such Letter of Credit will not berenewed) for additional consecutive periods of twelve (12) months or less (butnot beyond the date that is five (5) Business Days prior to the Maturity Date,unless cash collateralized or otherwise credit supported to the reasonablesatisfaction of the Administrative Agent and the applicable Issuing Bank (inwhich case, the expiry may extend no longer than twelve months after theMaturity Date)).

 

(c)           Each Commercial Letter of Credit shall expire at or priorto the close of business on the earlier of the date which is (i) one (1) yearafter the date of the issuance of such Commercial Letter of Credit (or suchother period as may be acceptable to the Administrative Agent and theapplicable Issuing Bank) and (ii) unless cash collateralized or otherwisecredit supported to the reasonable satisfaction of the Administrative Agent andthe applicable Issuing Bank (in which case, the expiry may extend no longerthan twelve months after the Maturity Date), five (5) Business Days prior tothe Maturity Date.

 

(d)           Drafts drawn under each Letter of Credit shall bereimbursed by the Borrowers by paying to the Administrative Agent an amountequal to such drawing not later than 12:00 noon on the second Business Dayimmediately following the day that the Lead Borrower receives notice of suchdrawing and demand for payment by the applicable Issuing Bank, provided that(i) in the absence of written notice to the contrary from the Lead Borrower,and subject to the other provisions of this Agreement, such payments shall befinanced when due with a Prime Rate Loan or Swingline Loan to the applicableBorrower in an equivalent amount and, to the extent so financed, the respectiveBorrower’s obligation to make such payment shall be discharged and replaced bythe resulting Prime Rate Loan or Swingline Loan, and (ii) in the event that theLead Borrower has notified the Administrative Agent that it will not so financeany such payments, the applicable Borrowers will make payment directly to theapplicable Issuing Bank when due. The Administrative Agent shall promptly remitthe payments received by it from any Borrower in reimbursement of a draw undera Letter of Credit or the proceeds of a Prime Rate Loan or Swingline Loan, asthe case may be, used to finance such payment to the applicable Issuing Bank. SuchIssuing Bank shall, promptly following its receipt thereof, examine alldocuments purporting to represent a demand for payment under a Letter ofCredit. Such Issuing Bank shall promptly notify the Administrative Agent andthe Lead Borrower by

 

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telephone (confirmed bytelecopy) of such demand for payment and whether such Issuing Bank has made orwill make payment thereunder; provided, however, that any failureto give or delay in giving such notice shall not relieve the Borrowers of theirobligation to reimburse such Issuing Bank and the Lenders with respect to anysuch payment.

 

(e)           If any Issuing Bank shall make any Letter of CreditDisbursement, then, unless the applicable Borrowers shall reimburse suchIssuing Bank in full on the date provided in SECTION 2.13(d) above, the unpaidamount thereof shall bear interest  atthe rate per annum then applicable to Prime Rate Loans for each day from andincluding the date such payment is made to, but excluding, the date that suchBorrowers reimburse such Issuing Bank therefor, provided, however,that, if such Borrowers fail to reimburse any Issuing Bank when due pursuant toSECTION 2.13(d), then interest shall accrue at the Default Rate. Interestaccrued pursuant to this paragraph shall be for the account of, and promptlyremitted by the Administrative Agent, upon receipt to, the applicable IssuingBank, except that interest accrued on and after the date of payment by anyLender pursuant to SECTION 2.13(g) to reimburse such Issuing Bank shall be forthe account of such Lender to the extent of such payment.

 

(f)            Immediately upon the issuance of any Letter of Credit byany Issuing Bank (or the amendment of a Letter of Credit increasing the amountthereof), and without any further action on the part of such Issuing Bank, suchIssuing Bank shall be deemed to have sold to each Tranche A Lender, and eachsuch Tranche A Lender shall be deemed unconditionally and irrevocably to havepurchased from such Issuing Bank, without recourse or warranty, an undividedinterest and participation, to the extent of such Tranche A Lender’s Tranche ACommitment Percentage, in such Letter of Credit, each drawing thereunder andthe obligations of the Borrowers under this Agreement and the other LoanDocuments with respect thereto. Upon any change in the Tranche A Commitmentspursuant to SECTION 2.02 or SECTION 9.07 of this Agreement, it is hereby agreedthat with respect to all Letter of Credit Outstandings, there shall be anautomatic adjustment to the participations hereby created to reflect the newTranche A Commitment Percentages of the assigning and assignee Tranche ALenders and the Additional Commitment Lenders, if applicable. If any Letter ofCredit Outstandings remain upon the termination of the Tranche A Commitments,if the lesser of (i) Tranche A-1 Commitments (determined without regard to anyconcurrent termination of such Tranche A-1 Commitments) or (ii) IncrementalAvailability exceeds the Tranche A-1 Credit Extensions (the “Excess Amount”)upon such termination of the Tranche A Commitments, the Tranche A Lenders shallbe deemed to have sold to each Tranche A-1 Lender, and each Tranche A-1 Lendershall be deemed unconditionally and irrevocably to have so purchased from theTranche A Lenders, without recourse or warranty, an undivided interest andparticipation, to the extent of such Tranche A-1 Lender’s Tranche A-1Commitment Percentage in the lesser of such Excess Amount or such undividedinterest and participation of each Tranche A Lender in the Letter of CreditOutstandings, each drawing thereunder and the obligations of the Borrowersunder this Agreement and the other Loan Documents with respect thereto. Anyaction taken or omitted by any Issuing Bank under or in connection with aLetter of Credit, if taken or omitted in the absence of gross negligence orwillful misconduct, shall not create for such Issuing Bank any resultingliability to any Lender.

 

(g)           In the event that any Issuing Bank makes any Letter ofCredit Disbursement and the Borrowers shall not have reimbursed such amount infull to such Issuing

 

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Bank pursuant to thisSECTION 2.13, such Issuing Bank shall promptly notify the Administrative Agent,which shall promptly notify each Tranche A Lender (or Tranche A-1 Lender, withrespect to the Excess Amount, if applicable), of such failure, and each TrancheA Lender (or Tranche A-1 Lender, with respect to the Excess Amount, ifapplicable) shall promptly and unconditionally pay to the Administrative Agent,for the account of such Issuing Bank the amount of such Tranche A Lender’s (orTranche A-1 Lender’s, with respect to the Excess Amount, if applicable) TrancheA Commitment Percentage (or Tranche A-1 Commitment Percentage, with respect tothe Excess Amount, if applicable) of such unreimbursed payment in Dollars andin same day funds. If the applicable Issuing Bank so notifies theAdministrative Agent and the Administrative Agent so notifies the Tranche ALenders (or Tranche A-1 Lender, with respect to the Excess Amount, ifapplicable) prior to 11:00 a.m. on any Business Day, each such Tranche A Lender(or Tranche A-1 Lender, with respect to the Excess Amount, if applicable) shallmake available to the applicable Issuing Bank such Tranche A Lender’s (orTranche A-1 Lender’s , with respect to the Excess Amount, if applicable)Tranche A Commitment Percentage (or Tranche A-1 Commitment Percentage, withrespect to the Excess Amount, if applicable) of the amount of such payment on suchBusiness Day in same day funds (or if such notice is received by the Tranche ALenders (or Tranche A-1 Lender, with respect to the Excess Amount, ifapplicable) after 11:00 a.m. on the day of receipt, payment shall be made onthe immediately following Business Day in same day funds). If and to the extentsuch Tranche A Lender (or Tranche A-1 Lender, with respect to the ExcessAmount, if applicable) shall not have so made its Tranche A CommitmentPercentage (or Tranche A-1 Commitment Percentage, with respect to the ExcessAmount, if applicable) of the amount of such payment available to theapplicable Issuing Bank, such Tranche A Lender (or Tranche A-1 Lender, withrespect to the Excess Amount, if applicable) agrees to pay to such Issuing Bankforthwith on demand such amount, together with interest thereon, for each dayfrom such date until the date such amount is paid to the Administrative Agentfor the account of such Issuing Bank at the Federal Funds Effective Rate. EachTranche A Lender (or Tranche A-1 Lender, with respect to the Excess Amount, ifapplicable) agrees to fund its Tranche A Commitment Percentage (or Tranche A-1Commitment Percentage, with respect to the Excess Amount, if applicable) ofsuch unreimbursed payment notwithstanding a failure to satisfy any applicablelending conditions or the provisions of SECTION 2.01 or SECTION 2.06, or theoccurrence of the Termination Date. The failure of any Tranche A Lender (orTranche A-1 Lender, with respect to the Excess Amount, if applicable) to make availableto the applicable Issuing Bank its Tranche A Commitment Percentage (or TrancheA-1 Commitment Percentage, with respect to the Excess Amount, if applicable) ofany payment under any Letter of Credit shall neither relieve any Tranche ALender (or Tranche A-1 Lender, with respect to the Excess Amount, ifapplicable) of its obligation hereunder to make available to such Issuing Bankits Tranche A Commitment Percentage (or Tranche A-1 Commitment Percentage, withrespect to the Excess Amount, if applicable) of any payment under any Letter ofCredit on the date required, as specified above, nor increase the obligation ofsuch other Tranche A Lender (or Tranche A-1 Lender, with respect to the ExcessAmount, if applicable). Whenever any Tranche A Lender (or Tranche A-1 Lender,with respect to the Excess Amount, if applicable) has made payments to anyIssuing Bank in respect of any reimbursement obligation for any Letter ofCredit, such Tranche A Lender (or Tranche A-1 Lender, with respect to theExcess Amount, if applicable) shall be entitled to share ratably, based on itsTranche A Commitment Percentage (or Tranche A-1 Commitment

 

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Percentage, with respect tothe Excess Amount, if applicable), in all payments and collections thereafterreceived on account of such reimbursement obligation.

 

(h)           Whenever the Lead Borrower desires that any Issuing Bankissue a Letter of Credit (or the amendment, renewal or extension (other thanautomatic renewal or extensions) of an outstanding Letter of Credit), the LeadBorrower shall give to the applicable Issuing Bank and the Administrative Agentat least two (2) Business Days’ prior written (including, without limitation,by telegraphic, telex, facsimile or cable communication) notice (or suchshorter period as may be agreed upon in writing by such Issuing Bank and theLead Borrower) specifying the date on which the proposed Letter of Credit is tobe issued, amended, renewed or extended (which shall be a Business Day), the StatedAmount of the Letter of Credit so requested, the expiration date of such Letterof Credit, the name and address of the beneficiary thereof, and the provisionsthereof. If requested by the applicable Issuing Bank, the Lead Borrower shallalso submit documentation on such Issuing Bank’s standard form in connectionwith any request for the issuance, amendment, renewal or extension of a Letterof Credit, provided that in the event of a conflict or inconsistencybetween the terms of such documentation and this Agreement, the terms of thisAgreement shall supersede any inconsistent or contrary terms in suchdocumentation and this Agreement shall control.

 

(i)            Subject to the limitations set forth below, theobligations of the Borrowers to reimburse the Issuing Banks for any Letter ofCredit Disbursement shall be unconditional and irrevocable and shall be paidstrictly in accordance with the terms of this Agreement under allcircumstances, including, without limitation (it being understood that any suchpayment by the Borrowers shall be without prejudice to, and shall notconstitute a waiver of, any rights the Borrowers might have or might acquirehereunder as a result of the payment by the applicable Issuing Bank of anydraft or the reimbursement by the Borrowers thereof): (i) Any lack of validityor enforceability of a Letter of Credit; (ii) The existence of any claim,setoff, defense or other right which a Borrower may have at any time against abeneficiary of any Letter of Credit or against any Issuing Bank or any of theLenders, whether in connection with this Agreement, the transactionscontemplated herein or any unrelated transaction; (iii) Any draft, demand,certificate or other document presented under any Letter of Credit proving tobe forged or fraudulent in any respect or any statement therein being untrue orinaccurate in any respect; (iv) payment by any Issuing Bank of any Letter ofCredit against presentation of a demand, draft or certificate or other documentwhich does not strictly comply with the terms of such Letter of Credit; (v) Anyother circumstance or happening whatsoever, whether or not similar to any ofthe foregoing, that might, but for the provisions of this SECTION 2.13,constitute a legal or equitable discharge of, or provide a right of setoffagainst, any Loan Party’s obligations hereunder; or (vi) The fact that anyEvent of Default shall have occurred and be continuing; provided, that theBorrowers shall have no obligation to reimburse any Issuing Bank to the extentthat such payment was made in error due to the gross negligence, bad faith orwillful misconduct of such Issuing Bank (as determined by a court of competentjurisdiction or another independent tribunal having jurisdiction). No CreditParty shall have any liability or responsibility by reason of or in connectionwith the issuance or transfer of any Letter of Credit or any payment or failureto make any payment thereunder (irrespective of any of the circumstancesreferred to in the preceding sentence), or any error, omission, interruption,loss or delay in transmission or delivery of any draft, notice or othercommunication under or relating to any Letter of Credit (including any documentrequired to make a drawing thereunder), any error in interpretation of 

 

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technical terms or anyconsequence arising from causes beyond the control of the applicable IssuingBank, provided that the foregoing shall not be construed to excuse suchIssuing Bank from liability to the Borrowers to the extent of any directdamages (as opposed to consequential damages, claims in respect of which arehereby waived by the Borrowers to the extent permitted by Applicable Law)suffered by the Borrowers that are caused by such Issuing Bank’s failure toexercise care when determining whether drafts and other documents presentedunder a Letter of Credit comply with the terms thereof. The parties heretoexpressly agree that, in the absence of gross negligence, bad faith or willfulmisconduct on the part of any Issuing Bank (as determined by a court ofcompetent jurisdiction or another independent tribunal having jurisdiction),such Issuing Bank shall be deemed to have exercised care in each suchdetermination. In furtherance of the foregoing and without limiting thegenerality thereof, the parties agree that, with respect to documents presentedthat appear on their face to be in compliance with the terms of a Letter ofCredit, the applicable Issuing Bank may, in its reasonable discretion, eitheraccept and make payment upon such documents without responsibility for furtherinvestigation, regardless of any notice or information to the contrary, orrefuse to accept and make payment upon such documents if such documents are notin strict compliance with the terms of such Letter of Credit.

 

(j)            If any Specified Default shall occur and be continuing,on the Business Day that the Lead Borrower receives notice from theAdministrative Agent (which notice may be given at the election of theAdministrative Agent or at the direction of the Required Lenders) demanding thedeposit of cash collateral pursuant to this paragraph, the applicable LoanParties shall immediately deposit in the applicable Cash Collateral Account anamount in cash equal to 101.5% of the Letter of Credit Outstandings owing bysuch Loan Parties as of such date, plus any accrued and unpaid interestthereon. Each such deposit shall be held by the Collateral Agent for thepayment and performance of the Obligations. The Collateral Agent shall haveexclusive dominion and control, including the exclusive right of withdrawal,over such Cash Collateral Account. Other than any interest earned on theinvestment of such deposits, which investments shall be made at the option andin the sole discretion of the Administrative Agent (at the request of the LeadBorrower and at the Borrowers’ risk and expense), such deposits shall not bearinterest. Interest or profits, if any, on such investments shall accumulate insuch account. Moneys in such Cash Collateral Account shall be applied by theAdministrative Agent to reimburse the Issuing Banks for payments on account ofdrawings under Letters of Credit for which it has not been reimbursed and, tothe extent not so applied, shall be held for the satisfaction of thereimbursement obligations of the Borrowers for the Letter of CreditOutstandings at such time or, if the maturity of the Revolving Credit Loans hasbeen accelerated, shall be applied to satisfy the other respective Obligationsof the applicable Borrower. If the applicable Borrower is required to providean amount of cash collateral hereunder as a result of the occurrence andcontinuance of a Specified Default, such amount (to the extent not applied asaforesaid) shall be returned promptly to the respective Borrower but in noevent later than two (2) Business Days after all Specified Defaults have beencured or waived.

 

(k)           The Loan Parties and the Credit Parties agree that theExisting Letters of Credit shall be deemed Letters of Credit hereunder as ifissued by an Issuing Bank.

 

SECTION2.14               Increased Costs.

 

(a)           If any Change in Law shall:

 

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(i)                                     impose, modify ordeem applicable any reserve, special deposit or similar requirement againstassets of, deposits with or for the account of, or credit extended by, anyLender or any holding company of any Lender (except any such reserverequirement reflected in the Adjusted LIBO Rate) or any Issuing Bank; or

 

(ii)                                  impose on any Lenderor any Issuing Bank or the London interbank market any other conditionaffecting LIBO Loans made by such Lender or any Letter of Credit orparticipation therein;

 

and the result of any of the foregoing shall be to increase the cost inany material amount in excess of those incurred by similarly situated lendersto such Lender of making or maintaining any LIBO Loan (or of maintaining itsobligation to make any such Revolving Credit Loan) or to increase the cost inany material amount in excess of those incurred by similarly situated lendersto such Lender or any Issuing Bank of participating in, issuing or maintainingany Letter of Credit or to reduce the amount in any material respect of any sumreceived or receivable by such Lender or such Issuing Bank hereunder (whetherof principal, interest or otherwise), then the Borrowers will pay to suchLender or such Issuing Bank, as the case may be, such additional amount or amountsas will compensate such Lender or such Issuing Bank, as the case may be, forsuch additional costs incurred or reduction suffered.

 

(b)                                 Ifany Lender or any Issuing Bank determines that any Change in Law regardingcapital requirements has or would have the effect of reducing the rate ofreturn on such Lender’s or such Issuing Bank’s capital or on the capital ofsuch Lender’s or such Issuing Bank’s holding company, if any, as a consequenceof this Agreement or the Revolving Credit Loans made by, or participations inLetters of Credit held by, such Lender, or the Letters of Credit issued by suchIssuing Bank, to a level below that which such Lender or such Issuing Bank orsuch Lender’s or such Issuing Bank’s holding company would have achieved butfor such Change in Law (taking into consideration such Lender’s or such IssuingBank’s policies and the policies of such Lender’s or such Issuing Bank’sholding company with respect to capital adequacy), then from time to time theBorrowers will pay to such Lender or such Issuing Bank, as the case may be,such additional amount or amounts as will compensate such Lender or suchIssuing Bank or such Lender’s or such Issuing Bank’s holding company for anysuch reduction suffered.

 

(c)                                  Acertificate of a Lender or any Issuing Bank setting forth the amount or amountsnecessary to compensate such Lender or such Issuing Bank or its holdingcompany, as the case may be, as specified in paragraph (a) or (b) of this SECTION 2.14 and setting forth in reasonabledetail the manner in which such amount or amounts were determined shall bedelivered to the Lead Borrower and shall be conclusive absent manifest error.The Borrowers shall pay such Lender or such Issuing Bank, as the case may be,the amount shown as due on any such certificate within fifteen (15) BusinessDays after receipt thereof.

 

(d)                                 Failure or delay on the part of any Lender orany Issuing Bank to demand compensation pursuant to this SECTION 2.14 shall notconstitute a waiver of such Lender’s or such Issuing Bank’s right to demandsuch compensation, provided that the Borrowers shall not be required tocompensate a Lender or any Issuing Bank pursuant to this Section for anyincreased costs or reductions incurred more than 90 days prior to the date thatsuch Lender or such Issuing Bank, as the case may be, notifies the Borrowers ofthe Change in Law giving rise

 

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tosuch increased costs or reductions and of such Lender’s or such Issuing Bank’sintention to claim compensation therefor, and provided further that, ifthe Change in Law giving rise to such increased costs or reductions isretroactive, then the 90 day period referred to above shall be extended toinclude the period of retroactive effect thereof.

 

SECTION 2.15                                            Optional Termination or Reduction ofCommitments.

 

(a)                                  Upon at least two (2) Business Days’ priorwritten notice to the Administrative Agent, the Lead Borrower may, at any time,in whole permanently terminate, or from time to time in part permanently reduce,the Tranche A Commitments. Each such reduction shall be in the principal amountof $5,000,000 or any integral multiple thereof. Each such reduction ortermination shall (i) be applied ratably to the Tranche A Commitments of eachTranche A Lender and (ii) be irrevocable at the effective time of any suchtermination or reduction. The Borrowers shall pay to the Administrative Agentfor application as provided herein (i) at the effective time of any suchtermination (but not any partial reduction), all earned and unpaid fees underthe Fee Letters and all Unused Fees accrued on the Tranche A Commitments soterminated, and (ii) at the effective time of any such reduction ortermination, any amount by which the Tranche A Credit Extensions to theBorrowers outstanding on such date exceed the amount to which the Tranche ACommitments are to be reduced effective on such date.

 

(b)                                 The Lead Borrower may reduce or terminate theTranche A-1 Commitments at any time as long as immediately after giving effectto such reduction or termination, there are no Tranche A Loans or SwinglineLoans outstanding. In the event that all of the Tranche A Commitments areterminated, the Lead Borrower shall contemporaneously therewith terminate allTranche A-1 Commitments. Each reduction of the Tranche A-1 Commitments shall bein the principal amount of $5,000,000 or any integral multiple thereof. TheBorrowers shall pay to the Administrative Agent for application as providedherein (i) at the effective time of any such termination (but not any partialreduction), all Unused Fees accrued on the Tranche A-1 Commitments soterminated, and (ii) at the effective time of any such reduction ortermination, any amount by which the Tranche A-1 Credit Extensions to theBorrowers outstanding on such date exceed the amount to which the Tranche A-1Commitments are to be reduced effective on such date.

 

SECTION 2.16                                            Optional Prepayment of Revolving CreditLoans; Reimbursement of Lenders.

 

(a)                                  Subject to the provisions of SECTION 2.16(b),the Borrowers shall have the right at any time and from time to time to prepaywithout premium or penalty (but subject to payment of Breakage Costs asprovided herein) (without a reduction in the Total Commitments) outstandingRevolving Credit Loans in whole or in part, (x) with respect to LIBO Loans,upon at least two (2) Business Days’ prior written, telex or facsimile noticeto the Administrative Agent, prior to 12:00 noon, and (y) with respect to PrimeRate Loans, on the same Business Day as such notice is furnished to theAdministrative Agent, prior to 12:00 noon, subject in each case to thefollowing limitations:

 

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(i)                                     Subject to SECTION 2.17, all prepaymentsshall be paid to the Administrative Agent for application (except as otherwisedirected by the applicable Borrower), first, to the prepayment ofoutstanding Swingline Loans, second, to the prepayment of otheroutstanding Tranche A Loans (other than Swingline Loans) ratably in accordancewith each Tranche A Lender’s Tranche A Commitment Percentage, third, tothe prepayment of other outstanding Tranche A-1 Loans ratably in accordancewith each Tranche A-1 Lender’s Tranche A-1 Commitment Percentage and fourth,if a Specified Default then exists, to the funding of a cash collateral depositin the Cash Collateral Account in an amount equal to 101.5% of all Letter ofCredit Outstandings;

 

(ii)                                  Subject to the foregoing, outstanding PrimeRate Loans of the Borrowers shall be prepaid before outstanding LIBO Loans ofthe Borrowers are prepaid (except as otherwise directed by the Lead Borrower).Each partial prepayment of LIBO Loans shall be in an integral multiple of$1,000,000 (but in no event less than $5,000,000). No prepayment of LIBO Loansshall be permitted pursuant to this SECTION 2.16 prior to the last day of anInterest Period applicable thereto, unless the Borrowers reimburse the Lendersfor all Breakage Costs associated therewith within five (5) Business Days ofreceiving a written demand for such reimbursement which sets forth thecalculation of such Breakage Costs in reasonable detail. No partial prepaymentof a Borrowing of LIBO Loans shall result in the aggregate principal amount ofthe LIBO Loans remaining outstanding pursuant to such Borrowing being less than$5,000,000 (unless all such outstanding LIBO Loans are being prepaid in full);and

 

(iii)                               Each notice of prepayment shall specify the prepayment date, theprincipal amount and Type of the Revolving Credit Loans to be prepaid and, inthe case of LIBO Loans, the Borrowing or Borrowings pursuant to which suchRevolving Credit Loans were made. Each notice of prepayment shall be revocable,provided that, within five (5) Business Days of receiving a written demand forsuch reimbursement which sets forth the calculation of such Breakage Costs inreasonable detail, the Borrowers shall reimburse the Lenders for all BreakageCosts associated with the revocation of any notice of prepayment. TheAdministrative Agent shall, promptly after receiving notice from the Lead Borrowerhereunder, notify each applicable Lender of the principal amount and Type ofthe Revolving Credit Loans held by such Lender which are to be prepaid, theprepayment date and the manner of application of the prepayment.

 

(b)                                 Notwithstanding the provisions of SECTION2.16(a) which generally permit voluntary prepayments of the Revolving CreditLoans, except as provided in SECTION 2.17, only if all Tranche A Loans arerepaid in full may the Borrowers prepay amounts owed with respect to theTranche A-1 Loans, provided, however, that any such prepayment shall notreduce or terminate the Tranche A-1 Commitments. In addition, the Borrowersshall also repay the Tranche A-1 Loans as required (i) under SECTION 2.17hereof, and (ii) upon any reduction or termination of the Tranche A-1Commitments in accordance with the provisions of SECTION 2.15(b) hereof.

 

(c)                                  The Borrowers shall reimburse each Lender asset forth below for any loss incurred or to be incurred by the Lenders in thereemployment of the funds (i) resulting from any prepayment (for any reasonwhatsoever, including, without limitation, conversion to Prime Rate

 

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Loansor acceleration by virtue of, and after, the occurrence and during thecontinuance of an Event of Default) of any LIBO Loan required or permittedunder this Agreement, if such Revolving Credit Loan is prepaid prior to thelast day of the Interest Period for such Revolving Credit Loan or (ii) in theevent that after the Lead Borrower delivers a notice of borrowing under SECTION2.04 in respect of LIBO Loans, such Revolving Credit Loans are not made on thefirst day of the Interest Period specified in such notice of borrowing for anyreason other than a breach by such Lender of its obligations hereunder or thedelivery of any notice pursuant to SECTION 2.09, SECTION 2.10 or SECTION 2.11,or (iii) in the event that after a Borrower delivers a notice of commitmentreduction under SECTION 2.15 or a notice of prepayment under SECTION 2.16 inrespect of LIBO Loans, such commitment reductions or such prepayments are notmade on the day specified in such notice of reduction or prepayment. Such lossshall be the amount (herein, collectively, “Breakage Costs”) asreasonably determined by such Lender as the excess, if any, of (A) the amountof interest which would have accrued to such Lender on the amount so paid, notprepaid or not borrowed at a rate of interest equal to the Adjusted LIBO Ratefor such Revolving Credit Loan (but specifically excluding any ApplicableMargin), for the period from the date of such payment or failure to borrow orfailure to prepay to the last day (x) in the case of a payment or refinancingof a LIBO Loan with Prime Rate Loans prior to the last day of the InterestPeriod for such Revolving Credit Loan or the failure to prepay a LIBO Loan, ofthe then current Interest Period for such Revolving Credit Loan or (y) in thecase of such failure to borrow, of the Interest Period for such LIBO Loan whichwould have commenced on the date of such failure to borrow, over (B) the amountof interest which would have accrued to such Lender on such amount by placingsuch amount on deposit for a comparable period with leading banks in the Londoninterbank market. Any Lender demanding reimbursement for such loss shalldeliver to the Lead Borrower from time to time one or more certificates settingforth the amount of such loss as determined by such Lender and setting forth inreasonable detail the manner in which such amount was determined and suchamounts shall be due within ten (10) Business Days after the receipt of suchnotice.

 

(d)                                 Whenever any partial prepayment of RevolvingCredit Loans are to be applied to LIBO Loans, such LIBO Loans shall be prepaidin the chronological order of their Interest Payment Dates or as the LeadBorrower may otherwise designate in writing.

 

SECTION 2.17                                            Mandatory Prepayment; Commitment Termination;Cash Collateral.

 

Theoutstanding Obligations shall be subject to prepayment as follows:

 

(a)                                  If at any time the amount of the Tranche ACredit Extensions by the Tranche A Lenders exceeds the lesser of the aggregateTranche A Commitments or the Tranche A Borrowing Base, the Borrowers will,immediately upon notice from the Administrative Agent: (y) prepay the Tranche ALoans (including Swingline Loans) in an amount necessary to eliminate suchdeficiency; and (y) if, after giving effect to the prepayment in full of alloutstanding Tranche A Loans such deficiency has not been eliminated, depositcash into the Cash Collateral Account in an amount equal to 101.5% of theLetter of Credit Outstandings.

 

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(b)                                 If at any time the amount of the CreditExtensions by the Lenders causes Availability to be less than zero, theBorrowers will, immediately upon notice from the Administrative Agent: (x)prepay the Tranche A Loans in an amount necessary to eliminate such deficiency;and (y) if, after giving effect to the prepayment in full of all outstandingTranche A Loans such deficiency has not been eliminated, prepay the Tranche A-1Loans in an amount necessary to eliminate such deficiency, and (z) if, aftergiving effect to the prepayment in full of all outstanding Tranche A Loans andTranche A-1 Loans such deficiency has not been eliminated, deposit cash intothe Cash Collateral Account in an amount equal to 101.5% of the Letter ofCredit Outstandings.

 

(c)                                  The Revolving Credit Loans shall be repaiddaily in accordance with (and to the extent required under) the provisions ofSECTION 2.18, to the extent then applicable. All such payments shall be appliedfirst to Tranche A Loans and after prepayment in full thereof, to the TrancheA-1 Loans.

 

(d)                                 So long as a Liquidation has not beencommenced and the conditions set forth in SECTION 4.02 have been satisfied bythe Loan Parties or waived by the Administrative Agent, at the time of thedelivery of each Borrowing Base Certificate, Tranche A Loans shall be made bythe Tranche A Lenders to repay the Tranche A-1 Loans to the extent that theTranche A-1 Loans exceed Incremental Availability as reflected in suchBorrowing Base Certificate.

 

(e)                                  Except during the continuance of a CashDominion Event, any Net Proceeds, Cash Receipts and other payments received bythe Administrative Agent shall be applied as the Lead Borrower shall direct theAdministrative Agent in writing, and otherwise consistent with the provisionsof SECTION 2.16(b).

 

(f)                                    Subject to the foregoing, except as otherwisedirected by the Lead Borrower (whose direction may be given only if a CashDominion Event has not occurred and is not continuing), outstanding Prime RateLoans shall be prepaid before outstanding LIBO Loans are prepaid. No prepaymentof LIBO Loans shall be permitted pursuant to this SECTION 2.17 prior to thelast day of an Interest Period applicable thereto, unless the Borrowersreimburse the Lenders for all Breakage Costs associated therewith within five(5) Business Days of receiving a written demand for such reimbursement whichsets forth the calculation of such Breakage Costs in reasonable detail. Inorder to avoid such Breakage Costs, as long as no Specified Default hasoccurred and is continuing, at the request of the Lead Borrower, theAdministrative Agent shall hold all amounts required to be applied to LIBOLoans in the Cash Collateral Account and will apply such funds to theapplicable LIBO Loans at the end of the then pending Interest Period therefor (providedthat the foregoing shall in no way limit or restrict the Agents’ rightsupon the occurrence and during the continuance of any other Event of Default). Nopartial prepayment of a Borrowing of LIBO Loans shall result in the aggregateprincipal amount of the LIBO Loans remaining outstanding pursuant to suchBorrowing being less than $5,000,000. A prepayment of the Revolving CreditLoans pursuant to SECTION 2.16 or SECTION 2.17 shall not permanently reduce theTotal Commitments.

 

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(g)                                 Upon the Termination Date, the Commitmentsand the credit facility provided hereunder shall be terminated in full and theBorrowers shall pay, in full and in cash, all outstanding Revolving CreditLoans and all other outstanding Obligations then owing by them.

 

SECTION 2.18                                            Cash Management.

 

(a)                                  Within thirty (30) days of the occurrence ofa Specified Default, or immediately upon the occurrence of any other CashDominion Event, the Borrowers, upon the request of any Agent, shall deliver tothe Agents a schedule of all DDAs, that to the knowledge of the ResponsibleOfficers of the Loan Parties, are maintained by the Loan Parties, whichschedule includes, with respect to each depository (i) the name and address ofsuch depository; (ii) the account number(s) maintained with such depository;and (iii) a contact person at such depository.

 

(b)                                 Annexed hereto as Schedule 2.18(b) isa list describing, as of the Closing Date, all arrangements to which any LoanParty is a party with respect to the payment to such Loan Party of the proceedsof all credit card and debit card charges for sales by such Loan Party.

 

(c)                                  Within ninety (90) days after the ClosingDate (or such longer period as the Agents may agree), each Loan Party shall:

 

(i)                                     deliver to the Collateral Agent notifications(each, a “Credit Card Notification”) substantially in the form attachedhereto as Exhibit G which have been executed on behalf of such LoanParty and addressed to such Loan Party’s credit card and debit cardclearinghouses and processors listed on Schedule 2.18(b); and

 

(ii)                                  enter into a blocked account agreement (each,a “Blocked Account Agreement”), reasonably satisfactory to the Agents,with any Blocked Account Bank, including, without limitation, with respect tothe DDAs existing as of the Closing Date listed on Schedule 2.18(c)attached hereto (collectively, the “Blocked Accounts”).

 

(d)                                 Each Credit Card Notification and BlockedAccount Agreement entered into by a US Loan Party shall require, during thecontinuance of a Cash Dominion Event (and delivery of notice thereof from theCollateral Agent), the ACH or wire transfer on each Business Day (and whetheror not there is then an outstanding balance in the Loan Account) of allavailable cash receipts (the “Cash Receipts”) (other than UncontrolledCash which may be deposited into a segregated DDA (not to be located in theProvince of Quebec, Canada) which the Lead Borrower designates in writing tothe Administrative Agent as being the “Uncontrolled Cash Account”(the “DesignatedAccount”)) to the concentration account maintained by the AdministrativeAgent at Bank of America (the “Concentration Account”), from:

 

(i)                                     the sale of Inventory and other Collateral(whether or not constituting a Prepayment Event, but excluding, until the TermLoan Facility is repaid in full, any Term Priority Collateral);

 

(ii)                                  all proceeds of collections of Accounts(whether or not constituting a Prepayment Event);

 

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(iii)                               all Net Proceeds on account of any Prepayment Event (other than, untilthe Term Loan Facility is repaid in full, a Prepayment Event arising inconnection with the Term Priority Collateral);

 

(iv)                              each Blocked Account (including all cash deposited therein from eachDDA); and

 

(v)                                 the cash proceeds of all credit card anddebit card charges.

 

If,at any time during the continuance of a Cash Dominion Event, any cash or CashEquivalents owned by any US Loan Party (other than (i) amounts on deposit inthe Designated Account, which funds, shall not be funded from, or whenwithdrawn from the Designated Account, shall not be replenished by, fundsconstituting proceeds of Collateral so long as such Cash Dominion Eventcontinues, (ii) petty cash accounts funded in the ordinary course of business,the deposits in which shall not aggregate more than $25,000,000 or exceed$5,000,000 with respect to any one account (or in each case, such greateramounts to which the Administrative Agent may agree), and (iii) payroll, trustand tax withholding accounts funded in the ordinary course of business andrequired by Applicable Law) are deposited to any account, or held or investedin any manner, otherwise than in a Blocked Account that is subject to a BlockedAccount Agreement (or a DDA which is swept daily to a Blocked Account), theCollateral Agent may require the applicable US Loan Party to close such accountand have all funds therein transferred to a Blocked Account, and all futuredeposits made to a Blocked Account which is subject to a Blocked AccountAgreement. In addition to the foregoing, during the continuance of a CashDominion Event, the US Loan Parties shall provide the Collateral Agent with anaccounting of the contents of the Blocked Accounts, which shall identify, tothe satisfaction of the Collateral Agent, the proceeds from the Term PriorityCollateral which were deposited into a Blocked Account and swept to theConcentration Account. Upon the receipt of (x) the contents of the BlockedAccounts, and (y) such accounting, the Collateral Agent agrees to promptlyremit to the agent under the Term Loan Facility the proceeds of the TermPriority Collateral received by the Administrative Agent. Notwithstandinganything in any Loan Document to the contrary, (i) so long as the Obligationshave not been accelerated, no DDAs maintained by any Canadian Loan Party norcredit card or debit card processing accounts maintained by any Canadian LoanParty shall be subject to the dominion and control of the Administrative Agent,and (ii) all Canadian Loan Parties shall provide the Collateral Agent with amonthly accounting of the contents of, and a copy of the bank statement for,each Blocked Account maintained in Canada for the immediately preceding month.

 

(e)                                  The provisions of this subsection (e) shallapply to Cash Receipts from Canadian operations and DDAs and Blocked Accountsmaintained by the Canadian Loan Parties in Canada.

 

(i)                                     All Cash Receipts relating to the CanadianLoan Parties’ operations in Canada shall be deposited into one or more DDAsestablished for the account of the applicable Canadian Loan Party in Canada.

 

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(ii)                                  So long as the Obligations have not beenaccelerated:

 

(A)                              the Canadian Loan Parties may direct, and shall have sole control over,the manner of disposition of their funds in the DDAs in Canada, the BlockedAccounts in Canada and each Disbursement Account in Canada; and

 

(B)                                the Loan Parties shall cause the wire transfer of all available andcollected Cash Receipts in each such DDA in Canada to a Blocked Account inCanada not less frequently than once each week (or with such greater frequencyas the Administrative Agent in its discretion may require).

 

(iii)                               On and after the date on which the Obligations have been accelerated:

 

(A)                              upon notice to a Canadian Blocked Account Bank (which the Agents agreenot to give unless the Obligations have been accelerated), no Loan Party shallhave any access to or right of withdrawal from the Canadian Blocked Accountsmaintained with such Canadian Blocked Account Bank; and

 

(B)                                in the event that, notwithstanding the provisions of this SECTION 2.18(e),the Loan Parties receive or otherwise have dominion and control of any suchproceeds or collections, such proceeds and collections shall be held in trustby the Loan Parties for the Administrative Agent and shall not be commingledwith any of the Loan Parties’ other funds or deposited in any account of anyLoan Party other than as instructed by the Administrative Agent.

 

(f)                                    The Loan Parties may close DDAs or BlockedAccounts and/or open new DDAs or Blocked Accounts, subject to the execution anddelivery to the Collateral Agent of appropriate Blocked Account Agreements(except with respect to any payroll, trust, and tax withholding accounts orunless expressly waived by the Collateral Agent) consistent with the provisionsof this SECTION 2.18 and otherwise reasonably satisfactory to the CollateralAgent. The Loan Parties shall furnish the Collateral Agent with prior writtennotice of its intention to open or close a Blocked Account and the CollateralAgent shall promptly notify the Lead Borrower as to whether the CollateralAgent shall require a Blocked Account Agreement with the Person with whom suchaccount will be maintained. Unless consented to in writing by the CollateralAgent, the Borrowers shall not enter into any agreements with credit card or debitcard processors other than the ones expressly contemplated herein unlesscontemporaneously therewith, a Credit Card Notification, is executed anddelivered to the Collateral Agent.

 

(g)                                 The Borrowers may also maintain one or moredisbursement accounts (the “Disbursement Accounts”) to be used by theBorrowers for disbursements and payments (including payroll) in the ordinarycourse of business or as otherwise permitted hereunder.

 

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(h)                                 The Concentration Account shall at all timesbe under the sole dominion and control of the Collateral Agent. Each Borrowerhereby acknowledges and agrees that (i) such Borrower has no right ofwithdrawal from the Concentration Account, (ii) the funds on deposit in theConcentration Account shall at all times continue to be collateral security forall of the Obligations, and (iii) the funds on deposit in the ConcentrationAccount shall be applied as provided in this Agreement. In the event that,notwithstanding the provisions of this SECTION 2.18, during the continuation ofa Cash Dominion Event, any Borrower receives or otherwise has dominion andcontrol of any such proceeds or collections, such proceeds and collectionsshall be held in trust by such Borrower for the Collateral Agent, shall not becommingled with any of such Borrower’s other funds or deposited in any accountof such Borrower and shall promptly be deposited into the Concentration Accountor dealt with in such other fashion as such Borrower may be instructed by theCollateral Agent.

 

(i)                                     Any amounts received in the ConcentrationAccount at any time when all of the Obligations then due have been and remainfully repaid shall be remitted to the operating account of the Borrowersmaintained with the Administrative Agent.

 

(j)                                     The Collateral Agent shall promptly (but inany event within one Business Day) furnish written notice to each Person withwhom a Blocked Account is maintained of any termination of a Cash DominionEvent.

 

(k)                                  The following shall apply to deposits andpayments under and pursuant to this Agreement:

 

(i)                                     Funds shall be deemed to have been depositedto the Concentration Account on the Business Day on which deposited, providedthat such deposit is available to the Administrative Agent by 4:00 p.m. on thatBusiness Day (except that if the Obligations are being paid in full, by 2:00p.m. Boston time, on that Business Day);

 

(ii)                                  Funds paid to the Administrative Agent, otherthan by deposit to the Concentration Account, shall be deemed to have beenreceived on the Business Day when they are good and collected funds, providedthat such payment is available to the Administrative Agent by 4:00 p.m. onthat Business Day (except that if the Obligations are being paid in full, by2:00 p.m. Boston time, on that Business Day);

 

(iii)                               If a deposit to the Concentration Account or payment is not availableto the Administrative Agent until after 4:00 p.m. on a Business Day, suchdeposit or payment shall be deemed to have been made at 9:00 a.m. on the thennext Business Day;

 

(iv)                              If any item deposited to the Concentration Account and credited to theLoan Account is dishonored or returned unpaid for any reason, whether or notsuch return is rightful or timely, the Administrative Agent shall have theright to reverse such credit and charge the amount of such item to theapplicable Loan Account and the Borrowers shall indemnify the Secured Partiesagainst all out-of-pocket claims and losses resulting from such dishonor orreturn;

 

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(v)                                 All amounts received under this SECTION 2.18shall be applied in the manner set forth in SECTION 7.04.

 

SECTION 2.19                                            Fees.

 

(a)                                  The Borrowers shall pay to the Agents, fortheir respective accounts, the fees set forth in the Fee Letters as and whenpayment of such fees is due as therein set forth.

 

(b)                                 The Borrowers shall pay the AdministrativeAgent, for the account of the Tranche A Lenders and the Tranche A-1 Lenders,respectively, an aggregate fee (the “Unused Fee”) equal to 0.25% perannum (on the basis of actual days elapsed in a year of 365 or 366 days, asapplicable) of the average daily balance of their respective Unused Commitment,during the Fiscal Quarter just ended (or relevant period with respect to thepayment being made through the first Fiscal Quarter ending after the ClosingDate or on the Termination Date), provided that with respect to any Tranche ALender which is also the Swingline Lender, in calculating the Unused Commitmentof such Tranche A Lender there shall also be deducted the principal amount ofSwingline Loans of the Borrowers then outstanding. The Unused Fee shall be paidin arrears, on the first day of each Fiscal Quarter after the execution of thisAgreement and on the Termination Date. The Administrative Agent shall pay theUnused Fee to the Tranche A Lenders and the Tranche A-1 Lenders, as applicable,upon the Administrative Agent’s receipt of the Unused Fee based upon theirTranche A Commitment Percentage or Tranche A-1 Commitment Percentage, asapplicable, of an amount equal to the aggregate Unused Fee to all Tranche ALenders or Tranche A-1 Lenders, as applicable.

 

(c)                                  The Borrowers shall pay the AdministrativeAgent, for the account of the Lenders who are then participating in the Lettersof Credit, on the first day of each Fiscal Quarter and on demand after theTermination Date, in arrears, a fee calculated on the basis of a 365 or 366 dayyear, as applicable and actual days elapsed (each, a “Letter of Credit Fee”),equal to the following per annum percentages of the average face amount of thefollowing categories of Letters of Credit outstanding during the three monthperiod then ended:

 

(i)                                     Standby Letters of Credit: At a per annumrate equal to the then Applicable Margin for LIBO Loans with respect to TrancheA Loans;

 

(ii)                                  Commercial Letters of Credit: At a per annumrate equal to fifty percent (50%) of the then Applicable Margin for LIBO Loanswith respect to Tranche A Loans;

 

(iii)                               After the occurrence and during the continuance of a Specified Default,at any time that the Administrative Agent is not holding in the Cash CollateralAccount an amount in cash equal to 101.5% of the Letter of Credit Outstandings,as of such date, plus accrued and unpaid interest thereon, effectiveupon written notice from the Administrative Agent (which notice may be given atthe election of the Administrative Agent or at the direction of the RequiredLenders after the occurrence of any Specified Default), the Letter of CreditFees set forth in clauses (i) and (ii) of this SECTION 2.19(c) shall beincreased, at the option of the Administrative Agent or the Required Lenders,by an amount equal to two percent (2%) per annum.

 

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(d)                                 The Borrowers shall pay to each Issuing Bank,in addition to all Letter of Credit Fees otherwise provided for herein, (i) thereasonable and customary fees and charges of such Issuing Bank in connectionwith the negotiation, settlement and amendment of each Letter of Credit issuedby such Issuing Bank, and (ii) a fronting fee (each, a “Fronting Fee”)equal to 1/8 of 1% on the aggregate Stated Amount of all Letters of Credit. Eachsuch Fronting Fee shall be payable on the first day of each Fiscal Quarter andon demand after the Termination Date, in arrears.

 

(e)                                  All fees shall be paid on the dates due, inimmediately available funds, to the Administrative Agent for the account of theAdministrative Agent and other Credit Parties as provided herein. Once due, allfees shall be fully earned and shall not be refundable under any circumstances(except to the extent set forth in the Fee Letters).

 

SECTION 2.20                                            Maintenance of Loan Account; Statements ofAccount.

 

(a)                                  The Administrative Agent shall maintain anaccount on its books in the name of the Borrowers (each, the “Loan Account”)which will reflect (i) all Revolving Credit Loans and other advances made bythe Lenders to the Borrowers or for the Borrowers’ account, (ii) all Letter ofCredit Disbursements, fees and interest that have become payable as herein setforth, and (iii) any and all other monetary Obligations that have becomepayable.

 

(b)                                 The Loan Account will be credited with allamounts received by the Administrative Agent from the Borrowers or from otherPersons for the Borrowers’ account, including all amounts received in theConcentration Account from the Blocked Account Banks, and the amounts socredited shall be applied as set forth in and to the extent required by SECTION2.17(e) or SECTION 7.04, as applicable. After the end of each month, theAdministrative Agent shall send to the Borrowers a statement accounting for thecharges (including interest), loans, advances and other transactions occurringamong and between the Administrative Agent, the Lenders and the Borrowersduring that month. The monthly statements, absent manifest error, shall bedeemed presumptively correct.

 

SECTION 2.21                                            Payments; Sharing of Setoff.

 

(a)                                  The Borrowers shall make each paymentrequired to be made hereunder or under any other Loan Document (whether ofprincipal, interest, fees or reimbursement of drawings under Letters of Credit,of amounts payable under SECTIONS 2.14, 2.16(c) or 2.23, or otherwise) prior to2:00 p.m. on the date when due, in immediately available funds, without setoffor counterclaim. Any amounts received after such time on any date may, in thediscretion of the Administrative Agent, be deemed to have been received on thenext succeeding Business Day for purposes of calculating interest thereon. Allsuch payments shall be made to the Administrative Agent at its offices at 100Federal Street, Boston, Massachusetts (or such other place as theAdministrative Agent may direct), except payments to be made directly to eachIssuing Bank or Swingline Lender as expressly provided herein and except thatpayments pursuant to SECTIONS 2.14, 2.16(c), 2.23 and SECTION 9.05 shall bemade directly to the Persons entitled thereto and payments pursuant to otherLoan Documents shall be made to the Persons specified therein. TheAdministrative Agent shall distribute any such payments to the appropriaterecipient promptly following receipt thereof. If any payment under any Loan

 

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Documentshall be due on a day that is not a Business Day, except with respect to LIBOBorrowings, the date for payment shall be extended to the next succeedingBusiness Day, and, if any payment due with respect to LIBO Borrowings shall bedue on a day that is not a Business Day, the date for payment shall be extendedto the next succeeding Business Day, unless that succeeding Business Day is inthe next calendar month, in which event, the date of such payment shall be onthe last Business Day of subject calendar month, and, in the case of anypayment accruing interest, interest thereon shall be payable for the period ofsuch extension.

 

(b)                                 All funds received by and available to theAdministrative Agent to pay principal, unreimbursed drawings under Letters ofCredit, interest, fees and other amounts then due hereunder, shall be appliedin accordance with the provisions of SECTION 2.17(e) or SECTION 7.04 ratablyamong the parties entitled thereto in accordance with the amounts of principal,unreimbursed drawings under Letters of Credit, interest, fees and other amountsthen due to such respective parties. For purposes of calculating interest dueto a Lender, that Lender shall be entitled to receive interest on the actualamount contributed by that Lender towards the principal balance of theRevolving Credit Loans outstanding during the applicable period covered by theinterest payment made by the Borrowers. Any net principal reductions to theRevolving Credit Loans received by the Administrative Agent in accordance withthe Loan Documents during such period shall not reduce such actual amount socontributed, for purposes of calculation of interest due to that Lender, untilthe Administrative Agent has distributed to the applicable Lender itsCommitment Percentage thereof.

 

(c)                                  Unless the Administrative Agent shall havereceived notice from the Lead Borrower prior to the date on which any paymentis due to the Administrative Agent for the account of the Lenders or theIssuing Banks hereunder that the Borrowers will not make such payment, theAdministrative Agent may assume that the Borrowers have made such payment onsuch date in accordance herewith and may, in reliance upon such assumption,distribute to the Lenders or the applicable Issuing Bank, as the case may be,the amount due. In such event, if the Borrowers have not in fact made suchpayment, then each of the Lenders or the applicable Issuing Bank, as the casemay be, severally agrees to repay to the Administrative Agent forthwith ondemand the amount so distributed to such Lender or such Issuing Bank withinterest thereon, for each day from and including the date such amount isdistributed to it to but excluding the date of payment to the AdministrativeAgent, at the greater of the Federal Funds Effective Rate and a rate determinedby the Administrative Agent in accordance with banking industry rules on interbankcompensation.

 

(d)                                 In accordance with the provisions of SECTION8.16, if any Lender shall fail to make any payment required to be made by itpursuant to this Agreement, then the Administrative Agent may, in itsdiscretion (notwithstanding any contrary provision hereof), apply any amountsthereafter received by the Administrative Agent for the account of such Lenderto satisfy such Lender’s obligations under such Section.

 

SECTION 2.22                                            Settlement Amongst Lenders.

 

(a)                                  The Swingline Lender may, at any time (but,in any event shall weekly, as provided in SECTION 2.22(b)), on behalf of theBorrowers (which hereby authorize the Swingline Lender to act on their behalfin that regard) request the Administrative Agent to cause

 

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theTranche A Lenders to make a Tranche A Loan (which shall be a Prime Rate Loan)in an amount equal to such Lender’s Tranche A Commitment Percentage of theoutstanding amount of Swingline Loans made in accordance with SECTION 2.06, whichrequest may be made regardless of whether the conditions set forth in ArticleIV have been satisfied. Upon such request, each Tranche A Lender shall makeavailable to the Administrative Agent the proceeds of such Tranche A Loan forthe account of the Swingline Lender. If the Swingline Lender requires a TrancheA Loan to be made by the Tranche A Lenders and the request therefor is receivedprior to 12:00 noon on a Business Day, such transfers shall be made inimmediately available funds no later than 3:00 p.m. that day; and, if therequest therefor is received after 12:00 noon, then no later than 3:00 p.m. onthe next Business Day. The obligation of each such Tranche A Lender to transfersuch funds is irrevocable, unconditional and without recourse to or warranty bythe Administrative Agent or the Swingline Lender. If and to the extent anyTranche A Lender shall not have so made its transfer to the AdministrativeAgent, such Tranche A Lender agrees to pay to the Administrative Agent,forthwith on demand, such amount, together with interest thereon, for each dayfrom such date until the date such amount is paid to the Administrative Agent,at the greater of the Federal Funds Effective Rate and a rate determined by theAdministrative Agent in accordance with banking industry rules on interbankcompensation.

 

(b)                                 The amount of each Lender’s Tranche ACommitment Percentage or Tranche A-1 Commitment Percentage of outstandingRevolving Credit Loans (including outstanding Swingline Loans, except thatsettlements of Swingline Loans during the months of October, November andDecember of each year shall be required to be made by the Swingline Lender onlywith respect to those Swingline Loans in excess of $25,000,000 in the aggregateonly (the amounts in excess of $25,000,000 being referred to as the “ExcessSwingline Loans”)) shall be computed weekly (or more frequently in theAdministrative Agent’s discretion) and shall be adjusted upward or downwardbased on all Revolving Credit Loans (including Swingline Loans other thanExcess Swingline Loans) and repayments of Revolving Credit Loans (includingSwingline Loans other than Excess Swingline Loans) received by theAdministrative Agent as of 3:00 p.m. on the first Business Day (such date, the“Settlement Date”) following the end of the period specified by theAdministrative Agent.

 

(c)                                  The Administrative Agent shall deliver toeach of the Lenders promptly after a Settlement Date a summary statement of theamount of outstanding Revolving Credit Loans (including Swingline Loans otherthan Excess Swingline Loans) for the period and the amount of repaymentsreceived for the period. As reflected on the summary statement, (i) theAdministrative Agent shall transfer to each Tranche A Lender or Tranche A-1Lender, as applicable, its Tranche A Commitment Percentage or Tranche A-1Commitment Percentage of repayments, and (ii) each Lender shall transfer to theAdministrative Agent (as provided below) or the Administrative Agent shalltransfer to each Lender, such amounts as are necessary to insure that, aftergiving effect to all such transfers, the amount of Revolving Credit Loans madeby each Tranche A Lender or Tranche A-1 Lender, as applicable, with respect toRevolving Credit Loans to the Borrowers (including Swingline Loans other thanExcess Swingline Loans) shall be equal to such Tranche A Lender’s Tranche ACommitment Percentage, or Tranche A-1 Lender’s Tranche A-1 CommitmentPercentage of Revolving Credit Loans, as applicable (including Swingline Loanswhich are not Excess Swingline Loans) outstanding as of such Settlement Date. Ifthe summary statement requires transfers to be made to the Administrative

 

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Agentby the Lenders and is received prior to 12:00 noon on a Business Day, suchtransfers shall be made in immediately available funds no later than 3:00 p.m.that day; and, if received after 12:00 noon, then no later than 3:00 p.m. onthe next Business Day. The obligation of each Lender to transfer such funds isirrevocable, unconditional and without recourse to or warranty by theAdministrative Agent. If and to the extent any Lender shall not have so madeits transfer to the Administrative Agent, such Lender agrees to pay to theAdministrative Agent, forthwith on demand such amount, together with interestthereon, for each day from such date until the date such amount is paid to theAdministrative Agent, at the Federal Funds Effective Rate.

 

SECTION 2.23                                            Taxes.

 

(a)                                  Except as otherwise expressly provided inthis SECTION 2.23, any and all payments by or on account of any obligation ofthe Loan Parties hereunder or under any other Loan Document shall be made freeand clear of and without deduction or withholding for any Indemnified Taxes orOther Taxes; provided, however, that if a Loan Party or an Agentor a Lender shall be required to deduct, withhold or remit any such Taxes fromsuch payments, then (i) in the case of any Indemnified Taxes or Other Taxes,the sum payable shall be increased as necessary so that after making all requireddeductions, withholdings, or remittances for such Taxes (including deductionsor withholdings applicable to additional sums payable under this SECTION 2.23)the applicable Credit Party receives an amount equal to the sum it would havereceived had no such deductions or withholdings been made, (ii) the Loan Partyshall make such deductions or withholdings and (iii) the Loan Party shall paythe full amount deducted or withheld to the relevant Governmental Authority inaccordance with Applicable Law.

 

(b)                                 In addition, the Loan Parties shall pay anyOther Taxes to the relevant Governmental Authority in accordance withApplicable Law.

 

(c)                                  The Loan Parties shall indemnify each CreditParty, within ten (10) days after written demand therefor, for the full amountof any Indemnified Taxes or Other Taxes paid or payable by such Credit Party onor with respect to any payment by or on account of any obligation of the LoanParties hereunder or under any other Loan Document (including Indemnified Taxesor Other Taxes imposed or asserted on or attributable to amounts payable underthis SECTION 2.23) and any penalties, interest and reasonable expenses arisingtherefrom or with respect thereto; provided that if any Loan Partyreasonably believes that such Taxes were not correctly or legally asserted,each Lender will use reasonable efforts to cooperate with such Loan Party toobtain a refund of such Taxes so long as such efforts would not, in the soledetermination of such Lender, result in any additional costs, expenses or risksor be otherwise disadvantageous to it; provided further, that the LoanParties shall not be required to compensate any Lender pursuant to this SECTION2.23 for any amounts incurred in any fiscal year for which such Lender isclaiming compensation if such Lender does not furnish notice of such claimwithin six (6) months from the end of such fiscal year; providedfurther,that if the circumstances giving rise to such claim have a retroactive effect,then the beginning of such six month period shall be extended to include suchperiod of retroactive effect. A certificate as to the amount of such payment orliability delivered to the Lead Borrower by a Credit Party, or by theAdministrative Agent on its own behalf or on behalf of any other Credit Party,setting forth in reasonable detail the manner in which such amount wasdetermined, shall be conclusive absent manifest error.

 

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(d)                                 As soon as practicable after any payment ofIndemnified Taxes or Other Taxes by a Loan Party to a Governmental Authority,the Lead Borrower shall deliver to the Administrative Agent the original or acertified copy of a receipt issued by such Governmental Authority evidencingsuch payment, a copy of the return reporting such payment or other evidence ofsuch payment reasonably satisfactory to the Administrative Agent.

 

(e)                                  (i)                                     Any Foreign Lender that is entitled to anexemption from or reduction in United States withholding Tax shall deliver tothe Lead Borrower and the Administrative Agent two (2) copies of (i) eitherUnited States Internal Revenue Service Form W-8BEN (claiming a treaty benefit)or Form W-8ECI, or any subsequent versions thereof or successors thereto, or,(ii) in the case of a Foreign Lender claiming exemption from or reduction inU.S. federal withholding Tax under Section 871(h) or 881(c) of the Code withrespect to payments of “portfolio interest”, a (A) Form W-8BEN, or anysubsequent versions thereof or successors thereto and (B) a certificaterepresenting that such Foreign Lender (1) is not a bank for purposes of Section881(c) of the Code, (2) is not a 10 percent shareholder (within the meaning ofSection 871(h)(3)(B) of the Code) of any Loan Party and (3) is not a controlledforeign corporation related to the Loan Parties (within the meaning of Section864(d)(4) of the Code)), in all cases, properly completed and duly executed bysuch Foreign Lender claiming, as applicable, complete exemption from or reducedrate of, U.S. federal withholding tax on payments by the Loan Parties underthis Agreement and the other Loan Documents, or in the case of a Foreign Lenderclaiming exemption for “portfolio interest” certifying that it is not a foreigncorporation, partnership, estate or trust. Such forms shall be delivered byeach Foreign Lender on or before the date it becomes a party to this Agreement(or, in the case of a transferee that is a participation holder, on or beforethe date such participation holder becomes a transferee hereunder) and on orbefore the date, if any, such Foreign Lender changes its applicable lendingoffice by designating a different lending office (a “New Lending Office”).In addition, each Foreign Lender shall deliver such forms promptly upon theobsolescence or invalidity of any form previously delivered by such ForeignLender. Any Lender shall, if reasonably requested by a Loan Party, deliver suchother documentation prescribed by Applicable Law or as reasonably requested bysuch Loan Party, as will enable such Loan Party to determine whether suchLender is subject to withholding under the laws of Canada, is entitled to anexemption from such withholding or is eligible for a reduced rate ofwithholding in Canada. Notwithstanding any other provision of this SECTION2.23(e), a Lender shall not be required to deliver any form pursuant to thisSECTION 2.23(e) that such Lender is not legally able to deliver.

 

(ii)                                  Each Lender that is a “United States person”as defined under Section 7701(a)(30) of the Code (a “U.S. Lender”) shalldeliver to the Lead Borrower and the Administrative Agent such form or forms,certificates or documentation, including two original copies of United StatesInternal Revenue Service Form W-9, as reasonably requested by any Borrower toconfirm or establish that such U.S. Lender is not subject to deduction,withholding, or backup withholding of United States federal income Tax withrespect to any payments to such U.S. Lender. Such forms shall be delivered byeach U.S. Lender to the Borrower on or before the date such U.S. Lender becomesa party to this Agreement (or, in the case of a transferee that is aparticipation holder, on or before the date such participation holder becomes atransferee).

 

(f)                                    The Loan Parties shall not be required toindemnify any Lender or to pay any additional amounts to any Lender in respectof U.S. federal or Canadian withholding Tax

 

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pursuantto paragraph (a) or (c) above or Canadian taxes in lieu of withholding taxespursuant to clause (j) below, to the extent that the obligation to pay suchadditional amounts would not have arisen but for a failure by such Lender tocomply with the provisions of paragraph (e) above. Should a Lender becomesubject to Taxes because of its failure to deliver a form required hereunder,the Loan Parties shall, at such Lender’s expense, take such steps as suchLender shall reasonably request to assist such Lender to recover such Taxes.

 

(g)                                 If any Loan Party shall be required pursuantto this SECTION 2.23 to pay any additional amount to, or to indemnify, anyCredit Party to the extent that such Credit Party becomes subject toIndemnified Taxes or Other Taxes subsequent to the Closing Date (or, ifapplicable, subsequent to the date such Person becomes a party to this Agreement)as a result of any change in the circumstances of such Credit Party (other thana change in Applicable Law), including without limitation a change in theresidence, place of incorporation, principal place of business of such CreditParty or a change in the branch or lending office of such Credit Party, as thecase may be, such Credit Party shall use reasonable efforts to avoid orminimize any amounts which might otherwise be payable pursuant to this SECTION2.23(g); provided, however, that such efforts shall not includethe taking of any actions by such Credit Party that would result in any Tax,costs or other expense to such Credit Party (other than a Tax, cost or otherexpense for which such Credit Party shall have been reimbursed or indemnified bythe Loan Parties pursuant to this Agreement or otherwise) or any action whichwould or might in the reasonable opinion of such Credit Party have an adverseeffect upon its business, operations or financial condition or otherwise bedisadvantageous to such Credit Party.

 

(h)                                 If any Lender is entitled to a reduction in(and not complete exemption from) the applicable withholding Tax, the Borrowersmay withhold from any interest payment to such Lender an amount equivalent tothe applicable withholding Tax after taking into account such reduction.

 

(i)                                     If any Credit Party reasonably determinesthat it has actually and finally realized, by reason of a refund, deduction orcredit of any Taxes paid or reimbursed by the Loan Parties pursuant tosubsection (a) or (c) above in respect of payments under the Loan Documents(which refund, deduction or credit is provided by the jurisdiction imposingsuch Taxes), a current monetary benefit that it would otherwise not haveobtained and that would result in the total payments under this SECTION 2.23exceeding the amount needed to make such Credit Party whole, such Credit Partyshall pay to the Lead Borrower, with reasonable promptness following the dateupon which it actually realizes such benefit, an amount equal to the amount ofsuch refund, deduction or credit, net of all out of pocket expenses incurred insecuring such refund, deduction or credit. This SECTION 2.23(i) shall not beconstrued to require any Credit Party to make available its Tax returns (or anyother confidential information relating to its Taxes) to any Loan Party.

 

(j)                                     In addition to the provisions of SECTION2.23(a), in respect of amounts paid or credited by a Loan Party that isresident in Canada for purposes of the ITA to or for the benefit of a Credit Partythat is an “authorized foreign bank” for purposes of the ITA, the obligationsunder SECTION 2.23 to pay an additional amount shall apply where the particularCredit Party is liable for tax under Part XIII of the ITA in respect of suchpayment, even if the Loan Party is not required under the ITA to deduct or withholdan amount in respect of

 

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IndemnifiedTaxes on such payment and SECTION 2.23 shall apply, *mutatismutandis*, as if the Loan Party were required to deduct or withholdan amount in respect of such Indemnified Taxes.

 

SECTION 2.24                                            Mitigation Obligations; Replacement ofLenders.

 

(a)                                  If any Lender requests compensation underSECTION 2.14 or cannot make Revolving Credit Loans under SECTION 2.11, or ifthe Borrowers are required to pay any additional amount to any Lender or anyGovernmental Authority for the account of any Lender pursuant to SECTION 2.23,then such Lender shall use reasonable efforts to designate a different lendingoffice for funding or booking its Revolving Credit Loans hereunder or to assignits rights and obligations hereunder to another of its offices, branches oraffiliates, if, in the reasonable judgment of such Lender, such designation orassignment (i) would eliminate or reduce amounts payable pursuant to SECTION2.14 or SECTION 2.23, as the case may be, in the future and (ii) would notsubject such Lender to any unreimbursed cost or expense. The Borrowers herebyagree to pay all reasonable costs and expenses incurred by any Lender inconnection with any such designation or assignment; provided, however,that the Borrowers shall not be liable for such costs and expenses of a Lenderrequesting compensation if (i) such Lender becomes a party to this Agreement ona date after the Closing Date and (ii) the relevant Change in Law occurs on adate prior to the date such Lender becomes a party hereto.

 

(b)                                 (i) If any Lender requests compensation underSECTION 2.14 or cannot make Revolving Credit Loans under SECTION 2.11 forthirty (30) consecutive days, or (ii) if any Borrower is required to pay anyadditional amount to any Lender or any Governmental Authority for the accountof any Lender pursuant to SECTION 2.23, or (iii) if any Lender becomes aDelinquent Lender or otherwise defaults in its obligation to fund RevolvingCredit Loans hereunder, then the Borrowers may, at their sole expense andeffort, upon notice to such Lender and the Administrative Agent, require suchLender to assign and delegate, without recourse (in accordance with and subjectto the restrictions contained in SECTION 9.07), all its interests, rights andobligations under this Agreement to an assignee that shall assume suchobligations (which assignee may be another Lender, if a Lender accepts suchassignment); provided, however, that (i) the Lead Borrower shallhave received the prior written consent of the Administrative Agent, theIssuing Banks and the Swingline Lender, which consent shall not be unreasonablywithheld, (ii) such Lender shall have received payment of an amount equal tothe outstanding principal of its Revolving Credit Loans and participations inunreimbursed drawings under Letters of Credit and Swingline Loans, accruedinterest thereon, accrued fees and all other amounts payable to it hereunder fromthe assignee (to the extent of such outstanding principal and accrued interestand fees) or the Borrowers (in the case of all other amounts) and (iii) in thecase of any such assignment resulting from a claim for compensation underSECTION 2.14 or payments required to be made pursuant to SECTION 2.23, suchassignment will result in a reduction in such compensation or payments. ALender shall not be required to make any such assignment and delegation if,prior thereto, as a result of a waiver by such Lender or otherwise, thecircumstances entitling the Borrowers to require such assignment and delegationcease to apply.

 

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SECTION 2.25                                            Designation of Lead Borrower as Borrowers’Agent.

 

(a)                                  Each Borrower hereby irrevocably designatesand appoints the Lead Borrower as such Borrower’s agent to obtain RevolvingCredit Loans and Letters of Credit, the proceeds of which shall be available toeach Borrower for such uses as are permitted under this Agreement. As the disclosedprincipal for its agent, each Borrower shall be obligated to the AdministrativeAgent and each Lender on account of Revolving Credit Loans so made and Lettersof Credit so issued as if made directly by the Lenders to such Borrower,notwithstanding the manner by which such Revolving Credit Loans and Letters ofCredit are recorded on the books and records of the Lead Borrower and of anyother Borrower.

 

(b)                                 Each Borrower represents to the CreditParties that it is an integral part of a consolidated enterprise, and that eachLoan Party will receive direct and indirect benefits from the availability ofthe joint credit facility provided for herein, and from the ability to accessthe collective credit resources of the consolidated enterprise which the LoanParties comprise. Each Borrower recognizes that credit available to ithereunder is in excess of and on better terms than it otherwise could obtain onand for its own account and that one of the reasons therefor is its joining inthe credit facility contemplated herein with all other Borrowers. Consequently,each Borrower hereby assumes and agrees to discharge all Obligations of each ofthe other Borrowers as if the Borrower which is so assuming and agreeing wereeach of the other Borrowers.

 

(c)                                  The Lead Borrower shall act as a conduit foreach Borrower (including itself, as a Borrower) on whose behalf the LeadBorrower has requested a Revolving Credit Loan. None of the Agents nor anyother Credit Party shall have any obligation to see to the application of suchproceeds.

 

(d)                                 The authority of the Lead Borrower to requestRevolving Credit Loans and Letters of Credit on behalf of, and to bind, theBorrowers, shall continue unless and until the Administrative Agent actuallyreceives written notice of: (i) the termination of such authority, and (ii) thesubsequent appointment of a successor Lead Borrower, which notice is signed bythe respective Financial Officers of each Borrower; and (iii) written noticefrom such successive Lead Borrower accepting such appointment and acknowledgingthat from and after the date of such appointment, the newly appointed LeadBorrower shall be bound by the terms hereof, and that as used herein, the term“Lead Borrower” shall mean and include the newly appointed Lead Borrower.

 

SECTION 2.26                                            Provisions Applicable to Canadian LoanParties.

 

(a)          For the purposes of the *Interest Act*(Canada), and to the extent applicable, whenever any interest payable by aCanadian Loan Party is calculated on the basis of a period of time other than ayear of 365 or 366 days, as applicable, the annual rate of interest to whicheach rate of interest utilized pursuant to such calculation is equivalent issuch rate so utilized multiplied by the actual number of days in the calendaryear in which the same is to be ascertained and divided by the number of daysin such calculation.

 

(b)         Notwithstanding any provision herein to the contrary, and to the extentapplicable, in no event will the aggregate “interest” (as defined in section347 of the *Criminal Code* (Canada))

 

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payableby a Canadian Loan Party under any Loan Document exceed the maximum effectiveannual rate of interest on the “credit advanced” (as defined in that section347) permitted under that section and, if any payment, collection or demandpursuant to such Loan Document in respect of “interest” (as defined in thatsection 347) is determined to be contrary to the provisions of such section347, such payment, collection or demand will be deemed to have been made bymutual mistake of such Canadian Loan Party, the Administrative Agent and theapplicable Lender or Lenders and the amount of such payment or collection willbe refunded to such Canadian Loan Party only to the extent of the amount which isgreater than the maximum effective annual rate permitted under such law. Forpurposes of determining compliance with such section 347, the effective annualrate of interest will be determined in accordance with generally acceptedactuarial practices and principles over the term of this Agreement and, in theevent of dispute, a certificate of a Fellow of the Canadian Institute ofActuaries appointed by the Administrative Agent will be *prima facie*evidence for the purposes of such determination.

 

(c)          For the purposes of the *Interest Act*(Canada), to the extent applicable, the principle of deemed reinvestment ofinterest will not apply to any interest calculation under the Loan Documents,and the rates of interest stipulated in this Agreement are intended to benominal rates and not effective rates or yields.

 

ARTICLE III

 

Representations and Warranties

 

Toinduce the Credit Parties to make the Revolving Credit Loans (includingSwingline Loans) and to issue Letters of Credit, the Loan Parties, jointly andseverally, make the following representations and warranties to each CreditParty with respect to each Loan Party:

 

SECTION 3.01                                            Existence, Qualification and Power;Compliance with Laws.

 

EachLoan Party and each of its Restricted Subsidiaries (a) is a Person dulyorganized or formed, validly existing and in good standing under the ApplicableLaws of the jurisdiction of its incorporation or organization, (b) has allrequisite power and authority to (i) own or lease its assets and carry onits business and (ii) execute, deliver and perform its obligations underthe Loan Documents to which it is a party, (c) is duly qualified and in goodstanding under the Applicable Laws of each jurisdiction where its ownership,lease or operation of properties or the conduct of its business requires suchqualification, (d) is in compliance with all Applicable Laws, orders, writs,injunctions and orders and (e) has all requisite governmental licenses,authorizations, consents and approvals to operate its business as currently conducted;except in each case referred to in clause (c), (d) or (e), to the extent thatfailure to do so could not reasonably be expected to have a Material AdverseEffect. Schedule 3.01 annexed hereto sets forth, as of the Closing Date,each Loan Party’s name as it appears in official filings in its state ofincorporation or organization, its state of incorporation or organization,organization type, organization number, if any, issued by its state ofincorporation or organization, and its federal employer identification number.

 

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SECTION 3.02                                            Authorization; No Contravention.

 

Theexecution, delivery and performance by each Loan Party of each Loan Document towhich such Person is a party, and the consummation of the Transaction, arewithin such Loan Party’s corporate or other powers, have been duly authorizedby all necessary corporate or other organizational action, and do not and willnot (a) contravene the terms of any of such Person’s Organization Documents,(b) conflict with or result in any breach or contravention of, or the creationof any Lien under or require any payment to be made under (i) any contractualobligation to which such Person is a party or affecting such Person or theproperties of such Person or any of its Restricted Subsidiaries or(ii) any order, injunction, writ or decree of any Governmental Authorityor any arbitral award to which such Person or its property is subject; or (c)violate any Applicable Law; except with respect to any conflict, breach orcontravention or payment (but not creation of Liens) referred to in clause(b)(i), to the extent that such conflict, breach, contravention or paymentcould not reasonably be expected to have a Material Adverse Effect.

 

SECTION 3.03                                            Governmental Authorization; Other Consents.

 

Noapproval, consent, exemption, authorization, or other action by, or notice to,or filing with, any Governmental Authority or any other Person is necessary orrequired in connection with (a) the execution, delivery or performance by, orenforcement against, any Loan Party of this Agreement or any other LoanDocument, or for the consummation of the Transaction, (b) the grant by any LoanParty of the Liens granted by it pursuant to the Security Documents, (c) theperfection or maintenance of the Liens created under the Security Documents(including the priority thereof) or (d) the exercise by the Agents or anyLender of their rights under the Loan Documents or the remedies in respect ofthe Collateral pursuant to the Security Documents, except for (i) filingsnecessary to perfect the Liens on the Collateral granted by the Loan Parties infavor of the Secured Parties, (ii) the approvals, consents, exemptions,authorizations, actions, notices and filings which have been duly obtained,taken, given or made and are in full force and effect and (iii) thoseapprovals, consents, exemptions, authorizations or other actions, notices orfilings, the failure of which to obtain or make could not reasonably beexpected to have a Material Adverse Effect.

 

SECTION 3.04                                            Binding Effect.

 

ThisAgreement and each other Loan Document has been duly executed and delivered byeach Loan Party that is party thereto. This Agreement and each other LoanDocument constitutes, a legal, valid and binding obligation of such Loan Party,enforceable against each Loan Party that is party thereto in accordance withits terms, except as such enforceability may be limited by applicablebankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’rights generally and by general principles of equity.

 

SECTION 3.05                                            Financial Statements; No Material AdverseEffect.

 

(a)                                  (i) The Lead Borrower has heretoforefurnished to the Agents the Consolidated balance sheets as of January 29, 2005and January 28, 2006, and Consolidated statements of income, stockholders’equity, and cash flows for the Lead Borrower and its Subsidiaries (i) as of andfor the Fiscal Years ended January 31, 2004, January 29, 2005 and January 28,2006, in each case audited by Ernst & Young LLP, independent registeredpublic

 

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accountants,and (ii) as of and for the six months ending on July 29, 2006, certified underthe applicable provisions of the Sarbanes-Oxley Act by a Financial Officer ofthe Lead Borrower. Except for those matters set forth on Schedule 3.05,such financial statements present fairly, in all material respects, thefinancial position, results of operations and cash flows of the Lead Borrowerand its Subsidiaries as of such dates and for such periods in accordance withGAAP (except that such financial statements shall not be required to complywith Rule 3-10 of Regulation S-X promulgated under the Exchange Act), subjectto year end adjustments and the absence of footnotes.

 

(ii)The unaudited proforma condensed Consolidated balance sheet ofthe Lead Borrower and its Subsidiaries as at July 29, 2006 (including the notesthereto) (the “Pro Forma Balance Sheet”) and the unaudited proformacondensed Consolidated statements of operations (the “Pro Forma Statementsof Operations”) of the Lead Borrower and its Subsidiaries for the mostrecent Fiscal Year, the six months ended July 29, 2006 and the 12-month periodending on July 29, 2006 (together with the Pro Forma Balance Sheet, the “ProForma Financial Statements”), copies of which have heretofore beenfurnished to each Lender, have been prepared giving effect (as if such eventshad occurred on July 29, 2006 with respect to the Pro Forma Balance Sheet orJanuary 30, 2005 with respect to the Pro Forma Statements of Operations) to theTransaction. The Pro Forma Financial Statements have been prepared in goodfaith, based on assumptions believed by the Lead Borrower to be reasonable asof the date of delivery thereof, and present fairly in all material respectsthe proforma Consolidated financial position of the LeadBorrower and its Subsidiaries as at July 29, 2006 and their Consolidatedresults of operations for the periods covered thereby, assuming that the eventsspecified in the preceding sentence had actually occurred on July 29, 2006 withrespect to the Pro Forma Balance Sheet or January 30, 2005 with respect to thePro Forma Statements of Operations.

 

(b)                            Since the Closing Date, there has been noevent or circumstance, either individually or in the aggregate, that has had orcould reasonably be expected to have a Material Adverse Effect.

 

(c)                             The forecasts of Consolidated balance sheets,income statements and cash flow statements of the Lead Borrower and itsSubsidiaries for each Fiscal Year ending after the Closing Date until the fifthanniversary of the Closing Date, copies of which have been furnished to theAgents prior to the Closing Date in a form reasonably satisfactory to theAgents, have been prepared in good faith on the basis of the assumptions statedtherein, which assumptions were believed to be reasonable at the time ofpreparation of such forecasts, it being understood that actual results may varyfrom such forecasts and that such variations may be material.

 

(d)                            As of the Closing Date, neither the LeadBorrower nor any Subsidiary has any Indebtedness or other obligations orliabilities, direct or contingent (other than (i) the liabilitiesreflected on Schedule 6.03, (ii) obligations arising under thisAgreement, (iii) the Term Loan Facility, the Senior Notes, the SeniorSubordinated Notes, and the Subordinated Discount Notes, and(iv) liabilities incurred in the ordinary course of business) that, eitherindividually or in the aggregate, have had or could reasonably be expected tohave a Material Adverse Effect.

 

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SECTION 3.06                                            Litigation.

 

Exceptas disclosed in the Lead Borrower’s annual report (filed on Form 10-K) for theFiscal Year ending January 28, 2006 and on the quarterly reports (filed on Form10-Q) for the Fiscal Quarters ending April 29, 2006 and July 29, 2006, thereare no actions, suits, proceedings, claims or disputes pending or, to theknowledge of any Loan Party, threatened in writing or contemplated, at law, inequity, in arbitration or before any Governmental Authority, by or against theParent or any of its Subsidiaries or against any of their properties orrevenues that (a) either individually or in the aggregate, could reasonably beexpected to have a Material Adverse Effect, or (b) involve any of the LoanDocuments, which could reasonably be expected to have a Material AdverseEffect.

 

SECTION 3.07                                            No Default.

 

Neitherthe Parent nor any Subsidiary is in default under or with respect to, or aparty to, any contractual obligation or Material Indebtedness that could,either individually or in the aggregate, reasonably be expected to have aMaterial Adverse Effect.

 

SECTION 3.08                                            Ownership of Property; Liens.

 

(a)                                  Each Loan Party and each of its RestrictedSubsidiaries has good record and marketable title in fee simple to, or validleasehold interests in, or easements or other limited property interests in,all real property necessary in the ordinary conduct of its business, free andclear of all Liens except (i) for minor defects in title that do not materiallyinterfere with its ability to conduct its business or to utilize such assetsfor their intended purposes, (ii) Liens permitted by SECTION 6.01 and except(iii) where the failure to have such title could not reasonably be expected tohave, individually or in the aggregate, a Material Adverse Effect.

 

(b)                                 Schedule 3.08(b)(i) sets forth the address (including county) ofall Real Estate that is owned by the Loan Parties as of the Closing Date. Schedule3.08(b)(ii) sets forth the address (including county) of all Real Estatethat is leased by the Loan Parties as of the Closing Date, together with a listof the lessor with respect to each such Lease. Except as would not reasonablybe expected to result in a Material Adverse Effect, to the knowledge of theResponsible Officers of the Loan Parties each of such Leases is in full forceand effect and the Loan Parties are not in default of the terms thereof.

 

SECTION 3.09                                            Environmental Compliance.

 

(a)                                  There are no claims, actions, suits, orproceedings alleging potential liability or responsibility for violation of, orotherwise relating to, any Environmental Law that could, individually or in theaggregate, reasonably be expected to have a Material Adverse Effect.

 

(b)                            Except as specifically disclosed in Schedule 3.09(b)or except as could not reasonably be expected to have, individually or in theaggregate, a Material Adverse Effect, (i) none of the properties currently orformerly owned, leased or operated by any Loan Party or any of its RestrictedSubsidiaries is listed or proposed for listing on the NPL or on the CERCLIS orany analogous foreign, state, provincial or local list or is adjacent to anysuch property; (ii) to the knowledge of the Loan Parties, there are no, andnever have been, any underground or aboveground storage tanks or any surfaceimpoundments, septic tanks, pits, sumps or lagoons in

 

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whichHazardous Materials are being or have been treated, stored or disposed of onany property currently owned, leased or operated by any Loan Party or any ofits Restricted Subsidiaries or, to its knowledge, on any property formerlyowned or operated by any Loan Party or any of its Restricted Subsidiaries;(iii) to the knowledge of the Loan Parties, there is no asbestos orasbestos-containing material on any property currently owned or operated by anyLoan Party or any of its Restricted Subsidiaries; and (iv) HazardousMaterials have not been released, discharged or disposed of by any Person onany property currently or formerly owned, leased or operated by any Loan Partyor any of its Restricted Subsidiaries and Hazardous Materials have nototherwise been released, discharged or disposed of by any of the Loan Partiesand their Restricted Subsidiaries at any other location.

 

(c)                             The properties owned, leased or operated bythe Loan Parties and their Restricted Subsidiaries do not contain any HazardousMaterials in amounts or concentrations which (i) constitute, orconstituted a violation of, (ii) require remedial action under, or(iii) could give rise to liability under, Environmental Laws, whichviolations, remedial actions and liabilities, individually or in the aggregate,could reasonably be expected to result in a Material Adverse Effect.

 

(d)                            Except as specifically disclosed in Schedule 3.09(d),neither any Loan Party nor any of their Restricted Subsidiaries is undertaking,or has completed, either individually or together with other potentially responsibleparties, any investigation or assessment or remedial or response actionrelating to any actual or threatened release, discharge or disposal ofHazardous Materials at any site, location or operation, either voluntarily orpursuant to the order of any Governmental Authority or the requirements of anyEnvironmental Law except for such investigation or assessment or remedial orresponse action that, individually or in the aggregate, could not reasonably beexpected to result in a Material Adverse Effect.

 

(e)                             All Hazardous Materials generated, used,treated, handled or stored at, or transported to or from, any propertycurrently or formerly owned or operated by any Loan Party or any of itsSubsidiaries have been disposed of in a manner not reasonably expected toresult, individually or in the aggregate, in a Material Adverse Effect.

 

(f)                               Except as would not reasonably be expected toresult, individually or in the aggregate, in a Material Adverse Effect, none ofthe Loan Parties and their Subsidiaries has contractually assumed any liabilityor obligation under or relating to any Environmental Law.

 

(g)                                 The execution, delivery and performance ofthis Agreement and the consummation of the transactions contemplated herebywill not require any notification, registration, filing, reporting, disclosure,investigation, remediation or cleanup pursuant to any applicable EnvironmentalLaw, except for any requirement the noncompliance with which could notreasonably be expected to have, individually or in the aggregate, a MaterialAdverse Effect.

 

(h)                                 As of the Closing Date, the Lead Borrower hasmade available to the Agents and the Lenders all material documents, studies,and reports in the possession, custody or control of the Loan Partiesconcerning compliance with or liability under Environmental Law, includingthose concerning the actual or suspected existence of Hazardous Material atReal

 

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Estateor facilities currently or formerly owned, operated, leased or used by the LoanParties which could reasonably be expected to have a Material Adverse Effect.

 

SECTION 3.10                                            Taxes.

 

Exceptas set forth in Schedule 3.10 and except as could not, eitherindividually or in the aggregate, reasonably be expected to result in a MaterialAdverse Effect, the Parent and its Restricted Subsidiaries have filed allfederal, state, provincial and other tax returns and reports required to befiled, and have paid all federal, state, provincial and other Taxes,assessments, fees and other governmental charges levied or imposed upon them ortheir properties, income or assets otherwise due and payable, except those(a) which are not overdue by more than thirty (30) days or (b) whichare being contested in good faith by appropriate actions diligently conductedand for which adequate reserves have been provided in accordance with GAAP.

 

SECTION 3.11                                            ERISA; Plan Compliance.

 

(a)                                  Except as set forth in Schedule 3.11or as could not, either individually or in the aggregate, reasonably beexpected to result in a Material Adverse Effect, each Plan is in compliance inwith the applicable provisions of ERISA, the Code, the PBA and other federal,state or provincial Applicable Laws.

 

(b)                                 (i) No ERISA Event has occurred during thefive year period prior to the date on which this representation is made ordeemed made with respect to any Plan; (ii) no Plan has an “accumulatedfunding deficiency” (as defined in Section 412 of the Code), whether ornot waived; (iii) neither any Loan Party nor any ERISA Affiliate hasincurred, or reasonably expects to incur, any liability under Title IV ofERISA with respect to any Plan (other than premiums due and not delinquentunder Section 4007 of ERISA); (iv) neither any Loan Party nor anyERISA Affiliate has incurred, or reasonably expects to incur, any liability(and no event has occurred which, with the giving of notice underSection 4219 of ERISA, would result in such liability) underSections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and(v) neither any Loan Party nor any ERISA Affiliate has engaged in atransaction that could be subject to Sections 4069 or 4212(c) of ERISA,except, with respect to each of the foregoing clauses of this SECTION 3.11(b),as could not reasonably be expected, individually or in the aggregate, toresult in a Material Adverse Effect.

 

(c)                                  The Loan Parties are in compliance with therequirements of the PBA and other federal, provincial or state laws withrespect to each Plan, except where the failure to so comply would not reasonablybe expected to have a Material Adverse Effect. No fact or situation that mayreasonably be expected to result in a Material Adverse Effect exists inconnection with any Plan. No Loan Party has any material withdrawal liabilityin connection with a Plan. No Pension Event has occurred which could reasonablybe expected to result in a Material Adverse Effect. No lien has arisen, choateor inchoate, in respect of a Loan Party or its Subsidiaries or their propertyin connection with any Plan (except for contribution amounts not yet due).

 

SECTION 3.12                                            Subsidiaries; Equity Interests.

 

Asof the Closing Date, neither the Lead Borrower nor any Loan Party has anySubsidiaries other than those specifically disclosed in Schedule 3.12,and all of the outstanding

 

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CapitalStock in their respective Subsidiaries has been validly issued, is fully paidand nonassessable and all Capital Stock owned by the Lead Borrower or a LoanParty is owned free and clear of all Liens except (i) those created underthe Security Documents, (ii) those to secure the Term Loan Facility, and(iii) any nonconsensual Lien that is permitted under SECTION 6.01. As ofthe Closing Date, Schedule 3.12 (a) sets forth the name andjurisdiction of each Subsidiary, and (b) sets forth the ownership interestof the Lead Borrower and any other Subsidiary in each Subsidiary, including thepercentage of such ownership.

 

SECTION 3.13                                            Margin Regulations; Investment Company Act.

 

(a)                                  No Borrower is engaged nor will it engage,principally or as one of its important activities, in the business ofpurchasing or carrying Margin Stock, or extending credit for the purpose ofpurchasing or carrying Margin Stock and no proceeds of any Revolving CreditLoan (including Swingline Loans) or drawings under any Letter of Credit will beused for the purpose of purchasing or carrying Margin Stock (other thanpursuant to, or in connection with, the MIK Recapitalization), or any otherpurpose that violates Regulation U. The value of the Margin Stock at any timeowned by the Loan Parties and their Subsidiaries at any time a Credit Extensionconstitutes a “purpose credit” (within the meaning of Regulation U) does notexceed 25% of the value of the assets of the Loan Parties and their Subsidiariestaken as a whole.

 

(b)                            None of the Lead Borrower, any PersonControlling the Lead Borrower, or any Subsidiary is or is required to beregistered as an “investment company” under the Investment Company Act of 1940.

 

SECTION 3.14                                            Disclosure.

 

Noreport, financial statement, certificate or other written information furnishedby or on behalf of any Loan Party to any Credit Party in connection with thetransactions contemplated hereby and the negotiation of this Agreement ordelivered hereunder or any other Loan Document (as modified or supplemented byother information so furnished) when taken as a whole contains any materialmisstatement of fact or omits to state any material fact necessary to make thestatements therein, in the light of the circumstances under which they weremade, not materially misleading; *provided* that,with respect to projected financial information and proformafinancial information, the Lead Borrower represents only that such informationwas prepared in good faith based upon assumptions believed to be reasonable atthe time of preparation; it being understood that such projections may varyfrom actual results and that such variances may be material.

 

SECTION 3.15                                            Intellectual Property; Licenses, Etc.

 

Schedule 3.15sets forth, as of the Closing Date, with respect to each Loan Party a list ofall of the registered Intellectual Property owned by such Loan Party and allapplications for the registrations or issuance thereof. Each such registrationand application that is necessary to the business of such Loan Party issubsisting. Each of the Loan Parties and their Subsidiaries own, license orpossess the right to use, all of the trademarks, service marks, trade names,domain names, copyrights, patents, patent rights, licenses, technology,software, know-how database rights, design rights and other intellectualproperty rights (collectively, “IP Rights”) that are

 

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reasonablynecessary for the operation of their respective businesses as currentlyconducted, and, without conflict with the rights of any Person, except to theextent such conflicts, either individually or in the aggregate, could notreasonably be expected to have a Material Adverse Effect. No IP Rights,advertising, product, process, method, substance, part or other material usedby any Loan Party or any Subsidiary in the operation of their respectivebusinesses as currently conducted infringes upon any rights held by any Personexcept for such infringements, individually or in the aggregate, which couldnot reasonably be expected to have a Material Adverse Effect. No claim orlitigation regarding any of the IP Rights, is pending or, to the knowledge ofany Borrower, threatened against any Loan Party or Subsidiary, which, eitherindividually or in the aggregate, could reasonably be expected to have aMaterial Adverse Effect.

 

SECTION 3.16                                            Solvency.

 

Onthe Closing Date after giving effect to the Transaction, the Loan Parties, on aConsolidated basis, are Solvent.

 

SECTION 3.17                                            Subordination of Junior Financing.

 

TheObligations are “Senior Debt,” “Senior Indebtedness,” “Guarantor Senior Debt”“Designated Senior Indebtedness” or “Senior Secured Financing” (or anycomparable term) under, and as defined in, any Senior Subordinated NoteDocuments, any Subordinated Discount Note Documents and any other JuniorFinancing.

 

SECTION 3.18                                            Labor Matters.

 

Exceptas, in the aggregate, could not reasonably be expected to have a MaterialAdverse Effect or as disclosed in the Lead Borrower’s annual report (filed onForm 10-K) for the Fiscal Year ending January 28, 2006 and on the quarterlyreports (filed on Form 10-Q) for the Fiscal Quarters ending April 29, 2006 andJuly 29, 2006:  (a) there are nostrikes or other labor disputes against any of the Parent or its Subsidiariespending or, to the knowledge of the Lead Borrower, threatened; (b) hoursworked by and payment made to employees of each of the Parent or its RestrictedSubsidiaries have not been in violation of the Fair Labor Standards Act or anyother Applicable Laws dealing with such matters; and (c) all payments duefrom any of the Parent or its Restricted Subsidiaries on account of employeehealth and welfare insurance have been paid or accrued as a liability on thebooks of the relevant party. Except as disclosed in the Lead Borrower’s annualreport (filed on Form 10-K) for the Fiscal Year ending January 28, 2006 and onthe quarterly reports (filed on Form 10-Q) for the Fiscal Quarters ending April29, 2006 and July 29, 2006, as of the Closing Date no Loan Party is a party toor bound by any collective bargaining agreement or any similar agreement. As ofthe Closing Date, there are no representation proceedings pending or, to theactual knowledge of any Responsible Officer of any Loan Party, threatened to befiled with the National Labor Relations Board or other applicable GovernmentalAuthority, and no labor organization or group of employees of any Loan Partyhas made a pending demand in writing for recognition. As of the Closing Date,the consummation of the transactions contemplated by the Loan Documents willnot give rise to any right of termination or right of renegotiation on the partof any union under any collective bargaining agreement to which any Loan Partyis bound to the extent that such would be reasonably expected to result in aMaterial Adverse Effect.

 

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SECTION3.19       Compliance with Laws and Agreements.

 

EachLoan Party is in compliance with all Applicable Law, except where the failureto comply, individually or in the aggregate, would not reasonably be expectedto result in a Material Adverse Effect. Without limiting the generality of theforegoing, each Loan Party has obtained all permits, licenses and otherauthorizations which are required with respect to the ownership and operationsof its business, except where the failure to obtain such permits, licenses orother authorizations, individually or in the aggregate, could not reasonably beexpected to have a Material Adverse Effect. Each Loan Party is in compliancewith all terms and conditions of all such permits, licenses, orders andauthorizations, except where the failure to comply with such terms orconditions, individually or in the aggregate, could not reasonably be expectedto have a Material Adverse Effect.

 

SECTION3.20       Security Documents.

 

TheSecurity Documents create in favor of the Collateral Agent, for the ratablebenefit of the Secured Parties, a legal, valid and enforceable securityinterest and hypothec in the Collateral described therein as security for theObligations to the extent that a legal, valid, binding and enforceable securityinterest in such Collateral may be created under any Applicable Law of theUnited States of America and any states thereof, including, without limitation,the applicable Uniform Commercial Code, and under any Applicable Law of Canadaand any provinces thereof, including, without limitation, the PPSA and theCivil Code, and the Security Documents constitute, or will upon the filing offinancing statements and the obtaining of “control”, in each case, asapplicable, with respect to the relevant Collateral as required under theapplicable Uniform Commercial Code, PPSA or Civil Code, the creation of a fullyperfected first priority Lien on, and security interest and hypothec in, allright, title and interest of the Borrowers and each Facility Guarantor thereunderin such Collateral, in each case prior and superior in right to any otherPerson (other than Permitted Encumbrances having priority under Applicable Lawand with respect to the Term Priority Collateral), except as permittedhereunder or under any other Loan Document, in each case to the extent that asecurity interest may be perfected by the filing of a financing statement orhypothec under the applicable Uniform Commercial Code, PPSA or Civil Code, orby obtaining “control”.

 

ARTICLE IVConditions

 

SECTION4.01       Conditions of Initial Credit Extension.

 

Theobligation of each Lender to make its initial Credit Extension hereunder issubject to satisfaction of the following conditions precedent:

 

(a)           The Agents and the Arrangers (or their counsel) shall have receivedfrom each party either (i) a counterpart of this Agreement and all other LoanDocuments signed on behalf of such party or (ii) written evidence satisfactoryto the Agents and the Arrangers (which may include telecopy transmission orelectronic pdf copy of a signed signature page of this

 

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Agreement) that such party has signed acounterpart of this Agreement and all other Loan Documents.

 

(b)           The Agents and the Arrangers shall have received a written opinion(addressed to each Agent, the Arrangers and the Lenders and dated the ClosingDate) of Ropes & Gray LLP, counsel for the Loan Parties, Davies WardPhillips & Vineberg, LLP, Canadian counsel for the Loan Parties, and eachlaw firm set forth on Schedule 4.01(b), in each case covering suchmatters relating to the Loan Parties, the Loan Documents or the transactionscontemplated thereby as the Agents and the Arrangers shall reasonably request.The Loan Parties hereby request such counsel to deliver such opinions.

 

(c)           The Agents and the Arrangers shall have received Organization Documentsand such other documents and certificates as the Agents or their counsel mayreasonably request relating to the organization and existence of each LoanParty, the authorization of the transactions contemplated by the LoanDocuments, incumbency certificates evidencing the identity, authority andcapacity of each Responsible Officer thereof authorized to act as a ResponsibleOfficer in connection with this Agreement and the other Loan Documents to whichsuch Loan Party is a party or is to be a party on the Closing Date and anyother legal matters relating to the Loan Parties, the Loan Documents or thetransactions contemplated thereby, all in form and substance reasonablysatisfactory to the Agents, the Arrangers and their counsel.

 

(d)           The Administrative Agent shall have received a notice with respect tosuch Borrowing or issuance, as the case may be, as required by Article II and aBorrowing Base Certificate dated the Closing Date, relating to the month endedon September 30, 2006, and executed by a Financial Officer of the LeadBorrower.

 

(e)           The Agents and the Arrangers shall have received a certificate,reasonably satisfactory in form and substance to the Agents and the Arrangers,certifying that, as of the Closing Date, no Default or Event of Default existsand the Loan Parties, taken as a whole, are Solvent and that immediately afterthe consummation of the MIK Recapitalization, no Default or Event of Default willexist and the Loan Parties, taken as a whole will be Solvent.

 

(f)            The Agents shall have received a certificatefrom a Responsible Officer of the Lead Borrower to the effect that therepresentations and warranties set forth in SECTION 3.01 (but excluding clauses(d) and (e)), SECTION 3.02, SECTION 3.04, SECTION 3.13 and SECTION 3.17 hereofare true and correct in all material respects.

 

(g)           No Material Adverse Effect (as defined in the RecapitalizationAgreement) shall have occurred since the date of the most recent financialinformation delivered to the Agents and the Arrangers and the Agents shall havereceived a certificate from a Responsible Officer of the Lead Borrower to thateffect.

 

(h)           There shall not be any other Material Indebtedness of the Loan Partiesoutstanding immediately after the Closing Date other than under (i) the SeniorNotes, (ii) the Senior Subordinated Notes, (iii) the Subordinated DiscountNotes, (iv) the Term Loan Facility,

 

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(v) this Agreement, and (vi) PermittedIndebtedness reasonably acceptable to the Administrative Agent.

 

(i)            There shall not be any Capital Stock of theLead Borrower (or securities convertible into or exchangeable for Capital Stockor rights or options to acquire Capital Stock) outstanding immediately afterthe Closing Date other than Capital Stock held by the Sponsors, HighfieldsCapital, members of management and other co-investors reasonably acceptable tothe Administrative Agent.

 

(j)            The Collateral Agent shall have receivedresults of searches or other evidence reasonably satisfactory to the CollateralAgent (in each case dated as of a date reasonably satisfactory to theCollateral Agent) indicating the absence of Liens on the assets of the LoanParties, except for Permitted Encumbrances and Liens for which terminationstatements and releases or subordination agreements are being tendered on theClosing Date.

 

(k)           The Agents and the Arrangers shall have received evidence of the LoanParties’ insurance together with endorsements thereto, all as and to the extentrequired by the Loan Documents.

 

(l)            Prior to or simultaneously with the initialCredit Extensions, the Lead Borrower shall have terminated the Existing CreditAgreement and the Administrative Agent shall have received a payoff letter inform reasonably satisfactory to the Administrative Agent, including, withoutlimitation, the agreement of the agents under the Existing Credit Agreement toterminate, or cause to be terminated, the Liens, if any, which secure theExisting Credit Agreement.

 

(m)          The Agents shall be reasonably satisfied that all fees due on theClosing Date and all Credit Party Expenses incurred in connection with theestablishment of the credit facility contemplated hereby (including thereasonable fees and expenses of counsel to the Agents), shall be paid in fullfrom the proceeds of the initial borrowing hereunder.

 

(n)           The Lead Borrower shall have received the Equity Contribution in cashto pay a portion of the purchase price under the Transaction Documents. Theexisting equity and/or stock options in the Lead Borrower shall have beenrolled over. The Borrowers and/or their Affiliates shall have received theproceeds from (a) the Senior Notes, the Senior Subordinated Notes, and the SubordinatedDiscount Notes, and (b) the Term Loan Facility.

 

(o)           The MIK Recapitalization shall be consummated contemporaneously withthe effectiveness of this Agreement on terms consistent with the TransactionDocuments in effect as of October 31, 2006 (with any material changes theretoapproved by the Agents and the Arrangers (whose approval shall not beunreasonably withheld) but only to the extent such changes are materiallyadverse to the Lenders (as reasonably determined by the Agents and the Arrangers)and with all conditions precedent having been satisfied or waived with theconsent of the Agents and the Arrangers, but only to the extent that thefailure to so satisfy such conditions would be materially adverse to theLenders (as reasonably determined by the Agents and the Arrangers)). The Agentsand the Arrangers shall have received (x) copies of each of the TransactionDocuments, including all amendments and schedules thereto, each certified astrue

 

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and correct by an officer of the LeadBorrower, and (y) evidence that all consents, filings and approvals required byApplicable Law in connection therewith shall have been obtained and made,including, without limitation, the filing of the Certificate of Merger in theoffice of the Secretary of State of Delaware.

 

(p)           The Collateral Agent shall have received the Security Documents(together with title insurance in form, scope and amount reasonablysatisfactory in all respects to the Collateral Agent) and certificatesevidencing any stock being pledged thereunder, together with undated stockpowers executed in blank, each duly executed by the applicable Loan Parties.

 

(q)           The Collateral Agent shall have received (i) all documents andinstruments, including Uniform Commercial Code financing statements, requiredby law or reasonably requested by the Collateral Agent to be filed, registeredor recorded to create or perfect in the United States the first priority Liensintended to be created under the Loan Documents and all such documents andinstruments shall have been so filed, registered or recorded to the reasonablesatisfaction of the Collateral Agent and (ii) the Credit Card Notifications,and Blocked Account Agreements required pursuant to SECTION 2.18 hereof and(iii) with respect to any Loan Party located in or organized under the laws ofCanada, all filings and recordations required by Applicable Law of Canada(including, without limitation, under the PPSA and the Civil Code) orreasonably requested by the Collateral Agent to be filed, registered orrecorded to create or perfect in Canada the Collateral Agent’s Lien in anyCollateral located in Canada.

 

(r)            There shall have been delivered to the Agentsand the Arrangers all documentation and other information requested by themthat is required by regulatory authorities under applicable “know your customer”and anti-money laundering rules and regulations, including the Act (as definedin SECTION 9.19 below).

 

(s)           To the extent not otherwise set forth in this SECTION 4.01, there shallhave been delivered to the Agents and the Arrangers each of the instruments,agreements, opinions, certificates and other documents identified on theclosing agenda attached hereto as Exhibit J.

 

SECTION4.02       Conditions Precedent to Each Revolving CreditLoan and Each Letter of Credit.

 

Theobligation of the Lenders to make each Revolving Credit Loan and of the IssuingBanks to issue each Letter of Credit is also subject to the satisfaction by theLoan Parties or the waiver of each of the following conditions precedent:

 

(a)           The Administrative Agent shall have received a notice with respect tosuch Borrowing or issuance, as the case may be, as required by Article II, andin the case of the issuance of a Letter of Credit, the applicable Issuing Bankshall have received notice with respect thereto in accordance with SECTION2.13.

 

(b)           With respect to any Borrowing other than the initial Revolving CreditLoan and Letters of Credit to be issued on the Closing Date in order toconsummate the MIK Recapitalization, all representations and warrantiescontained in this Agreement and the other

 

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LoanDocuments or otherwise made in writing in connection herewith or therewithshall be true and correct in all material respects on and as of the date ofeach Borrowing or the issuance of each Letter of Credit hereunder with the sameeffect as if made on and as of such date, other than representations andwarranties that relate solely to an earlier date, which shall be true andcorrect in all material respects as of such earlier date, provided that anyrepresentation and warranty which is qualified as to “materiality”, “MaterialAdverse Effect” or similar language shall be true and correct in all respectson such respective dates.

 

(c)           On the date of each Borrowing hereunder and the issuance of each Letterof Credit and after giving effect thereto, no Default or Event of Default shallhave occurred and be continuing.

 

(d)           If Availability shall be less than $75,000,000, the Loan Parties shallhave demonstrated, to the reasonable satisfaction of the Administrative Agent,that the Consolidated Fixed Charge Coverage Ratio on a Pro Forma Basis was atleast 1.1 to 1.00 at the end of the month immediately preceding the request fora Credit Extension (tested on a trailing twelve month basis), providedthat this condition shall not apply to the initial Revolving Credit Loan andLetters of Credit to be issued on the Closing Date in order to consummate theMIK Recapitalization. For purposes of determining satisfaction with theforegoing Consolidated Fixed Charge Coverage Ratio under this SECTION 4.02(d),any Specified Equity Contribution will, at the request of the Lead Borrower, beincluded in the calculation of Consolidated EBITDA for any period ofcalculation which includes the month in which such Specified EquityContribution was received by the Loan Parties, provided that (a) in eachfour Fiscal Quarter period, there shall be a period of at least two Fiscal Quartersin respect of which no Specified Equity Contribution is made, (b) the amount ofany Specified Equity Contribution shall be no greater than the amount requiredto cause the Loan Parties to be in proforma compliance with theConsolidated Fixed Charge Coverage Ratio specified above and (c) all SpecifiedEquity Contributions shall be disregarded for purposes of determining anybaskets with respect to the covenants contained herein. For clarification, anyequity contributions described in clause (a)(ii) of the definition ofConsolidated Fixed Charge Coverage Ratio other than on account of SpecifiedEquity Contributions shall not be included in the calculation of ConsolidatedEBITDA under this SECTION 4.02(d).

 

Therequest by the Lead Borrower for, and the acceptance by any Borrower of, eachextension of credit hereunder shall be deemed to be a representation andwarranty by the Loan Parties that the conditions specified in this SECTION 4.02have been satisfied at that time and that after giving effect to such extensionof credit the Borrowers shall continue to be in compliance with the Tranche A-1Borrowing Base (or, if the Tranche A-1 Commitments have been terminated, thethen Tranche A Borrowing Base). The conditions set forth in this SECTION 4.02are for the sole benefit of the Administrative Agent and each other CreditParty and may be waived by the Administrative Agent, in whole or in part,without prejudice to the rights of the Administrative Agent or any other CreditParty.

 

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ARTICLE VAffirmative Covenants

 

Until(i) the Commitments have expired or been terminated, (ii) the principal of andinterest on each Revolving Credit Loan (including Swingline Loans) and all feesand other Obligations (other than contingent indemnity obligations with respectto then unasserted claims and the Other Liabilities) shall have been paid infull, (iii) all Letters of Credit shall have expired or terminated (or beencash collateralized or backstopped in a manner reasonably satisfactory to theapplicable Issuing Bank) and (iv) all Letter of Credit Outstandings have beenreduced to zero (or cash collateralized or backstopped in a manner reasonablysatisfactory to the applicable Issuing Bank), each Loan Party covenants andagrees with the Credit Parties that:

 

SECTION5.01       Financial Statements.

 

TheLead Borrower will deliver to the Administrative Agent for prompt furtherdistribution to each Lender:

 

(a)           as soon as available, but in any event within ninety (90) days after theend of each Fiscal Year of the Lead Borrower beginning with the 2006 FiscalYear, a Consolidated balance sheet of the Lead Borrower and its Subsidiaries asat the end of such Fiscal Year, and the related Consolidated statements ofincome or operations, stockholders’ equity and cash flows for such Fiscal Year,setting forth in each case in comparative form the figures for the previousFiscal Year, all in reasonable detail and prepared in accordance with GAAP,audited and accompanied by a report and opinion of Ernst & Young, LLP orany other independent registered public accounting firm of nationallyrecognized standing, which report and opinion shall be prepared in accordancewith generally accepted auditing standards and shall not be subject to any “goingconcern” or like qualification or exception or any qualification or exceptionas to the scope of such audit;

 

(b)           as soon as available, but in any event within forty-five (45) daysafter the end of each of the first three (3) Fiscal Quarters of each fiscalyear of the Lead Borrower, a Consolidated balance sheet of the Lead Borrowerand its Subsidiaries as at the end of such Fiscal Quarter, and the related (i)Consolidated statements of income or operations for such Fiscal Quarter and forthe portion of the Fiscal Year then ended and (ii) Consolidated statements ofcash flows for the portion of the Fiscal Year then ended, setting forth in eachcase in comparative form the figures for the corresponding Fiscal Quarter ofthe previous Fiscal Year and the corresponding portion of the previous FiscalYear, all in reasonable detail and certified by a Responsible Officer of theLead Borrower as fairly presenting in all material respects the financialcondition, results of operations, stockholders’ equity and cash flows of theLead Borrower and its Subsidiaries in accordance with GAAP, subject only tonormal year-end audit adjustments and the absence of footnotes;

 

(c)           as soon as available, but in any event within thirty-five (35) daysafter the end of each of the first two Fiscal Months of each Fiscal Quarter ofthe Lead Borrower, a Consolidated balance sheet of the Lead Borrower and itsSubsidiaries as at the end of such Fiscal Month, and the related (i)Consolidated statements of income or operations for such Fiscal

 

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Monthand for the portion of the Fiscal Year then ended and (ii) Consolidatedstatements of cash flows for the portion of the Fiscal Year then ended, settingforth in each case in comparative form the figures for the corresponding FiscalMonth of the previous Fiscal Year and the corresponding portion of the previousFiscal Year, all in reasonable detail and certified by a Responsible Officer ofthe Lead Borrower as fairly presenting in all material respects the financialcondition, results of operations, stockholders’ equity and cash flows of theLead Borrower and its Subsidiaries in accordance with GAAP, subject only tonormal year-end audit adjustments and the absence of footnotes;

 

(d)           as soon as available, and in any event no later than ninety (90) daysafter the end of each Fiscal Year of the Lead Borrower, a detailed consolidatedbudget by month for the following Fiscal Year (including a projectedConsolidated balance sheet of the Lead Borrower and its Subsidiaries as of theend of each month of the following Fiscal Year, the related Consolidatedstatements of projected cash flow and projected income and a summary of thematerial underlying assumptions applicable thereto), and, as soon as available,significant revisions, if any, of such budget and projections with respect tosuch Fiscal Year (collectively, the “Projections”), which Projectionsshall in each case be accompanied by a certificate of a Responsible Officerstating that such Projections are based on estimates, information andassumptions believed to be reasonable and that such Responsible Officer has noreason to believe that such Projections are incorrect or misleading in anymaterial respect;

 

(e)           On the 10th Business Day of each month (or more frequentlyas the Lead Borrower may elect), a certificate in the form of Exhibit I(a “Borrowing Base Certificate”) showing the Tranche A Borrowing Baseand the Tranche A-1 Borrowing Base as of the close of business on theimmediately preceding calendar month (or in the case of a voluntary delivery ofa Borrowing Base Certificate at the election of the Borrowers, a subsequentdate), each Borrowing Base Certificate to be certified as complete and correctin all material respects on behalf of the Lead Borrower by a ResponsibleOfficer of the Lead Borrower, provided that if Availability is at anytime less than $125,000,000, such Borrowing Base Certificate shall be furnishedon Wednesday of each week (or, if Wednesday is not a Business Day, on the next succeedingBusiness Day), as of the close of business on the immediately precedingSaturday;

 

(f)            simultaneously with the delivery of each setof Consolidated financial statements referred to in SECTION 5.01(a), SECTION5.01(b) and SECTION 5.01(c) above, the related consolidating financialstatements reflecting the adjustments necessary to eliminate the accounts ofUnrestricted Subsidiaries (if any) from such Consolidated financial statements;and

 

(g)           promptly upon receipt thereof, copies of all management letters fromthe Loan Parties’ independent certified public accountants submitted by suchaccountants to management in connection with their annual audit (i) commentingon any material weakness in the Loan Parties’ internal controls, and (ii)subject to the consent of such accountants (which consent the Loan Partiesshall in good faith seek to obtain), commenting on any other matters relatingto the Loan Parties’ internal controls.

 

Notwithstandingthe foregoing, the obligations in paragraphs (a) and (b) of this SECTION 5.01may be satisfied with respect to financial information of the Lead Borrower andits Restricted Subsidiaries by furnishing (A) the Consolidated financialstatements of Holdco (or any direct or indirect parent of Holdco), or (B) theLead Borrower’s or Holdco’s (or

 

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anydirect or indirect parent of Holdco), as applicable, Form 10-K or 10-Q, asapplicable, filed with the SEC, *provided* thatto the extent that such information relates to Holdco (or any direct orindirect parent of Holdco), such information is accompanied by consolidatinginformation that explains in reasonable detail the differences between theinformation relating to Holdco (or such direct or indirect parent) and itsRestricted Subsidiaries, on the one hand, and the Lead Borrower and itsRestricted Subsidiaries on the other hand, and (ii) to the extent suchinformation is in lieu of information required to be provided under SECTION5.01(a), such materials are accompanied by a report and opinion of Ernst &Young LLP or any other independent registered public accounting firm ofnationally recognized standing, which report and opinion shall be prepared inaccordance with generally accepted auditing standards and shall not be subjectto any “going concern” or like qualification or exception or any qualificationor exception as to the scope of such audit.

 

SECTION5.02       Certificates; Other Information.

 

TheLead Borrower will deliver to the Administrative Agent for prompt further distributionto each Lender:

 

(a)           [Reserved]

 

(b)           contemporaneously with the delivery of the financial statementsreferred to in SECTION 5.01(a), SECTION 5.01(b) and SECTION 5.01(c), a dulycompleted Compliance Certificate signed by a Responsible Officer of the LeadBorrower in the form of Exhibit H hereto (a “Compliance Certificate”)(i) certifying as to whether a Default or Event of Default has occurred and, ifa Default or Event of Default has occurred, specifying the details thereof andany action taken or proposed to be taken with respect thereto, (ii) settingforth reasonably detailed calculations with respect to the average dailyAvailability (based on the most recent monthly and/or weekly Borrowing BaseCertificates furnished to the Administrative Agent) and the Consolidated FixedCharge Coverage Ratio for such period, (iii) detailing all Store openings andStore closings during the immediately preceding fiscal period, and stating theaggregate number of the Loan Parties’ Stores as of the first day of the currentfiscal period, (iv) setting forth in reasonable detail the status of rentalpayments for each of the Loan Parties’ (A) warehouses and distribution centers,and (B) other leased locations in the Landlord Lien States designated by theAdministrative Agent in its commercially reasonable judgment (which, as of theClosing Date, are Washington, Pennsylvania and Virginia), and (v) statingwhether any change in GAAP or in the application thereof has occurred since thedate of the Lead Borrower’s most recent audited financial statements and, ifany such change has occurred, specifying the effect of such change on thefinancial statements accompanying such Compliance Certificate;

 

(c)           promptly after the same are publicly available, copies of all annual,regular, periodic and special reports and registration statements which theLead Borrower or Holdco files with the SEC or with any Governmental Authoritythat may be substituted therefor (other than amendments to any registrationstatement (to the extent such registration statement, in the form it becameeffective, is delivered), exhibits to any registration statement and, ifapplicable, any registration statement on Form S-8) and in any case nototherwise required to be delivered to the Administrative Agent pursuant hereto;

 

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(d)           promptly after the furnishing thereof, copies of any material requestsor material notices received by any Loan Party (other than in the ordinarycourse of business) or material statements or material reports furnished to anyholder of debt securities of any Loan Party or of any of its RestrictedSubsidiaries pursuant to the terms of the Senior Notes, the Senior SubordinatedNotes, the Subordinated Discount Notes, or the Term Loan Facility and nototherwise required to be furnished to the Lenders pursuant to any other clauseof this SECTION 5.02;

 

(e)           together with the delivery of each Compliance Certificate pursuant toSECTION 5.02(b), (i) a report setting forth the information required bySection 4.01(e) of the Security Agreement or confirming that there has been nochange in such information since the Closing Date or the date of the last suchreport), and (ii) a list of each Subsidiary that identifies eachSubsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary as of thedate of delivery of such Compliance Certificate;

 

(f)            The financial and collateral reportsdescribed on Schedule 5.02(f) hereto, at the times set forth in such Schedule5.02(f); and

 

(g)           After the occurrence and during the continuance of a Cash DominionEvent, a detailed summary of all Net Proceeds received from any PrepaymentEvent, in each case within five (5) Business Days after receipt of such NetProceeds other than from sales of Inventory in the ordinary course of business;

 

(h)           promptly when available, (i) a copy of the acquisition agreement andother acquisition documents relating to any Permitted Acquisition and (ii)updated schedules to this Agreement and the Security Agreement after givingeffect to such Permitted Acquisition, appropriate financial statements of thePerson which is the subject of such Permitted Acquisition and financialstatements prepared on a Pro Forma Basis (to the extent available) after givingeffect to such Permitted Acquisition (including balance sheets, cash flows andincome statements);

 

(i)            at least five (5) Business Days prior to themaking of any Specified Payment, a detailed calculation of the ConsolidatedFixed Charge Coverage Ratio and all components thereof, with such supportingdocumentation as the Administrative Agent may reasonably request; and

 

(j)            promptly, such additional informationregarding the business, legal, financial or corporate affairs of any Loan Partyor any Subsidiary, or compliance with the terms of the Loan Documents, as theAdministrative Agent or any Lender through the Administrative Agent may fromtime to time reasonably request.

 

Documentsrequired to be delivered pursuant to SECTION 5.01(a), SECTION 5.01(b), SECTION5.01(c) or SECTION 5.02(d) (to the extent any such documents are included inmaterials otherwise filed with the SEC) may be delivered electronically and ifso delivered, shall be deemed to have been delivered on the date (i) onwhich the Lead Borrower posts such documents, or provides a link thereto on theLead Borrower’s website on the Internet at the website address listed on Schedule5.02; or (ii) on which such documents are posted on the Lead

 

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Borrower’sbehalf on IntraLinks/IntraAgency or another relevant website, if any, to whicheach Lender and the Administrative Agent have access (whether a commercial,third-party website or whether sponsored by the Administrative Agent); *provided* that: (i) upon written request by the Administrative Agent, the LeadBorrower shall deliver paper copies of such documents to the AdministrativeAgent for further distribution to each Lender until a written request to ceasedelivering paper copies is given by the Administrative Agent and (ii) theLead Borrower shall notify (which may be by facsimile or electronic mail) theAdministrative Agent of the posting of any such documents and provide to theAdministrative Agent by electronic mail electronic versions (*i.e.*, soft copies) of such documents. Notwithstandinganything contained herein, in every instance the Lead Borrower shall berequired to provide paper copies of the Compliance Certificates required bySECTION 5.02(b) to the Administrative Agent. Each Lender shall be solelyresponsible for timely accessing posted documents or requesting delivery ofpaper copies of such documents from the Administrative Agent and maintainingits copies of such documents.

 

SECTION5.03       Notices.

 

Promptlyafter obtaining knowledge thereof, the Lead Borrower shall notify theAdministrative Agent in writing:

 

(a)           of the occurrence of any Default, specifying the nature and extentthereof and the action (if any) which is proposed to be taken with respectthereto; and

 

(b)           of any matter that has resulted or could reasonably be expected toresult in a Material Adverse Effect, including arising out of or resulting from(i) breach or non-performance of, or any default or event of defaultunder, a contractual obligation of any Loan Party or any Subsidiary,(ii) any dispute, litigation, investigation, proceeding or suspensionbetween any Loan Party or any Subsidiary and any Governmental Authority,(iii) the commencement of, or any material development in, any litigationor proceeding affecting any Loan Party or any Subsidiary, including pursuant toany applicable Environmental Laws or in respect of IP Rights or the assertionor occurrence of any noncompliance by any Loan Party or any of its Subsidiarieswith, or liability under, any Environmental Law or permit, (iv) any strikes, lockoutsor slowdowns against any Loan Party, or (iv) the occurrence of any ERISAEvent or any Pension Event.

 

(c)           Any change in any Loan Party’s chief executive officer or chieffinancial officer;

 

(d)           Any material change in any Loan Party’s financial reporting practices;

 

(e)           The filing of any Lien for unpaid Taxes against any Loan Party inexcess of $25,000,000;

 

(f)            The discharge by any Loan Party of itspresent independent accountants or any withdrawal or resignation by suchindependent accountants;

 

(g)           Any casualty or other insured damage to any portion of the Collateralincluded in the Tranche A Borrowing Base or the Tranche A-1 Borrowing Base inexcess of $25,000,000, or the commencement of any action or proceeding for thetaking of any interest in a

 

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portionof the Collateral included in the Tranche A Borrowing Base or the Tranche A-1Borrowing Base in excess of $25,000,000 or any part thereof or interest thereinunder power of eminent domain or by condemnation or similar proceeding, and

 

(h)           The receipt of any notice of default by a Loan Party under, or noticeof termination of, any Lease for any of the Loan Parties’ distribution centersor warehouses.

 

Eachnotice pursuant to this Section shall be accompanied by a written statement ofa Responsible Officer of the Lead Borrower (x) that such notice is beingdelivered pursuant to this SECTION 5.03, and (y) setting forth details ofthe occurrence referred to therein and stating what action the Lead Borrowerhas taken and proposes to take with respect thereto.

 

SECTION5.04       Payment of Taxes, Etc.

 

TheLoan Parties shall pay, discharge or otherwise satisfy as the same shall becomedue and payable, all its obligations and liabilities in respect of Taxes, assessmentsand governmental charges or levies imposed upon it or upon its income orprofits or in respect of its property, except, in each case, (a) where thevalidity or amount thereof is being contested in good faith by appropriateactions and such Loan Party or such Subsidiary has set aside on its booksadequate reserves with respect thereto in accordance with GAAP, and suchcontest effectively suspends collection of the contested obligation andenforcement of any Lien securing such obligation, or (b) to the extent thefailure to pay or discharge the same could not reasonably be expected to have aMaterial Adverse Effect.

 

SECTION5.05       Preservation of Existence, Etc.

 

TheLoan Parties shall (a) preserve, renew and maintain in full force and effecttheir legal existence under the Applicable Laws of the jurisdiction of itsorganization except in a transaction permitted by SECTION 6.04 or SECTION 6.05,and (b) take all reasonable action to maintain all rights, privileges(including its good standing), permits, licenses and franchises necessary ordesirable in the normal conduct of its business, except (i) to the extent thatfailure to do so could not reasonably be expected to have a Material AdverseEffect or (ii) pursuant to a transaction permitted by SECTION 6.04 or SECTION6.05.

 

SECTION5.06       Maintenance of Properties.

 

Unlessthe failure to do so could not reasonably be expected to have a MaterialAdverse Effect, each Loan Party shall (a) maintain, preserve and protectall of its material properties and equipment necessary in the operation of itsbusiness in good working order, repair and condition, ordinary wear and tearexcepted and casualty or condemnation excepted, and (b) make all necessaryrenewals, replacements, modifications, improvements, upgrades, extensions andadditions thereof or thereto in accordance with prudent industry practice.

 

SECTION5.07       Maintenance of Insurance. 

 

(a)           The Loan Parties shall maintain with financially sound and reputableinsurance companies, insurance with respect to their properties and businessagainst loss or damage of the kinds customarily insured against by Personsengaged in the same or similar

 

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business,of such types and in such amounts (after giving effect to any self-insurancereasonable and customary for similarly situated Persons engaged in the same orsimilar businesses as the Parent and its Restricted Subsidiaries) as arecustomarily carried under similar circumstances by such other Persons. The LoanParties shall furnish to the Agents, upon written request, full information asto the insurance carried.

 

(b)           Fire and extended coverage policies maintained with respect to anyCollateral shall be endorsed or otherwise amended to include (i) anon-contributing mortgage clause (regarding improvements to real property) anda lenders’ loss payable clause (regarding personal property), in form andsubstance reasonably satisfactory to the Agents, which endorsements oramendments shall provide that the insurer shall pay all proceeds otherwisepayable to the Loan Parties under the policies directly to the AdministrativeAgent, (ii) a provision to the effect that none of the Loan Parties, CreditParties (in their capacity as such) or any other Affiliate of a Loan Party shallbe a co-insurer (the foregoing not being deemed to limit the amount ofself-insured retention or deductibles under such policies, which self-insuredretention or deductibles shall be consistent with business practices in effecton the Closing Date or as otherwise determined by the Responsible Officers ofthe Loan Parties acting reasonably in their business judgment), and (iii) suchother provisions as the Administrative Agent may reasonably require from timeto time to protect the interests of the Credit Parties. Commercial generalliability policies shall be endorsed to name the Administrative Agent as anadditional insured. Each endorsement to such casualty or liability policyreferred to in this SECTION 5.07(b) shall also provide that it shall not be canceled,modified in any manner that would cause this SECTION 5.07 to be violated, ornot renewed (i) by reason of nonpayment of premium except upon not less thanthirty (30) days’ prior written notice thereof by the insurer to theAdministrative Agent (giving the Administrative Agent the right to curedefaults in the payment of premiums) or (ii) for any other reason except uponnot less than thirty (30) days’ prior written notice thereof by the insurer tothe Administrative Agent. The Lead Borrower shall deliver to the AdministrativeAgent, prior to the cancellation, modification or non-renewal of any suchpolicy of insurance, a copy of a renewal or replacement policy (or otherevidence of renewal of a policy previously delivered to the Administrative Agent,including an insurance binder) together with evidence satisfactory to theAdministrative Agent of payment of the premium therefor.

 

(c)           The Agents acknowledge that the insurance policies described on Schedule5.07 are satisfactory to them as of the Closing Date and are in compliancewith the provisions of this SECTION 5.07.

 

SECTION5.08       Compliance with Laws.

 

EachLoan Party shall comply in all material respects with the requirements of allApplicable Laws applicable to it or to its business or property, except wherethe failure to comply therewith could not reasonably be expected to have aMaterial Adverse Effect.

 

SECTION5.09       Books and Records.

 

EachLoan Party shall maintain proper books of record and account, in which entriesthat are full, true and correct in all material respects shall be made of allmaterial financial transactions and matters involving the assets and businessof the Lead Borrower or its Restricted

 

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Subsidiaries,as the case may be and shall cause financial statements to be prepared inconformity with GAAP consistently applied.

 

SECTION5.10       Inspection Rights.

 

(a)           Each Loan Party will permit any representatives designated by anyAgent, upon reasonable prior notice, to visit and inspect its properties, todiscuss its affairs, finances and condition with its officers and to examineand make extracts from its books and records, all at such reasonable timesduring normal business hours and as may be reasonably requested upon reasonableadvance notice to the Lead Borrower; provided that, excluding any suchvisits and inspections during the continuation of an Event of Default, only theAdministrative Agent on behalf of the Lenders may exercise the rights of theAdministrative Agent and the Lenders under this SECTION 5.10(a) and theAdministrative Agent shall not exercise such rights more often than two (2)times during any calendar year, absent the existence of an Event of Default andonly one (1) such time shall be at the Lead Borrower’s expense; providedfurther that when an Event of Default exists, the Administrative Agentor any Lender (or any of their respective representatives or independentcontractors) may do any of the foregoing at the expense of the Lead Borrower atany time during normal business hours and upon reasonable advance notice. TheAdministrative Agent and the Lenders shall give the Lead Borrower theopportunity to participate in any discussions with the Lead Borrower’sindependent public accountants. Nothing contained in this SECTION 5.10(a) shallbe deemed to limit or modify the rights of the Agents under SECTION 5.10(b)hereof.

 

(b)           Each Loan Party will from time to time upon the request of any Agent,permit any Agent or professionals (including consultants, accountants, lawyersand appraisers) retained by the Agents, on reasonable prior notice and duringnormal business hours, to conduct appraisals and commercial financeexaminations, including, without limitation, of (i) the Borrowers’ practices inthe computation of the Tranche A-1 Borrowing Base (or, if the Tranche A-1Commitments have been terminated, the then Tranche A Borrowing Base), and (ii)the assets included in the Tranche A-1 Borrowing Base (or, if the Tranche A-1Commitments have been terminated, the then Tranche A Borrowing Base) andrelated financial information such as, but not limited to, sales, grossmargins, payables, accruals and reserves. The Loan Parties shall pay thereasonable out-of-pocket fees and expenses of the Agents or such professionalswith respect to such evaluations and appraisals, provided that (x) theAgents may conduct no more than one (1) commercial finance examination in anycalendar year (provided that the Agents, in their reasonable discretion,if any Event of Default exists, may cause such additional commercial financeexaminations to be taken as the Agents reasonably determine (each, at theexpense of the Loan Parties) and further providedthat, at anytime that Availability is or has been less than the lesser of $150,000,000 or fiftypercent (50%) of the then Tranche A-1 Borrowing Base (or if the Tranche A-1Commitments have been terminated, the Tranche A Borrowing Base), theAdministrative Agent may conduct up to three (3) commercial financeexaminations in such calendar year at the Loan Parties’ expense), and (y) theAgents may undertake no more than one (1) appraisal of the Loan Parties’Inventory in any calendar year (provided that the Agents, in theirreasonable discretion, if any Event of Default exists, may cause such additionalappraisals to be taken as the Agents reasonably determine (each, at the expenseof the Loan Parties) and further providedthat, at any time thatAvailability is or has been less than the lesser of $150,000,000 or fiftypercent (50%) of the then Tranche A-1 Borrowing Base (or if the Tranche

 

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A-1Commitments have been terminated, the Tranche A Borrowing Base), the Agents mayconduct up to three (3) appraisals for each category of Inventory of the Loan Partiesin such calendar year at the Loan Parties’ expense) (provided further that,the Agents may undertake at their sole expense whether or not an Event ofDefault exists, one (1) additional appraisal for Inventory).

 

(c)           The Loan Parties shall at all times retain independent certified publicaccountants of national standing and shall instruct such accountants tocooperate with, and be available to, the Agents or their representatives todiscuss the annual audited statements, the Loan Parties’ financial performance,financial condition, operating results, controls, and such other matters,within the scope of the retention of such accountants for such auditedstatements, as may be raised by the Agents; subject, however, if requested bysuch accountants, to the execution of an access agreement by the Agents andsuch accountants in form reasonably satisfactory to each of them; providedthat a representative of the Lead Borrower shall be given the opportunityto be present all such discussions.

 

SECTION5.11       Covenant to Become a Loan Party and GiveSecurity.

 

Atthe Lead Borrower’s expense, the Loan Parties shall take all action necessaryor reasonably requested by the Agents to ensure that all Persons who areobligated to become a Loan Party, including, without limitation, Holdco and anyPersons acquired in a Permitted Acquisition, and to grant Liens in favor of theCollateral Agent in the Collateral shall have done so, including:

 

(a)           upon the formation or acquisition of Holdco or any new direct orindirect wholly owned Subsidiary (in each case, other than an ExcludedSubsidiary) by any Loan Party or the designation in accordance with SECTION5.14 of any existing direct or indirect wholly owned Subsidiary as a RestrictedSubsidiary:

 

(i)    withinthirty (30) days after such formation, acquisition or designation or suchlonger period as the Agents may agree in their discretion:

 

(a)           causeHoldco and each such Restricted Subsidiary that is required to become a LoanParty to execute and deliver to the Administrative Agent a Joinder Agreement;

 

(b)           causeHoldco and each such Restricted Subsidiary that is required to become a LoanParty to furnish to the Agents a description of the real and immovableproperties owned or leased by Holdco or such Restricted Subsidiary, as applicable,in detail reasonably satisfactory to the Agents;

 

(c)           cause(x) Holdco and each such Restricted Subsidiary that is required to become aLoan Party to duly execute and deliver to the Agents Mortgages, SecurityAgreements, and other Security Documents, as reasonably requested by and inform and substance reasonably satisfactory to the Agents (consistent with theSecurity Documents in effect on the Closing Date), in each case granting Liensto the Collateral Agent to secure the Obligations and (y) each direct orindirect parent of each such Restricted Subsidiary that is required to be a

 

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LoanParty to duly execute and deliver to the Agents such Security Documents asreasonably requested by and in form and substance reasonably satisfactory tothe Agents (consistent with the Security Documents in effect on the ClosingDate), in each case granting Liens to the Collateral Agent to secure theObligations;

 

(d)           (x) causeHoldco and each such Restricted Subsidiary that is required to become a LoanParty to deliver any and all certificates representing Capital Stock (to theextent certificated) that are required to be pledged pursuant to the SecurityDocuments, accompanied by undated stock powers or other appropriate instrumentsof transfer executed in blank and instruments evidencing the intercompanyIndebtedness held by such Restricted Subsidiary and required to be pledgedpursuant to the Security Documents, indorsed in blank to the Collateral Agentand (y) cause each direct or indirect parent of such Restricted Subsidiarythat is required to be a Loan Party to deliver any and all certificatesrepresenting the outstanding Capital Stock (to the extent certificated) of suchRestricted Subsidiary that are required to be pledged pursuant to the SecurityDocuments, accompanied by undated stock powers or other appropriate instrumentsof transfer executed in blank and instruments evidencing the intercompanyIndebtedness issued by such Restricted Subsidiary and required to be pledged inaccordance with the Security Documents, indorsed in blank to the CollateralAgent;

 

(e)           takeand cause Holdco and each such Restricted Subsidiary and each direct orindirect parent of such Restricted Subsidiary to take whatever action(including the recording of Mortgages, the filing of UCC, PPSA or Civil Codefinancing statements and delivery of stock and membership interestcertificates) as may be necessary in the reasonable opinion of the Agents tovest in the Collateral Agent (or in any representative of the Collateral Agentdesignated by it) valid Liens to the extent required under the Loan Documents,enforceable against all third parties in accordance with their terms, except assuch enforceability may be limited by applicable bankruptcy, insolvency,reorganization, moratorium or other laws affecting creditors’ rights generallyand by general principles of equity,

 

(ii)           withinthirty (30) days after the request therefor by the Agents, deliver to theAgents a signed copy of an opinion, addressed to the Agents and the otherCredit Parties, of counsel for the Loan Parties reasonably acceptable to theAgents as to such matters set forth in this SECTION 5.11(a) as the Agents mayreasonably request, and

 

(iii)          aspromptly as practicable after the request therefor by the Agents, deliver tothe Agents with respect to each parcel of real property (A) that is owned byHoldco or such Restricted Subsidiary and has a fair market value in excess of$5,000,000, any existing title reports, surveys or environmental assessmentreports.

 

(b)           After the Closing Date, concurrently with (x) the acquisition of anymaterial personal property by any Loan Party or of any personal property inconnection with a Permitted Acquisition, or (y) the acquisition of any ownedReal Estate by any Loan Party with a

 

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fairmarket value in excess of $5,000,000, and if such personal property or ownedreal property shall not already be subject to a perfected Lien in favor of theCollateral Agent, the Lead Borrower shall give notice thereof to the Agents andpromptly thereafter shall cause such assets to be subjected to a Lien to theextent required by the Loan Documents and will take, or cause the relevant LoanParty to take, such actions as shall be necessary or reasonably requested bythe Agents to grant and perfect or record such Lien, including, as applicable,the actions referred to in SECTION 5.11(a)(iii) with respect to real property.

 

(c)           Notwithstanding the foregoing, no Loan Party shall be required toperfect the security interests granted to the Collateral Agent under anySecurity Documents if and to the extent that the Collateral Agent shall havereasonably determined that the cost of obtaining a first priority securityinterest in any Collateral subject to such security interest exceeds thepractical benefits to the Secured Parties afforded thereby.

 

SECTION5.12       Compliance with Environmental Laws.

 

Except,in each case, to the extent that the failure to do so could not reasonably beexpected to have, individually or in the aggregate, a Material Adverse Effect,the Loan Parties shall comply, and take all reasonable actions to cause alllessees and other Persons operating or occupying its properties to comply withall applicable Environmental Laws and permits; obtain and renew all permitsnecessary for its operations and properties; and, in each case to the extentrequired by Environmental Laws, conduct any investigation, study, sampling andtesting, and undertake any cleanup, removal, remedial or other action necessaryto remove and clean up all Hazardous Materials from any of its properties, inaccordance with the requirements of all Environmental Laws.

 

SECTION5.13       Further Assurances and Post-ClosingConditions.

 

(a)           Each Loan Party will execute any and all further documents, financingstatements, agreements and instruments, and take all such further actions(including the filing and recording of financing statements and otherdocuments), that may be required under any Applicable Law, or which any Agentor the Required Lenders may reasonably request, to effectuate the transactionscontemplated by the Loan Documents or to grant, preserve, protect or perfectthe Liens created or intended to be created by the Security Documents or thevalidity or priority of any such Lien, all at the expense of the Loan Parties. Withoutlimiting the foregoing, the Loan Parties shall use commercially reasonableefforts to obtain a Collateral Access Agreement from any Person from whom aLoan Party enters into a Lease after the Closing Date for a warehouse ordistribution center prior to entering into such Lease.

 

(b)           Upon the request of the Collateral Agent (which the Collateral Agentshall not request unless either negotiable documents of title are issued forthe Inventory in transit or an Event of Default exists), each Loan Party shalluse commercially reasonable efforts to cause each of its customs brokers todeliver an agreement (including, without limitation, a Customs BrokerAgreement) to the Collateral Agent covering such matters and in such form asthe Collateral Agent may reasonably require. In the event Inventory is in thepossession or control of a customs broker that has not delivered an agreementas required by the preceding sentence, such Inventory shall not be consideredEligible In-Transit Inventory hereunder.

 

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SECTION5.14       Designation of Subsidiaries.

 

Theboard of directors of the Lead Borrower may at any time designate any RestrictedSubsidiary as an Unrestricted Subsidiary or any Unrestricted Subsidiary as aRestricted Subsidiary; *provided* that(i) immediately before and after such designation, no Default shall haveoccurred and be continuing, (ii) after giving effect to such designation, thePayment Conditions shall have been satisfied, (iii) no Subsidiary may bedesignated as an Unrestricted Subsidiary if such Subsidiary is a Borrower or ifsuch Subsidiary owns any property of the type (e.g. Inventory and Accounts)included in the Tranche A Borrowing Base or the Tranche A-1 Borrowing Base,(iv) no Subsidiary may be designated as an Unrestricted Subsidiary if itis a “Restricted Subsidiary” for the purpose of the Senior Notes, the SeniorSubordinated Notes, the Subordinated Discount Notes or the Term Loan Facility,as applicable, and (v) no Restricted Subsidiary may be designated as anUnrestricted Subsidiary if it was previously designated an UnrestrictedSubsidiary. The designation of any Subsidiary as an Unrestricted Subsidiaryshall constitute an Investment by the Lead Borrower therein at the date ofdesignation in an amount equal to the net book value of the Lead Borrower’s orRestricted Subsidiary’s (as applicable) investment therein. The designation ofany Unrestricted Subsidiary as a Restricted Subsidiary shall constitute theincurrence at the time of designation of any Indebtedness or Liens of suchSubsidiary existing at such time.

 

SECTION5.15       Information Regarding Collateral.

 

TheLead Borrower will furnish to the Agents prompt written notice of any changein: (a) any Loan Party’s name; (b) the location of any Loan Party’s chiefexecutive office or its principal place of business; (c) any Loan Party’sorganizational structure or jurisdiction of incorporation or formation; or (d)any Loan Party’s Federal Taxpayer Identification Number or organizationalidentification number assigned to it by its state or province of organization.The Loan Parties agree not to effect or permit any change referred to in thepreceding sentence unless all filings, publications and registrations, havebeen made (or will be made in a timely fashion) under the UCC, PPSA, Civil Codeor other Applicable Law that are required in order for the Collateral Agent tocontinue at all times following such change to have a valid, legal andperfected first priority security interest to the extent required under theSecurity Documents (subject only to Permitted Encumbrances having priorityunder Applicable Law) in all the Collateral for its own benefit and the benefitof the other Secured Parties.

 

SECTION5.16       Physical Inventories.

 

TheLoan Parties, at their own expense, shall cause not less than one (1) physicalcount of Inventory to be undertaken in each twelve (12) month period (oralternatively, periodic cycle counts) in conjunction with the preparation ofits annual audited financial statements, conducted following such methodologyas is consistent with the methodology used in the immediately precedingInventory (or cycle count) or as otherwise may be reasonably satisfactory tothe Agents. Following the completion of such Inventory count, and in any eventby the next date required for the delivery of a Borrowing Base Certificatehereunder, the Borrowers shall deliver the results of such physical inventoryto the Administrative Agent and shall post such results to the Loan Parties’stock ledgers and general ledgers, as applicable.

 

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SECTION5.17       Use of Proceeds of Credit Extensions.

 

Theproceeds of Revolving Credit Loans made hereunder and of Letters of Creditissued hereunder will be used only (a) to directly or indirectly finance aportion of the aggregate amounts required to consummate the MIKRecapitalization and to pay Transaction Expenses associated therewith, (b) tofinance the acquisition of working capital assets of the Borrowers and theirSubsidiaries, including the purchase of inventory and equipment, in each casein the ordinary course of business, (c) to finance Capital Expenditures of theBorrowers and their Subsidiaries, (d) to finance Permitted Acquisitions, and(d) for general corporate purposes, all to the extent permitted in thisAgreement. No part of the proceeds of any Revolving Credit Loan will be used,whether directly or indirectly, for any purpose that entails a violation of anyof the regulations of the FRB, including Regulations U and X.

 

SECTION5.18       Proceeds From Surplus Cash Deposits.

 

Ifany Canadian Loan Party has on deposit in any bank account unapplied cash(being surplus cash not used for general working capital needs) exceeding$5,000,000 at any time a Cash Dominion Event exists and is continuing, it shalltransfer such unapplied cash to a Borrower by loan, distribution or otherintercompany transfer.

 

SECTION5.19       Excess Collections, Canadian Investments, Etc.

 

Atany time a Cash Dominion Event exists and is continuing, no Canadian Loan Partyshall have, in the aggregate, a sum exceeding the equivalent amount of$5,000,000 in the form of (i) a deposit of cash in any bank account, (ii)securities, and/or (iii) property that is an Investment.

 

SECTION5.20       Pension Plans.

 

EachLoan Party shall cause each of its Plans to be duly qualified and administeredin all respects in compliance with all Applicable Laws, and the terms of thePlans and any agreements relating thereto, except for such non-compliance aswould not reasonably be expected to have a Material Adverse Effect. Each LoanParty and each of its Subsidiaries shall use reasonable commercial efforts toensure that it, except where failure to do so would not reasonably be expectedto have a Material Adverse Effect: (a) has no Unfunded Pension Liability inrespect of any Plan, including any Plan to be established and administered byit or them; and (b) does not engage in a prohibited transaction or violation ofthe fiduciary responsibility rules with respect to any Plan that couldreasonably be expected to result in liability.

 

SECTION5.21       Corporate Separateness. (a) Each Loan Party shall satisfy, and cause each of its RestrictedSubsidiaries and Unrestricted Subsidiaries to satisfy, customary corporate andother formalities, including, as applicable, the holding of regular board ofdirectors’ and shareholders’ meetings or action by directors or shareholderswithout a meeting and the maintenance of corporate offices and records.

 

(b)           Each Loan Party shall ensure that (i) no payment is made by it or anyof its Restricted Subsidiaries to a creditor of any Unrestricted Subsidiary inrespect of any liability of any Unrestricted Subsidiary, (ii) no bank accountof any Unrestricted Subsidiary shall be

 

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commingledwith any bank account of the Parent or any of its Restricted Subsidiaries, and(iii) any financial statements distributed to any creditors of any UnrestrictedSubsidiary shall clearly establish or indicate the corporate separateness ofsuch Unrestricted Subsidiary from the Parent and its Restricted Subsidiaries.

 

SECTION5.22       Holdco.

 

AHoldco may be formed subject to the following conditions:

 

(a)           The Lead Borrower shall furnish the Administrative Agent ten (10)Business Days prior written notice of the formation of any such Holdco.

 

(b)           Holdco shall become a Loan Party, grant a Lien on its assets and takesuch other actions as are required under SECTION 5.11 hereof.

 

ARTICLE VINegative Covenants

 

Until(i) the Commitments have expired or been terminated, (ii) the principal of andinterest on each Revolving Credit Loan (including Swingline Loans) and all feesand other Obligations (other than contingent indemnity obligations with respectto then unasserted claims and the Other Liabilities) shall have been paid infull, (iii) all Letters of Credit shall have expired or terminated (or beencash collateralized or backstopped in a manner reasonably satisfactory to theapplicable Issuing Bank) and (iv) all Letter of Credit Outstandings have beenreduced to zero (or cash collateralized or backstopped in a manner reasonablysatisfactory to the applicable Issuing Bank), each Loan Party covenants andagrees with the Credit Parties that:

 

SECTION6.01       Liens.

 

NoLoan Party will create, incur, assume or suffer to exist any Lien upon any ofits property, assets or revenues, whether now owned or hereafter acquired,other than the following (each a “Permitted Encumbrance”):

 

(a)           Liens pursuant to any Loan Document;

 

(b)           Liens existing on the date hereof and listed on Schedule 6.01and any modifications, replacements, renewals or extensions thereof; *provided* that (i) the Lien does not extend to any additionalproperty other than (A) after-acquired property that is affixed or incorporatedinto the property covered by such Lien or financed by Indebtedness permittedunder SECTION 6.03, and (B) proceeds and products thereof, and (ii) the renewal,extension or refinancing of the obligations secured or benefited by such Liensis permitted by SECTION 6.03;

 

(c)           Liens for taxes, assessments or governmental charges which are notrequired to be paid pursuant to SECTION 5.04;

 

(d)           statutory Liens of landlords, consensual Liens granted in favor oflandlords in the Province of Quebec securing the payment of rent which aresubordinate to the

 

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Lienof the Collateral Agent, carriers, warehousemen, mechanics, materialmen,repairmen, construction contractors or other like Liens imposed by ApplicableLaw arising in the ordinary course of business which secure amounts not overduefor a period of more than thirty (30) days and no other action has been takento enforce such Lien or which are being contested in good faith and byappropriate actions diligently conducted, if adequate reserves with respectthereto are maintained on the books of the applicable Person in accordance withGAAP and such contest effectively suspends collection of the contestedobligation and enforcement of any Lien securing such obligation;

 

(e)           (i) pledges or deposits in the ordinary course of business inconnection with workers’ compensation, unemployment insurance and other socialsecurity legislation and (ii) pledges and deposits in the ordinary course ofbusiness securing liability for reimbursement or indemnification obligations of(including obligations in respect of letters of credit or bank guarantees forthe benefit of) insurance carriers providing property, casualty or liabilityinsurance to the Lead Borrower or any Restricted Subsidiary;

 

(f)            deposits to secure the performance of bids,trade contracts, governmental contracts and leases (other than Indebtedness forborrowed money), statutory obligations, surety, stay, customs and appeal bonds,performance bonds and other obligations of a like nature (including those tosecure health, safety and environmental obligations) incurred in the ordinarycourse of business;

 

(g)           easements, rights-of-way, restrictions, encroachments, servitudes,rights of way, licenses, protrusions, site plan agreements, developmentagreements, contract zoning agreements and other similar encumbrances, rights,agreements and minor title defects affecting real property which, in theaggregate, do not in any case materially interfere with the ordinary conduct ofthe business of the Lead Borrower or any Restricted Subsidiary (other than anImmaterial Subsidiary);

 

(h)           Liens securing judgments for the payment of money not constituting anEvent of Default under SECTION 7.01(h);

 

(i)            Liens securing Indebtedness permitted underSECTION 6.03(e); *provided* that (i) such Liensattach concurrently with or within two hundred and seventy (270) days after theacquisition, repair, replacement, construction or improvement (as applicable)of the property subject to such Liens, (ii) such Liens do not at any timeencumber any property except for accessions to such property other than theproperty financed by such Indebtedness and the proceeds and the productsthereof and (iii) with respect to Capitalized Leases, such Liens do not atany time extend to or cover any assets (except for accessions to such assets)other than the assets subject to such Capitalized Leases; *provided*thatindividual financings of equipment provided by one lender may be crosscollateralized to other financings of equipment provided by such lender;and Liens securing any Permitted Refinancing of Indebtedness under SECTION6.03(e) that do not extend to any property that was not subject to the Liensecuring the Indebtedness being refinanced;

 

(j)            leases, licenses, subleases or sublicensesgranted to others in the ordinary course of business which do not(i) interfere in any material respect with the business of the Lead

 

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Borroweror any Restricted Subsidiary (other than an Immaterial Subsidiary), or(ii) secure any Indebtedness;

 

(k)           Liens in favor of customs and revenue authorities arising as a matterof law to secure payment of customs duties in connection with the importationof goods in the ordinary course of business which payments are not overdue fora period of more than thirty (30) days and no other action has been taken toenforce such Lien or which are being contested in good faith and by appropriateactions diligently conducted, if adequate reserves with respect thereto aremaintained on the books of the applicable Person in accordance with GAAP andsuch contest effectively suspends collection of the contested obligation andenforcement of any Lien securing such obligation;

 

(l)            Liens (i) arising by operation of law underArticle 4 of the UCC in connection with collection of items provided fortherein, and (ii) in favor of a banking institution arising as a matter oflaw encumbering deposits (including the right of set-off) and which are withinthe general parameters customary in the banking industry;

 

(m)          Liens (i) on cash advances in favor of the seller of any property to beacquired in a Permitted Acquisition to be applied against the purchase pricefor such Permitted Acquisition, and (ii) consisting of an agreement to disposeof any property in a Permitted Disposition, in each case, solely to the extentsuch Permitted Acquisition or Permitted Disposition, as the case may be, wouldhave been permitted on the date of the creation of such Lien;

 

(n)           Liens on property (i) of any Foreign Subsidiary that is not a LoanParty and (ii) that does not constitute Collateral, which Liens secureIndebtedness of the applicable Foreign Subsidiary permitted under SECTION 6.03;

 

(o)           Liens in favor of the Lead Borrower or a Restricted Subsidiary securingIndebtedness permitted under SECTION 6.03(d);

 

(p)           Liens existing on property (other than Inventory and Accounts) at thetime of its acquisition or existing on the property of any Person at the timesuch Person becomes a Restricted Subsidiary (other than by designation as aRestricted Subsidiary pursuant to SECTION 5.14), in each case after the datehereof (other than Liens on the Capital Stock of any Person that becomes aRestricted Subsidiary); *provided* that(i) such Lien was not created in contemplation of such acquisition or suchPerson becoming a Restricted Subsidiary, (ii) such Lien does not extend toor cover any other assets or property (other than the proceeds or productsthereof and accessions or additions thereto);

 

(q)           any interest or title of a licensor, sublicensor, lessor or sublessorunder licenses and leases entered into by the Lead Borrower or any of itsRestricted Subsidiaries in the ordinary course of business;

 

(r)            Liens arising out of conditional sale, titleretention, consignment or similar arrangements for sale of goods entered intoby the Lead Borrower or any of its Restricted Subsidiaries in the ordinary courseof business permitted by this Agreement;

 

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(s)           Liens encumbering reasonable customary initial deposits and margindeposits and similar Liens attaching to commodity trading accounts or otherbrokerage accounts incurred in the ordinary course of business and not forspeculative purposes;

 

(t)            Liens that are contractual rights of set-off(i) relating to the establishment of depository relations with banks notgiven in connection with the issuance of Indebtedness, (ii) relating topooled deposit or sweep accounts of the Parent or any Restricted Subsidiary topermit satisfaction of overdraft or similar obligations incurred in theordinary course of business of the Parent and its Restricted Subsidiaries or(iii) relating to purchase orders and other agreements entered into withcustomers of the Lead Borrower or any Restricted Subsidiary in the ordinarycourse of business;

 

(u)           Liens solely on any cash earnest money deposits made by the Parent orany of its Restricted Subsidiaries in connection with any letter of intent orpurchase agreement permitted hereunder;

 

(v)           Liens in respect of the Term Loan Facility;

 

(w)          Liens arising from precautionary UCCfilings or PPSA filings regarding “true” operating leases or the consignment ofgoods to a Loan Party;

 

(x)            Liens placed on the Capital Stock ofany joint venture entity in the form of a transfer restriction, purchaseoption, call or similar right of a third party joint venture partner;

 

(y)           ground leases in respect of realproperty on which facilities owned or leased by the Lead Borrower or any of itsSubsidiaries are located;

 

(z)            Liens existing on title insurancepolicies relating to any Mortgages;

 

(aa)         Liens on insurance proceeds incurred inthe ordinary course of business in connection with the financing of insurancepremiums;

 

(bb)         Liens on securities which are thesubject of repurchase agreements incurred in the ordinary course of business, *provided that* such Liens do not extend to any assets otherthan those that are the subject of such repurchase agreement;

 

(cc)         Liens arising by operation of law inthe United States under Article 2 of the UCC in favor of a reclaiming seller ofgoods or buyer of goods;

 

(dd)         Security given to a public or privateutility or any Governmental Authority as required in the ordinary course ofbusiness;

 

(ee)         With respect to any Real Propertylocated in Canada, any rights, reservations, limitations and conditionscontained in the grant from the Crown or any Crown Patent;

 

(ff)           Rights of a seller of unpaid goods inrespect of such goods at common law or under the Bankruptcy and Insolvency Act(Canada) and other applicable legislation;

 

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(gg)         Undetermined or inchoate Liens which have not at such time been filedand of which none of the Loan Parties have been given notice and which relateto obligations not then due and payable; and

 

(hh)         Without duplication of, or aggregation with, any other Lien permittedunder any other clause of this SECTION 6.01, other Liens (not coveringAccounts, Inventory or the proceeds thereof unless the Liens thereon aresubordinated to the Lien of the Collateral Agent in a manner consistent withthe terms of the Intercreditor Agreement) securing Indebtedness outstanding inan aggregate principal amount not to exceed $30,000,000 at any timeoutstanding.

 

Thedesignation of a Lien as a Permitted Encumbrance shall not limit or restrictthe ability of the Administrative Agent to establish any Reserve relating thereto.

 

SECTION6.02       Investments.

 

NoLoan Party shall make or hold any Investments, except the following (each a “PermittedInvestment”):

 

(a)          Investments by the Lead Borrower or a Restricted Subsidiary in assetsthat were Cash Equivalents when such Investment was made;

 

(b)         loans or advances to officers, directors and employees of the Parentand the Restricted Subsidiaries (i)  for reasonable and customarybusiness-related travel, entertainment, relocation and analogous ordinarybusiness purposes, (ii) to the extent permitted by Applicable Law, inconnection with such Person’s purchase of Capital Stock of the Lead Borrower(or any direct or indirect parent of the Lead Borrower), provided thatthe amount of such loans and advances shall be contributed to the Lead Borrowerin cash as common equity, or paid to the Lead Borrower in connection with suchpurchase of Capital Stock, and (iii) to the extent permitted by Applicable Law,for purposes not described in the foregoing clauses (i) and (ii), in an aggregateprincipal amount outstanding not to exceed $15,000,000 at any one timeoutstanding;

 

(c)          Investments (i) by the Lead Borrower or any Restricted Subsidiary inany Loan Party (other than Holdco), (ii) by any Restricted Subsidiary that isnot a Loan Party in any other such Restricted Subsidiary that is also not aLoan Party, and (iii) by the Lead Borrower or any Restricted Subsidiary (A) inany Foreign Subsidiary; *provided* thatthe outstanding aggregate amount of such Investments in Foreign Subsidiariesthat are not Loan Parties shall not exceed $25,000,000 at any time (net of anyreturn representing a return of capital in respect of any such Investment) or(B) in any Foreign Subsidiary that is a Loan Party, consisting of thecontribution of Capital Stock of any other Foreign Subsidiary held directly bythe Lead Borrower or such Restricted Subsidiary in exchange for Indebtedness,Capital Stock or a combination thereof of the Foreign Subsidiary to which suchcontribution is made, (C) in any Foreign Subsidiary, constituting an exchangeof Capital Stock of such Foreign Subsidiary for Indebtedness of such ForeignSubsidiary or (D) constituting Guarantees of Indebtedness or other monetaryobligations of Foreign Subsidiaries owing to any Loan Party;

 

(d)         Investments consisting of extensions of credit in the nature ofaccounts receivable or notes receivable arising from the grant of trade creditin the ordinary course of

 

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business,and Investments received in satisfaction or partial satisfaction thereof fromfinancially troubled account debtors and other credits to suppliers in theordinary course of business;

 

(e)           Investments consisting of Permitted Encumbrances, PermittedIndebtedness, fundamental changes, Permitted Dispositions, and RestrictedPayments permitted under SECTION 6.01, SECTION 6.03, SECTION 6.04, SECTION6.05, and SECTION 6.06, respectively;

 

(f)            Investments (i) by the Lead Borrower and itsRestricted Subsidiaries consisting of Permitted Acquisitions and (ii) by Holdcoconsisting of Permitted Acquisitions if the assets that are the subject of suchPermitted Acquisition are immediately contributed to the Lead Borrower;

 

(g)           Investments (i) existing or contemplated on the date hereof and setforth on Schedule 6.02 and any modification, replacement, renewal,reinvestment or extension thereof and (ii) Investments existing on the datehereof by the Lead Borrower or any Restricted Subsidiary in the Lead Borroweror any other Restricted Subsidiary and any modification, renewal or extensionthereof; *provided* that the amount of the originalInvestment is not increased except by the terms of such Investment or asotherwise permitted by this SECTION 6.02;

 

(h)           Investments in Swap Contracts permitted under SECTION 6.03;

 

(i)            promissory notes and other noncashconsideration received in connection with Permitted Dispositions;

 

(j)            the Transaction;

 

(k)           Investments in the ordinary course ofbusiness consisting of endorsements for collection or deposit and customarytrade arrangements with customers consistent with past practices;

 

(l)            Investments (including debt obligations andCapital Stock) received in connection with the bankruptcy or reorganization ofsuppliers and customers or in settlement of delinquent obligations of, or otherdisputes with, customers and suppliers arising in the ordinary course ofbusiness or upon the foreclosure with respect to any secured Investment orother transfer of title with respect to any secured Investment;

 

(m)          so long as immediately after giving effect to any such Investment, noDefault has occurred and is continuing and without duplication of any otherclauses of this SECTION 6.02, other Investments that do not exceed $50,000,000in the aggregate at any time outstanding (net of any return of capital,interest, distributions, income and similar amounts actually received in cashin respect of any such Investment) and valued at the time of the making thereof(*provided* that, such amount shall beincreased by the Net Proceeds of Permitted Equity Issuances (other thanPermitted Equity Issuances that are Specified Equity Contributions)), anddetermined without regard to any write-downs or write-offs thereof;

 

(n)           advances of payroll payments to employees in the ordinary courseof business;

 

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(o)           Investments to the extent that payment for such Investments is madesolely with Capital Stock of the Lead Borrower or any direct or indirect parentof the Lead Borrower not resulting in a Change in Control;

 

(p)           Investments of a Restricted Subsidiary acquired after the Closing Dateor of a Person merged into or amalgamated with the Lead Borrower or merged,amalgamated or consolidated with a Restricted Subsidiary in accordance withSECTION 6.04 after the Closing Date to the extent that such Investments werenot made in contemplation of or in connection with such acquisition, merger,amalgamation, or consolidation and were in existence on the date of suchacquisition, merger, amalgamation, or consolidation;

 

(q)           Guarantees by the Parent or any Restricted Subsidiary of leases (otherthan Capitalized Leases) or of other obligations that do not constituteIndebtedness, in each case entered into in the ordinary course of business;

 

(r)            Guarantees constituting PermittedIndebtedness;

 

(s)           Subject to SECTION 2.18, Investmentsin deposit accounts opened in the ordinary course of business;

 

(t)            Investments in new Subsidiaries(other than Foreign Subsidiaries), subject to the provisions of SECTION 5.11;

 

(u)           Capital Expenditures;

 

(v)           Loans and advances to Holdco in lieuof, and not in excess of the amount of (after giving effect to any other loans,advances or Restricted Payments in respect thereof), Restricted Payments to theextent permitted to be made to Holdco in accordance with SECTION 6.06; and

 

(w)          Without duplication of, or aggregation with, any Investment made underany other clause of this SECTION 6.02, the Lead Borrower and its RestrictedSubsidiaries may make other Investments as long as the Payment Conditions aresatisfied;

 

*provided* thatno Investment in an Unrestricted Subsidiary that would otherwise be permittedunder this SECTION 6.02 shall be permitted hereunder (w) to the extent that anyportion of such Investment is used to make any prepayments, redemptions,purchases, defeasances and other payments in respect of any Indebtedness, (x)if immediately before or after such Investment, a Default shall have occurredand be continuing, (y) if after giving effect to such Investment, the PaymentConditions shall not have been satisfied, or (z) if such Investment consists ofa transfer of any property of the type (e.g. Inventory and Accounts) includedin the Tranche A Borrowing Base or the Tranche A-1 Borrowing Base.

 

SECTION6.03       Indebtedness.

 

TheLoan Parties will not create, incur, assume or suffer to exist anyIndebtedness, except the following (each “Permitted Indebtedness”):

 

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(a)           Indebtedness of the Parent and any of its Subsidiaries under the LoanDocuments;

 

(b)           Indebtedness (i) outstanding on the date hereof and listed on Schedule6.03, and (ii) intercompany Indebtedness outstanding on the date hereof;

 

(c)           Guarantees by the Parent and its Restricted Subsidiaries in respect ofIndebtedness of the Lead Borrower or any Restricted Subsidiary otherwisepermitted hereunder; *provided* that(A) no Guarantee by any Restricted Subsidiary of the Senior Notes, the SeniorSubordinated Notes, the Subordinated Discount Notes or the Term Loan Facilityshall be permitted unless such Restricted Subsidiary shall have also provided aGuarantee of the Obligations substantially on the terms set forth in theFacility Guarantee executed on the Closing Date and (B) if the Indebtednessbeing Guaranteed is subordinated to the Obligations, such Guarantee shall besubordinated to the Facility Guarantee of the Obligations on terms at least asfavorable to the Lenders as those contained in the subordination of suchIndebtedness;

 

(d)           Indebtedness of the Lead Borrower or any Restricted Subsidiary owing tothe Lead Borrower or any other Restricted Subsidiary to the extent constitutingan Investment permitted by SECTION 6.02; *provided* that,all such Indebtedness of any Loan Party owed to any Person that is not, orceases to be, a Loan Party shall be subject to the subordination terms setforth in Article VII of the Security Agreement;

 

(e)           As long as the Payment Conditions aresatisfied after giving effect thereto, Attributable Indebtedness and otherIndebtedness (including Capitalized Leases) of the Lead Borrower and itsRestricted Subsidiaries financing the acquisition, construction, repair,replacement or improvement of fixed or capital assets, other than software; *provided* that (i) such Indebtedness is incurred concurrentlywith or within two hundred and seventy (270) days after the applicableacquisition, construction, repair, replacement or improvement, and (ii) ifreasonably requested by the Agents, the Loan Parties will use commerciallyreasonable efforts to cause the holder of such Indebtedness to enter into aCollateral Access Agreement with the Collateral Agent on terms reasonablysatisfactory to the Collateral Agent;

 

(f)            Indebtedness in respect of Swap Contractsdesigned to hedge against interest rates, foreign exchange rates or commoditiespricing risks incurred in the ordinary course of business and not forspeculative purposes;

 

(g)           (i) Indebtedness of the Parent or any of its Restricted Subsidiaries(A) assumed in connection with any Permitted Acquisition; *provided*that such Indebtedness is not incurred in contemplation of such PermittedAcquisition, or (B) incurred to finance a Permitted Acquisition and (ii) anyPermitted Refinancing of the foregoing; *provided*, ineach case that such Indebtedness and all Indebtedness resulting from anyPermitted Refinancing thereof (v) is unsecured or is subordinated to theObligations on terms reasonably acceptable to the Agents (it being understoodthat subordination terms set forth in the Senior Subordinated Notes and theSubordinated Discount Notes shall also be deemed to be acceptable for suchIndebtedness), (w) both immediately prior and after giving effect thereto, noDefault shall exist or result therefrom, (x) matures after, and does notrequire any scheduled amortization or other scheduled payments of principalprior to, the Maturity Date (it being understood that such Indebtedness mayhave

 

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mandatoryprepayment, repurchase or redemptions provisions satisfying the requirement ofclause (y) hereof), (y) has terms and conditions (other than interest rate,redemption premiums and subordination terms), taken as a whole, that arereasonably acceptable to the Agents *provided* that acertificate of a Responsible Officer shall be delivered to the AdministrativeAgent at least five Business Days prior to the incurrence of such Indebtedness,together with a reasonably detailed description of the material terms andconditions of such Indebtedness or drafts of the documentation relatingthereto, stating that the Lead Borrower has determined in good faith that suchterms and conditions satisfy the foregoing requirement and such certificateshall be conclusive evidence that such terms and conditions satisfy theforegoing requirement unless the Administrative Agent notifies the LeadBorrower within such five Business Day period that it disagrees with suchdetermination (including a reasonable description of the basis upon which itdisagrees); and (z) with respect to such Indebtedness described in the immediatelypreceding clause (B), is incurred by the Lead Borrower or a Facility Guarantor.

 

(h)           Indebtedness representing deferred compensation, severance, and healthand welfare retirement benefits to current and former employees of Holdco, theLead Borrower and its Restricted Subsidiaries incurred in the ordinary courseof business or existing on the Closing Date;

 

(i)            Indebtedness consisting ofpromissory notes issued by any Loan Party to current or former officers,directors and employees, their respective estates, spouses or former spouses tofinance the purchase or redemption of Capital Stock of the Parent or any director indirect parent of the Parent permitted by SECTION 6.06;

 

(j)            Indebtedness incurred by the LeadBorrower or its Restricted Subsidiaries in connection with any dispositionexpressly permitted hereunder constituting indemnification obligations orobligations in respect of purchase price or other similar adjustments, *provided* that (A) such Indebtedness is not reflected on thebalance sheet of the Lead Borrower or any of its Restricted Subsidiariesprepared in accordance with GAAP (contingent obligations referred to in afootnote to financial statements and not otherwise reflected on the balancesheet will not be deemed to be reflected on such balance sheet for purposes ofthis clause (A)); and (B) the maximum assumable liability in respect of allsuch Indebtedness shall at no time exceed the gross proceeds including non-cashproceeds (the fair market value of such non-cash proceeds being measured at thetime received and without giving effect to any subsequent changes in value)actually received by the Lead Borrower and its Restricted Subsidiaries inconnection with such Acquisition or Investment;

 

(k)           Indebtedness consisting ofobligations of the Parent or its Restricted Subsidiaries under deferredcompensation or other similar arrangements incurred by such Person inconnection with the Transaction and Permitted Acquisitions or any otherInvestment expressly permitted hereunder;

 

(l)            Obligations with respect to CashManagement Services and other Indebtedness in respect of netting services,overdraft protections and similar arrangements in each case in connection withdeposit accounts;

 

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(m)          Without duplication of, oraccumulation with, any other clauses of this SECTION 6.03, Indebtedness in anaggregate principal amount not to exceed $300,000,000 at any time outstanding;

 

(n)           As long as the Payment Conditions aresatisfied after giving effect thereto, Subordinated Indebtedness and otherunsecured non-amortizing long term Indebtedness;

 

(o)           Indebtedness consisting of (a) thefinancing of insurance premiums or (b) take-or-pay obligations contained insupply arrangements, in each case, in the ordinary course of business;

 

(p)           Indebtedness incurred by the LeadBorrower or any of its Restricted Subsidiaries in respect of letters of credit(including, without limitation, under any Commercial Letter of CreditFacility), bank guarantees, bankers’ acceptances or similar instruments issuedor created in the ordinary course of business, including in respect ofcommercial letters of credit, workers compensation claims, health, disabilityor other employee benefits or property, casualty or liability insurance orself-insurance or other Indebtedness with respect to reimbursement-typeobligations regarding workers compensation claims; *provided*that any reimbursement obligations in respect thereof are reimbursed within 30days following the incurrence thereof;

 

(q)           obligations in respect ofperformance, bid, appeal and surety bonds and performance and completionguarantees and similar obligations provided by the Lead Borrower or any of itsRestricted Subsidiaries or obligations in respect of letters of credit, bank guaranteesor similar instruments related thereto, in each case in the ordinary course ofbusiness or consistent with past practice;

 

(r)            Indebtedness supported by a Letterof Credit, in a principal amount not to exceed the face amount of such Letterof Credit;

 

(s)           Indebtedness in respect of the TermLoan Facility;

 

(t)            Indebtedness in respect of theSenior Notes, the Senior Subordinated Notes and the Subordinated DiscountNotes;

 

(u)           Indebtedness incurred in connectionwith sale-leaseback transactions permitted hereunder;

 

(v)           Unsecured Indebtedness owed to theSponsor and/or other stockholders of the Parent and their respectiveAffiliates, provided that such Indebtedness does not require the paymentin cash of interest at a rate in excess of 10% per annum or principal prior tothe Maturity Date, has a maturity which extends beyond the Maturity Date, andis subordinated to the Obligations on terms reasonably acceptable to theAdministrative Agent;

 

(w)          Guarantees and letters of credit andsurety bonds (other than Guarantees of, or letters of credit and surety bondsrelated to, Indebtedness) issued by the Lead Borrower and its RestrictedSubsidiaries in connection with Permitted Acquisitions and PermittedDispositions;

 

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(x)            Without duplications of any otherIndebtedness, non-cash accruals of interest, accretion or amortization oforiginal issue discount and payment-in-kind interest with respect toIndebtedness permitted hereunder;

 

(y)           Indebtedness due to any landlord inconnection with the financing by such landlord of leasehold improvements;

 

(z)            All premiums (if any), interest(including post-petition interest), fees, expenses, charges and additional orcontingent interest on obligations described in clauses (a) through (z) above;

 

(aa)         Permitted Holdco Debt; and

 

(bb)         Extensions, renewals and replacementsof any such Indebtedness described in clauses (b), (c), (d), (e), (f), (g),(m), (n), (t), (u), (v), (w), (x) and (aa) above provided that suchIndebtedness constitutes a Permitted Refinancing.

 

Forpurposes of calculating compliance with this SECTION 6.03 only, the amount ofIndebtedness of a Person which is non-recourse to such Person shall be deemedto be equal to the lesser of (i) the aggregate unpaid amount of suchIndebtedness, or (ii) the fair market value of the property upon which a Lienhas been granted to secure such Indebtedness.

 

SECTION6.04       Fundamental Changes.

 

NoLoan Party shall merge, amalgamate, dissolve, liquidate, wind up, consolidatewith or into another Person, or dispose of (whether in one transaction or in aseries of transactions) all or substantially all of its assets (whether nowowned or hereafter acquired) to or in favor of any Person, except that:

 

(a)          any Restricted Subsidiary may merge or amalgamate with (i) any Borrower(including a merger or amalgamation, the purpose of which is to reorganize suchBorrower into a new jurisdiction);*provided*thatsuch Borrower shall be the continuing or surviving Person, or (ii) any one ormore other Restricted Subsidiaries; *provided*thatwhen any Restricted Subsidiary that is a Loan Party is merging or amalgamatingwith another Restricted Subsidiary, a Loan Party shall be the continuing orsurviving Person and *provided*further that if such merger or amalgamation includes any Canadian Subsidiaryand a Canadian Subsidiary is not the surviving entity, such shall be on termsand conditions reasonably satisfactory to the Administrative Agent (whoseconsent shall not be unreasonably withheld);

 

(b)         (i) any Subsidiary that is not a Loan Party may merge, amalgamateor consolidate with or into any other Subsidiary that is not a Loan Party, (ii)any Loan Party may merge, amalgamate or consolidate with any other Loan Party,*provided*that if a Borrower is a party thereto, a Borrowershall be the continuing or surviving Person, and *provided*further that if such merger, amalgamation or consolidation includes anyCanadian Subsidiary and a Canadian Subsidiary is not the surviving entity, suchshall be on terms and conditions reasonably satisfactory to the AdministrativeAgent (whose consent shall not be unreasonably withheld), and (iii) anySubsidiary may liquidate or dissolve or change its legal form if the LeadBorrower determines in good faith that such action is in the best interests ofthe Lead Borrower and its

 

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Subsidiariesand if not materially disadvantageous to the Lenders; *provided*that , with respect to this clause (b)(iii), a certificate of a Responsible Officershall be delivered to the Administrative Agent at least five Business Daysprior to the liquidation, dissolution or change of legal form, together with areasonably detailed description of the material terms and conditions thereof,stating that the Lead Borrower has determined in good faith that such terms andconditions satisfy the foregoing requirement;

 

(c)           any Restricted Subsidiary may dispose of all or substantially all ofits assets (upon voluntary liquidation or otherwise) to the Lead Borrower or toanother Restricted Subsidiary; *provided* thatif the transferor in such a transaction is a Loan Party, then (i) thetransferee must be another Loan Party, or (ii) to the extent constituting anInvestment, such Investment must be a permitted Investment in or Indebtednessof a Restricted Subsidiary which is not a Loan Party in accordance with SECTION6.02 and SECTION 6.03, respectively;

 

(d)           any Restricted Subsidiary may mergeor amalgamate with any other Person in order to effect a Permitted Investment; *provided* that the continuing or surviving Person shall be aRestricted Subsidiary, which together with each of its Restricted Subsidiaries,shall have complied with the requirements of SECTION 5.11;

 

(e)           the Lead Borrower and its RestrictedSubsidiaries may consummate the Transaction; and

 

(f)            the Lead Borrower and its RestrictedSubsidiaries may consummate a merger, amalgamation, dissolution, winding up,liquidation, consolidation or Disposition, the purpose of which is to effect aPermitted Disposition.

 

SECTION6.05       Dispositions.

 

TheLoan Parties shall not make any Disposition or enter into any agreement to makeany Disposition, except the following (each, a “Permitted Disposition”):

 

(a)          Dispositions of obsolete or worn out property, whether now owned orhereafter acquired, in the ordinary course of business and dispositions ofproperty no longer used or useful in the conduct of the business of the Parentand its Restricted Subsidiaries including, without limitation, the abandonmentof or failure to maintain Intellectual Property and with respect to closedStores;

 

(b)         Dispositions of Inventory in the ordinary course of business;

 

(c)          Dispositions of property to the extent that (i) such property isexchanged for credit against the purchase price of similar replacement propertyor (ii) the proceeds of such disposition are promptly applied to the purchaseprice of such replacement property;

 

(d)         Dispositions of property to the Lead Borrower or to a RestrictedSubsidiary; *provided* that if the transferor of suchproperty is a Loan Party (i) the transferee thereof must either be a Borroweror a Facility Guarantor, in which event the Collateral Agent shall retain itsperfected Lien on the property so disposed of, subject to the same priority asexisted prior to such disposition, or (ii) to the extent such transactionconstitutes an Investment,

 

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suchtransaction is a Permitted Investment, *provided*further that (A) if the property being disposed of is transferred to aSubsidiary that is not a Loan Party, the Administrative Agent may require, inthe exercise of its reasonable business judgment, that the transferee executean agreement granting the Agents access to such property for purposes ofconducting a Liquidation, and (B) if the property being disposed of constitutesEligible Credit Card Receivables, Eligible Inventory, Eligible In-TransitInventory, or Eligible Letters of Credit and is being transferred to aSubsidiary which is not a Loan Party, such disposition shall; be made only ifthe Payment Conditions are satisfied after giving effect thereto;

 

(e)           Dispositions permitted by SECTION 6.04 and SECTION 6.06 and PermittedEncumbrances;

 

(f)            Dispositions of Cash Equivalents;

 

(g)           Sales, discounting or forgiveness ofAccounts in the ordinary course of business or in connection with thecollection or compromise thereof;

 

(h)           leases, subleases, licenses orsublicenses (including the provision of Software under an open source license),in each case in the ordinary course of business and which (i) do not materiallyinterfere with the business of the Parent and its Restricted Subsidiaries, or(ii) relate to closed Stores;

 

(i)            termination of Leases in theordinary course of business;

 

(j)            transfers of property subject toCasualty Events upon receipt of the Net Proceeds of such Casualty Event;

 

(k)           licenses for the conduct of licensed departments within the LoanParties’ Stores in the ordinary course of business;

 

(l)            as long as no Specified Default hereof thenexists or would arise therefrom, and no Overadvance would result therefrom,bulk sales or other dispositions of the Loan Parties’ Inventory not in theordinary course of business in connection with Store closings, at arm’s length,provided that (i) such Store closures and related Inventory dispositionsshall not exceed, in any Fiscal Year of the Lead Borrower and its Subsidiaries,10% of the number of the Loan Parties’ Stores as of the beginning of suchFiscal Year (net of Store relocations (i) occurring substantiallycontemporaneously, but in no event later than 10 Business Days after therelated Store closure date, or (ii) wherein a binding lease has been enteredinto prior to the related Store closure date) as set forth in the ComplianceCertificate delivered pursuant to SECTION 5.02(b), and (ii) as of any dateafter the Closing Date, the aggregate number of such Store closures since theClosing Date shall not exceed 25% of the greater of (x) the number of the LoanParties’ Stores in existence as of the Closing Date or (y) the number of theLoan Parties’ Stores as of the first day of any Fiscal Year beginning after theClosing Date (net of Store relocations (i) occurring substantiallycontemporaneously, but in no event later than 10 Business Days after therelated Store closure date or (ii) wherein a binding lease has been enteredinto prior to the related Store closure date) as set forth in the ComplianceCertificate delivered pursuant to SECTION 5.02(b), provided that allsales of Inventory in connection with Store closings in a transaction or seriesof related transactions shall be in accordance with liquidation

 

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agreementsand with professional liquidators reasonably acceptable to the AdministrativeAgent; provided further that all Net Proceeds received in connectiontherewith (other than from any Canadian Loan Party) are applied to theObligations, if then required in accordance with SECTION 2.17, SECTION 2.18 orSECTION 7.04 hereof;

 

(m)          sales of non-core assets acquired in connection with a PermittedAcquisition and sales of Real Estate acquired in a Permitted Acquisition which,within thirty days of the date of the Acquisition, are designated in writing tothe Administrative Agent as being held for sale and not for the continuedoperation of a Store;

 

(n)           exchanges or swaps, including,without limitation, transactions covered by Section 1031 of the Code, of Leasesand other Real Estate of the Loan Parties so long as the exchange or swap ismade for fair value and on an arm’s length basis, provided that upon theconsummation of such exchange or swap, (x) the Collateral Agent has a perfectedLien having the same priority as any Lien held on the Leases or Real Estate soexchanged or swapped and (y) the Net Proceeds, if any, received in connectionwith any such exchange or swap are applied to the Obligations if then requiredin accordance with SECTION 2.17, SECTION 2.18 or SECTION 7.04 hereof;

 

(o)           sale-leaseback transactions of RealEstate of any Loan Party as long as (A) no Specified Default then exists orwould arise therefrom, and (B) with respect to any distribution center,warehouse, manufacturing facility or corporate offices, (1) such sale-leasebackis made pursuant to leases on market terms, and (2) the Loan Parties cause eachpurchaser of such Real Estate to enter into a Collateral Access Agreement withthe Collateral Agent on terms reasonably satisfactory to the Collateral Agent;

 

(p)           Dispositions listed on Schedule 6.05;

 

(q)           Dispositions of Investments in joint ventures to the extent requiredby, or made pursuant to customary buy/sell arrangements between, the jointventure parties set forth in joint venture arrangements and similar bindingarrangements;

 

(r)            Dispositions of property owned by AaronBrothers, Inc. in connection with the sale of all or substantially all theassets of Aaron Brothers, Inc. or the Capital Stock of Aaron Brothers, Inc. bythe Lead Borrower as long as the Payment Conditions are satisfied after givingeffect thereto; and

 

(s)           Dispositions of property (other than Inventory, Accounts andIntellectual Property) not otherwise permitted under this SECTION 6.05, providedthat (i) at the time of such Disposition (other than any such Dispositionmade pursuant to a legally binding commitment entered into at any time when noDefault or Event of Default exists), no Default or Event of Default shall existor would result from such Disposition and (ii) the aggregate book value of allproperty disposed of pursuant to this clause (s) shall not exceed $250,000,000in any Fiscal Year or $500,000,000 in the aggregate after the Closing Date;

 

*provided* thatany disposition of any property pursuant to this SECTION 6.05 (except forDispositions pursuant to SECTION 6.05(e) and Dispositions from a Loan Party toanother Loan Party), shall be for no less than the fair market value of suchproperty at the time of such

 

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dispositionand, (1) in the case of Accounts and Inventory solely for cash consideration,and (2) in the case of any other assets, at least 75% of the consideration ispayable in cash at the time of consummation of the transaction. To the extentany Collateral is disposed of as expressly permitted by this SECTION 6.05 toany Person other than the Lead Borrower or any Restricted Subsidiary, suchCollateral shall be sold free and clear of the Liens created by the LoanDocuments, and the Agents shall be authorized to take any actions deemedappropriate in order to effect the foregoing.

 

SECTION6.06       Restricted Payments.

 

TheLoan Parties shall not declare or make, directly or indirectly, any RestrictedPayment, except:

 

(a)           each Restricted Subsidiary may make Restricted Payments to the Parentand to other Restricted Subsidiaries (and, in the case of a Restricted Paymentby a non-wholly owned Restricted Subsidiary, to the Parent and any otherRestricted Subsidiary and to each other owner of Capital Stock of suchRestricted Subsidiary based on their relative ownership interests of therelevant class of Capital Stock);

 

(b)           the Parent and each Restricted Subsidiary may declare and make dividendpayments or other distributions payable solely in the Capital Stock (other thanDisqualified Capital Stock not otherwise permitted by SECTION 6.03) of suchPerson;

 

(c)           the Lead Borrower may make Restricted Payments to consummate the MIKRecapitalization;

 

(d)           to the extent constituting Restricted Payments, the Parent and itsRestricted Subsidiaries may enter into and consummate transactions expresslypermitted by any provision of SECTION 6.04 or SECTION 6.08 (other than SECTION6.08(g));

 

(e)           the Parent may repurchase Capital Stock in the Parent or any RestrictedSubsidiary deemed to occur upon the exercise of stock options or warrants ifsuch Capital Stock represents a portion of the exercise price of such optionsor warrants;

 

(f)            Holdco and the Lead Borrower may pay for therepurchase, retirement, or other acquisition of Capital Stock of the Parent orany of its direct or indirect parent companies by any former, present, orfuture employee of the Parent or any of its Restricted Subsidiaries or any ofits direct or indirect parent companies, or any of their respective estates,spouses or former spouses pursuant to any management equity plan or stockoption plan or any other management or employee benefit plan or agreement(including, for the avoidance of doubt, any principal and interest payable onany notes issued by Holdco or the Lead Borrower or any direct or indirectparent company in connection with such repurchase, retirement or otheracquisition); *provided* that amounts payableunder this clause (f) do not exceed in any calendar year $15,000,000 (whichshall increase to $30,000,000 subsequent to the consummation of an underwrittenQualifying IPO by the Parent or any direct or indirect parent company of theParent), with unused amounts in any calendar year being carried over tosucceeding calendar years, subject to a maximum (without giving effect to thefollowing proviso) of $30,000,000 in any calendar year unless the AdjustedAvailability Condition shall have been satisfied after giving effect to suchRestricted Payment, in

 

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whichthe maximum amount shall be $60,000,000 in any calendar year after theconsummation of an underwritten Qualifying IPO by the Parent or any direct orindirect parent company of the Parent; *provided further*that such amount in any calendar year may be increased by an amount not toexceed (A) the Net Proceeds of Permitted Equity Issuances (other thanDisqualified Capital Stock) after the Closing Date to the extent that such NetProceeds shall have been actually received by the Lead Borrower, in each caseto members of management, directors or consultants of the Parent or of itsRestricted Subsidiaries or any direct or indirect parent company of the Parentthat occurs after the Closing Date, plus, in respect of any sale of CapitalStock in connection with an exercise of stock options, an amount equal to theamount required to be withheld by Holdco, the Lead Borrower or any of itsdirect or indirect parent companies in connection with such exercise underapplicable law to the extent such amount is repaid to the Parent or any of itsdirect or indirect parent companies, plus (B) the cash proceeds of key man lifeinsurance policies received by the Parent or any Restricted Subsidiary afterthe Closing Date less (C) the amount of any Restricted Payments previously madewith the cash proceeds described in clauses (A) and (B) of this clause (f); and*provided* further that cancellation ofIndebtedness owing to the Parent from any employees, directors, or consultantsof the Parent, any of its Restricted Subsidiaries or any direct or indirectparent companies in connection with a repurchase of Capital Stock of the Parentor any of its direct or indirect parent companies will not be deemed toconstitute a Restricted Payment;

 

(g)           Holdco and the Lead Borrower may makecash payments in lieu of the issuance of fractional shares in connection withthe exercise of warrants, options or other securities convertible into orexchangeable for Capital Stock of the Parent or any Restricted Subsidiary;provided, however, that any such cash payment shall not be for the purpose ofevading the limitations of this Agreement;

 

(h)           the Parent and its RestrictedSubsidiaries may make Restricted Payments in an amount equal to the aggregateamount of the Net Proceeds of Permitted Equity Issuances (other than PermittedEquity Issuances that are Specified Equity Contributions);

 

(i)            the Parent and its Restricted Subsidiariesmay distribute, by dividend or otherwise, shares of Capital Stock of, orIndebtedness owed to the Parent or a Restricted Subsidiary by, UnrestrictedSubsidiaries (other than any Unrestricted Subsidiary whose primary assets areCash Equivalents);

 

(j)           As long as no Event of Default then exists or would arise therefrom (orif such Event of Default exists or would so arise, with the written consent ofthe Administrative Agent or without such consent, by using the amounts in theDesignated Account), the Lead Borrower may declare and pay dividends ordistributions to, or make loans to, Holdco in amounts required for Holdco orany direct or indirect parent of Holdco to pay, in each case withoutduplication,

 

(i)            franchisetaxes and other fees, Taxes and expenses required to maintain Holdco’s (or suchparent’s)  corporate existence;

 

(ii)           federal,state, provincial and local income Taxes, to the extent such income Taxes areattributable to the income of the Lead Borrower and its

 

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RestrictedSubsidiaries and, to the extent of the amount actually received from itsUnrestricted Subsidiaries, in amounts required to pay such Taxes to the extentattributable to the income of such Unrestricted Subsidiaries; *provided* that in each case the amount of such payments forany Fiscal Year does not exceed the excess (if any) of (A) the amount that theLead Borrower and its Restricted Subsidiaries would be required to pay inrespect of federal, state, provincial and local income Taxes for such FiscalYear were the Lead Borrower, its Restricted Subsidiaries and its UnrestrictedSubsidiaries (to the extent described above) to pay such Taxes separately fromHoldco (or any such parent) over (B) the aggregate federal, state, provincialand local income Taxes paid by the Lead Borrower and its RestrictedSubsidiaries; and

 

(iii)          forany Permitted Acquisition made in compliance with SECTION 6.02(f)(ii) hereof.

 

(k)          Holdco may make Restricted Payments with the Net Proceeds of PermittedHoldco Debt (unless such Net Proceeds are contributed to the Lead Borrower orits Restricted Subsidiaries in which event such Net Proceeds may not be used tomake Restricted Payments unless the conditions of clause (l) below aresatisfied); and

 

(l)            Without duplication of, or aggregation with,any Restricted Payments permitted under any other clause of this SECTION 6.06,the Parent and its Restricted Subsidiaries may make other Restricted Paymentsto the holders of its Capital Stock as long as the Payment Conditions aresatisfied.

 

SECTION6.07       Change in Nature of Business.

 

(a)           The Loan Parties shall not engage in any material line of businesssubstantially different from those lines of business conducted by the LeadBorrower and its Restricted Subsidiaries on the date hereof or any businessreasonably related or ancillary thereto or a reasonable extension thereof.

 

(b)           Holdco shall not conduct, transact or otherwise engage in any businessor operations other than those incidental to (i) its ownership of the CapitalStock of the Lead Borrower, (ii) the maintenance of its legal existence, (iii)the performance of the Loan Documents, (iv) any public offering of its commonstock or any other issuance of its Capital Stock not prohibited by this ArticleVI, and (v) any transaction that Holdco is permitted to enter into orconsummate under this Article VI. Furthermore, notwithstanding anything to thecontrary herein contained, Holdco shall not (i) own any material assets otherthan the Capital Stock of the Lead Borrower or (ii) grant any Liens in any ofits assets (other than Liens granted to Collateral Agent, for the benefit ofthe Secured Parties, under the Loan Documents or to secure obligations underthe Term Loan Facility or Liens securing any Other Pari Passu Lien Obligations(as defined in and to the extent permitted under the Term Loan Agreement asamended and in effect from time to time)).

 

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SECTION6.08       Transactions with Affiliates.

 

TheLoan Parties shall not enter into any transaction of any kind with anyAffiliate of the Lead Borrower, whether or not in the ordinary course ofbusiness, other than (a) transactions among Loan Parties or any RestrictedSubsidiary or any entity that becomes a Restricted Subsidiary as a result ofsuch transaction, (b) on terms substantially as favorable to the Parent or suchRestricted Subsidiary as would be obtainable by the Parent or such RestrictedSubsidiary at the time in a comparable arm’s-length transaction with a Personother than an Affiliate, (c) the payment of fees and expenses related to theTransaction, including Transaction Expenses, (d) the issuance of Capital Stockto the management of the Lead Borrower or any of its Subsidiaries in connectionwith the Transaction, (e) payments due pursuant to the Advisory Agreements onaccount of Advisory Fees consisting of (i) the Transaction Fees (as defined inthe Advisory Agreement described in clause (i) of the definition thereof as ineffect on the Closing Date) payable on the Closing Date, (ii) payments (but notprepayments) on account of Periodic Fees as defined in each of the AdvisoryAgreements (as in effect on the Closing Date) and termination fees providedtherein as of the Closing Date, provided that such payments may not be made ifa Specified Default has occurred and is continuing or would arise therefrom,provided further that such fees not paid shall accrue and be paid when theapplicable Specified Default has been cured or waived and no additionalSpecified Default has occurred and is continuing or would arise as a result ofsuch payment, and (iii) Subsequent Fees (as defined in the Advisory Agreementdescribed in clause (i) of the definition thereof as in effect on the Closing Date),which payments are approved by a majority of the disinterested members of theboard of directors of the Parent in good faith, provided that such payments maynot be made if an Event of Default exists under SECTION 7.01(f) or SECTION7.01(g), (f) payments of indemnities and reasonable expense reimbursementsunder the Advisory Agreements, (g) equity issuances, repurchases, retirementsor other acquisitions or retirements of Capital Stock of Holdco or the LeadBorrower permitted under SECTION 6.06, (h) loans and other transactions bythe Parent and its Restricted Subsidiaries to the extent permitted under thisArticle 6, (i) employment and severance arrangements between the Parent and itsRestricted Subsidiaries and their respective officers and employees in theordinary course of business, (j) payments by the Restricted Subsidiariespursuant to the tax sharing agreements among the Parent and its RestrictedSubsidiaries on customary terms to the extent attributable to the ownership oroperation of the Parent and its Restricted Subsidiaries, (k) the payment ofcustomary fees, compensation, and reasonable out of pocket costs to, andindemnities provided on behalf of, directors, officers and employees of theParent and its Restricted Subsidiaries in the ordinary course of business tothe extent attributable to the ownership or operation of the Lead Borrower andits Restricted Subsidiaries, (l) transactions pursuant to permitted agreementsin existence on the Closing Date and set forth on Schedule 6.08 or anyamendment thereto to the extent such an amendment is not adverse to the Lendersin any material respect, and (m) dividends, redemptions and repurchasespermitted under SECTION 6.06.

 

SECTION6.09       Burdensome Agreements.

 

TheLoan Parties shall not enter into or permit to exist any contractual obligation(including Material Indebtedness) (other than this Agreement or any other LoanDocument) that limits the ability of (a) any Restricted Subsidiary of the LeadBorrower that is not a Facility Guarantor to make Restricted Payments to anyLoan Party or (b) the Lead Borrower or any other Loan Party to create, incur,assume or suffer to exist Liens on property of such Person for the benefit ofthe Secured Parties with respect to the Obligations or under the Loan Documents;

 

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*provided* that the foregoing clauses (a) and (b) shallnot apply to contractual obligations (including Material Indebtedness) which(i) (x) exist on the date hereof and (to the extent not otherwise permitted bythis SECTION 6.09) are listed on Schedule 6.09 hereto and (y) to theextent contractual obligations permitted by clause (x) are set forth in anagreement evidencing Indebtedness, are set forth in any agreement evidencingany permitted renewal, extension or refinancing of such Indebtedness so long assuch renewal, extension or refinancing does not expand the scope of suchcontractual obligation in any material respect, (ii) are binding on aRestricted Subsidiary at the time such Restricted Subsidiary first becomes aRestricted Subsidiary of the Parent, so long as such contractual obligationswere not entered into solely in contemplation of such Person becoming aRestricted Subsidiary of the Parent; *provided further*that this clause (ii) shall not apply to contractual obligations that arebinding on a Person that becomes a Restricted Subsidiary pursuant to SECTION5.14, (iii) represent Indebtedness of a Restricted Subsidiary of the LeadBorrower which is not a Loan Party which is permitted pursuant to SECTION 6.03,(iv) arise in connection with any Permitted Disposition, (v) are customaryprovisions in joint venture agreements and other similar agreements applicableto joint ventures permitted under SECTION 6.02 and applicable solely to suchjoint venture entered into in the ordinary course of business, (vi) arenegative pledges and restrictions on Liens in favor of any holder ofIndebtedness permitted under SECTION 6.03 but solely to the extent any negativepledge relates to the property financed by or the subject of such Indebtedness,(vii) are customary restrictions on leases, subleases, licenses or asset saleagreements otherwise permitted hereby so long as such restrictions relate tothe assets subject thereto, (viii) comprise restrictions imposed by anyagreement relating to secured Indebtedness permitted pursuant to SECTION6.03(e) or SECTION 6.03(g) to the extent that such restrictions apply only tothe property or assets securing such Indebtedness or, in the case ofIndebtedness incurred pursuant to SECTION 6.03(g) only, to the RestrictedSubsidiaries incurring or guaranteeing such Indebtedness, (ix) are customaryprovisions restricting subletting or assignment of any lease governing aleasehold interest of the Lead Borrower or any Restricted Subsidiary, (x) arecustomary provisions restricting assignment of any agreement entered into inthe ordinary course of business, and (xi) are restrictions on cash or otherdeposits imposed by customers under contracts entered into in the ordinarycourse of business.

 

SECTION6.10       Accounting Changes.

 

TheLoan Parties shall not make any change in their Fiscal Year; *provided, however,* that the Lead Borrower may, upon writtennotice to the Administrative Agent, change its Fiscal Year to any other FiscalYear reasonably acceptable to the Administrative Agent, in which case, the LeadBorrower and the Administrative Agent will, and are hereby authorized by theLenders to, make any adjustments to this Agreement that are necessary toreflect such change in Fiscal Year.

 

SECTION6.11       Prepayments, Etc., of Indebtedness.

 

NoLoan Party will make or agree to pay or make any payment or other distribution(whether in cash, securities or other property) of or in respect of principalof or interest on any Indebtedness, or any payment or other distribution(whether in cash, securities or other property), including any sinking fund orsimilar deposit, on account of the purchase, redemption, retirement,acquisition, cancellation or termination of any Indebtedness, except

 

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(a)           payments in Capital Stock (as long as no Change in Control would resulttherefrom), the conversion of Indebtedness to Capital Stock (other thanDisqualified Capital Stock) of the Parent (as long as no Change in Controlwould result therefrom) and payments of interest in-kind of the Loan Parties orthe accretion of interest on Permitted Indebtedness;

 

(b)           payments of principal and interest as and when due in respect of anySubordinated Indebtedness (subject to applicable subordination provisionsrelating thereto);

 

(c)           payments of principal (including mandatory prepayments) and interest asand when due in respect of any Permitted Indebtedness (other than SubordinatedIndebtedness);

 

(d)           voluntary prepayments, redemptions, purchases, and defeasances in wholeor in part of the Senior Notes, the Senior Subordinated Notes, the SubordinatedDiscount Notes, the Term Loan Facility and other Indebtedness with the NetProceeds of any Permitted Equity Issuances (other than Permitted EquityIssuances that are Specified Equity Contributions) for the purpose of makingsuch payment or prepayment;

 

(e)           voluntary prepayments in whole or in part of the Senior Notes, theSenior Subordinated Notes, the Subordinated Discount Notes, or the Term LoanFacility from any Permitted Refinancing thereof;

 

(f)            if the Payment Conditions are satisfied,voluntary prepayments and mandatory prepayments in whole or in part of theSenior Notes, the Senior Subordinated Notes, the Subordinated Discount Notes,the Term Loan Facility or any other Permitted Indebtedness;

 

(g)           the prepayment of Indebtedness of the Lead Borrower or any RestrictedSubsidiary to the Lead Borrower or any Restricted Subsidiary to the extentpermitted by the Security Documents;

 

(h)           mandatory redemptions of the Subordinated Discount Notes (and exchangenotes issued in respect thereof) pursuant to the Subordinated Discount NoteIndenture due to the existence of an AHYDO Amount (as defined in theSubordinated Discount Note Indenture); and

 

(i)            other Permitted Refinancings of Indebtedness.

 

SECTION6.12       Equity Interests of the Lead Borrower andRestricted Subsidiaries.

 

TheLoan Parties shall not permit any Subsidiary that is a Restricted Subsidiary tobe a non-wholly owned Subsidiary, except (i) as a result of or in connectionwith a dissolution, merger, amalgamation, consolidation or disposition of aRestricted Subsidiary permitted by SECTION 6.04 or  SECTION 6.05 or a Permitted Investment in anyPerson or (ii) so long as such Restricted Subsidiary continues to be a FacilityGuarantor.

 

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SECTION6.13       Amendment of Material Documents.

 

(a)           No Loan Party will amend, modify or waive any of its rights under (a)its Organization Documents, (b) the Advisory Agreements, or (c) any MaterialIndebtedness (other than as a result of a Permitted Refinancing thereof), ineach case to the extent that such amendment, modification or waiver wouldeither (1) reasonably likely have a Material Adverse Effect or (2) with respectto clauses (b) and (c) only, (i) shorten the maturity date of any MaterialIndebtedness to a date which is prior to 91 days after the Maturity Date, (ii)except as provided in clause (i), shorten the date scheduled for any principalpayment or increase the amount of any required principal payment, the result ofwhich would be to require principal payments on account thereof in excess ofthe amounts previously required over the 24 months following such amendment,modification or waiver, (iii) grant any collateral security therefor on the ABLPriority Collateral, except to the extent that such collateral securityconstitutes a Permitted Encumbrance and is granted subject to an intercreditoragreement on terms substantially similar to those contained in theIntercreditor Agreement, (iv) without duplication of any collateral securitygranted under clause (iii) above, grant any other collateral therefor except tothe extent such grant of security constitutes a Permitted Encumbrance, theCollateral Agent also has or obtains a Lien on such assets, and provided thatto the extent that such collateral security consists of assets that wouldconstitute Term Priority Collateral, such collateral security is grantedsubject to an intercreditor agreement on terms substantially similar to thosecontained in the Intercreditor Agreement, (v) modify the subordinationprovisions thereof or (vi) be otherwise materially adverse to the interests ofthe Credit Parties.

 

(b)           The Lead Borrower shall not, and shall not permit any of its RestrictedSubsidiaries to, designate any Indebtedness (or related interest obligations)as “Designated Senior Debt” (as defined in each of the Senior SubordinatedNotes Indenture and the Subordinated Discount Notes Indenture) or any similarterm (as defined in any documents or agreements evidencing the JuniorFinancing), in each case, except for the Term Loan Facility (and relatedobligations).

 

SECTION6.14       Designated Account.

 

Afterthe occurrence and during the continuance of a Cash Dominion Event, the LoanParties shall not use utilize the funds on deposit in the Designated Accountfor any purposes other than (a) the payment of operating expenses incurred bythe Loan Parties in the ordinary course of business (including payments ofinterest when due on account of the Senior Notes, the Senior SubordinatedNotes, the Subordinated Discount Notes, and the Term Loan Facility), and (b)for such other purposes as the Loan Parties deem appropriate.

 

ARTICLE VIIEvents of Default

 

SECTION7.01       Events of Default.

 

Theoccurrence of any of the following events shall constitute an “Event ofDefault” hereunder:

 

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(a)*         **Non-Payment*. AnyBorrower or any other Loan Party fails to pay (i) when and as required tobe paid herein, any amount of principal of any Revolving Credit Loan (includingSwingline Loans), or any reimbursement obligation in respect of any Letter ofCredit Disbursement, or (ii) within five (5) Business Days after the same becomesdue, any interest on any Revolving Credit Loan (including Swingline Loans) orany other amount payable hereunder or with respect to any other Loan Document;or

 

(b)*          **Specific Covenants*. Any Loan Party shall fail to observe orperform when due any covenant, condition or agreement contained in (i) anySection of Article VI or (ii) SECTION 5.01(e) (after a two (2) Business Daygrace period), or (iii) in SECTION 2.18, or (iv) in any of SECTION 5.02(b),SECTION 5.03(a), SECTION 5.07 (but only with respect to fire and extendedcoverage policies maintained with respect to any Collateral), SECTION 5.10,SECTION 5.17, SECTION 5.18, SECTION 5.19, or SECTION 5.22 (provided that,if (A) any such Default described in this clause (iv) is of a type that can becured within 5 Business Days and (B) such Default could not materiallyadversely impact the Lenders’ Liens on the Collateral, such default shall notconstitute an Event of Default for 5 Business Days after the occurrence of suchDefault so long as the Loan Parties are diligently pursuing the cure of suchDefault); or

 

(c)*          **Other Defaults*. Any Loan Party fails to perform or observeany other covenant or agreement (not specified in SECTION 7.01(a) or (b) above)contained in any Loan Document on its part to be performed or observed and suchfailure continues for thirty (30) days after notice thereof by theAdministrative Agent to the Lead Borrower; or

 

(d)           *Representations andWarranties.* Any representation, warranty, certification or statementof fact made or deemed made by or on behalf of the Lead Borrower or any otherLoan Party herein, in any other Loan Document, or in any document required tobe delivered in connection herewith or therewith shall be incorrect ormisleading in any material respect when made or deemed made; or

 

(e)           *Cross-Default.* AnyLoan Party or any Restricted Subsidiary (A) fails to make any payment beyondthe applicable grace period with respect thereto, if any (whether by scheduledmaturity, required prepayment, acceleration, demand, or otherwise) in respectof any Material Indebtedness (other than the Obligations), or (B) fails toobserve or perform any other agreement or condition relating to any suchMaterial Indebtedness beyond the applicable grace period with respect thereto,or any other event occurs (other than, with respect to Indebtedness consistingof Swap Contracts, termination events or equivalent events pursuant to theterms of such Swap Contracts), the effect of which default or other event is tocause, or to permit the holder or holders of such Indebtedness (or a trustee oragent on behalf of such holder or holders or beneficiary or beneficiaries)after the expiration of the applicable grace period with respect thereto, tocause, with the giving of notice if required, such Indebtedness to become dueor to be repurchased, prepaid, defeased or redeemed (automatically orotherwise), or an offer to repurchase, prepay, defease or redeem such MaterialIndebtedness to be made, prior to its stated maturity; *provided*that this clause (e)(B) shall not apply to secured Indebtedness that becomesdue as a result of the voluntary sale or transfer of the property or assetssecuring such Indebtedness, if such sale or transfer is permitted hereunder andunder the documents providing for such Indebtedness, and further *provided* that the occurrence of any event of default underthe Term Loan Agreement by virtue of the breach of the leverage covenantcontained in Section 7.05

 

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ofthe Term Loan Agreement (or any other financial maintenance covenant from timeto time in effect under the Term Loan Agreement and not contained in thisAgreement) shall not constitute an Event of Default until the earliest of (x)sixty (60) days after the date of such breach (during which period such breachis not waived by the lenders under the Term Loan Agreement or such breach isnot cured pursuant to Section 8.05 of the Term Loan Agreement), or (y) theacceleration of the obligations under the Term Loan Agreement, or (z) the commencementof the Exercise of Any Secured Creditor Remedies (as defined in theIntercreditor Agreement as in effect on the Closing Date) by the agent and/orthe lenders under the Term Loan Agreement as a result of such breach; or

 

(f)*           **Insolvency Proceedings, Etc.*Any Loan Party or any of the RestrictedSubsidiaries institutes or consents to the institution of any proceeding underthe Bankruptcy Code or any other federal, state, provincial, or foreignbankruptcy, insolvency, receivership or similar law (or any Canadian Loan Partyinstitutes or consents to the institution of any proposal or notice of intentto file a proposal), or makes an assignment for the benefit of creditors; orapplies for or consents to the appointment of any receiver, trustee, custodian,conservator, monitor, liquidator, rehabilitator, administrator, administrativereceiver or similar officer for it or for all or any material part of itsproperty; or any receiver, trustee, custodian, conservator, monitor,liquidator, rehabilitator, administrator, administrative receiver or similarofficer is appointed without the application or consent of such Person and theappointment continues undischarged or unstayed for sixty (60) calendar days; orany proceeding under the Bankruptcy Code or any other federal, state,provincial, or foreign bankruptcy, insolvency, receivership or similar lawrelating to any such Person or to all or any material part of its property isinstituted without the consent of such Person and continues undismissed orunstayed for sixty (60) calendar days, or an order for relief is entered in anysuch proceeding; or

 

(g)           *Inability to Pay Debts;Attachment.* (i) Any Loan Party or any Restricted Subsidiary becomesunable or admits in writing its inability or fails generally to pay its debtsas they become due in an aggregate amount in excess of (x) $50,000,000 ifAvailability is greater than or equal to $125,000,000 on a Pro Forma Basis forthe 12 month period following the date of determination or (y) $25,000,000 ifAvailability is less than $125,000,000 on a Pro Forma Basis for the 12 monthperiod following the date of determination, or (ii) any writ or warrant ofattachment or execution or similar process is issued or levied against all orany material part of the property of the Loan Parties, taken as a whole, and isnot released, vacated or fully bonded within forty-five (45) days after itsissue or levy; or

 

(h)           *Judgments.* Thereis entered against any Loan Party or any Restricted Subsidiary a final judgmentor order for the payment of money in an aggregate amount in excess of (x)$75,000,000 if Availability is greater than or equal to $125,000,000 on a ProForma Basis for the 12 month period following such judgment or (y) $40,000,000if Availability is less than $125,000,000 on a Pro Forma Basis for the 12 monthperiod following such judgment (to the extent not covered by independentthird-party insurance as to which the insurer has been notified of suchjudgment or order and has not denied coverage) and such judgment or order shallnot have been satisfied, vacated, discharged or stayed or bonded pending anappeal for a period of forty-five (45) consecutive days; or

 

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(i)            *ERISA.* (a)(i)An ERISA Event occurs with respect to a Plan subject to ERISA or MultiemployerPlan subject to ERISA which has resulted or could reasonably be expected toresult in liability of any Loan Party under Title IV of ERISA in an aggregateamount which could reasonably be expected to result in a Material AdverseEffect, or (ii) any Loan Party or any ERISA Affiliate fails to pay when due,after the expiration of any applicable grace period, any installment paymentwith respect to its withdrawal liability under Section 4201 of ERISA undera Multiemployer Plan in an aggregate amount which could reasonably be expectedto result in a Material Adverse Effect; or (b) except as could not reasonablybe expected to result in a Material Adverse Effect, (i) a Pension Event shalloccur which, in Collateral Agent’s determination, constitutes grounds for thetermination under any Applicable Law, of any Plan or (ii) the appointment bythe appropriate Governmental Authority of a trustee for any Plan, or (iii) ifany Plan shall be terminated or any such trustee shall be requested orappointed, or (iv) if a Loan Party is in default with respect to payments to aPlan resulting from their complete or partial withdrawal from such Plan or (v)any event that may reasonably be expected to have a Material Adverse Effect orany Lien arises (save for contribution amounts not yet due) in connection withany Plan; or

 

(j)*           **Invalidity of Loan Documents.*(i) Any material provision of any LoanDocument, at any time after its execution and delivery and for any reason otherthan as expressly permitted hereunder or thereunder (including as a result of atransaction permitted under SECTION 6.04 or SECTION 6.05) or as a result ofacts or omissions by any Agent or any Lender or the satisfaction in full of allthe Obligations, ceases to be in full force and effect; or any Loan Partycontests in writing the validity or enforceability of any provision of any LoanDocument; or any Loan Party denies in writing that it has any or furtherliability or obligation under any Loan Document (other than as a result of repaymentin full of the Obligations and termination of the Commitments), or purports inwriting to revoke or rescind any Loan Document; or (ii) any challenge by or onbehalf of any Loan Party, receiver, trustee, custodian, conservator, monitor,liquidator, rehabilitator, administrator, administrative receiver or similarofficer for any Loan Party or for all or any material part of its property tothe validity of any Loan Document or the applicability or enforceability of anyLoan Document strictly in accordance with the subject Loan Document’s terms orwhich seeks to void, avoid, limit, or otherwise adversely affect any securityinterest created by or in any Loan Document or any payment made pursuantthereto; or

 

(k)*          **Change in Control.*There occurs any Change in Control; or

 

(l)            *Security Documents.* (i) Any Security Document, after deliverythereof pursuant to SECTION 4.01 or SECTION 5.11, shall for any reason (otherthan pursuant to the terms thereof including as a result of a transactionpermitted under SECTION 6.04 or SECTION 6.05) cease to create a valid andperfected or recorded Lien, with the priority required by the SecurityDocuments, (or other security purported to be created on the applicableCollateral) on, security interest in, and hypothecs of any material portion ofthe Collateral purported to be covered thereby, subject to PermittedEncumbrances, except to the extent that any such loss of perfection or priorityresults from the failure of the Administrative Agent or the Collateral Agent tomaintain possession of certificates actually delivered to it representingsecurities pledged under the Security Documents or to file Uniform CommercialCode continuation statements and except as to Collateral consisting of realproperty to the extent that such losses are covered by a lender’s titleinsurance policy and such insurer has not denied coverage, or (ii) any of theCapital Stock of

 

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theLead Borrower ceasing to be pledged pursuant to the Security Agreement free ofLiens other than Liens created by the Security Agreement (other than Liens tosecure the Term Loan Facility or Liens securing any Other Pari Passu LienObligations (as defined in and to the extent permitted under the Term LoanAgreement as amended and in effect from time to time)) or any nonconsensualLiens arising solely by operation of Law;

 

(m)          *Senior Subordinated NoteDocuments and Subordinated Discount Note Documents.* (i) Any of theObligations of the Loan Parties under the Loan Documents for any reason shallcease to be “Senior Indebtedness” (or any comparable term) or “Senior SecuredFinancing” (or any comparable term) under, and as defined in any SeniorSubordinated Note Documents or Subordinated Discount Note Documents, or (ii)the subordination provisions set forth in any Senior Subordinated NoteDocuments or the Subordinated Discount Note Documents shall, in whole or inpart, cease to be effective or cease to be legally valid, binding andenforceable against the holders of any Senior Subordinated Notes and theSubordinated Discount Notes, as applicable;

 

(n)           *Termination of Business.*Except as permitted under SECTION 6.05, the determination of the Loan Parties,whether by vote of the Loan Parties’ board of directors or otherwise to: suspendthe operation of the Loan Parties’ business in the ordinary course, liquidateall or substantially all of the Loan Parties’ assets or Store locations, oremploy an agent or other third party to conduct any so-called store closing,store liquidation or “Going-Out-Of-Business” sales for all or substantially allof the Loan Parties’ Stores;

 

(o)           *Termination of Guaranty.*The termination of the Facility Guaranty or any other guaranty of theObligations (except for any release or termination permitted hereunder); or

 

(p)*          **Indictment*. The indictment of any Loan Party, under anyApplicable Law where the crime alleged would constitute a felony underApplicable Law and such indictment remains unquashed or such legal processremains undismissed for a period of 90 days or more, unless either (i) theAdministrative Agent, in its reasonable discretion, determines that theindictment is not material or (ii) such indictment relates to the Lead Borrower’sstock option practices.

 

SECTION7.02       Remedies Upon Event of Default.

 

Ifany Event of Default occurs and is continuing, the Administrative Agent mayand, at the request of the Required Lenders, shall take any or all of thefollowing actions:

 

(a)          declare the Commitment of each Lender to make Revolving Credit Loans(including Swingline Loans) and any obligation of the Issuing Banks to issueLetters of Credit to be terminated, whereupon such Commitments and obligationshall be terminated;

 

(b)         declare the unpaid principal amount of all outstanding Revolving CreditLoans (including Swingline Loans), all interest accrued and unpaid thereon, andall other amounts owing or payable hereunder or under any other Loan Documentto be immediately due and payable, without presentment, demand, protest orother notice of any kind, all of which are hereby expressly waived by theBorrowers;

 

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(c)          require that the Borrowers cash collateralize the amount of the Letterof Credit Outstandings (in an amount equal to 101.5% of the then Stated Amountof outstanding Letters of Credit plus 100% of the then unreimbursed amounts dueto the Issuing Banks); and

 

(d)         exercise on behalf of itself and the Secured Parties all rights andremedies available to it and the Secured Parties under the Loan Documents orApplicable Law;

 

*provided* thatupon the occurrence of an actual or deemed entry of an order for relief withrespect to the any Loan Party under the Bankruptcy Code, the obligation of eachLender to make Revolving Credit Loans (including Swingline Loans) and anyobligation of the Issuing Banks to issue Letters of Credit shall automaticallyterminate, the unpaid principal amount of all outstanding Revolving CreditLoans (including Swingline Loans) and all interest and other amounts asaforesaid shall automatically become due and payable, and the obligation of theBorrowers to cash collateralize the amount of Letter of Credit Outstandings asaforesaid shall automatically become effective, in each case without furtheract of the Administrative Agent or any Lender.

 

SECTION7.03       Exclusion of Immaterial Subsidiaries.

 

(a)           Solely for the purpose of determining whether a Default has occurredunder clause (f) or (g) of SECTION 7.01, any reference in any such clause toany Restricted Subsidiary or Loan Party shall be deemed not to include anyImmaterial Subsidiary affected by any event or circumstances referred to in anysuch clause (it being agreed that all Immaterial Subsidiaries affected by anyevent or circumstance referred to in any such clause shall be consideredtogether, as a single consolidated Restricted Subsidiary, for purposes ofdetermining whether they constitute Immaterial Subsidiaries).

 

SECTION7.04       Application of Proceeds.

 

Afterthe occurrence and during the continuance of (i) any Cash Dominion Event (otherthan with respect to any Canadian Loan Party), or (ii) any Event of Default andacceleration of the Obligations, all proceeds realized from any Loan Party oron account of any Collateral owned by a Loan Party or any payments in respectof any Obligations and all proceeds of the Collateral, shall be applied in thefollowing order:

 

(a)           FIRST, ratably to pay the Obligations in respect of any Credit PartyExpenses, indemnities and other amounts then due to the Agents until paid infull;

 

(b)           SECOND, ratably to pay any Credit Party Expenses and indemnities, andto pay any fees then due to the Lenders (other than any fees owed to TrancheA-1 Lenders), until paid in full;

 

(c)           THIRD, ratably to pay interest accrued in respect of the Obligations(other than the Tranche A-1 Loans) until paid in full;

 

(d)           FOURTH, to pay principal due in respect of the Swingline Loans untilpaid in full;

 

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(e)           FIFTH, ratably to pay principal due in respect of the Revolving CreditLoans (other than Tranche A-1 Loans) until paid in full;

 

(f)            SIXTH, to the Administrative Agent, to beheld by the Administrative Agent, for the ratable benefit of the Issuing Banksand the Tranche A Lenders as cash collateral in an amount up to 101.5% of thethen Stated Amount of Letters of Credit (other than those in which the TrancheA-1 Lenders participate) until paid in full;

 

(g)           SEVENTH, ratably to pay any fees then due to the Tranche A-1 Lendersuntil paid in full;

 

(h)           EIGHTH, ratably to pay interest accrued in respect of the Tranche A-1Loans until paid in full;

 

(i)            NINTH, ratably to pay principal due inrespect of Tranche A-1 Loans until paid in full;

 

(j)            TENTH, to the Administrative Agent, to beheld by the Administrative Agent, for the ratable benefit of the Issuing Banksand the Tranche A-1 Lenders, as cash collateral in an amount up to 101.5% ofthe then Stated Amount of Letters of Credit in which the Tranche A-1 Lendersparticipate until paid in full;

 

(k)           ELEVENTH, to pay outstanding Obligations with respect to CashManagement Services furnished to any Loan Party by the Agents;

 

(l)            TWELFTH, ratably to pay any other outstandingObligations (including any other outstanding Other Liabilities); and

 

(m)          THIRTEENTH, to the Lead Borrower or such other Person entitled theretounder Applicable Law.

 

Notwithstandingthe foregoing, in the case of payments from or proceeds of Collateral ofMichaels of Canada, ULC, the same shall first be applied as provided insubparagraphs (d) through (j) before application to any fees which may be inthe nature of interest for tax purposes as provided in subparagraphs (b) and(g) or to interest as provided in subparagraphs (c) and (h).

 

ARTICLE VIIIThe Administrative Agent

 

SECTION8.01       Appointment of Administrative Agent.

 

EachCredit Party hereby irrevocably designates Bank of America as AdministrativeAgent under this Agreement and the other Loan Documents. The generaladministration of the Loan Documents shall be by the Administrative Agent. TheCredit Parties each hereby (a) irrevocably authorizes the Administrative Agent(i) to enter into the Loan Documents to which it is a party, and (ii) at itsdiscretion, to take or refrain from taking such actions as agent on its behalfand to exercise or refrain from exercising such powers under the Loan Documentsas are

 

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delegatedby the terms hereof or thereof, as appropriate, together with all powersreasonably incidental thereto, and (b) agrees and consents to all of theprovisions of the Security Documents. The Administrative Agent shall have noduties or responsibilities except as set forth in this Agreement and the otherLoan Documents, nor shall it have any fiduciary relationship with any otherCredit Party, and no implied covenants, responsibilities, duties, obligations,or liabilities shall be read into the Loan Documents or otherwise exist againstthe Administrative Agent.

 

SECTION8.02       Appointment of Collateral Agent.

 

EachSecured Party hereby irrevocably designates Bank of America as Collateral Agentunder this Agreement and the other Loan Documents. The Secured Parties eachhereby (i) irrevocably authorizes the Collateral Agent (x) to enter into theLoan Documents to which it is a party, and (y) at its discretion, to take orrefrain from taking such actions as agent on its behalf and to exercise orrefrain from exercising such powers under the Loan Documents as are delegatedby the terms hereof or thereof, as appropriate, together with all powers reasonablyincidental thereto, and (ii) agrees and consents to all of the provisions ofthe Security Documents. All Collateral shall be held or administered by theCollateral Agent (or its duly-appointed agent) for its own benefit and for theratable benefit of the other Credit Parties. Any proceeds received by theCollateral Agent from the foreclosure, sale, lease or other disposition of anyof the Collateral and any other proceeds received pursuant to the terms of theSecurity Documents or the other Loan Documents shall be paid over to theAdministrative Agent for application as provided in this Agreement and theother Loan Documents. The Collateral Agent shall have no duties orresponsibilities except as set forth in this Agreement and the other LoanDocuments, nor shall it have any fiduciary relationship with any other SecuredParty, and no implied covenants, responsibilities, duties, obligations, orliabilities shall be read into the Loan Documents or otherwise exist againstthe Collateral Agent.

 

SECTION8.03       Solidary Interests/Quebec Liens (Hypothecs).

 

Withoutlimiting the generality of the foregoing, for the purposes of creating asolidarité active in accordance with Article 1541 of the Civil Code of Quebec,between each Credit Party, taken individually, on the one hand, and the Agents,on the other hand, the Borrowers, the Facility Guarantors and each such CreditParty acknowledge and agree with the Agents that such Credit Party and theAgents are hereby conferred the legal status of solidary creditors of theBorrowers and the Facility Guarantors in respect of all Obligations, presentand future, owed by the Borrowers or the Facility Guarantors to each suchCredit Party and the Agents (collectively, the “Solidary Claim”). Accordingly,but subject (for the avoidance of doubt) to Article 1542 of the Civil Code ofQuebec, the Borrowers and the Facility Guarantors are irrevocably bound towardsthe Agents and each Credit Party in respect of the entire Solidary Claim of theAgents and such Credit Party. As a result of the foregoing, the parties heretoacknowledge that the Agents and each Credit Party shall at all times have avalid and effective right of action for the entire Solidary Claim of the Agentsand such Credit Party and the right to give full acquittance for it. Accordingly,without limiting the generality of the foregoing, the Agents, as solidarycreditor with each Credit Party, shall at all times have a valid and effectiveright of action in respect of all Obligations, present and future, owed by theBorrowers or the Facility Guarantors to the Agents and to the Credit Parties orany of them and the right to give a full acquittance for

 

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same.For greater certainty, the foregoing provisions of this paragraph, and therights of the Credit Parties, shall at all times be subject to the provisionsof this Agreement.

 

SECTION8.04       Sharing of Excess Payments.

 

If at any time or times anySecured Party shall receive (i) by payment, foreclosure, setoff, banker’s lien,counterclaim, or otherwise, or any payments with respect to the Obligationsowing to such Secured Party arising under, or relating to, this Agreement orthe other Loan Documents, or (ii) payments from the Administrative Agent inexcess of such Secured Party’s ratable portion of all such distributions by theAdministrative Agent, such Secured Party shall promptly (1) turn the same overto the Administrative Agent, in kind, and with such endorsements as may berequired to negotiate the same to the Administrative Agent, or in same dayfunds, as applicable, for the account of all of the Secured Parties and forapplication to the Obligations in accordance with the applicable provisions ofthis Agreement, or (2) purchase, without recourse or warranty, an undividedinterest and participation in the Obligations owed to the other Secured Partiesso that such excess payment received shall be applied ratably as among theSecured Parties in accordance with the provisions of SECTION 2.17 or SECTION7.04, as applicable; provided, however, that if all or part ofsuch excess payment received by the purchasing party is thereafter recoveredfrom it, those purchases of participations shall be rescinded in whole or inpart, as applicable, and the applicable portion of the purchase price paidtherefor shall be returned to such purchasing party, but without interestexcept to the extent that such purchasing party is required to pay interest inconnection with the recovery of the excess payment. In no event shall theprovisions of this paragraph be construed to apply to any payment made by theBorrowers pursuant to and in accordance with the express terms of thisAgreement or any payment obtained by a Lender as consideration for theassignment of or sale of a participation in any of its Revolving Credit Loansor participations in Swingline Loans or in drawings under Letters of Credit toany Eligible Assignee or participant, other than to the Borrowers (as to whichthe provisions of this paragraph shall apply).

 

SECTION8.05       Agreement of Applicable Lenders.

 

Upon any occasion requiringor permitting an approval, consent, waiver, election or other action on thepart of the Applicable Lenders, action shall be taken by each Agent for and onbehalf or for the benefit of all Credit Parties upon the direction of theApplicable Lenders, and any such action shall be binding on all Credit Parties.No amendment, modification, consent, or waiver shall be effective except inaccordance with the provisions of SECTION 9.01.

 

SECTION8.06       Liability of Agents.

 

(a)           The Agents, when acting on behalf of the Credit Parties, may executeany of their respective duties under this Agreement or any of the other LoanDocuments by or through any of their respective officers, agents and employees,and none of the Agents nor any of their respective directors, officers, agentsor employees shall be liable to any other Secured Party for any action taken oromitted to be taken in good faith, or be responsible to any other Secured Partyfor the consequences of any oversight or error of judgment, or for any loss,except to the extent of any liability imposed by law by reason of such Agent’sown gross negligence or willful misconduct (as determined by a court ofcompetent jurisdiction in a final and non-appealable

 

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decision).None of the Agents nor any of their respective directors, officers, agents andemployees shall in any event be liable to any other Secured Party for anyaction taken or omitted to be taken by it pursuant to instructions received byit from the Applicable Lenders, or in reliance upon the advice of counselselected by it. Without limiting the foregoing none of the Agents, nor any oftheir respective directors, officers, employees, or agents shall be: (i)responsible to any other Secured Party for the due execution, validity,genuineness, effectiveness, sufficiency, or enforceability of, or for anyrecital, statement, warranty or representation in, this Agreement, any otherLoan Document or any related agreement, document or order; (ii) required toascertain or to make any inquiry concerning the performance or observance byany Loan Party of any of the terms, conditions, covenants, or agreements ofthis Agreement or any of the Loan Documents; (iii) responsible to any otherSecured Party for the state or condition of any properties of the Loan Partiesor any other obligor hereunder constituting Collateral for the Obligations orany information contained in the books or records of the Loan Parties; (iv) responsibleto any other Secured Party for the validity, enforceability, collectibility,effectiveness or genuineness of this Agreement or any other Loan Document orany other certificate, document or instrument furnished in connectiontherewith; or (v) responsible to any other Secured Party for the validity,priority or perfection of any Lien securing or purporting to secure theObligations or for the value or sufficiency of any of the Collateral.

 

(b)           The Agents may execute any of their duties under this Agreement or anyother Loan Document by or through their agents or attorneys-in-fact, and shallbe entitled to the advice of counsel concerning all matters pertaining to itsrights and duties hereunder or under the other Loan Documents. The Agents shallnot be responsible for the negligence or misconduct of any agent orattorneys-in-fact selected by them with reasonable care.

 

(c)           None of the Agents nor any of their respective directors, officers,employees, or agents shall have any responsibility to any Loan Party on accountof the failure or delay in performance or breach by any other Secured Party(other than by each such Agent in its capacity as a Lender) of any of itsrespective obligations under this Agreement or any of the other Loan Documentsor in connection herewith or therewith.

 

(d)           The Agents shall be entitled to rely, and shall be fully protected inrelying, upon any notice, consent, certificate, affidavit, or other document orwriting believed by them to be genuine and correct and to have been signed,sent or made by the proper person or persons, and upon the advice andstatements of legal counsel (including, without, limitation, counsel to theLoan Parties), independent accountants and other experts selected by any LoanParty or any Secured Party. The Agents shall be fully justified in failing orrefusing to take any action under this Agreement or any other Loan Documentunless they shall first receive such advice or concurrence of the ApplicableLenders as they deem appropriate or they shall first be indemnified to theirsatisfaction by the other Secured Parties against any and all liability andexpense which may be incurred by them by reason of the taking or failing totake any such action.

 

SECTION8.07       Notice of Default.

 

No Agent shall be deemed tohave knowledge or notice of the occurrence of any Default or Event of Defaultunless such Agent has actual knowledge of the same or has received notice

 

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froma Secured Party or Loan Party referring to this Agreement, describing suchDefault or Event of Default and stating that such notice is a “notice ofdefault”. In the event that an Agent obtains such actual knowledge or receivessuch a notice, such Agent shall give prompt notice thereof to each of the otherSecured Parties. Upon the occurrence of an Event of Default, the Agents shall(subject to the provisions of SECTION 9.01) take such action with respect tosuch Default or Event of Default as shall be reasonably directed by theRequired Lenders. Unless and until the Agents shall have received suchdirection, the Agents may (but shall not be obligated to) take such action, orrefrain from taking such action, with respect to any such Default or Event ofDefault as they shall deem advisable in the best interest of the SecuredParties. In no event shall the Agents be required to comply with any suchdirections to the extent that the Agents believe that their compliance withsuch directions would be unlawful.

 

SECTION8.08       Credit Decisions.

 

EachSecured Party (other than the Agents) acknowledges that it has, independentlyand without reliance upon the Agents or any other Secured Party, and based onthe financial statements prepared by the Loan Parties and such other documentsand information as it has deemed appropriate, made its own credit analysis andinvestigation into the business, assets, operations, property, and financialand other condition of the Loan Parties and has made its own decision to enterinto this Agreement and the other Loan Documents. Each Credit Party (other thanthe Agents) also acknowledges that it will, independently and without relianceupon the Agents or any other Secured Party, and based on such documents andinformation as it shall deem appropriate at the time, continue to make its owncredit decisions in determining whether or not conditions precedent to closingany Revolving Credit Loan hereunder have been satisfied and in taking or nottaking any action under this Agreement and the other Loan Documents.

 

SECTION8.09       Reimbursement and Indemnification.

 

Each Secured Party (otherthan the Agents) agrees to (i) reimburse the Agents for such Secured Party’spro rata share of all Obligations held by such Secured Party of (x) anyexpenses and fees incurred by any Agent for the benefit of Secured Partiesunder this Agreement and any of the other Loan Documents, including, withoutlimitation, counsel fees and compensation of agents and employees paid forservices rendered on behalf of the Secured Parties, and any other expense incurredin connection with the operation or enforcement thereof not reimbursed by theLoan Parties, and (y) any expenses of any Agent incurred for the benefit of theSecured Parties that the Loan Parties have agreed to reimburse pursuant to thisAgreement or any other Loan Document and have failed to so reimburse, and (ii)indemnify and hold harmless each Agent and any of their respective directors,officers, employees, or agents, on demand, in the amount of such Secured Party’spro rata share of all Obligations held by such Secured Party, from and againstany and all liabilities, obligations, losses, damages, penalties, actions,judgments, suits, costs, expenses, or disbursements of any kind or naturewhatsoever which may be imposed on, incurred by, or asserted against it or anySecured Party in any way relating to or arising out of this Agreement or any ofthe other Loan Documents or any action taken or omitted by it or any of themunder this Agreement or any of the other Loan Documents to the extent notreimbursed by the Loan Parties, including, without limitation, costs of anysuit initiated either by any Agent against any Secured Party or against anyAgent or Secured Party (except such as shall have been determined by a court ofcompetent jurisdiction or another independent tribunal having

 

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jurisdiction by final and non-appealablejudgment to have resulted from the gross negligence or willful misconduct ofsuch Agent); provided, however, that the unreimbursed expense orindemnified loss, claim, damage, liability or related expense, as the case maybe, was incurred by or asserted against such Secured Party in its capacity assuch. The provisions of this SECTION 8.09 shall survive the repayment of theObligations and the termination of the Commitments.

 

SECTION8.10       Rights of Agents.

 

Itis understood and agreed that the Agents shall have the same rights and powershereunder (including the right to give such instructions) as the other Lendersand may exercise such rights and powers, as well as their rights and powersunder other agreements and instruments to which they are or may be party, andengage in other transactions with the Loan Parties, as though they were not theAgents. Each Agent and their respective Affiliates may accept deposits from,lend money to, and generally engage in any kind of commercial or investmentbanking, trust, advisory or other business with the Loan Parties and theirAffiliates as if it were not an Agent thereunder.

 

SECTION8.11       Notice of Transfer.

 

The Administrative Agent maydeem and treat a Lender party to this Agreement as the owner of such Lender’sportion of the Obligations for all purposes, unless and until, and except tothe extent, an Assignment and Acceptance shall have become effective as setforth in SECTION 9.07.

 

SECTION8.12       Successor Agents.

 

Any Agent may resign at anytime by giving thirty (30) Business Days’ written notice thereof to the otherSecured Parties and the Lead Borrower. Upon any such resignation of an Agent,the Required Lenders shall have the right to appoint a successor Agent, which,so long as there is no Specified Default, shall be reasonably satisfactory tothe Lead Borrower (whose consent in any event shall not be unreasonablywithheld or delayed). If no successor Agent shall have been so appointed by theRequired Lenders and/or none shall have accepted such appointment within thirty(30) days after the retiring Agent’s giving of notice of resignation, theretiring Agent may, on behalf of the other Secured Parties, appoint a successorAgent which shall be a commercial bank (or affiliate thereof) organized underthe laws of the United States of America or of any State thereof and having acombined capital and surplus of a least $1,000,000,000, or capable of complyingwith all of the duties of such Agent hereunder (in the opinion of the retiringAgent and as certified to the other Secured Parties in writing by suchsuccessor Agent) which, so long as there is no Specified Default, shall bereasonably satisfactory to the Lead Borrower (whose consent shall not in anyevent be unreasonably withheld or delayed). Upon the acceptance of anyappointment as Agent by a successor Agent, such successor Agent shall thereuponsucceed to and become vested with all the rights, powers, privileges and dutiesof the retiring Agent and the retiring Agent shall be discharged from itsduties and obligations under this Agreement. After any retiring Agent’sresignation hereunder as such Agent, the provisions of this Article VIII shallinure to its benefit as to any actions taken or omitted to be taken by it whileit was such Agent under this Agreement.

 

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SECTION8.13       Relation Among the Lenders.

 

TheLenders are not partners or co-venturers, and no Lender shall be liable for theacts or omissions of, or (except as otherwise set forth herein in case of anyAgent) authorized to act for, any other Lender.

 

SECTION8.14       Reports and Financial Statements.

 

Bysigning this Agreement, each Lender (and with respect to clause (a), eachSecured Party):

 

(a)           agrees to furnish the Administrative Agent on the first day of eachmonth with a summary of all Other Liabilities due or to become due to suchLender;

 

(b)           is deemed to have requested that the Agents furnish such Lender,promptly after they become available, copies of all financial statementsrequired to be delivered by the Lead Borrower under SECTION 5.01(a) through andincluding SECTION 5.01(g), and all commercial finance examinations and appraisalsof the Collateral received by the Agents (collectively, the “Reports”)(and the Agents agree to furnish such Reports promptly to the Lenders, whichReports may be furnished in accordance with the final paragraph of SECTION5.01);

 

(c)           expressly agrees and acknowledges that no Agent makes anyrepresentation or warranty as to the accuracy of the Reports, and shall not beliable for any information contained in any Report;

 

(d)           expressly agrees and acknowledgesthat the Reports are not comprehensive audits or examinations, that the Agentsor any other party performing any audit or examination will inspect onlyspecific information regarding the Loan Parties and will rely significantlyupon the Loan Parties’ books and records, as well as on representations of theLoan Parties’ personnel;

 

(e)           agrees to keep all Reportsconfidential and strictly for its internal use, and not to distribute except toits participants, or use any Report in any other manner; and

 

(f)            without limiting the generality ofany other indemnification provision contained in this Agreement, agrees: (i) tohold each Agent and any such other Lender preparing a Report harmless from anyaction the indemnifying Lender may take or conclusion the indemnifying Lendermay reach or draw from any Report in connection with any Credit Extensions thatthe indemnifying Lender has made or may make to the Borrowers, or theindemnifying Lender’s participation in Swingline Loans and Letters of Credit,or the indemnifying Lender’s purchase of, Revolving Credit Loans of theBorrowers; and (ii) to pay and protect, and indemnify, defend, and hold eachAgent and any such other Lender preparing a Report harmless from and against,the claims, actions, proceedings, damages, costs, expenses, and other amounts(including attorney costs) incurred by the Agents and any such other Lenderpreparing a Report as the direct or indirect result of any third parties whomight obtain all or part of any Report through the indemnifying Lender inviolation of the terms hereof.

 

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SECTION8.15       Agency for Perfection.

 

EachLender hereby appoints each other Lender as agent for the purpose of perfectingLiens for the benefit of the Agents and the Secured Parties, in assets which,in accordance with Article 9 of the UCC or any other Applicable Law of theUnited States of America or Canada under the PPSA or otherwise can be perfectedonly by possession. Should any Secured Party (other than an Agent) obtainpossession of any such Collateral, such Secured Party shall notify theCollateral Agent thereof, and, promptly upon the Collateral Agent’s requesttherefor shall deliver such Collateral to the Collateral Agent, or otherwisedeal with such Collateral in accordance with the Collateral Agent’sinstructions.

 

SECTION8.16       Delinquent Lender.

 

(a)           If for any reason any Lender shall fail or refuse to abide by itsobligations under this Agreement, including without limitation its obligationto make available to Administrative Agent its Commitment Percentage of anyRevolving Credit Loans, expenses or setoff or purchase its CommitmentPercentage of a participation interest in the Swingline Loans or Letter ofCredit Outstandings (a “Delinquent Lender”) and such failure is notcured within ten (10) days of receipt from the Administrative Agent of writtennotice thereof, then, in addition to the rights and remedies that may beavailable to the other Secured Parties, the Loan Parties or any other party atlaw or in equity, and not at limitation thereof, (i) such Delinquent Lender’sright to participate in the administration of, or decision-making rightsrelated to, the Obligations, this Agreement or the other Loan Documents shallbe suspended during the pendency of such failure or refusal, and (ii) aDelinquent Lender shall be deemed to have assigned any and all payments due toit from the Loan Parties, whether on account of outstanding Revolving CreditLoans, interest, fees or otherwise, to the remaining non-delinquent Lenders forapplication to, and reduction of, their proportionate shares of all outstandingObligations until, as a result of application of such assigned payments theLenders’ respective Commitment Percentages of all outstanding Obligations(other than Other Liabilities) shall have returned to those in effectimmediately prior to such delinquency and without giving effect to thenonpayment causing such delinquency. The Delinquent Lender’s decision-makingand participation rights and rights to payments as set forth in clauses (i) and(ii) hereinabove shall be restored only upon the payment by the DelinquentLender of its Commitment Percentage of any Obligations (other than OtherLiabilities), any participation obligation, or expenses as to which it isdelinquent, together with interest thereon at the Default Rate from the datewhen originally due until the date upon which any such amounts are actuallypaid.

 

(b)           The non-Delinquent Lenders shall also have the right, but not theobligation, in their respective, sole and absolute discretion, to cause thetermination and assignment without any further action by the Delinquent Lenderfor no cash consideration (prorata, based on the respectiveCommitments of those Lenders electing to exercise such right), the DelinquentLender’s Commitment to fund future Credit Extensions. Upon any such purchase ofthe Commitment Percentage of any Delinquent Lender, the Delinquent Lender’sshare in future Credit Extensions and its rights under the Loan Documents withrespect thereto shall terminate on the date of purchase, and the DelinquentLender shall promptly execute all documents reasonably requested to surrenderand transfer such interest, including, if so requested, an Assignment andAcceptance. The Borrowers may, on ten (10) days’ prior written notice to the

 

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AdministrativeAgent and such Delinquent Lender, replace such Delinquent Lender (in itscapacity as a Lender) by causing such Delinquent Lender to (and such DelinquentLender shall be obligated to) assign (with the assignment fee to be paid by theBorrowers in such instance) all of its rights and obligations under thisAgreement to one or more Eligible Assignees.

 

(c)           Each Delinquent Lender shall indemnify the Administrative Agent andeach non-delinquent Lender from and against any and all loss, damage orexpenses, including but not limited to reasonable attorneys’ fees and fundsadvanced by the Administrative Agent or by any non-delinquent Lender, onaccount of a Delinquent Lender’s failure to timely fund its CommitmentPercentage of a Revolving Credit Loan, or its participation in Swinglines Loanand Letters of Credit or to otherwise perform its obligations under the LoanDocuments.

 

SECTION8.17       Collateral Matters. 

 

(a)           The Lenders hereby irrevocably authorize the Collateral Agent torelease any Lien upon any Collateral (i) upon the termination of theCommitments and payment and satisfaction in full of all Obligations (other thancontingent indemnity obligations with respect to then unasserted claims), allLetters of Credit shall have expired or terminated (or been collateralized orbackstopped in a manner satisfactory to the applicable Issuing Bank) and allLetter of Credit Outstandings have been reduced to zero (or collateralized orbackstopped in a manner satisfactory to the applicable Issuing Bank), or (ii)constituting property being sold, transferred or disposed of in a PermittedDisposition upon receipt by the Administrative Agent of the Net Proceedsthereof to the extent required by this Agreement. Except as provided above, theCollateral Agent will not release any of the Collateral Agent’s Liens withoutthe prior written authorization of the Applicable Lenders. Upon request by anyAgent or any Loan Party at any time, the Lenders will confirm in writing theCollateral Agent’s authority to release any Liens upon particular types oritems of Collateral pursuant to this SECTION 8.17.

 

(b)           Upon at least two (2)**Business Days’prior written request by the Lead Borrower, the Collateral Agent shall (and ishereby irrevocably authorized by the Lenders to) execute such documents as maybe necessary to evidence the release of the Liens upon any Collateral describedin SECTION 8.17(a); provided, however, that (i) the CollateralAgent shall not be required to execute any such document on terms which, in itsreasonable opinion, would, under Applicable Law, expose the Collateral Agent toliability or create any obligation or entail any adverse consequence other thanthe release of such Liens without recourse or warranty, and (ii) such releaseshall not in any manner discharge, affect or impair the Obligations or anyLiens (other than those expressly being released) upon (or obligations of anyLoan Party in respect of) all interests retained by any Loan Party, including(without limitation) the proceeds of any sale, all of which shall continue toconstitute part of the Collateral.

 

SECTION8.18       Syndication Agent, Co-Documentation Agents,and Arrangers.

 

Notwithstandingthe provisions of this Agreement or any of the other Loan Documents, theSyndication Agent, the Co-Documentation Agents and the Arrangers shall have nopowers, rights, duties, responsibilities or liabilities with respect to thisAgreement and the other Loan Documents.

 

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ARTICLE IXMiscellaneous

 

SECTION9.01       Amendments, Etc.

 

Exceptas otherwise set forth in this Agreement, no amendment or waiver of anyprovision of this Agreement or any other Loan Document, and no consent to anydeparture by the Lead Borrower or any other Loan Party therefrom, shall beeffective unless in writing signed by the Required Lenders and the LeadBorrower or the applicable Loan Party, as the case may be, and each such waiveror consent shall be effective only in the specific instance and for thespecific purpose for which given; *provided* that,no such amendment, waiver or consent shall:

 

(a)           extend or increase the Commitment of any Lender without the writtenconsent of such Lender (it being understood that a waiver of any conditionprecedent set forth in SECTION 4.02 or the waiver of any Default, mandatoryprepayment or mandatory reduction of the Commitments shall not constitute anextension or increase of any Commitment of any Lender);

 

(b)           postpone any date scheduled for, orreduce the amount of, any payment of principal, interest, fees or other amountspayable under the Loan Documents or reduce the amount of, waive or excuse anysuch payment or postpone the expiration of the Commitments or the MaturityDate, without the prior written consent of all Lenders directly affectedthereby *provided* that, only the consent of theRequired Lenders shall be necessary to amend the definition of “Default Rate”or to waive any obligation of the Borrowers to pay interest at the DefaultRate;

 

(c)           reduce the principal of, or the rateof interest specified herein on, any Loan, or any fees or other amounts payablehereunder or under any other Loan Document without the prior written consent ofall Lenders directly affected thereby; *provided* that,only the consent of the Required Lenders shall be necessary to amend thedefinition of “Default Rate” or to waive any obligation of the Borrowers to payinterest at the Default Rate;

 

(d)           change any provision of this SECTION9.01, the definition of “Required Lenders” or any other provision of any Loan Documentspecifying the number or percentage of Lenders required to waive, amend ormodify any rights thereunder or make any determination or grant any consentthereunder, without the prior written consent of all Lenders affected thereby;

 

(e)           other than in a transaction permittedunder SECTION 6.05, release all or substantially all of the Collateral in anytransaction or series of related transactions, without the prior writtenUnanimous Consent of all Lenders; or

 

(f)            other than in connection with atransaction permitted under SECTION 6.04 or SECTION 6.05, release any LoanParty from its obligations under any Loan Document or limit its liability inrespect of such Loan Document, without the prior written Unanimous Consent ofall Lenders; or

 

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(g)           except as provided in SECTION 2.02,increase the Total Commitments without the prior written Unanimous Consent ofall Lenders; or

 

(h)           without the prior written UnanimousConsent of all Lenders, change the definition of the terms “Availability” or “TrancheA Borrowing Base” or “Tranche A-1 Borrowing Base” or any component definitionof any such terms if as a result thereof the amounts available to be borrowedby the Borrowers would be increased, provided that the foregoing shallnot limit the discretion of the Administrative Agent to change, establish oreliminate any Reserves or to add Inventory and Accounts acquired in a PermittedAcquisition to the Borrowing Base as provided herein; or

 

(i)            without the prior written UnanimousConsent of all Lenders, modify the definition of Permitted Overadvance so as toincrease the amount thereof, or to cause the aggregate Commitments (or theCommitment of any Lender) to be exceeded as a result thereof, or, except asprovided in such definition, the time period for a Permitted Overadvance;

 

(j)            without the prior written UnanimousConsent of all Lenders, change SECTION 2.17, SECTION 2.18, SECTION 7.04, orSECTION 8.04;

 

(k)           without the prior written UnanimousConsent of all Lenders, (i) subordinate the Obligations hereunder to any otherIndebtedness, or (ii) except as provided by operation of Applicable Law or inthe Intercreditor Agreement, subordinate the Liens granted hereunder or underthe other Loan Documents to any other Lien; or

 

(l)            without the prior written UnanimousConsent of all Lenders, modify the definition of Excess Swingline Loans.

 

and*provided further* that (i) no amendment,waiver or consent shall, unless in writing and signed by each Issuing Bank inaddition to the Lenders required above, affect the rights or duties of anIssuing Bank under this Agreement or any Letter of Credit application relatingto any Letter of Credit issued or to be issued by it; (ii) no amendment, waiveror consent shall, unless in writing and signed by the Swingline Lender inaddition to the Lenders required above, affect the rights or duties of theSwingline Lender under this Agreement; and (iii) no amendment, waiver orconsent shall, unless in writing and signed by the Administrative Agent and theCollateral Agent in addition to the Lenders required above, affect the rightsor duties of, or any fees or other amounts payable to, the Administrative Agentor the Collateral Agent under this Agreement or any other Loan Document. Notwithstandinganything to the contrary herein, no Delinquent Lender shall have any right toapprove or disapprove any amendment, waiver or consent hereunder, except thatthe Commitment of such Lender may not be increased or extended without theconsent of such Lender (it being understood that any Commitments or Loans heldor deemed held by any Delinquent Lender shall be excluded for a vote of theLenders hereunder requiring any consent of the Lenders).

 

Notwithstanding anything tothe contrary contained in this SECTION 9.01, in the event that the LeadBorrower shall request that this Agreement or any other Loan Document bemodified, amended or waived in a manner which would require the UnanimousConsent of the Lenders or of all Lenders affected thereby and such amendment isapproved by the Required

 

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Lenders, but not by all the Lenders, the LeadBorrower and the Administrative Agent shall be permitted to amend thisAgreement without the consent of the Lender or Lenders which did not agree tothe modification or amendment requested by the Lead Borrower (such Lender orLenders, collectively the “Minority Lenders”) subject to their providingfor (i) the termination of the Commitment of each of the Minority Lenders, (ii)the addition to this Agreement of one or more other financial institutionswhich would qualify as an Eligible Assignee, subject to the reasonable approvalof the Administrative Agent, or an increase in the Commitment of one or more ofthe Required Lenders, so that the Total Commitments after giving effect to suchamendment shall be in the same amount as the aggregate Commitments immediatelybefore giving effect to such amendment, (iii) if any Revolving Credit Loans areoutstanding at the time of such amendment, the making of such additionalRevolving Credit Loans by such new or increasing Lender or Lenders, as the casemay be, as may be necessary to repay in full the outstanding Revolving CreditLoans (including principal, interest, fees and other amounts due and owingunder the Loan Documents) of the Minority Lenders immediately before givingeffect to such amendment and (iv) such other modifications to this Agreement orthe Loan Documents as may be appropriate and incidental to the foregoing.

 

SECTION9.02       Notices and Other Communications; FacsimileCopies.

 

(a)*          **General*. Unless otherwise expressly provided herein,all notices and other communications provided for hereunder or under any otherLoan Document shall be in writing (including by facsimile transmission). Allsuch written notices shall be mailed, faxed or delivered to the applicableaddress, facsimile number or electronic mail address, and all notices and othercommunications expressly permitted hereunder to be given by telephone shall bemade to the applicable telephone number, as follows:

 

(i)                    if to any Loan Party, to it at 8000 Bent Branch Drive, Irving, Texas75063, Attention: Lisa Klinger, Vice President and Treasurer (Telecopy No.(972) 409-1556) (E-Mail: klingerl@michaels.com), with a copy to the attentionof General Counsel (Telecopy No. (972) 409-1965, and with copies to BainCapital Partners, LLC, 111 Huntington Avenue, Boston, Massachusetts 02199,Attention: Josh Bekenstein, Matthew Levin and Todd Cook (Telecopy No. (617)516-2010), (E-Mail: jbekenstein@baincapital.com, mlevin@baincapital.com, andtcook@baincapital.com), and Blackstone Management Associates V LLC, 345 ParkAvenue, New York, New York 10154, Attention: Michael Chae and Matthew Kabaker(Telecopy No.(212) 583-5717), (E-Mail: chae@blackstone.com andkabaker@blackstone.com),with a copy to Ropes & Gray LLP, One InternationalPlace, Boston, Massachusetts 02110, Attention: Byung W. Choi, Esquire (TelecopyNo. (617) 951-7050), (E-Mail: byung.choi@ropesgray.com); and

 

(ii)                   if to the Administrative Agent, the Collateral Agent or the SwinglineLender to Bank of America, N.A., 40 Broad Street, Boston, Massachusetts 02109,Attention Keith Vercauteren (Telecopy No. (617) 434-4339), (E-Mail:Keith.Vercauteren@bankofamerica.com), David C. Storer (Telecopy No. (617)434-4339), (E-Mail: David.Storer@bankofamerica.com), and Sally Sheehan(Telecopy No. (617) 434-4339), (E-Mail: Sally.Sheehan@bankofamerica.com), witha copy to Riemer

 

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&Braunstein, LLP, Three Center Plaza, Boston, Massachusetts 02108, Attention:David S. Berman, Esquire (Telecopy No. (617) 880-3456), (E-Mail:dberman@riemerlaw.com);

 

(iii)                  ifto any other Credit Party, to it at its address (or telecopy number orelectronic mail address) set forth on the signature pages hereto or on anyAssignment and Acceptance.

 

Allsuch notices and other communications shall be deemed to be given or made uponthe earlier to occur of (i) actual receipt by the relevant party hereto and(ii) (A) if delivered by hand or by courier, when signed for by or on behalf ofthe relevant party hereto; (B) if delivered by mail, four (4) Business Daysafter deposit in the mails, postage prepaid; (C) if delivered by facsimile,when sent and receipt has been confirmed by telephone; and (D) if delivered byelectronic mail (which form of delivery is subject to the provisions of SECTION5.02), when delivered; *provided* thatnotices and other communications to the Administrative Agent, the Issuing Banksand the Swingline Lender pursuant to Article 2 shall not be effective untilactually received by such Person. In no event shall a voice mail message beeffective as a notice, communication or confirmation hereunder.

 

Notwithstandingthe foregoing, any notice hereunder sent by e-mail shall be solely for thedistribution of (i) routine communications such as financial statements and(ii) documents and signature pages for execution by the parties hereto, and forno other purpose. Any party hereto may change its address or telecopy numberfor notices and other communications hereunder by notice to the other partieshereto.

 

(b)*        **Effectiveness of Facsimile Documents and Signatures*. Loan Documents may be transmitted and/orsigned by facsimile or by electronic pdf copy. The effectiveness of any suchdocuments and signatures shall, subject to Applicable Law, have the same forceand effect as manually signed originals and shall be binding on all LoanParties, the Administrative Agent, the Collateral Agent, the Issuing Banks, andthe Lenders.

 

(c)*         **Reliance by Agents and Lenders.*The Administrative Agent, the Collateral Agent, the Issuing Banks andthe Lenders shall be entitled to rely and act upon any notices (includingtelephonic Borrowing Requests) purportedly given by or on behalf of any Borrowereven if (i) such notices were not made in a manner specified herein, wereincomplete or were not preceded or followed by any other form of noticespecified herein, or (ii) the terms thereof, as understood by therecipient, varied from any confirmation thereof. The Borrowers shall indemnifythe Credit Parties and each Related Person from all losses, costs, expenses andliabilities resulting from the reliance by such Person on each noticepurportedly given by or on behalf of the Borrowers in the absence of grossnegligence or willful misconduct. All telephonic notices to the AdministrativeAgent may be recorded by the Administrative Agent, and each of the partieshereto hereby consents to such recording.

 

SECTION9.03       No Waiver; Cumulative Remedies.

 

No failure or delay by anyCredit Party in exercising any right or power hereunder or under any other LoanDocument shall operate as a waiver thereof, nor shall any single or partialexercise of any such right or power, or any abandonment or discontinuance ofsteps to enforce

 

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such a right or power, preclude any other orfurther exercise thereof or the exercise of any other right or power. Therights and remedies of the Credit Parties hereunder and under the other LoanDocuments are cumulative and are not exclusive of any other rights or remediesthat they would otherwise have. No waiver of any provision of any Loan Documentor consent to any departure by any Loan Party therefrom shall in any event beeffective unless the same shall be permitted by SECTION 9.01, and then suchwaiver or consent shall be effective only in the specific instance and for thepurpose for which given. Without limiting the generality of the foregoing, themaking of a Revolving Credit Loan or issuance of a Letter of Credit shall notbe construed as a waiver of any Default or Event of Default, regardless ofwhether any Credit Party may have had notice or knowledge of such Default orEvent of Default at the time.

 

SECTION9.04       Attorney Costs and Expenses.

 

The Lead Borrower agrees (a)if the Closing Date occurs, to pay or reimburse the Agents, the SyndicationAgent, the Co-Documentation Agents and the Arrangers for all Credit PartyExpenses incurred in connection with (i) the preparation, negotiation,syndication and execution of this Agreement and the other Loan Documents, and(ii) any amendment, waiver, consent or other modification of the provisionshereof and thereof (whether or not the transactions contemplated thereby areconsummated), and (iii) the consummation and administration of the transactionscontemplated hereby and thereby, including, in each case, all reasonable feesand expenses of Riemer & Braunstein LLP and Ogilvy Renault, LLP, and (b) topay or reimburse the Agents, the Syndication Agent, the Co-DocumentationAgents, the Arrangers and each Lender for all Credit Party Expenses incurred inconnection with the enforcement of any rights or remedies under this Agreementor the other Loan Documents (including, without limitation, all such costs andexpenses incurred during any legal proceeding, including any proceeding underthe Bankruptcy Code, and including all fees and expenses of counsel to theAgents and, to the extent constituting Credit Party Expenses, the other Credit Parties).The agreements in this SECTION 9.04 shall survive the termination of theCommitments and repayment of all other Obligations. All amounts due under thisSECTION 9.04 for Credit Party Expenses incurred after the Closing Date shall bepaid within ten (10) Business Days of receipt by the Lead Borrower of aninvoice relating thereto setting forth such Credit Party Expenses in reasonabledetail. If any Loan Party fails to pay when due any Credit Party Expensespayable by it hereunder or under any Loan Document, such amount may be paid onbehalf of such Loan Party by the Administrative Agent in its sole discretion,without notice to or consent from the Loan Parties, and any amounts so paidshall constitute Revolving Credit Loans hereunder.

 

SECTION9.05       Indemnification by the Lead Borrower.

 

Whether or not thetransactions contemplated hereby are consummated, the Lead Borrower shallindemnify and hold harmless each Credit Party, their respective Related Personsand their respective Affiliates, directors, officers, employees, counsel,agents, trustees, investment advisors and attorneys-in-fact (collectively the “Indemnitees”)from and against any and all liabilities, obligations, losses, damages,penalties, claims, demands, actions, judgments, suits, costs, expenses anddisbursements (including fees and expenses of counsel) of any kind or naturewhatsoever which may at any time be imposed on, incurred by or asserted againstany such Indemnitee in any way relating to or arising out of or in connectionwith (a) the execution, delivery, enforcement, performance or administration ofany Loan Document or any other

 

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agreement, letter or instrument delivered inconnection with the transactions contemplated thereby or the consummation ofthe transactions contemplated thereby, (b) any Commitment, Revolving CreditLoan (including Swingline Loans) or Letter of Credit or the use or proposed useof the proceeds therefrom (including any refusal by an Issuing Bank to honor a demandfor payment under a Letter of Credit if the documents presented in connectionwith such demand do not strictly comply with the terms of such Letter ofCredit), or (c) any actual or alleged presence or release of HazardousMaterials on or from any property currently or formerly owned or operated bythe Lead Borrower, any Subsidiary or any other Loan Party, or any EnvironmentalLiability related in any way to the Lead Borrower, any Subsidiary or any otherLoan Party, or (d) any actual or prospective claim, litigation, investigationor proceeding relating to any of the foregoing, whether based on contract, tortor any other theory (including any investigation of, preparation for, ordefense of any pending or threatened claim, investigation, litigation orproceeding) and regardless of whether any Indemnitee is a party thereto and, ineach case, whether or not caused by or arising, in whole or in part, out of thenegligence of the Indemnitee; provided that such indemnity shall not, as to anyIndemnitee, be available to the extent that such liabilities, obligations,losses, damages, penalties, claims, demands, actions, judgments, suits, costs,expenses or disbursements (i) resulted from the gross negligence, bad faith, orwillful misconduct of such Indemnitee or of any affiliate, director, officer,employee, counsel, agent or attorney-in-fact of such Indemnitee, or (ii) arerelating to disputes amongst Indemnitees. No Indemnitee shall be liable for anydamages arising from the use by others of any information or other materialsobtained through IntraLinks or other similar information transmission systemsin connection with this Agreement, nor shall any Indemnitee or any Loan Partyhave any liability and each party hereby waives, any claim against any other partyto this Agreement or any Indemnitee, for any special, punitive, indirect orconsequential damages relating to this Agreement or any other Loan Document orarising out of its activities in connection herewith or therewith (whetherbefore or after the Closing Date). In the case of an investigation, litigationor other proceeding to which the indemnity in this SECTION 9.05 applies, suchindemnity shall be effective whether or not such investigation, litigation orproceeding is brought by any Loan Party, its directors, stockholders orcreditors or an Indemnitee or any other Person, whether or not any Indemniteeis otherwise a party thereto and whether or not any of the transactionscontemplated hereunder or under any of the other Loan Documents is consummated.All amounts due under this SECTION 9.05 shall be paid within ten (10) BusinessDays after demand therefor; provided, however, that such Indemnitee shallpromptly refund such amount to the extent that there is a final judicial orarbitral determination that such Indemnitee was not entitled to indemnificationor contribution rights with respect to such payment pursuant to the expressterms of this SECTION 9.05. The agreements in this SECTION 9.05 shall survivethe resignation of the Administrative Agent or the Collateral Agent, thereplacement of any Lender, the termination of the Commitments and therepayment, satisfaction or discharge of all the other Obligations.

 

SECTION9.06       Payments Set Aside.

 

Tothe extent that any payment by or on behalf of the Lead Borrower is made to anyCredit Party, or any Credit Party exercises its right of setoff, and suchpayment or the proceeds of such setoff or any part thereof is subsequentlyinvalidated, declared to be fraudulent or preferential, set aside or required(including pursuant to any settlement entered into by such Credit Party in itsdiscretion) to be repaid to a trustee, receiver or any other party, inconnection

 

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with any proceeding under the Bankruptcy Codeor any other debtor relief law or otherwise, then (a) to the extent of suchrecovery, the obligation or part thereof originally intended to be satisfiedshall be revived and continued in full force and effect as if such payment hadnot been made or such setoff had not occurred, and (b) each Lender severallyagrees to pay to the Administrative Agent upon demand its applicable share ofany amount so recovered from or repaid by the Administrative Agent or theCollateral Agent, plus interest thereon from the date of such demand to thedate such payment is made at a rate per annum equal to the Federal FundsEffective Rate from time to time in effect.

 

SECTION9.07       Successors and Assigns.

 

The provisions of thisAgreement shall be binding upon and inure to the benefit of the parties heretoand their respective successors and assigns permitted hereby, except that noLoan Party may assign or otherwise transfer any of its rights or obligationshereunder without the prior written consent of each Lender and no Lender mayassign or otherwise transfer any of its rights or obligations hereunder except(i) to an Eligible Assignee, (ii) by way of participation in accordance withthe provisions of SECTION 9.07(d) or SECTION 9.07(e), or (iii) by way of pledgeor assignment of a security interest subject to the restrictions of SECTION9.07(f) or SECTION 9.07(g) (and any other attempted assignment or transfer byany party hereto shall be null and void). Nothing in this Agreement, expressedor implied, shall be construed to confer upon any Person (other than theparties hereto, their respective successors and assigns permitted hereby,Participants to the extent provided in SECTION 9.07(e) and, to the extentexpressly contemplated hereby, the Indemnitees) any legal or equitable right,remedy or claim under or by reason of this Agreement.

 

(a)           (i)            Subject to the conditions set forth inparagraph (a)(ii) below, any Lender may assign to one or more EligibleAssignees all or a portion of its rights and obligations under this Agreement(including all or a portion of its Commitment and the Revolving Credit Loans(including for purposes of this SECTION 9.07(a), participations in Letters ofCredit and in Swingline Loans) at the time owing to it) with the prior writtenconsent (such consent not to be unreasonably withheld) of:

 

(A)          the Lead Borrower, *provided* that no consent of the Lead Borrower shall berequired for an assignment to a Lender, an Affiliate of a Lender, a RelatedFund or, if a Specified Default has occurred and is continuing, any EligibleAssignee;

 

(B)           the AdministrativeAgent, *provided* that no consent of theAdministrative Agent shall be required for an assignment to a Lender, anAffiliate of a Lender, or a Related Fund;

 

(C)           each Issuing Bank atthe time of such assignment; and

 

(D)          the Swingline Lender.

 

(ii)   Assignmentsshall be subject to the following additional conditions:

 

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(A)          except in the case of anassignment to a Lender or an Affiliate of a Lender or a Related Fund or anassignment of the entire remaining amount of the assigning Lender’s Commitment,the amount of the Commitment of the assigning Lender subject to each suchassignment (determined as of the date the Assignment and Assumption withrespect to such assignment is delivered to the Administrative Agent) shall notbe less than $5,000,000 unless each of the Lead Borrower and the AdministrativeAgent otherwise consents, *provided* that(1) no such consent of the Lead Borrower shall be required if a SpecifiedDefault has occurred and is continuing and (2) such amounts shall be aggregatedin respect of each Lender and its Affiliates or Related Funds, if any;

 

(B)           the parties to eachassignment shall execute and deliver to the Administrative Agent an Assignmentand Acceptance, together with a processing and recordation fee of $3,500(unless such fee is waived by the Administrative Agent); and

 

(C)           the Assignee, if itshall not be a Lender, shall deliver to the Administrative Agent anadministrative questionnaire satisfactory in form and content to theAdministrative Agent.

 

(b)           Subject to acceptance and recording thereof by the Administrative Agentpursuant to SECTION 9.07(c), from and after the effective date specified ineach Assignment and Acceptance, the Eligible Assignee thereunder shall be aparty to this Agreement and, to the extent of the interest assigned by suchAssignment and Acceptance, have the rights and obligations of a Lender underthis Agreement, and the assigning Lender thereunder shall, to the extent of theinterest assigned by such Assignment and Acceptance, be released from itsobligations under this Agreement (and, in the case of an Assignment andAcceptance covering all of the assigning Lender’s rights and obligations underthis Agreement, such Lender shall cease to be a party hereto but shall continueto be entitled to the benefits of SECTION 9.05 with respect to facts andcircumstances occurring prior to the effective date of such assignment). Uponrequest, and the surrender by the assigning Lender of its Note, the Borrowers(at their expense) shall execute and deliver a Note to the assignee Lender. Anyassignment or transfer by a Lender of rights or obligations under thisAgreement that does not comply with this clause (b) shall be treated for purposesof this Agreement as a sale by such Lender of a participation in such rightsand obligations in accordance with SECTION 9.07(d).

 

(c)           The Administrative Agent, acting solely for this purpose as an agent ofthe Borrowers, shall maintain at the Administrative Agent’s Office a copy ofeach Assignment and Acceptance delivered to it and a register for therecordation of the names and addresses of the Lenders, and the Commitments of,and principal amounts (and related interest amounts) of the Revolving Credit Loans(including Swingline Loans) and Obligations with respect to Letters of Creditowing to, each Lender pursuant to the terms hereof from time to time (the “Register”).The entries in the Register shall be conclusive, absent manifest error, and theBorrowers, the Credit Parties shall treat each Person whose name is recorded inthe Register pursuant to the terms hereof as a Lender hereunder for allpurposes of this Agreement, notwithstanding notice to

 

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the contrary. The Register shall be availablefor inspection by any Borrower and any Credit Party, at any reasonable time andfrom time to time upon reasonable prior notice.

 

(d)           Any Lender may at any time, without the consent of, or notice to, theBorrowers or the Administrative Agent, sell participations to any Person (otherthan a natural person) (each, a “Participant”) in all or a portion ofsuch Lender’s rights and/or obligations under this Agreement (including all ora portion of its Commitment and/or the Revolving Credit Loans (including suchLender’s participations in Letters of Credit and/or Swingline Loans) owing toit); *provided* that (i) such Lender’sobligations under this Agreement shall remain unchanged, (ii) such Lendershall remain solely responsible to the other parties hereto for the performanceof such obligations and (iii) the Borrowers and the other Credit Partiesshall continue to deal solely and directly with such Lender in connection withsuch Lender’s rights and obligations under this Agreement. Any agreement orinstrument pursuant to which a Lender sells such a participation shall providethat such Lender shall retain the sole right to enforce this Agreement and theother Loan Documents and to approve any amendment, modification or waiver ofany provision of this Agreement or the other Loan Documents; *provided* that such agreement or instrument may provide thatsuch Lender will not, without the consent of the Participant, agree to anyamendment, waiver or other modification described in SECTION 9.01(b), (c), (e)or (f) that directly affects such Participant. Subject to SECTION 9.07(e), theBorrowers agree that each Participant shall be entitled to the benefits ofSECTION 2.14 and SECTION 2.23 to the same extent as if it were a Lender and hadacquired its interest by assignment pursuant to SECTION 9.07(b). To the extentpermitted by Applicable Law, each Participant also shall be entitled to thebenefits of SECTION 9.09 as though it were a Lender; *provided*that such Participant agrees to be subject to SECTION 8.04 as though it were aLender.

 

(e)           A Participant shall not be entitled to receive any greater paymentunder SECTION 2.14 or SECTION 2.23 than the applicable Lender would have beenentitled to receive with respect to the participation sold to such Participant,unless the sale of the participation to such Participant is made with the LeadBorrower’s prior written consent.

 

(f)            Any Lender may at any time pledge orassign a security interest in all or any portion of its rights under this Agreement(including under its Note, if any) to secure obligations of such Lender,including any pledge or assignment to secure obligations to a Federal ReserveBank; *provided* that no such pledge orassignment shall release such Lender from any of its obligations hereunder orsubstitute any such pledgee or assignee for such Lender as a party hereto.

 

(g)           Notwithstanding anything to thecontrary contained herein, (1) any Lender may in accordance with Applicable Lawcreate a security interest in all or any portion of the Revolving Credit Loansowing to it and the Note, if any, held by it and (2) any Lender that is a fundthat invests in loans may create a security interest in all or any portion ofthe Revolving Credit Loans owing to it and the Note, if any, held by it to thetrustee for holders of obligations owed, or securities issued, by such fund assecurity for such obligations or securities; *provided*that unless and until such trustee actually becomes a Lender in compliance withthe other provisions of this SECTION 9.07, (i) no such pledge shallrelease the pledging Lender from any of its obligations under the LoanDocuments and (ii) such trustee shall not be entitled to exercise

 

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any of the rights of a Lender under the LoanDocuments even though such trustee may have acquired ownership rights withrespect to the pledged interest through foreclosure or otherwise.

 

(h)           Notwithstanding anything to thecontrary contained herein, any Issuing Bank or the Swingline Lender may, uponthirty (30) days’ notice to the Lead Borrower and the Lenders, resign as anIssuing Bank or the Swingline Lender, respectively; *provided*that on or prior to the expiration of such 30-day period with respect to suchresignation, the relevant Issuing Bank or the Swingline Lender shall haveidentified a successor Issuing Bank or Swingline Lender reasonably acceptableto the Lead Borrower willing to accept its appointment as successor IssuingBank or Swingline Lender, as applicable. In the event of any such resignationof an Issuing Bank or the Swingline Lender, the Lead Borrower shall be entitledto appoint from among the Lenders willing to accept such appointment asuccessor Issuing Bank or Swingline Lender hereunder; *provided*that no failure by the Lead Borrower to appoint any such successor shall affectthe resignation of the relevant Issuing Bank or the Swingline Lender, as thecase may be, except as expressly provided above. If an Issuing Bank resigns asan Issuing Bank, it shall retain all the rights and obligations of an IssuingBank hereunder with respect to all Letters of Credit outstanding as of theeffective date of its resignation as an Issuing Bank and all Obligations withrespect thereto (including the right to require the Lenders to make Prime RateLoans or fund risk participations in Letters of Credit). If the SwinglineLender resigns as Swingline Lender, it shall retain all the rights of theSwingline Lender provided for hereunder with respect to Swingline Loans made byit and outstanding as of the effective date of such resignation, including theright to require the Lenders to make Prime Rate Loans or fund riskparticipations in outstanding Swingline Loans.

 

SECTION9.08       Confidentiality.

 

Each of the Agents and theLenders agrees to maintain the confidentiality of the Information, except thatInformation may be disclosed (a) to its Affiliates and its Affiliates’directors, officers, employees, trustees, investment advisors and agents,including accountants, legal counsel and other advisors (it being understoodthat the Persons to whom such disclosure is made will be informed of theconfidential nature of such Information and shall agree to keep suchInformation confidential); (b) to the extent requested by any GovernmentalAuthority; (c) to the extent required by Applicable Law or regulations or byany subpoena or similar legal process; (d) to any other party to thisAgreement; (e) subject to an agreement containing provisions substantially thesame as those of this SECTION 9.08 (or as may otherwise be reasonablyacceptable to the Lead Borrower), to any pledgee referred to in SECTION9.07(f), counterparty to a Swap Contract, Eligible Assignee of or Participantin, or any prospective Eligible Assignee of or Participant in, any of itsrights or obligations under this Agreement; (f) with the written consentof the Lead Borrower; (g) to the extent such Information becomes publiclyavailable other than as a result of a breach of this SECTION 9.08; (h) toany Governmental Authority or examiner (including the National Association ofInsurance Commissioners or any other similar organization) regulating anyLender; (i) to any rating agency when required by it (it being understoodthat, prior to any such disclosure, such rating agency shall undertake topreserve the confidentiality of any Information relating to the Loan Partiesreceived by it from such Lender); (j) in connection with the exercise of anyremedies hereunder or any suit, action or proceeding relating to this Agreementor any other Loan Document or the enforcement of rights hereunder orthereunder; (k) to the extent such Information becomes

 

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available to any Credit Party on anonconfidential basis from a source other than the Loan Parties; and (l) to theextent that such Information is independently developed by such Credit Party. Inaddition, the Credit Parties may disclose the existence of this Agreement andinformation about this Agreement to market data collectors, similar serviceproviders to the lending industry, and service providers to the Credit Partiesin connection with the administration and management of this Agreement, theother Loan Documents, the Commitments, and the Credit Extensions. For thepurposes of this SECTION 9.08, “Information” means all informationreceived from any Loan Party relating to any Loan Party or its business, otherthan any such information that is publicly available to any Credit Party priorto disclosure by any Loan Party other than as a result of a breach of thisSECTION 9.08; provided that, in the case of information received from a LoanParty after the date hereof, such information is clearly identified at the timeof delivery as confidential or (ii) is delivered pursuant to SECTION 5.01, SECTION5.02 or  SECTION 5.03 hereof.

 

SECTION9.09       Setoff.

 

In addition to any rightsand remedies of the Lenders provided by Applicable Law, upon the occurrence andduring the continuance of any Event of Default, each Lender and its Affiliatesis authorized at any time and from time to time, without prior notice to theLead Borrower or any other Loan Party, any such notice being waived by the LeadBorrower (on its own behalf and on behalf of each Loan Party and itsSubsidiaries) to the fullest extent permitted by Applicable Law, to set off andapply any and all deposits (general or special, time or demand, provisional orfinal) at any time held by, and other Indebtedness at any time owing by, suchLender and its Affiliates to or for the credit or the account of the respectiveLoan Parties against any and all Obligations owing to such Lender and itsAffiliates hereunder or under any other Loan Document, now or hereafterexisting, irrespective of whether or not such Credit Party or Affiliate shallhave made demand under this Agreement or any other Loan Document and althoughsuch Obligations may be contingent or unmatured or denominated in a currencydifferent from that of the applicable deposit or Indebtedness. Each Lenderagrees promptly to notify the Lead Borrower and the Administrative Agent afterany such set off and application made by such Lender; *provided*,that the failure to give such notice shall not affect the validity of suchsetoff and application. The rights of the Administrative Agent and each Lenderunder this SECTION 9.09 are in addition to other rights and remedies (includingother rights of setoff) that the Agents and such Lender may have.

 

SECTION9.10       Interest Rate Limitation.

 

Notwithstandinganything to the contrary contained in any Loan Document, the interest paid oragreed to be paid under the Loan Documents shall not exceed the maximum rate ofnon-usurious interest permitted by Applicable Law (the “Maximum Rate”). Ifany Credit Party shall receive interest in an amount that exceeds the MaximumRate, the excess interest shall be applied to the principal of the RevolvingCredit Loans (including Swingline Loans) or, if it exceeds such unpaidprincipal, refunded to the Borrowers. In determining whether the interestcontracted for, charged, or received by a Credit Party exceeds the MaximumRate, such Person may, to the extent permitted by Applicable Law, (a)characterize any payment that is not principal as an expense, fee, or premiumrather than interest, (b) exclude voluntary prepayments and the effects

 

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thereof, and (c) amortize, prorate, allocate,and spread in equal or unequal parts the total amount of interest throughoutthe contemplated term of the Obligations hereunder.

 

SECTION9.11       Counterparts.

 

ThisAgreement and each other Loan Document may be executed in one or morecounterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument. Delivery by telecopieror by electronic pdf copy of an executed counterpart of a signature page tothis Agreement and each other Loan Document shall be effective as delivery ofan original executed counterpart of this Agreement and such other Loan Document.The Administrative Agent and the Collateral Agent may also require that anysuch documents and signatures delivered by telecopier be confirmed by amanually signed original thereof; provided that the failure to request ordeliver the same shall not limit the effectiveness of any document or signaturedelivered by telecopier.

 

SECTION9.12       Integration.

 

ThisAgreement, together with the other Loan Documents, comprises the complete andintegrated agreement of the parties on the subject matter hereof and thereofand supersedes all prior agreements, written or oral, on such subject matter. Inthe event of any conflict between the provisions of this Agreement and those ofany other Loan Document, the provisions of this Agreement shall control;provided that the inclusion of supplemental rights or remedies in favor of theCredit Parties in any other Loan Document shall not be deemed a conflict withthis Agreement. Each Loan Document was drafted with the joint participation ofthe respective parties thereto and shall be construed neither against nor in favorof any party, but rather in accordance with the fair meaning thereof.

 

SECTION9.13       Severability.

 

Ifany provision of this Agreement or the other Loan Documents is held to beillegal, invalid or unenforceable, the legality, validity and enforceability ofthe remaining provisions of this Agreement and the other Loan Documents shallnot be affected or impaired thereby. The invalidity of a provision in aparticular jurisdiction shall not invalidate or render unenforceable suchprovision in any other jurisdiction.

 

SECTION9.14       GOVERNING LAW.

 

(a)           THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED,HOWEVER, THAT IF THE LAWS OF ANY JURISDICTION OTHER THAN NEW YORK SHALL GOVERNIN REGARD TO THE VALIDITY, PERFECTION OR EFFECT OF PERFECTION OF ANY LIEN OR INREGARD TO PROCEDURAL MATTERS AFFECTING ENFORCEMENT OF ANY LIENS IN COLLATERAL,SUCH LAWS OF SUCH OTHER JURISDICTIONS SHALL CONTINUE TO APPLY TO THAT EXTENT.

 

(b)         ANY LEGAL ACTION OR PROCEEDING ARISING UNDER ANY LOAN DOCUMENT OR INANY WAY CONNECTED WITH OR RELATED OR

 

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INCIDENTAL TO THE DEALINGS OF THE PARTIESHERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONSRELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, MAY BEBROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OFTHE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION ANDDELIVERY OF THIS AGREEMENT, EACH LOAN PARTY AND EACH CREDIT PARTY CONSENTS, FORITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OFTHOSE COURTS. EACH BORROWER, EACH FACILITY GUARANTOR AND EACH CREDIT PARTYIRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OFVENUE OR BASED ON THE GROUNDS OF *FORUM NON CONVENIENS*,WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDINGIN SUCH JURISDICTION OR OTHER JURISDICTION CHOSEN BY THE AGENTS IN RESPECT OFANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO.

 

SECTION9.15       WAIVER OF RIGHT TO TRIAL BY JURY.

 

EACH PARTY TO THIS AGREEMENTHEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTIONOR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITHOR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEMWITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACHCASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACTOR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCHCLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIALWITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPARTOR A COPY OF THIS SECTION 9.15 WITH ANY COURT AS WRITTEN EVIDENCE OF THECONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BYJURY.

 

SECTION9.16       Binding Effect.

 

ThisAgreement shall become effective when it shall have been executed by theBorrowers and the Administrative Agent shall have been notified by each Lender,Swingline Lender and Issuing Bank that each such Lender, Swingline Lender andIssuing Bank has executed it and thereafter shall be binding upon and inure tothe benefit of each Borrower and each Credit Party and their respectivesuccessors and assigns, except that no Borrower shall have the right to assignits rights hereunder or any interest herein without the prior written consentof the Lenders except as otherwise permitted hereby .

 

SECTION9.17       Judgment Currency.

 

If,for the purposes of obtaining judgment in any court, it is necessary to converta sum due hereunder or any other Loan Document in one currency into anothercurrency, the rate of exchange used shall be that at which in accordance withnormal banking procedures the

 

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Administrative Agent could purchase the firstcurrency with such other currency on the Business Day preceding that on whichfinal judgment is given. The obligation of each Borrower in respect of any suchsum due from it to the Administrative Agent or the Lenders hereunder or underthe other Loan Documents shall, notwithstanding any judgment in a currency (the“Judgment Currency”) other than that in which such sum is denominated inaccordance with the applicable provisions of this Agreement (the “AgreementCurrency”), be discharged only to the extent that on the Business Dayfollowing receipt by the Administrative Agent of any sum adjudged to be so duein the Judgment Currency, the Administrative Agent may in accordance withnormal banking procedures purchase the Agreement Currency with the JudgmentCurrency. If the amount of the Agreement Currency so purchased is less than thesum originally due to the Administrative Agent from any Borrower in theAgreement Currency, such Borrower agrees, as a separate obligation andnotwithstanding any such judgment, to indemnify the Administrative Agent or thePerson to whom such obligation was owing against such loss. If the amount ofthe Agreement Currency so purchased is greater than the sum originally due tothe Administrative Agent in such currency, the Administrative Agent agrees toreturn the amount of any excess to such Borrower (or to any other Person whomay be entitled thereto under Applicable Law).

 

SECTION9.18       Lender Action.

 

Each Lender agrees that itshall not take or institute any actions or proceedings, judicial or otherwise,for any right or remedy against any Loan Party or any other obligor under anyof the Loan Documents (including the exercise of any right of setoff, rights onaccount of any banker’s lien or similar claim or other rights of self-help), orinstitute any actions or proceedings, or otherwise commence any remedialprocedures, with respect to any Collateral or any other property of any suchLoan Party, without the prior written consent of the Administrative Agent. Theprovision of this SECTION 9.18 are for the sole benefit of the Lenders andshall not afford any right to, or constitute a defense available to, any LoanParty.

 

SECTION9.19       USA PATRIOT ACT; PROCEEDS OF CRIME ACT.

 

EachLender hereby notifies the Loan Parties that pursuant to the requirements ofthe USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26,2001)) (the “Act”), it is required to obtain, verify and recordinformation that identifies the Loan Parties, which information includes thename and address of each Loan Party and other information that will allow suchLender to identify such Loan Party in accordance with the Act. Each Loan Partyis in compliance, in all material respects, with the Act and the Proceeds ofCrime Act. No part of the proceeds of the Revolving Credit Loans will be usedby the Loan Parties, directly or indirectly, for any payments to anygovernmental official or employee, political party, official of a politicalparty, candidate for political office, or anyone else acting in an officialcapacity, in order to obtain, retain or direct business or obtain any improperadvantage, in violation of the United States Foreign Corrupt Practices Act of1977, as amended.

 

SECTION9.20       Foreign Asset Control Regulations.

 

Neitherof the advance of the Revolving Credit Loans nor the use of the proceeds of anythereof will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., asamended) (the “Trading With the Enemy Act”) or any of the foreign assetscontrol regulations of the United

 

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States Treasury Department (31 CFR, SubtitleB, Chapter V, as amended) (the “Foreign Assets Control Regulations”) orany enabling legislation or executive order relating thereto (which for theavoidance of doubt shall include, but shall not be limited to (a) ExecutiveOrder 13224 of September 21, 2001 Blocking Property and ProhibitingTransactions With Persons Who Commit, Threaten to Commit, or Support Terrorism(66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the Unitingand Strengthening America by Providing Appropriate Tools Required to Interceptand Obstruct Terrorism Act of 2001 (Public Law 107-56)). Furthermore, none ofthe Borrowers or their Subsidiaries (a) is or will become a “blocked person” asdescribed in the Executive Order, the Trading With the Enemy Act or the ForeignAssets Control Regulations or (b) knowingly engages or will engage in anydealings or transactions, or be otherwise associated, with any such “blockedperson” or in any manner violative of any such order.

 

SECTION9.21       Survival.

 

Allcovenants, agreements, indemnities, representations and warranties made by theLoan Parties in the Loan Documents and in the certificates or other instrumentsdelivered in connection with or pursuant to this Agreement or any other LoanDocument shall be considered to have been relied upon by the other partieshereto and shall survive the execution and delivery of the Loan Documents andthe making of any Revolving Credit Loans and issuance of any Letters of Credit,regardless of any investigation made by any such other party or on its behalfand, notwithstanding that any Credit Party may have had notice or knowledge ofany Default or Event of Default or incorrect representation or warranty at thetime any credit is extended hereunder, and shall continue in full force andeffect until (i) the Commitments have expired or been terminated, (ii) theprincipal of and interest on each Revolving Credit Loan (including SwinglineLoans) and all fees and other Obligations (other than contingent indemnityobligations with respect to then unasserted claims) shall have been paid infull, (iii) all Letters of Credit shall have expired or terminated (or beencash collateralized or backstopped in a manner satisfactory to the applicableIssuing Bank) and (iv) all Letter of Credit Outstandings have been reduced tozero (or cash collateralized in a manner satisfactory to the applicable IssuingBank). In connection with the termination of this Agreement and the release andtermination of the security interests in the Collateral, the Agents, on behalfof themselves and the other Credit Parties, may require such indemnities asthey shall reasonably deem necessary or appropriate to protect the CreditParties against (x) loss on account of credits previously applied to theObligations that may subsequently be reversed or revoked, and (y) anyobligations that may thereafter arise with respect to the Other Liabilities.

 

SECTION9.22       Press Releases and Related Matters.

 

EachBorrower consents to the publication by the Administrative Agent of customarytrade advertising material in tombstone format relating to the financingtransactions contemplated by this Agreement using any Borrower’s name, and withthe consent of the Lead Borrower, logo or trademark. The Administrative Agentshall provide a draft reasonably in advance of any advertising material to theLead Borrower for review and comment prior to the publication thereof. TheAdministrative Agent and the Lenders reserve the right to provide to industrytrade organizations information necessary and customary for inclusion in leaguetable measurements.

 

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SECTION9.23       Additional Waivers.

 

(a)           The Obligations are the joint and several obligation of each LoanParty. To the fullest extent permitted by Applicable Law, the obligations ofeach Loan Party hereunder shall not be affected by (i) the failure of anyCredit Party to assert any claim or demand or to enforce or exercise any rightor remedy against any other Loan Party under the provisions of this Agreement,any other Loan Document or under Applicable Law, (ii) any rescission, waiver,amendment or modification of, or any release of any Loan Party from, any of theterms or provisions of, this Agreement, any other Loan Document, or (iii) thefailure to perfect any security interest in, or the release of, any of theCollateral or other security held by or on behalf of the Collateral Agent orany other Credit Party.

 

(b)           To the fullest extent permitted by Applicable Law, the obligations ofeach Loan Party to pay the Obligations in full hereunder shall not be subjectto any reduction, limitation, impairment or termination for any reason (otherthan the payment in full in cash of the Obligations after the termination ofall Commitments to any Loan Party under any Loan Document), including any claimof waiver, release, surrender, alteration or compromise of any of theObligations, and shall not be subject to any defense or setoff, counterclaim,recoupment or termination whatsoever by reason of the invalidity, illegality orunenforceability of any of the Obligations or otherwise. Without limiting thegenerality of the foregoing, to the fullest extent permitted by Applicable Law,the obligations of each Loan Party hereunder shall not be discharged orimpaired or otherwise affected by the failure of the Administrative Agent orany other Credit Party to assert any claim or demand or to enforce any remedyunder this Agreement, any other Loan Document or any other agreement, by anywaiver or modification of any provision of any thereof, any default, failure ordelay, willful or otherwise, in the performance of any of the Obligations, orby any other act or omission that may or might in any manner or to any extentvary the risk of any Loan Party or that would otherwise operate as a dischargeof any Loan Party as a matter of law or equity (other than the payment in fullin cash of all the Obligations after termination of all Commitments to any LoanParty under any Loan Document).

 

(c)           To the fullest extent permitted by Applicable Law, each Loan Partywaives any defense based on or arising out of any defense of any other LoanParty or the unenforceability of the Obligations or any part thereof from anycause, or the cessation from any cause of the liability of any other LoanParty, other than the payment in full in cash of all the Obligations after thetermination of all Commitments to any Loan Party under any Loan Document. Tothe fullest extent permitted by Applicable Law, the Collateral Agent and theother Credit Parties may, at their election, foreclose on any security held byone or more of them by one or more judicial or nonjudicial sales, accept anassignment of any such security in lieu of foreclosure, compromise or adjustany part of the Obligations, make any other accommodation with any other LoanParty, or exercise any other right or remedy available to them against anyother Loan Party, without affecting or impairing in any way the liability ofany Loan Party hereunder except to the extent that all the Obligations havebeen indefeasibly paid in full in cash and performed in full after thetermination of Commitments to any Loan Party under any Loan Document. Pursuantto, and to the fullest extent permitted by, Applicable Law, each Loan Partywaives any defense arising out of any such election even though such electionoperates, pursuant to Applicable Law, to impair or to extinguish any right ofreimbursement or subrogation or other

 

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right or remedy of such Loan Party againstany other Loan Party, as the case may be, or any security.

 

(d)           Except as otherwise specifically provided herein, each Borrower isobligated to repay the Obligations as joint and several obligors under thisAgreement. Upon payment by any Loan Party of any Obligations, all rights ofsuch Loan Party against any other Loan Party arising as a result thereof by wayof right of subrogation, contribution, reimbursement, indemnity or otherwiseshall in all respects be subordinate and junior in right of payment to the priorpayment in full in cash of all the Obligations (other than contingent indemnityobligations for then unasserted claims) and the termination of all Commitmentsto any Loan Party under any Loan Document. If any amount shall erroneously bepaid to any Loan Party on account of (i) such subrogation, contribution,reimbursement, indemnity or similar right or (ii) any such indebtedness of anyLoan Party, such amount shall be held in trust for the benefit of the CreditParties and shall forthwith be paid to the Administrative Agent to be creditedagainst the payment of the Obligations, whether matured or unmatured, inaccordance with the terms of this Agreement and the other Loan Documents. Subjectto the foregoing, to the extent that any Loan Party shall, under this Agreementas a joint and several obligor, repay any of the Obligations constitutingRevolving Credit Loans made to another Loan Party hereunder (an “AccommodationPayment”), then the Loan Party making such Accommodation Payment shall beentitled to contribution and indemnification from, and be reimbursed by, eachof the other Loan Parties in an amount equal to a fraction of suchAccommodation Payment, the numerator of which fraction is such other Loan Party’sAllocable Amount and the denominator of which is the sum of the AllocableAmounts of all of the Loan Parties. As of any date of determination, the “AllocableAmount” of each Loan Party shall be equal to the maximum amount ofliability for Accommodation Payments which could be asserted against such LoanParty hereunder without (a) rendering such Loan Party “insolvent” within themeaning of Section 101 (31) of the Bankruptcy Code, Section 2 of the UniformFraudulent Transfer Act (“UFTA”) or Section 2 of the Uniform FraudulentConveyance Act (“UFCA”), (b) leaving such Loan Party with unreasonablysmall capital or assets, within the meaning of Section 548 of the BankruptcyCode, Section 4 of the UFTA, or Section 5 of the UFCA, or (c) leaving such LoanParty unable to pay its debts as they become due within the meaning of Section548 of the Bankruptcy Code or Section 4 of the UFTA, or Section 5 of the UFCA.

 

(e)           Without limiting the generality of the foregoing, or of any otherwaiver or other provision set forth in this Agreement, to the fullest extentpermitted by Applicable Law, each Loan Party waives all rights and defensesarising out of an election of remedies by any Credit Party, even though thatelection of remedies, such as a nonjudicial foreclosure with respect tosecurity for a guaranteed obligation, has destroyed such Credit Party’s rightsof subrogation and reimbursement against such Loan Party. Each Loan Partywaives all rights and defenses that such Loan Party may have because theObligations are secured by Real Estate which means, among other things: (i) aCredit Party may collect from any Loan Party without first foreclosing on anyReal Estate or personal property Collateral pledged by a Loan Party; (ii) ifany Credit Party forecloses on any Real Estate pledged by any Loan Party, theamount of the Obligations may be reduced only by the price for which that RealEstate is sold at the foreclosure sale, even if the Real Estate is worth morethan the sale price; and (iii) the Credit Parties may collect Obligations froma Loan Party even if a Credit Party, by foreclosing on any such Real Estate,has destroyed any right any Loan Party may have to collect from the other LoanParties.

 

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This is an unconditional and irrevocablewaiver of any rights and defenses any Loan Party may have because theObligations are secured by Real Estate.

 

(f)            Each Loan Party hereby agrees to keep eachother Loan Party fully apprised at all times as to the status of its business,affairs, finances, and financial condition, and its ability to perform itsObligations under the Loan Documents, and in particular as to any adversedevelopments with respect thereto. Each Loan Party hereby agrees to undertaketo keep itself apprised at all times as to the status of the business, affairs,finances, and financial condition of each other Loan Party, and of the abilityof each other Loan Party to perform its Obligations under the Loan Documents,and in particular as to any adverse developments with respect to any thereof. EachLoan Party hereby agrees, in light of the foregoing mutual covenants to informeach other, and to keep themselves and each other informed as to such matters,that the Credit Parties shall have no duty to inform any Loan Party of anyinformation pertaining to the business, affairs, finances, or financialcondition of any other Loan Party, or pertaining to the ability of any otherLoan Party to perform its Obligations under the Loan Documents, even if suchinformation is adverse, and even if such information might influence thedecision of one or more of the Loan Parties to continue to be jointly andseverally liable for, or to provide Collateral for, the Obligations of one ormore of the other Loan Parties. To the fullest extent permitted by applicablelaw, each Loan Party hereby expressly waives any duty of the Credit Parties toinform any Loan Party of any such information.

 

SECTION9.24       Intercreditor Agreement.

 

TheLoan Parties, the Agents, the Lenders and the other Credit Parties acknowledgethat the exercise of certain of the Agents’ rights and remedies hereunder maybe subject to, and restricted by, the provisions of the Intercreditor Agreement.Except as specified herein, nothing contained in the Intercreditor Agreementshall be deemed to modify any of the provisions of this Agreement and the otherLoan Documents, which, as among the Loan Parties, the Agents, the Lenders andthe other Credit Parties shall remain in full force and effect.

 

**[SIGNATURE PAGES FOLLOW]**

 

172

----

 

INWITNESS WHEREOF, the parties hereto have caused this Agreement to be dulyexecuted by their respective authorized officers as a sealed instrument as ofthe day and year first above written.

 

 
|   | **MICHAELS  STORES, INC.**, as  Lead  Borrower                 |
|--------|----------------------------------------------------------------|
|   |                                                           |   |   |
|   | By:                                                            | /s/ Jeffrey N. Boyer |
|   |                                                           | Name: | Jeffrey  N. Boyer |
|   |                                                           | Title: | President  and Chief Financial |
|   |                                                           | Officer |
|   |                                                           |   |   |
|   | **MICHAELS  STORES PROCUREMENT  COMPANY, INC.**, as  Borrower  |
|   |                                                           |   |   |
|   | By:                                                            | /s/  Jeffrey N. Boyer |
|   |                                                           | Name: | Jeffrey  N. Boyer |
|   |                                                           | Title: | President  and Chief Financial |
|   |                                                           | Officer |
|   |                                                           |   |
|   | **AARON  BROTHERS, INC.**, as  Borrower                        |
|   |                                                           |   |   |
|   | By:                                                            | /s/  Lisa K. Klinger |
|   |                                                           | Name: | Lisa  K. Klinger |
|   |                                                           | Title: | Vice  President and Treasurer |
|   |                                                           |   |   |
|   | **ARTISTREE,  INC.**, as Borrower                              |
|   |                                                           |   |   |
|   | By:                                                            | /s/  Lisa K. Klinger |
|   |                                                           | Name: | Lisa  K. Klinger |
|   |                                                           | Title: | Vice  President and Treasurer |
|   |                                                           |   |   |
|   | **MICHAELS  FINANCE COMPANY,  INC.**, as a Facility  Guarantor |
|   |                                                           |   |   |
|   | By:                                                            | /s/  Jeffrey N. Boyer |
|   |                                                           | Name: | Jeffrey  N. Boyer |
|   |                                                           | Title: | President  and Chief Financial |
|   |                                                           | Officer |

 

S-1

----

 
|   | **MICHAELS  STORES CARD  SERVICES, LLC,** as a  Facility Guarantor |
|--------|--------------------------------------------------------------------|
|   |                                                               |   |   |
|   | By:                                                                | /s/  Jeffrey N. Boyer |
|   |                                                               | Name: | Jeffrey  N. Boyer |
|   |                                                               | Title: | President |
|   |                                                               |   |   |
|   |                                                               |   |   |
|   | **MICHAELS  OF CANADA, ULC**, as  Facility Guarantor               |
|   |                                                               |   |   |
|   | By:                                                                | /s/  Jeffrey N. Boyer |
|   |                                                               | Name: | Jeffrey  N. Boyer |
|   |                                                               | Title: | President |

 

S-2

----

 
|   | **BANK  OF AMERICA, N.A.**,  as Administrative Agent, as Collateral Agent,  and as Issuing Bank |
|--------|-------------------------------------------------------------------------------------------------|
|   |                                                                                            |   |   |
|   |                                                                                            |   |   |
|   | By:                                                                                             | /s/  Keith Vercauteren |
|   |                                                                                            | Name: | Keith  Vercauteren |
|   |                                                                                            | Title: | Managing  Director |
|   |                                                                                            |   |   |
|   | Address:                                                                                        |
|   | 40  Broad Street, 10th Floor                                                                    |
|   | Boston,  Massachusetts 02109                                                                    |
|   | Attn:  Keith Vercauteren                                                                        |
|   | Telephone:  (617) 434-4045                                                                      |
|   | Telecopy:  (617) 434-4312                                                                       |
|   |                                                                                            |   |   |
|   |                                                                                            |   |   |
|   | **BANK  OF AMERICA, N.A.**,  as Swingline  Lender, and as a Lender                              |
|   |                                                                                            |   |   |
|   |                                                                                            |   |   |
|   | By:                                                                                             | /s/  Keith Vercauteren |
|   |                                                                                            | Name: | Keith  Vercauteren |
|   |                                                                                            | Title: | Managing  Director |
|   |                                                                                            |   |   |
|   | Address:                                                                                        |
|   | 40  Broad Street, 10th Floor                                                                    |
|   | Boston,  Massachusetts 02109                                                                    |
|   | Attn:  Keith Vercauteren                                                                        |
|   | Telephone:  (617) 434-4045                                                                      |
|   | Telecopy:  (617) 434-4312                                                                       |

 

S-3

----

 
|   | **DEUTSCHE BANK SECURITIES INC.,**as Syndication  Agent |
|--------|---------------------------------------------------------|
|   |                                                    |   |
|   |                                                    |   |
|   | By:                                                     | /s/  Mark E. Funk |
|   |                                                    | Name:  Mark E. Funk |
|   |                                                    | Title:    Managing Director |
|   |                                                    |   |
|   | By:                                                     | /s/  Stephen R. Lapidus |
|   |                                                    | Name:  Stephen R. Lapidus |
|   |                                                    | Title:    Director |
|   |                                                    |   |
|   | Address:                                                |
|   | 60  Wall Street, 2nd Floor                              |
|   | New  York, New York 10005                               |
|   | Attn:  Meg Sutton                                       |
|   | Telephone:  (212) 250-3358                              |
|   | Telecopy:  (212) 797-4655                               |
|   |                                                    |   |
|   |                                                    |   |
|   | **DEUTSCHE  BANK****AG NEW YORK  BRANCH**, as a Lender  |
|   |                                                    |   |
|   |                                                    |   |
|   | By:                                                     | /s/  Marguerite Sutton |
|   |                                                    | Name:  Marguerite Sutton |
|   |                                                    | Title:    Director |
|   |                                                    |   |
|   | By:                                                     | /s/  Evelyn Thierry |
|   |                                                    | Name:  Evelyn Thierry |
|   |                                                    | Title:    Vice President |
|   |                                                    |   |
|   | Address:                                                |
|   | 60  Wall Street, 2nd Floor                              |
|   | New  York, New York 10005                               |
|   | Attn:  Meg Sutton                                       |
|   | Telephone:  (212) 250-3358                              |
|   | Telecopy:  (212) 797-4655                               |

 

S-4

----

 
|   | **JPMORGAN  CHASE BANK, N.A.**,  as  Co-Documentation Agent and as a Lender |
|--------|-----------------------------------------------------------------------------|
|   |                                                                        |   |
|   |                                                                        |   |
|   | By:                                                                         | /s/  Barry Bergman |
|   |                                                                        | Name:  Barry Bergman |
|   |                                                                        | Title:    Managing Director |
|   |                                                                        |   |
|   | Address:                                                                    |
|   | 270  Park Avenue, Floor 4                                                   |
|   | New  York, New York 10017                                                   |
|   | Attn:  Barry Bergman                                                        |
|   | Telephone:  (212) 270-0203                                                  |
|   | Telecopy:  (212) 270-6637                                                   |

 

S-5

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|   | **CREDIT  SUISSE**, as  Co-Documentation  Agent and as a Lender |
|--------|-----------------------------------------------------------------|
|   |                                                            |   |
|   |                                                            |   |
|   | By:                                                             | /s/  James Moran |
|   |                                                            | Name:  James Moran |
|   |                                                            | Title:   Managing Director |
|   |                                                            |   |
|   |                                                            |   |
|   | By:                                                             | /s/  Ian Nalitt |
|   |                                                            | Name:  Ian Nalitt |
|   |                                                            | Title:   Vice President |
|   |                                                            |   |
|   | Address:                                                        |
|   | Eleven  Madison Avenue                                          |
|   | New  York, New York 10010                                       |
|   | Attn:  Ian Nalitt                                               |
|   | Telephone:  (212) 325-5741                                      |
|   | Telecopy:  (212) 325-8615                                       |

 

S-6

----

 
|   | **WELLS  FARGO RETAIL FINANCE,  LLC**, as  Co-Documentation Agent and as a  Lender |
|--------|------------------------------------------------------------------------------------|
|   |                                                                               |   |
|   |                                                                               |   |
|   | By:                                                                                | /s/  David Molinario |
|   |                                                                               | Name:  David Molinario |
|   |                                                                               | Title:   Vice President |
|   |                                                                               |   |
|   | Address:                                                                           |
|   | One  Boston Place, 18th Floor                                                      |
|   | Boston,  Massachusetts 02108                                                       |
|   | Attn:  Emily Abrahamson                                                            |
|   | Telephone:  (617) 854-7243                                                         |
|   | Telecopy:  (671) 523-4032                                                          |

 

S-7

----

 
|   | **GMAC  COMMERCIAL FINANCE  LLC**, as a Lender |
|--------|------------------------------------------------|
|   |                                           |   |
|   |                                           |   |
|   | By:                                            | /s/  Robert F. McIntyre |
|   |                                           | Name:  Robert F. McIntyre |
|   |                                           | Title:    Director |
|   |                                           |   |
|   | Address:                                       |
|   | 1290  Avenue of the Americas, 3rd Floor        |
|   | New  York, New York 10104                      |
|   | Attn:  Robert McIntyre                         |
|   | Telephone:  (212) 884-7128                     |
|   | Telecopy:  (212) 884-7692                      |

 

S-8

----

 
|   | **NATIONAL  CITY BUSINESS CREDIT,  INC.**, as a Lender |
|--------|--------------------------------------------------------|
|   |                                                   |   |
|   | By:                                                    | /s/  Kathryn C. Ellero |
|   |                                                   | Name:  Kathryn C. Ellero |
|   |                                                   | Title:    Vice President |
|   |                                                   |   |
|   | Address:                                               |
|   | 1965  East Sixth Street                                |
|   | Suite  400 Locator 01-3049                             |
|   | Cleveland,  Ohio 44114                                 |
|   | Attn:  Kathryn Ellero                                  |
|   | Telephone:  (216) 222-3261                             |
|   | Telecopy:  (216) 222-9555                              |

 

S-9

----

 
|   | **BURDALE  FINANCIAL LIMITED**,  as a  Lender |
|--------|-----------------------------------------------|
|   |                                          |   |
|   |                                          |   |
|   | By:                                           | /s/  Steven Chait |
|   |                                          | Name:  Steven Chait |
|   |                                          | Title:    Director |
|   |                                          |   |
|   | By:                                           | /s/  N. B. Hogg |
|   |                                          | Name:  N. B. Hogg |
|   |                                          | Title:    Director |
|   |                                          |   |
|   | Address:                                      |
|   | 300  First Stamford Place                     |
|   | Stamford,  Connecticut 06902                  |
|   | Attn:  David Grende                           |
|   | Telephone:  (203) 391-5900                    |
|   | Telecopy:  (203) 391-5901                     |

 

S-10

----

 
|   | **CITICORP  U.S.A., INC.**, as a  Lender |
|--------|------------------------------------------|
|   |                                     |   |
|   |                                     |   |
|   | By:                                      | /s/  Thomas M. Halsch |
|   |                                     | Name:  Thomas M. Halsch |
|   |                                     | Title:    Director |
|   |                                     |   |
|   | Address:                                 |
|   | 388  Greenwich Street, 20th Floor        |
|   | New  York, New York 10013                |
|   | Attn:  Marcus Wunderlich                 |
|   | Telephone:  (212) 816-2039               |
|   | Telecopy:  (212) 816-2613                |

 

S-11

----

 
|   | **THE  CIT GROUP/BUSINESS CREDIT,  INC.**, as a Lender |
|--------|--------------------------------------------------------|
|   |                                                   |   |
|   |                                                   |   |
|   | By:                                                    | /s/  Andrew Loughlin |
|   |                                                   | Name:  Andrew Loughlin |
|   |                                                   | Title:  Assistant  Vice President |
|   |                                                   |   |
|   | Address:                                               |
|   | 11  West 42nd Street, 13th Floor                       |
|   | New  York, New York 10036                              |
|   | Attn:  Kim Nguyen                                      |
|   | Telephone:  (212) 461-7741                             |
|   | Telecopy:  (212) 461-7762                              |

 

S-12

----

 
|   | **UNION  BANK OF CALIFORNIA, N.A.**,  as a Lender |
|--------|---------------------------------------------------|
|   |                                              |   |
|   |                                              |   |
|   | By:                                               | /s/  Michele Mojabi |
|   |                                              | Name:  Michele Mojabi |
|   |                                              | Title:    Vice President |
|   |                                              |   |
|   | Address:                                          |
|   | 400  California Street, 8th Floor                 |
|   | San  Francisco, California                        |
|   | Attn:  Ian Ritchie                                |
|   | Telephone:  (415) 765-2031                        |
|   | Telecopy:  (415) 765-2170                         |

 

S-13

----

 
|   | **UBS  LOAN FINANCE LLC**,  as a Lender |
|--------|-----------------------------------------|
|   |                                    |   |
|   |                                    |   |
|   | By:                                     | /s/  Irja R. Ctsa |
|   | Name:                                   | Irja  R. Ctsa |
|   | Title:                                  | Associate  Director, Banking Products  Services, US |
|   |                                    |   |
|   | By:                                     | /s/  Barbara Ezell-McMichael |
|   |                                    | Name:  Barbara Ezell-McMichael |
|   |                                    | Title:    Associate Director, Banking Products  Services, US |
|   |                                    |   |
|   | Address:                                |
|   | 677  Washington Boulevard               |
|   | Stamford,  Connecticut 06901            |
|   | Attn:  Mary Evans                       |
|   | Telephone:  (203) 719-7217              |
|   | Telecopy:  (203) 719-3092               |

 

S-14

----

 
|   | **UPS  CAPITAL CORPORATION**,  as a  Lender |
|--------|---------------------------------------------|
|   |                                        |   |
|   |                                        |   |
|   | By:                                         | /s/  John P. Holloway |
|   |                                        | Name:  John P. Holloway |
|   |                                        | Title:    Director of Portfolio Management |
|   |                                        |   |
|   | Address:                                    |
|   | 35  Glendale Parkway NE                     |
|   | Atlanta,  Georgia 30328                     |
|   | Attn:  Ernesto Moran                        |
|   | Telephone:  (404) 828-6576                  |
|   | Telecopy:  (404) 828-3775                   |

 

S-15

----

 
|   | **SUNTRUST  BANK**, as a Lender          |
|--------|------------------------------------------|
|   |                                     |   |
|   |                                     |   |
|   | By:                                      | /s/  Mark Pickering |
|   |                                     | Name:  Mark Pickering |
|   |                                     | Title:    Vice President |
|   |                                     |   |
|   | Address:                                 |
|   | 303  Peachtree Street, MC-1981-2nd Floor |
|   | Atlanta,  Georgia 30303                  |
|   | Attn:  Mark Pickering                    |
|   | Telephone:  (404) 575-2580               |
|   | Telecopy:  (404) 588-7061                |

 

S-16

----

 
|   | **BAYERISCHE  LANDESBANK - NEW  YORK BRANCH**, as a  Lender |
|--------|-------------------------------------------------------------|
|   |                                                        |   |
|   |                                                        |   |
|   | By:                                                         | /s/  Stuart Schulman |
|   |                                                        | Name:  Stuart Schulman |
|   |                                                        | Title:    Senior Vice President |
|   |                                                        |   |
|   |                                                        |   |
|   | By:                                                         | /s/  George J. Schnepf |
|   |                                                        | Name:  George J. Schnepf |
|   |                                                        | Title:    Vice President |
|   |                                                        |   |
|   | Address:                                                    |
|   | 560  Lexington Avenue                                       |
|   | New  York, New York 10022                                   |
|   | Attn:  Stuart Schulman                                      |
|   | Telephone:  (212) 230-9132                                  |
|   | Telecopy:  (212) 310-9995                                   |

 

S-17

----

 
|   | **WACHOVIA  BANK, NATIONAL  ASSOCIATION**, as a  Lender |
|--------|---------------------------------------------------------|
|   |                                                    |   |
|   |                                                    |   |
|   | By:                                                     | /s/  Thomas P. Floyd |
|   |                                                    | Name:  Thomas P. Floyd |
|   |                                                    | Title:    Vice President |
|   |                                                    |   |
|   | Address:                                                |
|   | 5001  LBJ Freeway, Suite 1050                           |
|   | Dallas,  Texas 75244                                    |
|   | Attn:  Tom Floyd                                        |
|   | Telephone:  (214) 712-3546                              |
|   | Telecopy:  (214) 748-9118                               |

 

S-18

----

 
|   | **GENERAL  ELECTRIC CAPITAL  CORPORATION**, as a  Lender |
|--------|----------------------------------------------------------|
|   |                                                     |   |
|   |                                                     |   |
|   | By:                                                      | /s/  Amanda J. Van Heyst |
|   |                                                     | Name:  Amanda J. Van Heyst |
|   |                                                     | Title:    Duly Authorized Signatory |
|   |                                                     |   |
|   | Address:                                                 |
|   | General  Electric Capital Corporation                    |
|   | Corporate  Financial Services                            |
|   | 201  Merritt 7, P.O. Box 5201                            |
|   | Norwalk,  Connecticut 06856-5201                         |
|   | Attn:  Esther Goodge                                     |
|   | Telephone:  (203) 956-3818                               |
|   | Telecopy:  (203) 956-4006                                |

 

S-19

----

 
|   | **PNC  BANK, NATIONAL  ASSOCIATION**, as a  Lender |
|--------|----------------------------------------------------|
|   |                                               |   |   |
|   |                                               |   |   |
|   | By:                                                | /s/  Stephen P. Kanarian |
|   |                                               | Name: | Stephen  P. Kanarian |
|   |                                               | Title: | Vice  President |
|   |                                               |
|   | Address:                                           | 99  High Street-27th Floor |
|   |                                               | Boston,  MA 02110 |
|        |                                                    |  |  |  |

 

S-20

----

 
|   | **MERRILL  LYNCH CAPITAL, A  DIVISION OF MERRILL LYNCH  BUSINESS FINANCIAL SERVICES  INC.**, as a Lender |
|--------|----------------------------------------------------------------------------------------------------------|
|   |                                                                                                     |   |   |
|   | By:                                                                                                      | /s/  Andrew C. Sepe |
|   |                                                                                                     | Name: | Andrew  C. Sepe |
|   |                                                                                                     | Title: | Vice  President |
|   |                                                                                                     |   |   |
|   | Address:                                                                                                 | 225  Liberty Street, 5th Floor |
|   |                                                                                                     | New  York, New York 10281 |
|   | Attn:  Tara Wrobel                                                                                       |
|   | Telephone:  (212) 236-3257                                                                               |
|   | Telecopy:  (212) 236-0048                                                                                |
|        |                                                                                                          |  |  |  |  |  |

 

S-21

----

 
|   | **CITIZENS  BANK OF  MASSACHUSETTS, A DIVISION OF  CITIZENS LEASING CORP.**,  as a Lender |
|--------|-------------------------------------------------------------------------------------------|
|   |                                                                                      |   |   |
|   |                                                                                      |   |   |
|   | By:                                                                                       | /s/  Cyril A. Prince |
|   |                                                                                      | Name: | Cyril  A. Prince |
|   |                                                                                      | Title: | Vice  President |
|   |                                                                                      |   |   |
|   | Address:                                                                                  | 101  Park Avenue, 11th Floor |
|   |                                                                                      | New  York, New York 10178 |
|   | Attn:  Cyril A. Prince                                                                    |
|   | Telephone:  (212) 401-3888                                                                |
|   | Telecopy:  (212) 401-3885                                                                 |
|        |                                                                                           |  |  |  |  |

 

S-22

----

 
|   | **AMSOUTH  BANK**, as a Lender |
|--------|--------------------------------|
|   |                           |   |   |
|   |                           |   |   |
|   | By:                            | /s/  Barry S. Renow |
|   |                           | Name: | Barry  Renow |
|   |                           | Title: | Senior  Vice President |
|   |                           |   |   |
|   | Address:                       | 599  Lexington Avenue, 45th Floor |
|   |                           | New  York, New York 10022 |
|   | Attn:  Barry Renow             |
|   | Telephone:  (212) 935-0751     |
|   | Telecopy:  (212) 935-7458      |
|        |                                |  |  |  |  |  |

 

S-23

----

 
|   | **ISRAEL  DISCOUNT BANK OF NEW  YORK**, as a Lender |
|--------|-----------------------------------------------------|
|   |                                                |   |   |
|   |                                                |   |   |
|   | By:                                                 | /s/  Andy Ballta |
|   |                                                | Name: | Andy  Ballta |
|   |                                                | Title: | First  Vice President |
|   |                                                |   |   |
|   | By:                                                 | /s/  Roy Grossman |
|   |                                                | Name: | Roy  Grossman |
|   |                                                | Title: | Senior  Vice President |
|   |                                                |   |   |
|   | Address:                                            | 511  Fifth Avenue |
|   |                                                |   | New  York, New York 10017 |
|   | Attn:  Andy Ballta                                  |
|   | Telephone:  (212) 551-8207                          |
|   | Telecopy:  (212) 599-4276                           |
|        |                                                     |  |  |  |

 

S-24

----

 
|   | **WEBSTER  BUSINESS CREDIT  CORPORATION**, as a  Lender |
|--------|---------------------------------------------------------|
|   |                                                    |   |   |
|   |                                                    |   |   |
|   | By:                                                     | /s/  Walter K. Stockhecker |
|   |                                                    | Name: | Walter  K. Stockhecker |
|   |                                                    | Title: | Vice  President |
|   |                                                    |
|   | Address: 1  State Street, 7th Floor                     |
|   | New  York, NY 10004                                     |
|   | Attn:  Cyndy Tonucci                                    |
|   | Telephone:  (508) 513-1253                              |
|   | Telecopy:  (508) 513-1339                               |
|   |                                                    |
|   | Webster  Retail Finance                                 |
|   | 73  Belmont, 2nd Floor                                  |
|   | South  Easton, MA 02375                                 |
|        |                                                         |  |  |  |

 

S-25

----