**Exhibit 10.17**

** **

CREDIT AGREEMENT

 

dated as of July 21, 2003

 

among

 

DUANE READEAs Borrower

 

DUANE READE INC.

DRI I INC.

DUANE READE INTERNATIONAL, INC.

DUANE READE REALTY, INC.As Facility Guarantors

 

The LENDERS Party Hereto,

 

FLEET NATIONAL BANKas Administrative Agent and Issuing Bank

 

FLEET RETAIL FINANCE INC.as Collateral Agent

 

CONGRESS FINANCIAL CORPORATIONas Documentation Agent

 

GENERAL ELECTRIC CAPITAL CORPORATIONas Syndication Agent

 

and

 

FLEET SECURITIES INC.as Arranger

 

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**TABLE OF CONTENTS**

 
| ARTICLE I  |                       |
|------------|----------------------------|
|       |                       |   |
|       | Definitions                |
|       |                       |   |
|       | SECTION 1.01               | Defined Terms |
|       | SECTION 1.02               | Terms Generally |
|       | SECTION 1.03               | Accounting Terms; GAAP |
|       |                       |   |
| ARTICLE II |                       |
|       |                       |   |
|       | Amount and Terms of Credit |
|       |                       |   |
|       | SECTION 2.01               | Commitment of the Lenders |
|       | SECTION 2.02               | Increase in Total Commitment |
|       | SECTION 2.03               | Reserves; Changes to Reserves |
|       | SECTION 2.04               | Making of Loans |
|       | SECTION 2.05               | Overadvances |
|       | SECTION 2.06               | Swingline Loans |
|       | SECTION 2.07               | Letters of Credit |
|       | SECTION 2.08               | Settlements Amongst Lenders |
|       | SECTION 2.09               | Notes; Repayment of Loans |
|       | SECTION 2.10               | Interest on Loans |
|       | SECTION 2.11               | Default Interest |
|       | SECTION 2.12               | Certain Fees |
|       | SECTION 2.13               | Unused Commitment Fee |
|       | SECTION 2.14               | Letter of Credit Fees |
|       | SECTION 2.15               | Nature of Fees |
|       | SECTION 2.16               | Termination or Reduction of Commitments |
|       | SECTION 2.17               | Alternate Rate of Interest |
|       | SECTION 2.18               | Conversion and Continuation of Loans |
|       | SECTION 2.19               | Mandatory Prepayment; Commitment  Termination; Cash Collateral |
|       | SECTION 2.20               | Optional Prepayment of Loans; Reimbursement  of Lenders |
|       | SECTION 2.21               | Maintenance of Loan Account; Statements of  Account |
|       | SECTION 2.22               | Cash Receipts |
|       | SECTION 2.23               | Application of Payments |
|       | SECTION 2.24               | Increased Costs |
|       | SECTION 2.25               | Change in Legality |
|       | SECTION 2.26               | Payments; Sharing of Setoff |
|       | SECTION 2.27               | Taxes |
|       | SECTION 2.28               | Security Interests in Collateral |
|       | SECTION 2.29               | Mitigation Obligations; Replacement of  Lenders. |

 

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| ARTICLE III |                           |
|-------------|--------------------------------|
|        |                           |   |
|        | Representations and Warranties |
|        |                           |   |
|        | SECTION 3.01                   | Organization; Powers |
|        | SECTION 3.02                   | Authorization; Enforceability |
|        | SECTION 3.03                   | Governmental Approvals; No Conflicts |
|        | SECTION 3.04                   | Financial Condition |
|        | SECTION 3.05                   | Properties |
|        | SECTION 3.06                   | Litigation and Environmental Matters |
|        | SECTION 3.07                   | Compliance with Laws and Agreements |
|        | SECTION 3.08                   | Investment and Holding Company Status |
|        | SECTION 3.09                   | Taxes |
|        | SECTION 3.10                   | ERISA |
|        | SECTION 3.11                   | Disclosure |
|        | SECTION 3.12                   | Subsidiaries |
|        | SECTION 3.13                   | Insurance |
|        | SECTION 3.14                   | Labor Matters |
|        | SECTION 3.15                   | Security Documents |
|        | SECTION 3.16                   | Federal Reserve Regulations |
|        | SECTION 3.17                   | Solvency |
|        | SECTION 3.18                   | Pharmaceutical Laws |
|        |                           |   |
| ARTICLE IV  |                           |
|        |                           |   |
|        | Conditions                     |
|        |                           |   |
|        | SECTION 4.01                   | Closing Date |
|        | SECTION 4.02                   | Conditions Precedent to Each Loan and Each  Letter of Credit |
|        |                           |   |
| ARTICLE V   |                           |
|        |                           |   |
|        | Affirmative Covenants          |
|        |                           |   |
|        | SECTION 5.01                   | Financial Statements and Other Information |
|        | SECTION 5.02                   | Notices of Material Events |
|        | SECTION 5.03                   | Information Regarding Collateral |
|        | SECTION 5.04                   | Existence; Conduct of Business |
|        | SECTION 5.05                   | Payment of Obligations |
|        | SECTION 5.06                   | Maintenance of Properties |
|        | SECTION 5.07                   | Insurance |
|        | SECTION 5.08                   | Casualty and Condemnation |
|        | SECTION 5.09                   | Books and Records; Inspection and Audit  Rights |
|        | SECTION 5.10                   | Physical Inventories |
|        | SECTION 5.11                   | Compliance with Laws |
|        | SECTION 5.12                   | Use of Proceeds and Letters of Credit |
|        | SECTION 5.13                   | Additional Subsidiaries |
|        | SECTION 5.14                   | Further Assurances |

 

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| ARTICLE VI   |               |
|--------------|--------------------|
|         |               |   |
|         | Negative Covenants |
|         |               |   |
|         | SECTION 6.01       | Indebtedness and Other Obligations |
|         | SECTION 6.02       | Liens |
|         | SECTION 6.03       | Fundamental Changes |
|         | SECTION 6.04       | Investments, Loans, Advances, Guarantees and  Acquisitions |
|         | SECTION 6.05       | Asset Sales |
|         | SECTION 6.06       | Restricted Payments; Certain Payments of  Indebtedness |
|         | SECTION 6.07       | Transactions with Affiliates |
|         | SECTION 6.08       | Restrictive Agreements |
|         | SECTION 6.09       | Amendment of Material Documents |
|         | SECTION 6.10       | Additional Subsidiaries |
|         | SECTION 6.11       | Fixed Charge Coverage Ratio |
|         | SECTION 6.12       | Fiscal Year |
|         | SECTION 6.13       | Environmental Laws |
|         |               |   |
| ARTICLE VII  |               |
|         |               |   |
|         | Events of Default  |
|         |               |   |
|         | SECTION 7.02       | When Continuing |
|         | SECTION 7.03       | Remedies on Default |
|         | SECTION 7.04       | Application of Proceeds |
|         |               |   |
| ARTICLE VIII |               |
|         |               |   |
|         | The Agents         |
|         |               |   |
|         | SECTION 8.01       | Administration by Administrative Agent |
|         | SECTION 8.02       | The Collateral Agent |
|         | SECTION 8.03       | Sharing of Excess Payments |
|         | SECTION 8.04       | Agreement of Required Lenders |
|         | SECTION 8.05       | Liability of Agents |
|         | SECTION 8.06       | Notice of Default |
|         | SECTION 8.07       | Lenders’ Credit Decisions |
|         | SECTION 8.08       | Reimbursement and Indemnification |
|         | SECTION 8.09       | Rights of Agents |
|         | SECTION 8.10       | Independent Lenders and Issuing Bank |
|         | SECTION 8.11       | Notice of Transfer |
|         | SECTION 8.12       | Successor Agent |
|         | SECTION 8.13       | Reports and Financial Statements |
|         | SECTION 8.14       | Delinquent Lender |
|         | SECTION 8.15       | Documentation Agent and Arranger |
|         |               |   |
| ARTICLE IX   |               |
|         |               |   |
|         | Miscellaneous      |

 

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|   | SECTION 9.01 | Notices                                                     |
|--------|--------------|-------------------------------------------------------------|
|   | SECTION 9.02 | Waivers; Amendments                                         |
|   | SECTION 9.03 | Expenses; Indemnity; Damage Waiver                          |
|   | SECTION 9.04 | Successors and Assigns                                      |
|   | SECTION 9.05 | Survival                                                    |
|   | SECTION 9.06 | Counterparts; Integration; Effectiveness                    |
|   | SECTION 9.07 | Severability                                                |
|   | SECTION 9.08 | Right of Setoff                                             |
|   | SECTION 9.09 | Governing Law; Jurisdiction; Consent to  Service of Process |
|   | SECTION 9.10 | WAIVER OF JURY TRIAL                                        |
|   | SECTION 9.11 | Headings                                                    |
|   | SECTION 9.12 | Interest Rate Limitation                                    |
|   | SECTION 9.13 | Additional Waivers                                          |
|   | SECTION 9.14 | Confidentiality                                             |

 

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**EXHIBITS**

 
| A.   | Assignment and Acceptance          |
|------|------------------------------------|
| B-1. | Revolving Notes                    |
| B-2  | Swingline Note                     |
| C    | Opinion of Counsel to Loan Parties |
| D.   | Form of Compliance Certificate     |
| E.   | Borrowing Base Certificate         |

 

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**SCHEDULES**

 
| 1.1         | Lenders and Commitments                |
|-------------|----------------------------------------|
| 2.22(a)     | DDAs                                   |
| 2.22(b)     | Credit Card Arrangements               |
| 2.22(c)     | Blocked Accounts                       |
| 2.22(f)     | Disbursement Accounts                  |
| 3.05(c)(i)  | Title to Properties; Real Estate Owned |
| 3.05(c)(ii) | Leased Properties                      |
| 3.06        | Disclosed Matters                      |
| 3.09        | Taxes                                  |
| 3.12        | Subsidiaries                           |
| 3.13        | Insurance                              |
| 5.01(i)     | Financial Reporting Requirements       |
| 6.01        | Indebtedness                           |
| 6.02        | Liens                                  |
| 6.04        | Investments                            |
| 6.07        | Transactions with Affiliates           |

 

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CREDIT AGREEMENT dated asof   July 21, 2003 among

 

DUANE READE, a New York general partnership,having its principal place of business at 440 Ninth Avenue, New York, NewYork 10001; and

 

DUANE READE INC. a Delaware corporation,having its principal place of business at 440 Ninth Avenue, New York, New York10001; and

 

DRI I INC., a Delaware corporation, having itsprincipal place of business at 440 Ninth Avenue, New York, New York 10001; and

 

DUANE READE INTERNATIONAL, INC., a Delawarecorporation, having a mailing address at P.O. Box 32216, Newark, New Jersey07102; and

 

DUANE READE REALTY, INC., a Delawarecorporation, having its principal place of business at 440 Ninth Avenue, NewYork, New York 10001; and

 

the LENDERS party hereto; and

 

FLEET NATIONAL BANK, as Issuing Bank, anational banking association having a place of business at 100 Federal Street,Boston, Massachusetts 02110; and

 

FLEET NATIONAL BANK, as Administrative Agentfor the Lenders, a national banking association having a place of business at100 Federal Street, Boston, Massachusetts 02110; and

 

FLEET RETAIL FINANCE INC., as Collateral Agentfor the Lenders, a Delaware corporation, having its principal place of businessat 40 Broad Street, Boston, Massachusetts 02109; and

 

CONGRESS FINANCIAL CORPORATION, asDocumentation Agent; and

 

GENERAL ELECTRIC CAPITAL CORPORATION, asSyndication Agent

 

in consideration of the mutual covenantsherein contained and benefits to be derived herefrom.

 

ARTICLE I

 

Definitions

 

SECTION 1.01       DefinedTerms. As used in this Agreement, the following terms have the meaningsspecified below:

 

“ACH” shall mean automated clearinghouse transfers.

 

“Account” shall mean “accounts” asdefined in the UCC, and also all: accounts, accounts receivable, receivables, and rights to payment(whether or not earned by performance) for: property that has been or is to besold, leased, licensed, assigned, or otherwise disposed of; services renderedor to be rendered; a policy of insurance issued or to be issued; a secondary

 

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obligation incurred or to be incurred; arisingout of the use of a credit or charge card or information contained on or usedwith that card.

 

“Additional Commitment Lender” has themeaning provided therefor in Section 2.02(a).

 

“Adjusted LIBO Rate” means, withrespect to any LIBO Borrowing for any Interest Period, an interest rate perannum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) theLIBO Rate for such Interest Period multiplied by (b) the Statutory ReserveRate.  The Adjusted LIBO Rate will beadjusted automatically as to all LIBO Rate Loans then outstanding as of theeffective date of any change in the Statutory Reserve Rate.

 

“Administrative Agent” means Fleet, inits capacity as administrative agent for the Lenders hereunder.

 

“Affiliate” means, with respect to aspecified Person, another Person that directly, or indirectly through one ormore intermediaries, Controls or is Controlled by or is under common Controlwith the Person specified.

 

“Agents” shall mean collectively, theAdministrative Agent and the Collateral Agent.

 

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

 

“Agreement Value” means, for each HedgeAgreement, on any date of determination, an amount determined by the AdministrativeAgent equal to:

 

(a)                                  in the case of a Hedge Agreementdocumented pursuant to the Master Agreement (Multicurrency-Cross Border)published by the International Swap and Derivatives Association, Inc. (the“Master Agreement”), the amount, if any, that would be payable by any LoanParty or any of its Subsidiaries to its counterparty to such Hedge Agreement,as if (i) such Hedge Agreement was being terminated early on such date ofdetermination, (ii) such Loan Party or Subsidiary was the sole “Affected Party”,and (iii) the Administrative Agent was the sole party determining such paymentamount (with the Administrative Agent making such determination pursuant to theprovisions of the form of Master Agreement); or

 

(b)                                 in the case of a Hedge Agreementtraded on an exchange, the mark-to-market value of such Hedge Agreement, whichwill be the unrealized loss on such Hedge Agreement to the Loan Party orSubsidiary of a Loan Party to such Hedge Agreement determined by theAdministrative Agent based on the settlement price of such Hedge Agreement onsuch date of determination; or

 

(c)                                  in all other cases, themark-to-market value of such Hedge Agreement, which will be the unrealized losson such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party party tosuch Hedge Agreement determined by the Administrative Agent as the amount, ifany, by which (i) the present value of the future cash flows to be paid by suchLoan Party or Subsidiary exceeds (ii) the present value of the future cashflows to be received by such Loan Party or Subsidiary pursuant to such HedgeAgreement; capitalized terms used and not otherwise defined in this

 

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definition shall have the respective meaningsset forth in the above described Master Agreement.

 

“Amerisource Bergen” meansAmerisourceBergen Drug Corporation, a Delaware corporation, and the successorto Bergen Brunswig Drug Company.

 

“Amerisource Bergen Agreement” meansthe Prime Vendor and Consignment Agreement dated November 12, 1999 betweenAmerisource Bergen and the Borrower, as modified, amended, supplemented orrestated and in effect from time to time.

 

“Applicable Law” means as to anyPerson: (i) all statutes, rules, regulations, orders, or other requirementshaving the force of law and (ii) all court orders and injunctions, and/orsimilar rulings, in each instance ((i) and (ii)) of or by any GovernmentalAuthority, or court, or tribunal which has jurisdiction over such Person, orany property of such Person, or of any other Person for whose conduct suchPerson would be responsible.

 

“Applicable Margin” means initially,the rates for Prime Rate Loans and LIBO Loans, set forth in Level 2, below:

 
| **Level** |   | **Performance Criteria**                                                                    |   | **Prime Rate Loans** |   | **LIBO Loans** |   |
|-----------|--------|---------------------------------------------------------------------------------------------|--------|----------------------|--------|----------------|--------|
|      |   |                                                                                        |   |                 |   |           |   |
| 1         |   | Average Excess Availability greater  than $75,000,000                                       |   | 0                    | %      | 1.50           | %      |
|      |   |                                                                                        |   |                 |   |           |   |
| 2         |   | Average Excess Availability greater  than $40,000,000 but less than or equal to $75,000,000 |   | 0.25                 | %      | 1.75           | %      |
|      |   |                                                                                        |   |                 |   |           |   |
| 3         |   | Average Excess Availability less than  or equal to $40,000,000                              |   | 0.50                 | %      | 2.00           | %      |

 

Except as provided in the following sentence,the Applicable Margin shall be adjusted quarterly as of the first day of eachFiscal Quarter, based upon the average Excess Availability for the immediatelypreceding Fiscal Quarter. Notwithstanding the foregoing, the Applicable Marginwill be set at Level 2 on the Closing Date and will remain at Level 2 until thefirst anniversary of the Closing Date. In no event shall the Applicable Marginbe set at Level 1 prior to the first anniversary of the Closing Date (even ifthe Excess Availability requirements for Level 1 have been met). Upon theoccurrence of an Event of Default, at the option of the Administrative Agent orat the direction of the Required Lenders, interest shall be determined in themanner set forth in Section 2.11.

 

“ Appraisal Percentage” shall mean 85%.

 

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“Appraised Value” means the netappraised liquidation value of the Borrower’s Eligible Inventory as set forthin the Borrower’s stock ledger and of the Borrower’s prescription lists asdetermined from time to time by an independent appraiser satisfactory to theAdministrative Agent.

 

“Arranger” means FSI.

 

“Assignment and Acceptance” means anassignment and acceptance entered into by a Lender and an assignee (with theconsent of any party whose consent is required by Section 9.04), and acceptedby the Administrative Agent, in the form of Exhibit A or any other formapproved by the Administrative Agent.

 

“Availability Reserves” means suchreserves as the Administrative Agent from time to time determines in theAdministrative Agent’s Permitted Discretion (after consultation with theBorrower (whose consent to any Availability Reserve shall not be required)) asbeing appropriate to reflect the impediments to the Agents’ ability to realizeupon the Collateral. Without limiting the generality of the foregoing,Availability Reserves may include (but are not limited to) reserves based on(i) rent; (ii) Gift Certificates and Merchandise Credit Liability; (iii)customs, duties, and other costs to release Inventory which is being importedinto the United States; (iv) outstanding customer deposits, and (v) outstandingTaxes and other governmental charges, including, ad valorem, real estate,personal property, sales, and other Taxes which might have priority over theinterests of the Collateral Agent in the Collateral.

 

“Blocked Account Agreements” has themeaning set forth in Section 2.22(c).

 

“Blocked Account Banks” shall mean thebanks with whom the Borrower has entered into Blocked Account Agreements.

 

“Blocked Accounts” shall have themeaning set forth in Section 2.22(c).

 

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

 

“Borrower” means Duane Reade, a NewYork general partnership.

 

“Borrower Partnership Agreement” shallmean the Second Amended and Restated Agreement of Partnership of Duane Reade,dated as of September 25, 1992 between Daboco and DRI I, as in effect on theClosing Date, and as amended or otherwise modified from time to time inaccordance with the terms hereof and thereof.

 

“Borrowing” shall mean (a) theincurrence of Loans of a single Type, on a single date and having, in the caseof LIBO Loans, a single Interest Period, or (b) a Swingline Loan.

 

“Borrowing Base” means, at any time ofcalculation, an amount equal to

 

(a)           theCredit Card Advance Rate *multiplied by*theface amount of Eligible Credit Card Receivables, plus

 

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(b)           thelesser of (i) the Appraisal Percentage of the Appraised Value of EligibleInventory, net of Inventory Reserves, or (ii) the Inventory Advance Rate *multiplied by* the Cost of EligibleInventory net of Inventory Reserves; plus

 

(c)           theReceivables Advance Rate multiplied by the face amount of Eligible Third PartyReceivables; minus

 

(d)           thethen amount of all Availability Reserves.

 

“Borrowing Base Certificate” has themeaning assigned to such term in Section 5.01(f).

 

“Borrowing Request” means a request bythe Borrower for a Borrowing in accordance with Section 2.04.

 

“Breakage Costs” shall have the meaningset forth in Section 2.20(b).

 

“Business Day” means any day that isnot a Saturday, Sunday or other day on which commercial banks in Boston, Massachusettsor New York, New York are authorized or required by law to remain closed, providedthat, 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. Except as otherwise provided herein, if any day on which a payment isdue is not a Business Day, then the payment shall be due on the next dayfollowing which is a Business Day and such extension of time shall be includedin computing interest and fees in connection with such payment.

 

“Capital Expenditures” means, for anyperiod, (a) all expenditures made or costs incurred (whether made in the formof cash or other property) for the acquisition, improvement or repair of fixedor capital assets of the Parent and its Subsidiaries (including, withoutlimitation, prescription lists), in each case that are (or would be) set forthin a Consolidated statement of cash flows of the Parent and its Subsidiariesfor such period prepared in accordance with GAAP as capital expenditures, and(b) Capital Lease Obligations incurred by the Parent and its Subsidiariesduring such period.

 

“Capital Lease Obligations” of anyPerson means the obligations of such Person to pay rent or other amounts underany lease of (or other arrangement conveying the right to use) real or personalproperty, or a combination thereof, which obligations are required to beclassified and accounted for as capital leases on a balance sheet of suchPerson under GAAP, and the amount of such obligations shall be the capitalizedamount thereof determined in accordance with GAAP.

 

“Cash Collateral Account” shall mean aninterest-bearing account established by the Borrower with the Collateral Agentat Fleet under the sole and exclusive dominion and control of the CollateralAgent designated as the “Duane Reade Cash Collateral Account”.

 

“Cash Receipts” has the meaningprovided therefor in Section 2.22(c).

 

“CERCLA” means the ComprehensiveEnvironmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 etseq.

 

“Change in Control” means, at any time,(a) during any period of twelve months, individuals who at the beginning ofsuch period constituted the board of directors of the Parent

 

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(together with any new directors whoseelection or appointment by such board of directors, or whose nomination forelection by shareholders of the Parent, as the case may be, was approved by avote of a majority of the directors still in office who were either directorsat the beginning of such period or whose election or nomination for electionwas previously so approved) cease for any reason to constitute a majority ofthe board of directors then in office; or (b) any person or group (within themeaning of the Securities and Exchange Act of 1934, as amended) is or becomesthe beneficial owner (within the meaning of Rule 13d-3 and 13d-5 of theSecurities and Exchange Act of 1934, as amended, except that such person shallbe deemed to have “beneficial ownership” of all shares that such person has theright to acquire, whether such right is exercisable immediately or only afterthe passage of time) directly or indirectly of thirty-five percent (35%) ormore of the total then outstanding voting power of the Voting Stock of theParent on a fully diluted basis, whether as a result of the issuance ofsecurities of the Parent, any merger, consolidation, liquidation or dissolutionof the Parent, any direct or indirect transfers of securities or otherwise, orhas the right or ability to Control the Parent; or (c) (i) the failure of theParent or DRI I to be a general partner of the Borrower, or (ii) the failure ofthe Parent or DRI I at any time to own, directly or indirectly, 100% of thecapital stock or other equity interests of the Borrower free and clear of allLiens (other than the Liens in favor of the Collateral Agent for the benefit ofthe Secured Parties under the Loan Documents and restrictions on transfer ofownership set forth in the Partnership Agreement); or (d) the failure of theParent at any time to own, directly or indirectly, 100% of the capital stock orother equity interests of DRI I free and clear of all Liens (other than theLiens in favor of the Collateral Agent for the benefit of the Secured Partiesunder the Loan Documents), or (e) any “Change in Control” as such term isdefined in the Convertible Indenture shall have occurred.

 

“Change in Law” means (a) the adoptionof any law, rule or regulation after the date of this Agreement, (b) any changein any law, rule or regulation or in the interpretation or application thereofby any Governmental Authority after the date of this Agreement or (c)compliance by any Lender or the Issuing Bank (or, for purposes of Section2.24(b), by any lending office of such Lender or by such Lender’s or theIssuing Bank’s holding company, if any) with any request, guideline ordirective (whether or not having the force of law) of any GovernmentalAuthority made or issued after the date of this Agreement.

 

“Charges” has the meaning providedtherefor in Section 9.12.

 

“Closing Date” means the date on whichthe conditions specified in Section 4.01 are satisfied (or waived in accordancewith Section 9.02).

 

“CMLTD” means current maturities oflong term Indebtedness of the Parent and its Subsidiaries, as determined inaccordance with GAAP.

 

“Code” means the Internal Revenue Codeof 1986 and the Treasury regulations promulgated thereunder, as amended fromtime to time.

 

“Collateral” means any and all“Collateral” as defined in any applicable Security Document.

 

“Collateral Agent” means FRF, in itscapacity as collateral agent under the Security Documents.

 

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“Commercial Letter of Credit” means anyLetter of Credit issued for the purpose of providing the primary paymentmechanism in connection with the purchase of any materials, goods or servicesby the Borrower in the ordinary course of business of the Borrower.

 

“Commitment” shall mean, with respectto each Lender, the aggregate commitment of such Lender hereunder in the amountset forth opposite its name on **Schedule 1.1** hereto or as may subsequently be set forth in the Registerfrom time to time, as the same may be (i) reduced from time to time pursuant toSection 2.16 or (ii) increased from time to time pursuant to Section 2.02hereof.

 

“Commitment Fee” has the meaningprovided therefor in Section 2.13.

 

“Commitment Increase” has the meaningprovided therefor in Section 2.02(a).

 

“Commitment Percentage” shall mean, withrespect to each Lender, that percentage of the Commitments of all Lendershereunder in the amount set forth opposite its name on **Schedule 1.1** hereto or as may subsequentlybe set forth in the Register from time to time, as the same may be (i) reducedfrom time to time pursuant to Section 2.16 or (ii) increased from time to timepursuant to Section 2.02 hereof.

 

“Consent” means actual consent given bya Lender from whom such consent is sought; or the passage of fifteen (15)Business Days from receipt of written notice to a Lender from theAdministrative Agent of a proposed course of action to be followed by theAdministrative Agent without such Lender’s giving the Administrative Agentwritten notice of that Lender’s objection to such course of action.

 

“Consolidated” means, when used tomodify a financial term, test, statement, or report of a Person, refers to theapplication or preparation of such term, test, statement or report (asapplicable) based upon the consolidation, in accordance with GAAP, of the financialcondition or operating results of such Person and its Subsidiaries.

 

“Consolidated EBITDA” means for anyperiod, the result for such period of (i) Consolidated Net Income, plus(ii) depreciation, amortization, and all other non-cash charges that werededucted in arriving at Consolidated Net Income for such period plus(iii) provisions for Taxes based on income that were deducted in arriving atConsolidated Net Income for such period, plus (iv) Consolidated InterestExpense, all as determined on a Consolidated basis in accordance with GAAP.

 

“Consolidated Interest Expense” means,for any period for any Person, total interest expense (including thatattributable to Capital Lease Obligations in accordance with GAAP) of suchPerson and its Subsidiaries on a Consolidated basis with respect to alloutstanding Indebtedness of such Person and its Subsidiaries, including,without limitation, all commissions, discounts and other fees and charges owedwith respect to letters of credit and bankers’ acceptance financing and netcosts under Hedging Agreements, but excluding any non-cash or deferred interestfinancing costs.

 

“Consolidated Net Income” means, forany period with respect to any Person, the net income (or loss) of such Personand its Subsidiaries on a Consolidated basis for such period taken as a singleaccounting period determined in conformity with GAAP, provided thatthere shall be excluded (i) the income (or loss) of any Person (other thanSubsidiaries of the Parent) in

 

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which any other Person (other than the Parentor any of its Subsidiaries) has a joint interest, except to the extent of theamount of dividends or other distributions actually paid to the Parent or anyof its Subsidiaries by such Person during such period, (ii) the income (orloss) of any Person accrued prior to the date it becomes a Subsidiary of theParent or any of its Subsidiaries or is merged into or consolidated with theParent or any of its Subsidiaries or that Person’s assets are acquired by theParent or any of its Subsidiaries, and (iii) the income of any direct orindirect Subsidiary of the Parent to the extent that the declaration or paymentof dividends or similar distributions by that Subsidiary of that income is not atthe time permitted by operation of the terms of its charter or any agreement,instrument, judgment, decree, order, statute, rule or governmental regulationapplicable to that Subsidiary.

 

“Control” means the possession, directly orindirectly, of the power (a) to vote 10% or more of the securities havingordinary voting power for the election of directors of a Person, or (b) todirect or cause the direction of the management or policies of a Person,whether through the ability to exercise voting power, by contract or otherwise.The terms “Controlling” and “Controlled” have meaningscorrelative thereto.

 

“Convertible Indenture” means the Indenturedated as of April 16, 2002 among Duane Reade Inc., the Guarantors party theretoand State Street Bank and Trust Company, as Trustee relating to the SeniorConvertible Notes Due 2022.

 

“Cost” means the cost of purchases, asreported on the Borrower’s stock ledger, based upon the Borrower’s accountingpractices which are in effect on the date of this Agreement. “Cost” does notinclude inventory capitalization costs or other non-purchase price charges(other than in-bound freight) used in the Borrower’s calculation of cost ofgoods sold.

 

“Credit Card Advance Rate” means 85%.

 

“Credit Card Notifications” has the meaningprovided therefor in Section 2.22(c).

 

“Credit Extensions” as of any day, shall beequal to the sum of (a) the principal balance of all Loans then outstanding,and (b) the then amount of the Letter of Credit Outstandings.

 

“Daboco” shall means Daboco Inc., a NewYork corporation, a former Subsidiary of the Parent and general partner of theBorrower, which merged with and into the Parent, with the Parent being thesurviving corporation.

 

“DDAs” means any checking or other demanddeposit account maintained by the Borrower.

 

“DDA Notification” has the meaning providedtherefor in Section 2.22(c).

 

“Default” means any event or condition thatconstitutes an Event of Default or that upon notice, lapse of time or bothwould, unless cured or waived, become an Event of Default.

 

“Delinquent Lender” has the meaningtherefor provided in Section 8.14.

 

“Delinquent Lender’s Future Commitment” hasthe meaning therefor provided in Section 8.14.

 

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“Documentation Agent” has the meaningprovided therefor in the Preamble.

 

“dollars” or “$” refers to lawfulmoney of the United States of America.

 

“DRI I” means DRI I, Inc., a Delawarecorporation.

 

“Eligible Assignee” means a bank, insurancecompany, or company engaged in the business of making commercial loans having acombined capital and surplus in excess of $300,000,000 or any Affiliate of anyLender, or any Person to whom a Lender assigns its rights and obligations underthis Agreement as part of an assignment and transfer of such Lender’s rights inand to a material portion of such Lender’s portfolio of asset based creditfacilities.

 

“Eligible Credit Card Receivables meansAccounts due to the Borrower on a non-recourse basis from (i) Visa, Mastercard,American Express Co., Discover, and other major credit card processors or (ii)NYCE, MAC and other major debit card processors, in each case reasonablyacceptable to the Administrative Agent as arise in the ordinary course ofbusiness, which have been earned by performance and are deemed by theAdministrative Agent in its Permitted Discretion to be eligible for inclusionin the calculation of the Borrowing Base. Without limiting the foregoing, noneof the following shall be deemed to be Eligible Credit Card Receivables:

 

(a)                                  Accounts that have been outstanding for more thanfive (5) Business Days from the date of sale;

 

(b)                                 Accounts with respect to which the Borrower doesnot have good, valid and marketable title thereto, free and clear of any Lien(other than Liens granted to the Collateral Agent, for its benefit and theratable benefit of the Secured Parties, pursuant to the Security Documents);

 

(c)                                  Accounts that are not subject to a first prioritysecurity interest in favor of the Collateral Agent, for the benefit of itself andthe Secured Parties (it being the intent that chargebacks in the ordinarycourse by the credit card processors shall not be deemed violative of thisclause);

 

(d)                                 Accounts which are disputed, are with recourse, orwith respect to which a claim, counterclaim, offset or chargeback has beenasserted (to the extent of such claim, counterclaim, offset or chargeback);

 

(e)                                  Accounts which the Administrative Agent determinesin its Permitted Discretion to be uncertain of collection.

 

“Eligible In-Transit Inventory” shall mean,as of the date of determination thereof, without duplication of other EligibleInventory, Inventory (a) which has been shipped from a foreign location forreceipt by the Borrower within ninety (90) days of the date of determination,but which has not yet delivered to the Borrower, (b) for which payment has beenmade by the Borrower and title has passed to the Borrower, (c) for which thedocument of title reflects the Borrower as consignee (along with delivery tothe Borrower of the documents of title with respect thereto), (d) as to whichthe Collateral Agent has control over the documents of title which evidenceownership of the subject Inventory (such as, if requested by the CollateralAgent,

 

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bythe delivery of a customs broker agency agreement, satisfactory to theCollateral Agent), and (e) which otherwise would constitute Eligible Inventory.

 

“Eligible Inventory” shall mean, as of thedate of determination thereof, (a) Eligible In-Transit Inventory, (b) EligibleL/C Inventory, and (c) items of Inventory of the Borrower that are finishedgoods, merchantable and readily saleable to the public in the ordinary coursedeemed by the Administrative Agent in its Permitted Discretion to be eligiblefor inclusion in the calculation of the Borrowing Base. Without limiting theforegoing, unless otherwise approved in writing by the Administrative Agent,none of the following shall be deemed to be Eligible Inventory:

 

(a)           Inventory that is not owned solely bythe Borrower, or is leased or on consignment or the Borrower does not have goodand valid title thereto;

 

(b)           Inventory (other than EligibleIn-Transit Inventory and Eligible L/C Inventory) that is not located at adistribution center used by the Borrower in the ordinary course or at aproperty that is owned or leased by the Borrower;

 

(c)           Inventory that represents (i) goodsdamaged, defective or otherwise unmerchantable, (ii) goods that do not conformin all material respects to the representations and warranties contained inthis Agreement or any of the Security Documents, or (iii) goods to be returnedto the vendor, including, without limitation, Inventory at locations222, 300, and 441 (clearance stores), location 923 (Genco Damages), location925 (Genco Recall), 973 (Reclamation Center), location 500 (Van Arsdale School)and any other goods at any other location that constitute a damage center,clearance store, recall center, reclamation center or similar location;

 

(d)           Inventory that is not located in theUnited States of America (excluding territories and possessions thereof) otherthan Eligible In-Transit Inventory and Eligible L/C Inventory;

 

(e)           Inventory that is not subject to aperfected first-priority security interest in favor of the Collateral Agent forthe benefit of the Secured Parties (subject to Permitted Encumbrances of thetype described in clauses (a) and (b) of such definition), including withoutlimitation any “consigned inventory” as defined in the Amerisource BergenAgreement;

 

(f)            Inventory which consists of samples,labels, bags, packaging, and other similar non-merchandise categories;

 

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

 

(h)           Inventory which has been sold but notyet delivered or as to which the Borrower has accepted a deposit; or

 

(i)            Inventory which is acquired in aPermitted Acquisition having an aggregate Cost in excess of $3,000,000 unlessand until the Collateral Agent has completed an appraisal of such Inventory,establishes an Inventory Advance Rate and Inventory Reserves (if applicable)therefor, and otherwise agrees that such Inventory shall be deemed EligibleInventory.  The Collateral Agent willendeavor to complete such

 

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appraisal and any other evaluations and duediligence with respect to such Inventory expeditiously in order to determinewhether such Inventory constitutes Eligible Inventory.

 

“Eligible L/C Inventory” shall mean, as of thedate of determination thereof, without duplication of other Eligible Inventory,Inventory (a) not yet delivered to the Borrower, (b) the purchase of which issupported by a Commercial Letter of Credit having an expiry within ninety (90)days of such date of determination, (c) for which the document of titlereflects the Borrower as consignee (along with delivery to the Borrower of thedocuments of title with respect thereto), (d) as to which the Collateral Agenthas control over the documents of title which evidence ownership of the subjectInventory (such as, if requested by the Collateral Agent, by the delivery of acustoms broker agency agreement, satisfactory to the Collateral Agent), and (e)which otherwise would constitute Eligible Inventory.

 

“Eligible Third Party Receivables” meansAccounts due to the Borrower on a non-recourse basis from insurance companiesand other Persons reasonably acceptable to the Administrative Agent as arise inthe ordinary course of business, which have been earned by performance, havebeen adjudicated and are deemed by the Administrative Agent in its PermittedDiscretion to be eligible for inclusion in the calculation of the BorrowingBase. Without limiting the foregoing, unless otherwise approved in writing bythe Administrative Agent, none of the following shall be deemed to be EligibleThird Party Receivables:

 

(a)                                  Accounts that have been outstanding for more thanninety (90) days past the invoice date or that are more than sixty (60) dayspast due;

 

(b)                                 Accounts due from any insurance company to theextent that twenty-five percent (25%) or more of all Accounts from suchinsurance company are not Eligible Third Party Receivables under clause (a),above;

 

(b)                                 Accounts with respect to which the Borrower doesnot have good, valid and marketable title thereto, free and clear of anyEncumbrance (other than (i) Encumbrances granted to the Collateral Agent, forits benefit and the ratable benefit of the Secured Parties, pursuant to theSecurity Documents, and (ii) Permitted Encumbrances of the type described inclause (a) of such definition);

 

(c)                                  Accounts that are not subject to a first prioritysecurity interest in favor of the Collateral Agent, for the benefit of itselfand the Secured Parties;

 

(d)                                 Accounts which are disputed, are with recourse, orwith respect to which a claim, counterclaim, offset or chargeback has beenasserted (to the extent of such claim, counterclaim, offset or chargeback); or

 

(e)                                  Accounts which the Administrative Agent determinesin its Permitted Discretion to be uncertain of collection.

 

“Environmental Laws” means all laws, rules,regulations, codes, ordinances, orders, decrees, judgments, injunctions,notices or binding agreements issued, promulgated or entered into by or withany Governmental Authority, relating in any way to the environment,preservation or reclamation of natural resources, handling, treatment, storage,disposal, Release or threatened Release of any Hazardous Material or to healthand safety matters.

 

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“Environmental Liability” means anyliability, contingent or otherwise (including any liability for damages,natural resource damage, costs of environmental remediation, administrativeoversight costs, fines, penalties or indemnities), of any Person directly orindirectly resulting from or based upon (a) violation of any Environmental Law,(b) the generation, use, handling, transportation, storage, treatment ordisposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,(d) the Release or threatened Release of any Hazardous Materials into theenvironment or (e) any contract, agreement or other consensual arrangementpursuant to which liability is assumed or imposed with respect to any of theforegoing.

 

“ERISA” means the Employee RetirementIncome Security Act of 1974, as amended from time to time and the regulationspromulgated and rulings issued thereunder.

 

“ERISA Affiliate” means any trade orbusiness (whether or not incorporated) that, together with the Parent, is treatedas a single employer under Section 414(b) or (c) of the Code or, solely forpurposes of Section 302 of ERISA and Section 412 of the Code, is treated as asingle employer under Section 414 of the Code.

 

“ERISA Event” means (a) any “reportableevent”, as defined in Section 4043 of ERISA or the regulations issuedthereunder with respect to a Plan (other than an event for which the 30-daynotice period is waived); (b) the existence with respect to any Plan of an“accumulated funding deficiency” (as defined in Section 412 of the Code orSection 302 of ERISA), whether or not waived; (c) the filing pursuant toSection 412(d) of the Code or Section 303(d) of ERISA of an application for awaiver of the minimum funding standard with respect to any Plan; (d) theincurrence by the Parent or any of its ERISA Affiliates of any liability underTitle IV of ERISA with respect to the termination of any Plan; (e) the receiptby the Parent or any ERISA Affiliate from the PBGC or a plan administrator ofany notice relating to an intention to terminate any Plan or Plans or toappoint a trustee to administer any Plan; (f) the incurrence by the Parent orany of its ERISA Affiliates of any liability with respect to the withdrawal orpartial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt bythe Parent or any ERISA Affiliate of any notice, or the receipt by anyMultiemployer Plan from the Parent or any ERISA Affiliate of any notice,concerning the imposition of Withdrawal Liability or a determination that a MultiemployerPlan is, or is expected to be, insolvent or in reorganization, within themeaning of Title IV of ERISA.

 

“Event of Default” has the meaning assignedto such term in Section 7.01. An “Event of Default” shall be deemed to haveoccurred and to be continuing unless and until that Event of Default has beenduly waived by the Administrative Agent in writing or cured to the reasonablesatisfaction of the Administrative Agent.

 

“Excess Availability” means, as of any dateof determination, the excess, if any, of (a) the lesser of the Borrowing Baseor the aggregate Commitments, over (b) the outstanding Credit Extensions.

 

“Excluded Taxes” means, with respect to theAgents, any Lender, the Issuing Bank or any other recipient of any payment tobe made by or on account of any obligation of the Borrower hereunder, (a)income or franchise Taxes imposed on (or measured by) its gross or net incomeby the United States of America, or by the jurisdiction under the laws of whichsuch recipient is organized or in which its principal office is located or, inthe case of any Lender, in which its applicable lending office is located, (b)any branch profits Taxes imposed by the United States of

 

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America or any similar Tax imposed by any otherjurisdiction in which the Borrower is located and (c) in the case of a ForeignLender (other than an assignee pursuant to a request by the Borrower underSection 2.29(b)), any withholding Tax that (i) is imposed on amounts payable tosuch Foreign Lender at the time such Foreign Lender becomes a party to thisAgreement (or designates a new lending office), except to the extent that suchForeign Lender (or its assignor, if any) was entitled, at the time ofdesignation of a new lending office (or assignment), to receive additionalamounts from the Borrower with respect to such withholding Tax pursuant toSection 2.27(a), or (ii) is attributable to such Foreign Lender’s failure tocomply with Sections 2.27(e) or (f).

 

“Existing Financing Agreement” means theFourth Amended and Restated Credit Agreement dated as of July 10, 2001 between,among others, Duane Reade, as Borrower, Duane Reade Inc., DRI I Inc., DuaneReade International, Inc. and Duane Reade Realty, Inc., as Designated Guarantors,various financial institutions as lenders party thereto and Fleet NationalBank, as Administrative Agent for the Lenders, as amended and in effect.

 

“FRF” means Fleet Retail Finance Inc., aDelaware corporation.

 

“FRF Concentration Account” shall have themeaning set forth in Section 2.22(c).

 

“FSI” means Fleet Securities, Inc., aMassachusetts corporation.

 

“Facility Guarantee” means the Guaranteeexecuted by the Facility Guarantors in favor of the Agents, the Issuing Bankand the Lenders.

 

“Facility Guarantors” means the Parent andeach of its Subsidiaries, now existing or hereafter created, other than ForeignSubsidiaries and the Borrower.

 

“Facility Guarantors Collateral Documents”means all security agreements, mortgages, pledge agreements, deeds of trust,and other instruments, documents or agreements executed and delivered by anyFacility Guarantor to secure the Facility Guarantee.

 

“Federal Funds Effective Rate” means, forany day, the weighted average (rounded upwards, if necessary, to the next 1/100of 1%) of the rates on overnight Federal funds transactions with members of theFederal Reserve System arranged by Federal funds brokers, as published on thenext succeeding Business Day by the Federal Reserve Bank of New York, or, ifsuch rate is not so published for any day that is a Business Day, the average(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations forsuch day for such transactions received by the Administrative Agent from threeFederal funds brokers of recognized standing selected by it.

 

“Fee Letter” means the letter entitled “FeeLetter” between the Borrower and the Administrative Agent dated June 10, 2003,as such letter may from time to time be amended.

 

“Financial Officer” means, with respect tothe Borrower, the chief financial officer, treasurer, controller or assistantcontroller of the Borrower.

 

“Fiscal Quarter” means any fiscal quarterof any Fiscal Year, which quarters shall generally end on the last Saturday ofeach March, June, September or December of such Fiscal Year in accordance withthe fiscal accounting calendar of the Borrower.

 

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“Fiscal Year” means any period of twelveconsecutive months ending on the last Saturday of December of any calendar year.

 

“Fixed Charge Coverage Ratio” means, as tothe Parent and its Subsidiaries, for any period, the ratio of (a) (i)Consolidated EBITDA minus (ii) the sum of (A) Capital Expenditures incurredduring such period *plus* (B)federal, state and foreign income Taxes paid in cash during such period, to (b)the sum of (i) Consolidated Interest Expense for such period, *plus* (ii) CMLTD during such period, *plus* (iii) Restricted Payments made incash during such period, all as determined in accordance with GAAP.  The Fixed Charge Ratio shall be calculatedon a trailing twelve fiscal months basis.

 

“Fleet” means Fleet National Bank, anational banking association.

 

“Fleet Disbursement Accounts” has themeaning provided therefor in Section 2.22(f).

 

“Foreign Lender” means any Lender that isorganized under the laws of a jurisdiction other than the United States ofAmerica or any State thereof or the District of Columbia.

 

“Foreign Subsidiary” means any Subsidiarythat is organized under the laws of a jurisdiction other than the United Statesof America or any State thereof or the District of Columbia.

 

“Fronting Fee” has the meaning assigned tosuch term in Section 2.14(b).

 

“GAAP” means principles which are (a)consistent with those promulgated or adopted by the Financial AccountingStandards Board and its predecessors (or successors) in effect and applicableto that accounting period in respect of which reference to GAAP is being made,and (b) consistently applied with past financial statements of the Parent andits Subsidiaries adopting the same principles.

 

“Gift Certificate and Merchandise CreditLiability” means, at any time, the aggregate face value at such time of (a)outstanding gift certificates and gift cards of the Borrower entitling theholder thereof to use all or a portion of the certificate to pay all or aportion of the purchase price for any Inventory, and (b) outstandingmerchandise credits of the Borrower.

 

“Governmental Authority” means thegovernment of the United States of America, any other nation or any politicalsubdivision thereof, whether state or local, and any agency, authority,instrumentality, regulatory body, court, central bank or other entityexercising executive, legislative, judicial, taxing, regulatory oradministrative powers or functions of or pertaining to government.

 

“Guarantee” of or by any Person (the “guarantor”)means any obligation, contingent or otherwise, of the guarantor guaranteeing orhaving the economic effect of guaranteeing any Indebtedness or other obligationof any other Person (the “primary obligor”) in any manner, whetherdirectly or indirectly, and including any obligation of the guarantor, director indirect, (a) to purchase or pay (or advance or supply funds for thepurchase or payment of) such Indebtedness or other obligation or to purchase(or to advance or supply funds for the purchase of) any security for thepayment thereof, (b) to purchase or lease property, securities or services forthe purpose of assuring the owner of such Indebtedness or other obligation of thepayment

 

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thereof,(c) to maintain working capital, equity capital or any other financialstatement condition or liquidity of the primary obligor so as to enable theprimary obligor to pay such Indebtedness or other obligation or (d) as anaccount party in respect of any letter of credit or letter of guaranty issuedto support such Indebtedness or obligation, provided that the term“Guarantee” shall not include endorsements for collection or deposit in theordinary course of business.

 

“Hazardous Materials” means all explosiveor radioactive substances or wastes and all hazardous or toxic substances,wastes or other pollutants, including petroleum or petroleum distillates,asbestos or asbestos containing materials, polychlorinated biphenyls, radongas, infectious or medical wastes, mold, fungi or similar bacteria, and allother substances or wastes of any nature regulated pursuant to anyEnvironmental Law, including any material listed as a hazardous substance underSection 101(14) of CERCLA.

 

“Hedging Agreement” means any interest rateprotection agreement, interest rate swap agreement, interest rate capagreement, interest rate collar agreement, foreign currency exchange agreement,commodity price protection agreement, or other interest or currency exchangerate or commodity price hedging arrangement designed to hedge againstfluctuations in interest rates or foreign exchange rates.

 

“Immaterial Foreign Subsidiary” means aForeign Subsidiary which has tangible net assets (as determined in accordancewith GAAP) of less than $2,500,000.

 

“Incremental Loan Commitment Requirements”means, with respect to any request for a Commitment Increase made pursuant toSection 2.02 or any provision of a Commitment Increase on a given CommitmentIncrease Date, the satisfaction of each of the following conditions:  (i) no Default or Event of Default thenexists, and (ii) the Borrower has not theretofore reduced the Commitments pursuantto Section 2.16 hereof.

 

“Indebtedness” of any Person means, withoutduplication, (a) all obligations of such Person for borrowed money (includingany obligations which are without recourse to the credit of such Person) orwith respect to deposits or advances of any kind, (b) all obligations of suchPerson evidenced by bonds, debentures, notes or similar instruments, (c) allobligations of such Person upon which interest charges are customarily paid,(d) all obligations of such Person under conditional sale or other titleretention agreements relating to property acquired by such Person, (e) allobligations of such Person in respect of the deferred purchase price ofproperty or services (excluding current accounts payable incurred in theordinary course of business), (f) all Indebtedness of others secured by (or forwhich the holder of such Indebtedness has an existing right, contingent orotherwise, to be secured by) any Lien on property owned or acquired by suchPerson, whether or not the Indebtedness secured thereby has been assumed, (g)all Guarantees by such Person of Indebtedness of others, (h) all Capital LeaseObligations of such Person, (i) all obligations, contingent or otherwise, ofsuch Person as an account party in respect of letters of credit and letters ofguaranty (j) all obligations, contingent or otherwise, of such Person inrespect of bankers’ acceptances, (k) all Hedging Agreements, and (l) 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. The Indebtedness of any Person shall include theIndebtedness of any other entity (including any partnership in which suchPerson is a general partner) to the extent such Person is liable therefor as aresult of such Person’s ownership interest in or other

 

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relationship with such entity, except to theextent the terms of such Indebtedness provide that such Person is not liabletherefor.

 

“Indemnified Taxes” means Taxes other thanExcluded Taxes.

 

“Indemnitee” has the meaning providedtherefor in Section 9.03(b).

 

“Interest Payment Date” means (a) withrespect to any Prime Rate Loan (including a Swingline Loan), the first day ofeach calendar month, and (b) with respect to any LIBO Loan, on the last day ofthe Interest Period applicable to the Borrowing of which such Loan is a part,and, in addition, if such LIBO Loan has an Interest Period of greater than 90days, on the last day of the third month of such Interest Period.

 

“Interest Period” means, with respect toany LIBO Borrowing, the period commencing on the date of such Borrowing andending on the numerically corresponding day in the calendar month that is one,two, three or six months thereafter, as the Borrower may elect by notice to theAdministrative Agent in accordance with the provisions of this Agreement, providedthat (a) if any Interest Period would end on a day other than a Business Day,such Interest Period shall be extended to the next succeeding Business Dayunless such next succeeding Business Day would fall in the next calendar month,in which case such Interest Period shall end on the next preceding BusinessDay, and (b) any Interest Period that commences on the last Business Day of acalendar month (or on a day for which there is no numerically corresponding dayin the last calendar month during which such Interest Period ends) shall end onthe last Business Day of the calendar month of such Interest Period, (c) anyInterest Period which would otherwise end after the Termination Date shall endon the Termination Date, and (d) notwithstanding the provisions of clause (c),no Interest Period shall, unless approved by the Administrative Agent and allof the Lenders, have a duration of less than one month, and if any InterestPeriod applicable to a LIBO Borrowing would be for a shorter period, suchInterest Period shall not be available hereunder. For purposes hereof, the dateof a Borrowing initially shall be the date on which such Borrowing is made andthereafter shall be the effective date of the most recent conversion orcontinuation of such Borrowing.

 

“Inventory” has the meaning assigned tosuch term in the Security Agreement.

 

“Inventory Advance Rate” means 74%.

 

“Inventory Reserves” means such reserves asmay be established from time to time by the Administrative Agent in theAdministrative Agent’s Permitted Discretion (after consultation with theBorrower (whose consent to any Inventory Reserve shall not be required)) withrespect to the determination of the saleability, at retail, of the EligibleInventory or which reflect such other factors as affect the market value of theEligible Inventory. Without limiting the generality of the foregoing, InventoryReserves may include (but are not limited to) reserves based on (i)obsolescence; (ii) seasonality; (iii) Shrink; (iv) imbalance; (v) change inInventory character; (vi) change in Inventory composition; (vii) change inInventory mix; (viii) markdowns (both permanent and point of sale); (ix) retailmarkons and markups inconsistent with prior period practice and performance;industry standards; current business plans; or advertising calendar and plannedadvertising events, and (x) out-of-date and/or expired Inventory.

 

“Investment” means (a) any stock, evidenceof Indebtedness or other security of another Person, (b) any loan, advance,contribution to capital, extension of credit (except for current trade

 

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and customer accounts receivable for inventorysold or services rendered in the ordinary course of business and payable inaccordance with customary trade terms) to another Person, (c) any purchase of(i) stock or other securities of another Person, or (ii) the assets comprisinga division or business unit or a substantial part of the business of any Person(whether by purchase of assets or securities), (d) any commitment or option tomake any such purchase, or (e) any other investment, in all cases whether nowexisting or hereafter made.

 

“Issuing Bank” means Fleet, in its capacityas the issuer of Letters of Credit hereunder, and any successor to Fleet insuch capacity (which may only be a Lender selected by the Administrative Agentin its discretion). The Issuing Bank may, in its discretion, arrange for one ormore Letters of Credit to be issued by Affiliates of the Issuing Bank, in whichcase the term “Issuing Bank” shall include any such Affiliate with respect toLetters of Credit issued by such Affiliate.

 

“L/C Disbursement” means a payment made bythe Issuing Bank pursuant to a Letter of Credit.

 

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

 

“Lenders” shall mean the Persons identifiedon **Schedule 1.1** hereto and each assignee that becomes a party tothis Agreement as set forth in Section 9.04(b).

 

“Letter of Credit” shall mean a letter ofcredit that is (i) issued pursuant to this Agreement for the account of theBorrower, (ii) a Standby Letter of Credit or Commercial Letter of Credit, (iii)issued in connection with the purchase of Inventory by the Borrower and forother purposes for which the Borrower has historically obtained letters ofcredit, or for any other purpose that is reasonably acceptable to theAdministrative Agent, and (iv) in form reasonably satisfactory to the IssuingBank.  All letters of credit issuedunder the Existing Financing Agreement and outstanding on the Closing Dateshall be deemed to have been issued hereunder and shall for all purposes bedeemed to be “Letters of Credit” hereunder.

 

“Letter of Credit Fees” shall mean the feespayable in respect of Letters of Credit pursuant to Section 2.14.

 

“Letter of Credit Outstandings” shall mean,at any time, the sum of (a) with respect to Letters of Credit outstanding atsuch time, the aggregate maximum amount that then is or at any time thereaftermay become available for drawing or payment thereunder plus (b) allamounts theretofore drawn or paid under Letters of Credit for which the IssuingBank has not then been reimbursed.

 

“LIBO Borrowing” shall mean a Borrowingcomprised of LIBO Loans.

 

“LIBO Loan” shall mean any 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 LIBOBorrowing for any Interest Period, the rate per annum as determined on thebasis of the offered rates for deposits in dollars, for a period of timecomparable to such Interest Period which appears on the “Telerate Page 3750” asof 11:00 a.m.

 

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London time on the day that is two (2) BusinessDays preceding the first day of such Interest Period; provided, however, if therate described above does not appear on the Telerate System on any applicableinterest determination date, the LIBO Rate shall be the rate (rounded upward,if necessary, to the nearest 1/16 of 1%), determined on the basis of theoffered rates for deposits in dollars for a period of time comparable to suchInterest Period which are offered by four major banks in the London interbankmarket at approximately 11:00 a.m. London time, on the day that is two (2)Business Days preceding the first day of such Interest Period as selected by AdministrativeAgent. In the event that the Administrative Agent is unable to obtain any suchquotation as provided above, it will be deemed that a LIBO Rate pursuant to aLIBO Borrowing cannot be obtained.

 

“Lien” means, with respect to any asset,(a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance,charge or security interest in, on or of such asset, (b) the interest of avendor or a lessor under any conditional sale agreement, capital lease or titleretention agreement (or any financing lease having substantially the sameeconomic effect as any of the foregoing) relating to such asset and (c) in thecase of securities, any purchase option, call or similar right of a third partywith respect to such securities.

 

“Line Fee” means a fee equal to 0.375% perannum (on the basis of actual days elapsed in a year of 360 days) of theaverage daily balance of the difference between (x) each Lender’s Commitmentand (y) the sum of (i) such Lender’s Commitment Percentage multiplied by theprincipal amount of Revolving Loans then outstanding, and (ii) such Lender’sCommitment Percentage multiplied by the then Letter of Credit Outstandings foreach day commencing on the date hereof and ending on but excluding theTermination Date.

 

“Loan Documents” means this Agreement, theNotes, the Letters of Credit, the Fee Letter, all Borrowing Base Certificates,the Blocked Account Agreements, the DDA Notifications, the Credit CardNotifications, the Security Documents, the Facility Guarantee, the FacilityGuarantors Collateral Documents, and any other instrument or agreement now orhereafter executed and delivered in connection herewith, or in connection withany transaction arising out of any cash management, depository, investment,letter of credit, Hedging Agreement, or other banking or financial servicesprovided by the Administrative Agent, the Collateral Agent or any of theirrespective Affiliates, each as amended and in effect from time to time.

 

“Loan Party” or “Loan Parties” meansthe Borrower and the Facility Guarantors.

 

“Loans” shall mean all loans at any timemade to the Borrower or for account of the Borrower pursuant to this Agreement.

 

“Margin Stock” has the meaning assigned tosuch term in Regulation U.

 

“Material Adverse Effect” means a materialadverse effect on (a) the business, operations, property, assets, or condition,financial or otherwise, of the Parent and its Subsidiaries taken as a whole,(b) the ability of the Loan Parties to perform any material obligation or topay any Obligations under this Agreement or any of the other Loan Documents, or(c) the validity or enforceability of this Agreement or any of the other LoanDocuments or any of the material rights or remedies of the AdministrativeAgent, the Collateral Agent or the Lenders hereunder or thereunder.

 

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“Material Indebtedness” means Indebtedness(other than the Loans and Letters of Credit) of the Borrower in an aggregateprincipal amount exceeding $10,000,000. For purposes of determining the amount of Material Indebtedness at anytime, the amount of the obligations in respect of any Hedging Agreement at suchtime shall be calculated at the Agreement Value thereof.  In all events, “Material Indebtedness” shallinclude Indebtedness under the Convertible Indenture irrespective of theamounts due thereunder.

 

“Maturity Date” means July 21, 2008.

 

“Maximum Rate” has the meaning providedtherefor in Section 9.12.

 

“Minority Lenders” has the meaning providedtherefor in Section 9.02(d).

 

“Moody’s” means Moody’s Investors Service,Inc.

 

“Multiemployer Plan” means a multiemployerplan as defined in Section 4001(a)(3) of ERISA to which the Parent or any ERISAAffiliate is making or accruing an obligation to make contributions, or haswithin the preceding five plan years made or accrued an obligation to makecontributions.

 

“Multiple Employer Plan” means a singleemployer plan, as defined in Section 4001(a)(15) of ERISA, that (a) ismaintained for employees of the Parent or any of its Subsidiaries or any ERISAAffiliate and at least one Person other than the Parent, any Subsidiary or theERISA Affiliate or (b) was so maintained and in respect of which the Parent,any Subsidiary or any ERISA Affiliate could have liability under Section 4064or 4069 of ERISA in the event such plan has been or were to be terminated.

 

“Net Proceeds” means, with respect to anyevent, (a) the cash proceeds received in respect of such event, including (i)any cash received in respect of any non-cash proceeds, but only as and whenreceived, (ii) in the case of a casualty, insurance proceeds, and (iii) in thecase of a condemnation or similar event, condemnation awards and similarpayments, in each case net of (b) the sum of (i) all reasonable fees andout-of-pocket expenses (including appraisals, and brokerage, legal, title andrecording Tax expenses and commissions) paid by any Loan Party to third parties(other than Affiliates) in connection with such event, and (ii) in the case ofa sale or other disposition of an asset (including pursuant to a casualty orcondemnation), the amount of all payments required to be made by any Loan Partyas a result of such event to repay (or to establish an escrow for the repaymentof) Indebtedness (other than Loans) which is secured by such asset andconstitutes a Permitted Encumbrance that is senior to the Lien of theCollateral Agent.

 

“Notes” shall mean (i) the promissory notesof the Borrower substantially in the form of Exhibit B-1, each payable to theorder of a Lender, evidencing the Revolving Loans, and (ii) the promissory noteof the Borrower substantially in the form of Exhibit B-2, payable to theSwingline Lender, evidencing the Swingline Loans.

 

“Obligations” means (a) the due andpunctual payment by the Loan Parties of (i) the principal of, and interest(including all interest that accrues after the commencement of any case orproceeding by or against any Loan Party under any federal or state bankruptcy,insolvency, receivership or similar law, whether or not allowed in such case orproceeding) on the Loans, as and when due, whether at maturity, byacceleration, upon one or more dates set for prepayment

 

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or otherwise, (ii) each payment required to bemade by the Loan Parties under the Credit Agreement in respect of any Letter ofCredit, when and as due, including payments in respect of reimbursement ofdisbursements, interest thereon and obligations to provide cash collateral and(iii) all other monetary obligations, including fees, costs, expenses andindemnities, whether primary, secondary, direct, contingent, fixed orotherwise, of the Loan Parties to the Secured Parties under the CreditAgreement and the other Loan Documents, and (b) the due and punctual paymentand performance of all the covenants, agreements, obligations and liabilitiesof each Loan Party under or pursuant to this Agreement, and the other LoanDocuments, and (c) any transaction with FRF or Fleet, or any of theirrespective Affiliates, which arises out of any cash management, depository,investment, letter of credit, Hedging Agreement, or other banking or financialservices provided by any such Person.

 

“Organic Document” means, relative to anyLoan Party, its partnership agreement, its certificate of incorporation, itsby-laws and all shareholder or equity holder agreements, voting trusts andsimilar arrangements to which such Loan Party is a party or which is applicableto its capital stock, its partnership agreement and all other arrangementsrelating to the control or management of such entity.

 

“Other Taxes” means any and all current orfuture stamp or documentary Taxes or any other excise or property Taxes,charges or similar levies arising from any payment made under any Loan Documentor from the execution, delivery or enforcement of, or otherwise with respectto, any Loan Document.

 

“Overadvance” means, at any time ofcalculation, a circumstance in which the Credit Extensions exceed the lesser of(a) the Commitments or (b) the Borrowing Base.

 

“PBGC” means the Pension Benefit GuarantyCorporation referred to and defined in ERISA and any successor entityperforming similar functions.

 

“Parent” means Duane Reade Inc., a Delawarecorporation.

 

“Participation Register” has the meaningprovided therefor in Section 9.04(e).

 

“Payment Conditions” means, at the time ofdetermination, that (a) no Default or Event of Default then exists or wouldarise as a result of the making of the subject payment, and (b) prior to, asof, and, on a pro forma four Fiscal Quarters basis after giving effect to, thesubject payment, Excess Availability (or with respect to pro formacalculations, average Excess Availability projected for such period) shall beequal to or greater than thirty percent (30%) of the then (or projected, as applicable)Borrowing Base.

 

“Perfection Certificate” means acertificate in the form of Annex 1 to the Security Agreement or any other formapproved by the Collateral Agent.

 

“Permitted Acquisition” means an Investmentin, a purchase of stock in, a purchase of all or a substantial part of theassets or properties of any Person, any exchange of securities with any Person,any transaction, merger or consolidation or acquisition of all or a substantialportion of the assets of any Person, or any acquisition of any retail storelocations of any Person (each of the foregoing an “Acquisition”) whichsatisfies each of the following conditions:

 

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(i)  TheAcquisition is of a business permitted to be conducted by the Borrower pursuantto Section 6.03(b) hereof and the Person to be acquired, or whose assets are tobe acquired, shall be a United States company; and

 

(ii)  Priorto and after giving effect to the Acquisition, no Default or Event of Defaultwill exist or will arise therefrom; and

 

(iii)  ThePerson making the Acquisition must be a Loan Party or a Subsidiary which willbecome a Loan Party in accordance with Section 5.13 hereof; and

 

(iv)  Ifthe Parent or its Subsidiary shall merge with such other Person, such Parent orSubsidiary shall be the surviving party of such merger; and

 

(v)  Ifsuch Person becomes a Subsidiary of a Loan Party, such Person shall become aLoan Party in accordance with Section 5.13 hereof and the Loan Parties(including such Person) shall take such steps as are necessary to grant to theCollateral Agent, for the benefit of the Secured Parties, a legal, valid andenforceable first priority security interest in all of the assets (includingcapital stock) acquired in connection with such acquisition; and

 

(vi)  Priorto, as of, and, on a pro forma four Fiscal Quarters basis after giving effectto, the subject acquisition, Excess Availability (or with respect to pro formacalculations, average Excess Availability projected for such period) shall beequal to or greater than thirty percent (30%) of the then Borrowing Base, andthe Borrower shall have delivered a certificate, together with supportingdocumentation, reflecting compliance with the foregoing to the AdministrativeAgent; and

 

(vii)  If,after giving effect to such acquisition, the aggregate consideration paid(whether in cash, capital stock, assumption of indebtedness or otherwise) foran Acquisition shall exceed $20,000,000, such Acquisition shall have beenapproved by a majority of the Board of Directors (or the equivalent governingbody or a committee of the Board of Directors or such other body givenresponsibility therefor) of the Person which is the subject of such Acquisitionand such Person shall not have announced that it will oppose such Acquisitionor shall not have commenced any action which alleges that such Acquisition willviolate Applicable Law.

 

“Permitted Discretion” means theAdministrative Agent’s good faith judgment based upon any factor orcircumstance which it believes in good faith: (i) will or could reasonably beexpected to adversely affect the value of the Collateral, the enforceability orpriority of the Collateral Agent’s Liens thereon in favor of the SecuredParties or the amount which the Collateral Agent and the Secured Parties wouldlikely receive (after giving consideration to delays in payment and costs ofenforcement) in the liquidation of such Collateral; (ii) suggests that anycollateral report or financial information delivered to the Administrative Agentby or on behalf of any of the Loan Parties is incomplete, inaccurate ormisleading in any material respect; (iii) could reasonably be expected tomaterially increase the likelihood of a bankruptcy, reorganization or otherinsolvency proceeding involving any of the Loan Parties; or (iv) creates orreasonably could be expected to create a Default or Event of Default.  In exercising such judgment, theAdministrative Agent may consider such factors or circumstances alreadyincluded

 

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in or tested by the definition of Eligible CreditCard Receivables, Eligible in-Transit Inventory, Eligible Inventory, EligibleL/C Inventory or Eligible Third Party Receivables, as well as any of thefollowing: (A) the financial and business climate and prospects of any of theLoan Parties’ industry and general macroeconomic conditions; (B) changes incollection history and dilution with respect to the Accounts; (C) changes indemand for and pricing of Inventory; (D) changes in any concentration of riskwith respect to Accounts or Inventory; (E) any other factors or circumstancesthat will or could reasonably be expected to have a Material Adverse Effect;(F) audits of books and records by third parties, history of chargebacks orother credit adjustments, and (G) any other factors that change or couldreasonably be expected to change the credit risk of lending to the Borrower onthe security of the Accounts or Inventory.

 

“Permitted Encumbrances” means:

 

(a)           Liens imposed by law for Taxes thatare not yet due or are being contested in compliance with Section 5.05;

 

(b)           carriers’, warehousemen’s,mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law,arising in the ordinary course of business and securing obligations that arenot overdue by more than 60 days or are being contested in compliance withSection 5.05;

 

(c)           pledges and deposits made in theordinary course of business in compliance with workers’ compensation,unemployment insurance and other social security laws or regulations;

 

(d)           deposits to secure the performance ofbids, trade contracts, leases, statutory obligations, surety and appeal bonds,performance bonds and other obligations of a like nature, in each case in theordinary course of business;

 

(e)           judgment liens in respect ofjudgments that do not constitute an Event of Default underSection 7.01(k);

 

(f)            easements, zoning restrictions,rights-of-way and similar encumbrances on real property imposed by law orarising in the ordinary course of business that do not secure any monetaryobligations and do not materially detract from the value of the affectedproperty or interfere with the ordinary conduct of business of the Borrower orany Subsidiary; and

 

(g)           Liens evidencing the consignment ofpharmaceutical inventory to the Borrower by Amerisource Bergen pursuant to theAmerisource Bergen Agreement.

 

providedthat, except as provided in any one or more of clauses (a) through (g) above,the term “Permitted Encumbrances” shall not include any Lien securingIndebtedness.

 

“Permitted Investments” means each of thefollowing:

 

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

 

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States of America), in each case maturing withinone year from the date of acquisition thereof;

 

(b)           Investments in commercial paper (i)issued by a corporation (other than a Loan Party or an Affiliate of a LoanParty) organized under the laws of any state of the United States or theDistrict of Columbia maturing within 270 days from the date of acquisitionthereof and having, at such date of acquisition, the highest credit ratingobtainable from S&P or from Moody’s, or (ii) issued by a Lender maturingwithin 270 days from the date of acquisition thereof;

 

(c)           Investments in certificates ofdeposit, banker’s acceptances and time deposits maturing within 180 days fromthe date of acquisition thereof issued or guaranteed by or placed with, anddemand deposit and money market deposit accounts issued or offered by, (i) anydomestic office of any commercial bank organized under the laws of the UnitedStates of America or any State thereof that has a combined capital and surplusand undivided profits of not less than $500,000,000, or (ii) any Lender;

 

(d)           fully collateralized repurchaseagreements with a term of not more than 30 days for securities described inclause (a) above (without regard to the limitation on maturity contained insuch clause) and entered into with a financial institution satisfying thecriteria described in clause (c) above or with any primary dealer and having a marketvalue at the time that such repurchase agreement is entered into of not lessthan 100% of the repurchase obligation of such counterparty entity with whomsuch repurchase agreement has been entered into;

 

(e)           short-term Tax exempt securitiesrated not lower than MIG-1/1+ by either Moody’s or S&P with provisions forliquidity or maturity accommodations of 183 days or less; and

 

(f)            Shares of investment companies thatare registered under the Investment Company Act of 1940, as amended, and investsolely in one or more of the types of securities described in clauses (a)through (e) above.

 

*provided that*, notwithstanding the foregoing, no suchInvestments shall be permitted unless (i) no Loans are then outstanding, and(ii) such Investments are pledged to the Administrative Agent as additionalcollateral for the Obligations pursuant to such agreements as may be reasonablyrequired by the Administrative Agent.

 

“Permitted Overadvance” means anOveradvance determined by the Administrative Agent, in its PermittedDiscretion, (a) which is made to maintain, protect or preserve the Collateraland/or the Lenders’ rights under the Loan Documents, or (b) which is otherwisein the Lenders’ interests; provided that Permitted Overadvances shallnot (i) exceed five percent (5%) of the then Borrowing Base in the aggregateoutstanding at any time or (ii) remain outstanding for more than forty-five(45) consecutive Business Days, unless in case of clause (ii), the RequiredSupermajority Lenders otherwise agree; and provided further that theforegoing shall not (1) modify or abrogate any of the provisions of Section2.07(f) hereof regarding the Lender’s obligations with respect to L/CDisbursements, or (2) result in any claim or liability against theAdministrative Agent (regardless of the amount of any Overadvance) for“inadvertent Overadvances” (i.e. where an Overadvance results from changedcircumstances beyond the control of the Administrative Agent (such as areduction in the collateral value)), and further

 

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provided that in no event shall the Administrative Agent makean Overadvance, if after giving effect thereto, the principal amount of theCredit Extensions (including any Overadvance or proposed Overadvance) wouldexceed the Commitments.

 

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

 

“Pharmaceutical Laws” means federal, stateand local laws, rules or regulations, codes, orders, decrees, judgments orinjunctions issued, promulgated, approved or entered, relating to dispensing,storing or distributing prescription medicines or products, including laws,rules or regulations relating to the qualifications of Persons employed to dothe same.

 

“Plan” means a Single Employer Plan or aMultiple Employer Plan.

 

“Pledge Agreement” means the PledgeAgreement dated as of July 21, 2003 among the Loan Parties and the CollateralAgent for the benefit of the Secured Parties, as amended and in effect fromtime to time.

 

“Prime Rate” shall mean, for any day, thehigher of (a) the variable annual rate of interest then most recently announcedby Fleet at its head office in Boston, Massachusetts as its “Prime Rate” and (b)the Federal Funds Effective Rate in effect on such day plus 1⁄2 of 1% (0.50%) perannum. The Prime Rate is a reference rate and does not necessarily representthe lowest or best rate being charged to any customer.  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 suchinability no longer exist. Any change in the Prime Rate due to a change inFleet’s Prime Rate or the Federal Funds Effective Rate shall be effective onthe effective date of such change in Fleet’s Prime Rate or the Federal FundsEffective Rate, respectively.

 

“Prime Rate Loan” shall mean any Loanbearing interest at a rate determined by reference to the Prime Rate inaccordance with the provisions of Article II.

 

“Real Estate” means all land, together withthe buildings, structures, parking areas, and other improvements thereon, nowor hereafter owned by any Loan Party, including all easements, rights-of-way,and similar rights relating thereto and all leases, tenancies, and occupanciesthereof.

 

“Receivables Advance Rate” means 85%.

 

“Register” has the meaning set forth inSection 9.04(c).

 

“Regulation U” means Regulation U of theBoard as from time to time in effect and all official rulings andinterpretations thereunder or thereof.

 

“Regulation X” means Regulation X of theBoard as from time to time in effect and all official rulings andinterpretations thereunder or thereof.

 

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“Related Parties” means, with respect toany specified Person, such Person’s Affiliates and the respective directors,officers, employees, agents and advisors of such Person and such Person’sAffiliates.

 

“Release” has the meaning set forth inSection 101(22) of CERCLA.

 

“Required Lenders” shall mean, subject tothe provisions of Section 8.14, at any time, Lenders having Commitments greaterthan 50% of the Total Commitments, or if the Commitments have been terminated,Lenders whose percentage of the outstanding Obligations (after settlement andrepayment of all Swingline Loans by the Lenders) aggregate greater than 50% ofall such Obligations, it being understood, for avoidance of doubt, that anyprovision hereof that requires the vote of the Required Lenders shall notrequire the consent of the holders of the Obligations described in clause (c)of such definition (as such definition is in effect on the Closing Date).

 

“Required Supermajority Lenders” shallmean, subject to the provisions of Section 8.14, at any time, Lenders havingCommitments outstanding representing at least 66 2/3% of the Total Commitmentsoutstanding or if the Commitments have been terminated, Lenders whose percentageof the outstanding Obligations (after settlement and repayment of all SwinglineLoans by the Lenders) aggregate not less than 66 2/3% of all such Obligations,it being understood, for the avoidance of doubt, that any provision hereof thatrequires the vote of the Required Supermajority Lenders shall not require theconsent of the holders of the Obligations described in clause (c) of suchdefinition (as such definition is in effect on the Closing Date).

 

“Reserves” means all (if any) InventoryReserves and Availability Reserves.

 

“Restricted Payment” means any dividend orother distribution (whether in cash, securities or other property) with respectto any shares of any class of capital stock of any Loan Party or anySubsidiary, or any payment (whether in cash, securities or other property),including any sinking fund or similar deposit, on account of the purchase,redemption, retirement, acquisition, cancellation or termination of any suchshares of capital stock of any Loan Party or any Subsidiary or any option,warrant or other right to acquire any such shares of capital stock of any LoanParty or any Subsidiary. Without limiting the foregoing, “Restricted Payments”with respect to any Person shall also include all payments made by such Personwith any proceeds of a dissolution or liquidation of such Person, but shall notinclude payments (whether in cash, securities or other property) made by suchPerson in respect of stock appreciation rights plans, equity incentive,achievement or similar plans in effect on or after the Closing Date.

 

“Revolving Loans” means all Loans at anytime made by a Lender pursuant to Section 2.01.

 

“S&P” means Standard & Poor’s.

 

“SEC” means the Securities and ExchangeCommission.

 

“Secured Parties” has the meaning assignedto such term in the Security Agreement.

 

“Security Agreement” means the SecurityAgreement dated as of July 21, 2003 among the Loan Parties and the CollateralAgent for the benefit of the Secured Parties, as amended and in effect fromtime to time.

 

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“Security Documents” means the SecurityAgreement, the Pledge Agreement, the Facility Guarantors Collateral Documents,and each other security agreement or other instrument or document executed anddelivered pursuant to Sections 5.13 or 5.14 to secure any of the Obligations.

 

“Settlement Date” has the meaningprovided in Section 2.08(b) hereof.

 

“Shrink” means Inventory which has beenlost, misplaced, stolen, or is otherwise unaccounted for.

 

“Single Employer Plan” means a singleemployer plan, as defined in Section 4001(a)(15) of ERISA, that (a) ismaintained for employees of the Parent or any of its Subsidiaries or any ERISAAffiliate and no Person other than the Parent, its Subsidiaries or the ERISAAffiliate or (b) was so maintained and in respect of which the Parent, anySubsidiary or any ERISA Affiliate could have liability under Section 4069 ofERISA in the event such plan has been or were to be terminated.

 

“Solvent” means, with respect to anyPerson on a particular date, that on such date (a) at fair valuations, all ofthe properties and assets of such Person are greater than the sum of the debts,including contingent liabilities, of such Person, (b) the present fair saleablevalue of the properties and assets of such Person is not less than the amountthat would be required to pay the probable liability of such Person on itsdebts as they become absolute and matured, (c) such Person is able to realizeupon its properties and assets and pay its debts and other liabilities,contingent obligations and other commitments as they mature in the normalcourse of business, (d) such Person does not intend to, and does not believethat it will, incur debts beyond such Person’s ability to pay as such debtsmature, and (e) such Person is not engaged in a business or a transaction, andis not about to engage in a business or transaction, for which such Person’sproperties and assets would constitute unreasonably small capital after givingdue consideration to the prevailing practices in the industry in which suchPerson is engaged.  The amount of allGuarantees at any time shall be computed as the amount that, in light of allthe facts and circumstances existing at the time, can reasonably be expected tobecome an actual or matured liability.

 

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

 

“Statutory Reserve Rate” means afraction (expressed as a decimal), the numerator of which is the number one andthe denominator of which is the number one minus the aggregate of the maximumreserve percentages (including any marginal, special, emergency or supplementalreserves) expressed as a decimal established by the Board to which theAdministrative Agent is subject with respect to the Adjusted LIBO Rate, foreurocurrency funding (currently referred to as “Eurocurrency Liabilities” inRegulation D of the Board). Such reserve percentages shall include thoseimposed pursuant to such Regulation D. LIBO Loans shall be deemed to constituteeurocurrency funding and to be subject to such reserve requirements withoutbenefit of or credit for proration, exemptions or offsets that may be availablefrom time to time to any Lender under such Regulation D or any comparableregulation. The Statutory Reserve Rate shall be adjusted automatically on andas of the effective date of any change in any reserve percentage.

 

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“Subordinated Indebtedness” meansIndebtedness which is expressly subordinated in right of payment, in form andon terms approved by the Agent in writing, to the prior payment in full of theObligations.

 

“Subsidiary” means, with respect to anyPerson (the “parent”) at any date, any corporation, limited liabilitycompany, partnership, association or other entity the accounts of which wouldbe consolidated with those of the parent in the parent’s Consolidated financialstatements if such financial statements were prepared in accordance with GAAPas of such date, as well as any other corporation, limited liability company,partnership, association or other entity (a) of which securities or otherownership interests representing more than 50% of the equity or more than 50%of the ordinary voting power or, in the case of a partnership, more than 50% ofthe general partnership interests are, as of such date, owned, controlled orheld, or (b) that is, as of such date, otherwise Controlled, by the parent orone or more subsidiaries of the parent or by the parent and one or moresubsidiaries of the parent.

 

“Swingline Lender” means FRF, in itscapacity as lender of Swingline Loans hereunder.

 

“Swingline Loan” shall mean a Loan madeby the Swingline Lender to the Borrower pursuant to Section 2.06 hereof.

 

“Synthetic Lease” means any lease orother agreement for the use or possession of property creating obligationswhich do not appear as Indebtedness on the balance sheet of the lesseethereunder but which, upon the insolvency or bankruptcy of such Person, may becharacterized as Indebtedness of such lessee without regard to the accountingtreatment.

 

“Taxes” means any and all current orfuture taxes, levies, imposts, duties, deductions, charges or withholdingsimposed by any Governmental Authority.

 

“Termination Date” shall mean theearliest to occur of (i) the Maturity Date, or (ii) the date on which thematurity of the Loans are accelerated and the Commitments are terminated, or(iii) the date of the occurrence of any Event of Default pursuant to Section7.01(h) or 7.01(i) hereof.

 

“Total Commitment” shall mean, at anytime, the sum of the Commitments at such time. As of the Closing Date, theTotal Commitments aggregate $200,000,000.

 

“Type”, when used in reference to anyLoan or Borrowing, refers to whether the rate of interest on such Loan, or onthe Loans comprising such Borrowing, is determined by reference to the AdjustedLIBO Rate or the Prime Rate.

 

“UCC” shall mean the Uniform CommercialCode as in effect from time to time in the State of New York.

 

“Unused Commitment” shall mean, on anyday, (a) the then Total Commitments minus (b) the sum of (i) theprincipal amount of Loans then outstanding (including the principal amount ofSwingline Loans then outstanding) and (ii) the then Letter of CreditOutstandings.

 

“Voting Stock” means, with respect toany corporation, the outstanding stock of all classes (or equivalent interests)which ordinarily, in the absence of contingencies, entitles holders thereof tovote for the election of directors (or Persons performing similar functions) ofsuch

 

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corporation, eventhough the right so to vote has been suspended by the happening of suchcontingency.

 

“Withdrawal Liability” means liabilityto a Multiemployer Plan as a result of a complete or partial withdrawal fromsuch Multiemployer Plan, as such terms are defined in Part I of Subtitle E ofTitle IV of ERISA.

 

SECTION 1.02       TermsGenerally. The definitions of terms herein shall apply equally to thesingular and plural forms of the terms defined. Whenever the context mayrequire, any pronoun shall include the corresponding masculine, feminine andneuter forms. The words “include”, “includes” and “including” shall be deemedto be followed by the phrase “without limitation”. The word “will” shall beconstrued to have the same meaning and effect as the word “shall”. Unless thecontext requires otherwise (a) any definition of or reference to any agreement,instrument or other document herein 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), (b) any referenceherein to any Person shall be construed to include such Person’s successors andassigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similarimport, shall be construed to refer to this Agreement in its entirety and notto any particular provision hereof, (d) all references herein to Articles,Sections, Exhibits and Schedules shall be construed to refer to Articles andSections of, and Exhibits and Schedules to, this Agreement and (e) the words“asset” and “property” shall be construed to have the same meaning and effectand to refer to any and all tangible and intangible assets and properties,including cash, securities, accounts and contract rights.

 

SECTION 1.03       AccountingTerms; GAAP. Except as otherwise expressly provided herein, all terms of anaccounting or financial nature shall be construed in accordance with GAAP, asin effect on the Closing Date, provided that, if the Borrower notifiesthe Administrative Agent that the Borrower requests an amendment to anyprovision hereof to reflect the effect of any change occurring after the datehereof in GAAP or in the application thereof on the operation of such provision(or if the Administrative Agent notifies the Borrower that the Required Lendersrequest an amendment to any provision hereof for such purpose), regardless ofwhether any such notice is given before or after such change in GAAP or in theapplication thereof, then such provision shall be interpreted on the basis ofGAAP as in effect and applied immediately before such change shall have becomeeffective until such provision shall have been amended in accordance herewith.

 

ARTICLE II

 

Amount and Terms of Credit

 

SECTION 2.01       Commitmentof the Lenders.

 

(a)           EachLender severally and not jointly with any other Lender, agrees, upon the termsand subject to the conditions herein set forth, to extend credit to theBorrower on a revolving basis, in the form of Revolving Loans and Letters ofCredit and in an amount not to exceed the lesser of such Lender’s Commitment orsuch Lender’s Commitment Percentage of the Borrowing Base, subject to thefollowing limitations:

 

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(i)            Theaggregate outstanding amount of the Credit Extensions shall not at any timeexceed the lower of (i) $200,000,000 or, in each case, any other amount towhich the Commitments have then been increased or reduced by the Borrowerpursuant to Sections 2.02 or 2.16, and (ii) the then amount of the BorrowingBase.

 

(ii)           NoLender shall be obligated to issue any Letter of Credit, and Letters of Creditshall be available from the Issuing Bank, subject to the ratable participationof all Lenders, as set forth in Section 2.07. The Borrower will not at any timepermit the aggregate Letter of Credit Outstandings to exceed $15,000,000.

 

(iii)          Subjectto all of the other provisions of this Agreement, Revolving Loans that arerepaid may be reborrowed prior to the Termination Date. No new CreditExtension, however, shall be made to the Borrower after the Termination Date.

 

(b)           EachBorrowing of Revolving Loans (other than Swingline Loans) shall be made by theLenders prorata in accordance with their respectiveCommitments.  The failure of any Lenderto make any Loan shall neither relieve any other Lender of its obligation tofund its Loan in accordance with the provisions of this Agreement nor increasethe obligation of any such other Lender.

 

SECTION 2.02       Increasein Total Commitment.

 

(a)           Solong as the Incremental Loan Commitment Requirements are satisfied, theBorrower shall have the right at any time, and from time to time, to request anincrease of the Total Commitments to an amount not to exceed $225,000,000.  Any such requested increase shall be firstmade to all existing Lenders on a pro rata basis. To the extent that theexisting Lenders decline to increase their Commitments, or decline to increasetheir Commitments to the amount requested by the Borrower, the Arranger mayarrange for other Persons to become a Lender hereunder and to issue commitmentsin an amount equal to the amount of the increase in the Total Commitmentsrequested by the Borrower and not accepted by the existing Lenders (each suchincrease by either means, a “Commitment Increase,” and each such Personissuing, or Lender increasing, its Commitment, an “Additional CommitmentLender”); *provided, however,*that(i) no Lender shall be obligated to provide a Commitment Increase as a resultof any such request by the Borrower, and (ii) any Additional Commitment Lenderwhich is not an existing Lender shall be subject to the approval of theAdministrative Agent, the Issuing Bank, the Swingline Lender and the Borrower(which approval shall not be unreasonably withheld).  Each Commitment Increase shall be in a minimum aggregate amountof at least $5,000,000 and in integral multiples of $5,000,000 in excess thereof.

 

(b)           NoCommitment Increase shall become effective unless and until each of thefollowing conditions have been satisfied:

 

(i)            theBorrower, the Administrative Agent, and any Additional Commitment Lender shallhave executed and delivered a joinder to the Loan Documents in such form as theAdministrative Agent may reasonably require;

 

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(ii)           theIncremental Loan Commitment Requirements shall have been satisfied;

 

(iii)          theBorrower shall have paid such fees and other compensation to the AdditionalCommitment Lenders as the Borrower and each such Additional Commitment Lendersmay agree;

 

(iv)          theBorrower shall have paid such arrangement fees to the Administrative Agentand/or the Arranger as the Borrower and such Persons may agree;

 

(v)           theBorrower shall deliver to the Administrative Agent and the Lenders an opinionor opinions, in form and substance reasonably satisfactory to theAdministrative Agent, from counsel to the Borrower reasonably satisfactory tothe Administrative Agent (it being agreed that the counsel that delivers thelegal opinions on the Closing Date shall be satisfactory to the AdministrativeAgent) and dated such date;

 

(vi)          tothe extent requested by any Additional Commitment Lender, a Note will be issuedat the Borrower’s expense, to each such Additional Commitment Lender, to be inconformity with requirements of Section 2.09 hereof (with appropriatemodification) to the extent necessary to reflect the new Commitment of suchAdditional Commitment Lender; and

 

(vii)         theBorrower and the Additional Commitment Lenders shall have delivered such otherinstruments, documents and agreements as the Administrative Agent mayreasonably have requested.

 

(c)           TheAdministrative Agent shall promptly notify each Lender as to the effectivenessof each Commitment Increase (with each date of such effectiveness beingreferred to herein as a “Commitment Increase Date”), and at such time (i) theTotal Commitments under, and for all purposes of, this Agreement shall beincreased by the aggregate amount of such Commitment Increases, (ii) Schedule1.1 shall be deemed modified, without further action, to reflect therevised Commitments and Commitment Percentages of the Lenders, and (iii) thisAgreement shall be deemed amended, without further action, to the extentnecessary to reflect such increased Total Commitments (including, withoutlimitation, Section 2.01(a)(i)).

 

(d)           Inconnection with Commitment Increases hereunder, the Lenders and the Borroweragree that, notwithstanding anything to the contrary in this Agreement, (i) theBorrower shall, in coordination with the Administrative Agent, (x) repayoutstanding Loans of certain Lenders, and obtain Loans from certain otherLenders (including the Additional Commitment Lenders), or (y) take such otheractions as reasonably may be required by the Administrative Agent, in each caseto the extent necessary so that all of the Lenders effectively participate ineach of the outstanding Loans pro rata on the basis of their CommitmentPercentages (determined after giving effect to any increase in the TotalCommitment pursuant to this Section 2.02), and (ii) the Borrower shall pay tothe Lenders any costs of the type referred to in Section 2.20 in connectionwith any repayment and/or Loans required pursuant to preceding clause (i).  Without limiting the Obligations of theBorrower provided for in this Section 2.02, the Administrative Agent and theLenders agree that they will use their best efforts to attempt to

 

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minimize the costs ofthe type referred to in Section 2.20 which the Borrower would otherwise occurin connection with the implementation of an increase in the Total Commitments.

 

SECTION 2.03       Reserves;Changes to Reserves.

 

(a)           Theinitial Inventory Reserves and Availability Reserves as of the date of thisAgreement are the following:

 

(i)          Shrink(an Inventory Reserve): In the sum of $5,000,000.

 

(b)           TheAdministrative Agent may hereafter, on three Business Days notice to theBorrower, establish additional Reserves or change any of the foregoingReserves, in the exercise of the Permitted Discretion of the AdministrativeAgent.

 

SECTION 2.04       Makingof Loans.

 

(a)           Exceptas set forth in Sections 2.17 and 2.25, Loans (other than Swingline Loans) bythe Lenders shall be either Prime Rate Loans or LIBO Loans as the Borrower mayrequest subject to and in accordance with this Section 2.04, provided thatall Swingline Loans shall be only Prime Rate Loans. All Loans made pursuant tothe same Borrowing shall, unless otherwise specifically provided herein, beLoans of the same Type. Each Lender may fulfill its Commitment with respect toany Loan by causing any lending office of such Lender to make such Loan; butany such use of a lending office shall not affect the obligation of theBorrower to repay such Loan in accordance with the terms of the applicableNote. Each Lender shall, subject to its overall policy considerations, usereasonable efforts (but shall not be obligated) to select a lending officewhich will not result in the payment of increased costs by the Borrowerpursuant to Section 2.24. Subject to the other provisions of this Section 2.04and the provisions of Section 2.25, Borrowings of Loans of more than one Typemay be incurred at the same time, but no more than five (5) Borrowings of LIBOLoans may be outstanding at any time.

 

(b)           TheBorrower shall give the Administrative Agent three Business Days’ priortelephonic notice (thereafter confirmed in writing) of each Borrowing of LIBOLoans and notice of each Borrowing of Prime Rate Loans on the proposed day ofeach Borrowing. Any such notice, to be effective, must be received by theAdministrative Agent not later than 11:00 a.m., Boston time, on the thirdBusiness Day in the case of LIBO Loans prior to the date on which, and on theBusiness Day in the case of Prime Rate Loans that, such Borrowing is to bemade. Such notice shall be irrevocable and shall specify the amount of theproposed Borrowing (which shall be in an integral multiple of $500,000, but notless than $1,000,000 in the case of LIBO Loans and not less than $100,000 inthe case of Prime Rate Loans) and the date thereof (which shall be a BusinessDay) and shall contain disbursement instructions.  Such notice shall specify whether the Borrowing then beingrequested is to be a Borrowing of Prime Rate Loans or LIBO Loans and, if LIBOLoans, the Interest Period with respect thereto. If no election of InterestPeriod is specified in any such notice for a Borrowing of LIBO Loans, suchnotice shall be deemed a request for an Interest Period of one month. If noelection is made as to the Type of Loan, such notice shall be deemed a requestfor Borrowing of Prime Rate Loans. The Administrative Agent shall promptlynotify each Lender of its proportionate share of such Borrowing, the date ofsuch Borrowing, the Type of Borrowing being requested and the Interest Periodor Interest Periods applicable thereto, as appropriate. On the borrowing datespecified in such notice, each Lender shall make its share of the Borrowingavailable at the office of the Administrative Agent at 100

 

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Federal Street,Boston, Massachusetts 02110, no later than 1:00 p.m., Boston time, 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 andmay, in reliance upon such assumption, make available to the Borrower acorresponding amount. In such event, if a Lender has not in fact made its shareof the applicable Borrowing available to the Administrative Agent, then theapplicable Lender and the Borrower severally agree to pay to the AdministrativeAgent forthwith on demand such corresponding amount with interest thereon, foreach day from and including the date such amount is made available to theBorrower to but excluding the date of payment to the Administrative Agent, at(i) in the case of such Lender, the greater of the Federal Funds Effective Rateand a rate determined by the Administrative Agent in accordance with bankingindustry rules on interbank compensation or (ii) in the case of the Borrower,the interest rate applicable to Prime Rate Loans. If such Lender pays suchamount to the Administrative Agent, then such amount shall constitute suchLender’s Loan included in such Borrowing. Upon receipt of the funds madeavailable by the Lenders to fund any Borrowing hereunder, the AdministrativeAgent shall disburse such funds into a Fleet Disbursement Account or otherwisein the manner specified in the notice of borrowing delivered by the Borrowerand shall use reasonable efforts to make the funds so received from the Lendersavailable to the Borrower no later than 4:00 p.m., Boston time.

 

(c)           TheAgent, without the request of the Borrower, may advance any interest, fee,service charge, or other payment to which any Agent or their Affiliates or anyLender is entitled from the Borrower pursuant hereto or any other Loan Documentand may charge the same to the Loan Account notwithstanding that an Overadvancemay result thereby.  The AdministrativeAgent shall advise the Borrower of any such advance or charge promptly afterthe making thereof. Such action on the part of the Administrative Agent shallnot constitute a waiver of the Administrative Agent’s rights and the Borrower’sobligations under Section 2.19(a). Any amount which is added to the principalbalance of the Loan Account as provided in this Section 2.04(c) shall bearinterest at the interest rate then and thereafter applicable to Prime RateLoans.

 

SECTION 2.05       Overadvances.The Agents and the Lenders have no obligation to make any Loan or to provideany Letter of Credit if an Overadvance would result. The Administrative Agentmay, in its discretion, make Permitted Overadvances without the Consent of theLenders and each Lender shall be bound thereby. Any Permitted Overadvances mayconstitute Swingline Loans. The making of any Permitted Overadvance is for thebenefit of the Borrower; such Permitted Overadvances constitute Revolving Loansand Obligations. The making of any such Permitted Overadvances on any oneoccasion shall not obligate the Administrative Agent or any Lender to make orpermit any Permitted Overadvances on any other occasion or to permit suchPermitted Overadvances to remain outstanding.

 

SECTION 2.06       SwinglineLoans

 

(a)           TheSwingline Lender is authorized by the Lenders, but is not obligated, to makeSwingline Loans up to (i) $25,000,000 plus (ii) the Permitted Overadvance, inthe aggregate outstanding at any time, consisting only of Prime Rate Loans,upon a notice of Borrowing received by the Administrative Agent and theSwingline Lender (which notice, at the Swingline Lender’s discretion, may besubmitted prior to 1:00 p.m., Boston time, on the Business Day on which suchSwingline Loan is requested). Swingline Loans shall be subject to periodicsettlement with the Lenders under Section 2.08 below.

 

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(b)           SwinglineLoans may be made only in the following circumstances: (A) for administrativeconvenience, the Swingline Lender may, but is not obligated to, make SwinglineLoans in reliance upon the Borrower’s actual or deemed representations underSection 4.02, that the applicable conditions for borrowing are satisfied or (B)for Permitted Overadvances. If the conditions for borrowing under Section 4.02cannot be fulfilled, the Required Lenders may direct the Swingline Lender to,and the Swingline Lender thereupon shall, cease making Swingline Loans (otherthan Permitted Overadvances) until such conditions can be satisfied or arewaived in accordance with Section 9.02 hereof. Unless the Required Lenders sodirect the Swingline Lender, the Swingline Lender may, but is not obligated to,continue to make Swingline Loans notwithstanding that the conditions forborrowing under Section 4.02 cannot be fulfilled. No Swingline Loans shall bemade pursuant to this subsection (b) if the aggregate outstanding amount of theCredit Extensions and Swingline Loans would exceed the lower of (i)$200,000,000 or any other amount to which the Commitments have then beenincreased or reduced by the Borrower pursuant to Sections 2.02 and 2.16, and(ii) (other than with respect to Permitted Overadvances) the then amount of theBorrowing Base.

 

SECTION 2.07       Lettersof Credit.

 

(a)           Uponthe terms and subject to the conditions herein set forth, the Borrower mayrequest the Issuing Bank, at any time and from time to time after the datehereof and prior to the Termination Date, to issue, and subject to the termsand conditions contained herein, the Issuing Bank shall issue, for the accountof the Borrower one or more Letters of Credit; provided that no Letterof Credit shall be issued if after giving effect to such issuance (i) theaggregate Letter of Credit Outstandings shall exceed $15,000,000, or (ii) theaggregate Credit Extensions would exceed the limitation set forth in Section2.01(a)(i); and provided, further, that no Letter of Credit shallbe issued if the Issuing Bank shall have received notice from theAdministrative Agent or the Required Lenders that the conditions to suchissuance have not been met.

 

(b)           EachStandby Letter of Credit shall expire at or prior to the close of business onthe earlier of (i) the date one year after the date of the issuance of suchLetter of Credit (or, in the case of any renewal or extension thereof, one yearafter such renewal or extension) and (ii) the date that is five Business Daysprior to the Maturity Date, provided that each Standby Letter of Creditmay, upon the request of the Borrower, include a provision whereby such Letterof Credit shall be renewed automatically for additional consecutive periods of12 months or less (but not beyond the date that is five Business Days prior tothe Maturity Date) unless the Issuing Bank notifies the beneficiary thereof atleast 30 days prior to the then-applicable expiration date that such Letter ofCredit will not be renewed.

 

(c)           EachCommercial Letter of Credit shall expire at or prior to the close of businesson the earlier of (i) the date 120 days after the date of the issuance of suchCommercial Letter of Credit and (ii) the date that is five Business Days priorto the Maturity Date.

 

(d)           Draftsdrawn under each Letter of Credit shall be reimbursed by the Borrower indollars on the same Business Day of any such drawing by paying to theAdministrative Agent an amount equal to such drawing not later than 12:00 noon,Boston time, on (i) the date that the Borrower shall have received notice ofsuch drawing, if such notice is received prior to 10:00 a.m., Boston time,on such date, or (ii) the Business Day immediately following the day that theBorrower receive such notice, if such notice is received after 10:00 a.m.,Boston time on the day of drawing, provided that the Borrower may,subject to the conditions to borrowing set

 

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forth herein, requestin accordance with Section 2.04 that such payment be financed with a RevolvingLoan consisting of a Prime Rate Loan or Swingline Loan in an equivalent amountand, to the extent so financed, the Borrower’s obligation to make such paymentshall be discharged and replaced by the resulting Prime Rate Loan or SwinglineLoan. The Issuing Bank shall, promptly following its receipt thereof, examineall documents purporting to represent a demand for payment under a Letter ofCredit. The Issuing Bank shall promptly notify the Administrative Agent and theBorrower by telephone (confirmed by telecopy) of such demand for payment andwhether the Issuing Bank has made or will make payment thereunder, providedthat any failure to give or delay in giving such notice shall not relieve theBorrower of its obligation to reimburse the Issuing Bank and the Lenders withrespect to any such payment.

 

(e)           Ifthe Issuing Bank shall make any L/C Disbursement, then, unless the Borrowershall reimburse the Issuing Bank in full on the date such payment is made, theunpaid amount thereof shall bear interest, for each day from and including thedate such payment is made to but excluding the date that the Borrowerreimburses the Issuing Bank therefor, at the rate per annum then applicable toPrime Rate Loans, provided that, if the Borrower fails to reimburse suchIssuing Bank when due pursuant to paragraph (d) of this Section, then Section2.11 shall apply. Interest accrued pursuant to this paragraph shall be for theaccount of the Issuing Bank, except that interest accrued on and after the dateof payment by any Lender pursuant to paragraph (g) of this Section to reimbursethe Issuing Bank shall be for the account of such Lender to the extent of suchpayment.

 

(f)            Immediatelyupon the issuance of any Letter of Credit by the Issuing Bank (or the amendmentof a Letter of Credit increasing the amount thereof), and without any furtheraction on the part of the Issuing Bank, the Issuing Bank shall be deemed tohave sold to each Lender, and each such Lender shall be deemed unconditionallyand irrevocably to have purchased from the Issuing Bank, without recourse orwarranty, an undivided interest and participation, to the extent of suchLender’s Commitment Percentage, in such Letter of Credit, each drawingthereunder and the obligations of the Borrower under this Agreement and theother Loan Documents with respect thereto. Upon any change in the Commitments pursuantto Sections 2.02 or 9.04, it is hereby agreed that with respect to all Letterof Credit Outstandings, there shall be an automatic adjustment to theparticipations hereby created to reflect the new Commitment Percentages of theassigning and assignee Lenders. Any action taken or omitted by the Issuing Bankunder or in connection with a Letter of Credit, if taken or omitted in theabsence of gross negligence or willful misconduct, shall not create for theIssuing Bank any resulting liability to any Lender.

 

(g)           Inthe event that the Issuing Bank makes any L/C Disbursement and the Borrowershall not have reimbursed such amount in full to the Issuing Bank pursuant tothis Section 2.07, the Issuing Bank shall promptly notify the AdministrativeAgent, which shall promptly notify each Lender of such failure, and each Lendershall promptly and unconditionally pay to the Administrative Agent for theaccount of the Issuing Bank the amount of such Lender’s Commitment Percentageof such unreimbursed payment in dollars and in same day funds. If the IssuingBank so notifies the Administrative Agent, and the Administrative Agent sonotifies the Lenders prior to 11:00 a.m., Boston time, on any Business Day,each such Lender shall make available to the Issuing Bank such Lender’sCommitment Percentage of the amount of such payment on such Business Day insame day funds (or if such notice is received by the Lenders after 11:00 a.m.,Boston time on the day of receipt, payment shall be made on the immediatelyfollowing Business Day). If and to the extent such Lender shall not have somade its Commitment Percentage of the amount of such payment available to theIssuing Bank, such

 

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Lender agrees to payto the Issuing Bank, forthwith on demand such amount, together with interestthereon, for each day from such date until the date such amount is paid to theAdministrative Agent for the account of the Issuing Bank at the greater of theFederal Funds Effective Rate and a rate determined by the Administrative Agentin accordance with banking industry rules on interbank compensation. EachLender agrees to fund its Commitment Percentage of such unreimbursed paymentnotwithstanding a failure to satisfy any applicable lending conditions or theprovisions of Sections 2.01 or 2.07, or the occurrence of the Termination Date.The failure of any Lender to make available to the Issuing Bank its CommitmentPercentage of any payment under any Letter of Credit shall neither relieve anyLender of its obligation hereunder to make available to the Issuing Bank itsCommitment Percentage of any payment under any Letter of Credit on the daterequired, as specified above, nor increase the obligation of such other Lender.Whenever any Lender has made payments to the Issuing Bank in respect of anyreimbursement obligation for any Letter of Credit, such Lender shall beentitled to share ratably, based on its Commitment Percentage, in all paymentsand collections thereafter received on account of such reimbursementobligation.

 

(h)           Wheneverthe Borrower desires that the Issuing Bank issue a Letter of Credit (or theamendment, renewal or extension of an outstanding Letter of Credit), theBorrower shall give to the Issuing Bank and the Administrative Agent at leasttwo Business Days’ prior written (including telegraphic, telex, facsimile orcable communication) notice (or such shorter period as may be agreed upon inwriting by the Issuing Bank and the Borrower) specifying the date on which theproposed Letter of Credit is to be issued, amended, renewed or extended (whichshall be a Business Day), the stated amount of the Letter of Credit sorequested, the expiration date of such Letter of Credit, the name and addressof the beneficiary thereof, and the provisions thereof. If requested by theIssuing Bank, the Borrower shall also submit a letter of credit application onthe Issuing Bank’s standard form in connection with any request for theissuance, amendment, renewal or extension of a Letter of Credit.

 

(i)            Theobligations of the Borrower to reimburse the Issuing Bank for any L/CDisbursement shall be unconditional and irrevocable and shall be paid strictlyin accordance with the terms of this Agreement under all circumstances,including, without limitation: (i) any lack of validity or enforceability ofany Letter of Credit; (ii) the existence of any claim, setoff, defense or otherright which the Borrower may have at any time against a beneficiary of anyLetter of Credit or against the Issuing Bank or any of the Lenders, whether inconnection with this Agreement, the transactions contemplated herein or anyunrelated transaction; (iii) any draft, demand, certificate or other documentpresented under any Letter of Credit proving to be forged, fraudulent, invalidor insufficient in any respect or any statement therein being untrue orinaccurate in any respect; (iv) payment by the Issuing Bank of any Letter ofCredit against presentation of a demand, draft or certificate or other documentwhich does not comply with the terms of such Letter of Credit; (v) any othercircumstance or happening whatsoever, whether or not similar to any of theforegoing, that might, but for the provisions of this Section, constitute alegal or equitable discharge of, or provide a right of setoff against, theBorrower’s obligations hereunder; or (vi) the fact that any Event of Defaultshall have occurred and be continuing. None of the Administrative Agent, theLenders, the Issuing Bank or any of their Affiliates shall have any liabilityor responsibility by reason of or in connection with the issuance or transferof any Letter of Credit or any payment or failure to make any paymentthereunder (irrespective of any of the circumstances referred to in thepreceding sentence), or any error, omission, interruption, loss or delay intransmission or delivery of any draft, notice or other communication under orrelating to any Letter of Credit (including any document required to make adrawing thereunder), any error in interpretation of technical terms or anyconsequence arising from causes beyond the

 

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control of theIssuing Bank, provided that the foregoing provisions of thissubparagraph (i) shall not be construed to excuse the Issuing Bank from liabilityto the Borrower to the extent of any direct damages (as opposed toconsequential damages, claims in respect of which are hereby waived by theBorrower to the extent permitted by Applicable Law) suffered by the Borrowerthat are caused by the Issuing Bank’s failure to exercise care when determiningwhether drafts and other documents presented under a Letter of Credit complywith the terms thereof. The parties hereto expressly agree that, in the absenceof gross negligence or willful misconduct on the part of the Issuing Bank (asfinally determined by a court of competent jurisdiction), the Issuing Bankshall be deemed to have exercised care in each such determination. Infurtherance of the foregoing and without limiting the generality thereof, theparties agree that, with respect to documents presented that appear on theirface to be in compliance with the terms of a Letter of Credit, the Issuing Bankmay, in its sole discretion, either accept and make payment upon such documentswithout responsibility for further investigation, regardless of any notice orinformation to the contrary, or refuse to accept and make payment upon suchdocuments if such documents are not in strict compliance with the terms of suchLetter of Credit.

 

(j)            Ifany Event of Default shall occur and be continuing, on the Business Day thatthe Borrower receives notice from the Administrative Agent or the RequiredLenders demanding the deposit of cash collateral pursuant to this paragraph,the Borrower shall deposit in the Cash Collateral Account an amount in cashequal to 103% of the Letter of Credit Outstandings as of such date plus anyaccrued and unpaid interest thereon. Each such deposit shall be held by theCollateral Agent as collateral for the payment and performance of the Obligationsof the Borrower under this Agreement. The Collateral Agent shall have exclusivedominion and control, including the exclusive right of withdrawal, over suchCash Collateral Account. Other than any interest earned on the investment ofsuch deposits, which investments shall be made at the option and solediscretion of the Collateral Agent at the request of the Borrower and at theBorrower’s risk and expense, such deposits shall not bear interest. Interest orprofits, if any, on such investments shall accumulate in such account. Moneysin such Cash Collateral Account shall be applied by the Collateral Agent toreimburse the Issuing Bank for payments on account of drawings under Letters ofCredit for which it has not been reimbursed and, to the extent not so applied,shall be held first for the satisfaction of the reimbursement obligations ofthe Borrower for the Letter of Credit Outstandings at such time and thereafterbe applied to satisfy other Obligations of the Borrower under this Agreement.

 

SECTION 2.08       SettlementsAmongst Lenders

 

(a)           TheSwingline Lender may (but shall not be obligated to), at any time, on behalf ofthe Borrower (which hereby authorizes the Swingline Lender to act on its behalfin that regard) request the Administrative Agent to cause the Lenders to make aRevolving Loan (which shall be a Prime Rate Loan) in an amount equal to suchLender’s Commitment Percentage of the outstanding amount of Swingline Loansmade in accordance with Section 2.06, which request may be made regardless of whetherthe conditions set forth in Article IV have been satisfied. Upon such request,each Lender shall make available to the Administrative Agent the proceeds ofsuch Revolving Loan for the account of the Swingline Lender. If the SwinglineLender requires a Revolving Loan to be made by the Lenders and the requesttherefor is received prior to 12:00 Noon, Boston time, on a Business Day, suchtransfers shall be made in immediately available funds no later than 3:00 p.m.,Boston time, that day; and, if the request therefor is received after 12:00Noon, Boston time, then no later than 3:00 p.m., Boston time, on the nextBusiness Day. The obligation of each Lender to transfer such funds isirrevocable, unconditional and without recourse to or warranty by the AdministrativeAgent or the Swingline Lender. If and to the extent

 

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any Lender shall nothave so made its transfer to the Administrative Agent, such Lender agrees topay to the Administrative Agent, forthwith on demand such amount, together withinterest thereon, for each day from such date until the date such amount ispaid to the Administrative Agent at the greater of the Federal Funds EffectiveRate and a rate determined by the Administrative Agent in accordance withbanking industry rules on interbank compensation.

 

(b)           Theamount of each Lender’s Commitment Percentage of outstanding Revolving Loans(excluding Swingline Loans) shall be computed weekly (or more frequently in theAdministrative Agent’s discretion) and shall be adjusted upward or downwardbased on all Revolving Loans (excluding Swingline Loans) and repayments ofRevolving Loans (excluding Swingline Loans) received by the AdministrativeAgent as of 3:00 p.m., Boston time, on the first Business Day following the endof the period specified by the Administrative Agent (such date, the “SettlementDate”).

 

(c)           TheAdministrative Agent shall deliver to each of the Lenders promptly after theSettlement Date a summary statement of the amount of outstanding RevolvingLoans (excluding Swingline Loans) for the period and the amount of repaymentsreceived for the period. As reflected on the summary statement, each Lendershall transfer to the Administrative Agent (as provided below), or theAdministrative Agent shall transfer to each Lender, such amounts as arenecessary to insure that, after giving effect to all such transfers, the amountof Revolving Loans made by each Lender with respect to Revolving Loans(excluding Swingline Loans) shall be equal to such Lender’s applicableCommitment Percentage of Revolving Loans (excluding Swingline Loans)outstanding as of such Settlement Date. If the summary statement requirestransfers to be made to the Administrative Agent by the Lenders and is receivedprior to 12:00 Noon, Boston time, on a Business Day, such transfers shall bemade in immediately available funds no later than 3:00 p.m., Boston time, thatday; and, if received after 12:00 Noon, Boston time, then no later than 3:00p.m., Boston time, on the next Business Day. The obligation of each Lender totransfer such funds is irrevocable, unconditional and without recourse to orwarranty by the Administrative Agent. If and to the extent any Lender shall nothave so made its transfer to the Administrative Agent, such Lender agrees topay to the Administrative Agent, forthwith on demand such amount, together withinterest thereon, for each day from such date until the date such amount ispaid to the Administrative Agent at the greater of the Federal Funds EffectiveRate and a rate determined by the Administrative Agent in accordance withbanking industry rules on interbank compensation.

 

SECTION 2.09       Notes;Repayment of Loans.

 

(a)           TheLoans made by each Lender (and to the Swingline Lender, with respect toSwingline Loans) shall be evidenced by a Note duly executed on behalf of theBorrower, dated the Closing Date, in substantially the form attached hereto asExhibit B-1 or B-2, as applicable, payable to the order of each such Lender (orthe Swingline Lender, as applicable) in an aggregate principal amount equal tosuch Lender’s Commitment (or, in the case of the Note evidencing the SwinglineLoans, $25,000,000).

 

(b)           Theoutstanding principal balance of all Swingline Loans shall be repaid on theearlier of the Termination Date or on the date otherwise requested by theSwingline Lender in accordance with the provisions of Section 2.08(a). Theoutstanding principal balance of all other Obligations shall be payable on theTermination Date (subject to earlier repayment as provided below). Each Noteshall bear interest from the date thereof on the outstanding principal balancethereof as set forth in this Article II. Each Lender is hereby authorized bythe Borrower to

 

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endorse on a scheduleattached to each Note delivered to such Lender (or on a continuation of suchschedule attached to such Note and made a part thereof), or otherwise to recordin such Lender’s internal records, an appropriate notation evidencing the date andamount of each Loan from such Lender, each payment and prepayment of principalof any such Loan, each payment of interest on any such 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 the Borrower to repay the Loans made by suchLender in accordance with the terms of this Agreement and the applicable Notes.

 

(c)           Uponreceipt of an affidavit of a Lender as to the loss, theft, destruction ormutilation of such Lender’s Note and upon cancellation of such Note, theBorrower will issue, in lieu thereof, a replacement Note in favor of suchLender, in the same principal amount thereof and otherwise of like tenor.

 

SECTION 2.10       Intereston Loans.

 

(a)           Subjectto Section 2.11, each Prime Rate Loan shall bear interest (computed on thebasis of the actual number of days elapsed over a year of 365 or 366 days, asapplicable) at a rate per annum that shall be equal to the then Prime Rate, plusthe Applicable Margin for Prime Rate Loans.

 

(b)           Subjectto Section 2.11, each LIBO Loan shall bear interest (computed on the basis ofthe actual number of days elapsed over a year of 360 days) at a rate per annumequal, during each Interest Period applicable thereto, to the Adjusted LIBORate for such Interest Period, plus the Applicable Margin for LIBOLoans.

 

(c)           Accruedinterest on all Loans shall be payable in arrears on each Interest Payment Dateapplicable thereto, at maturity (whether by acceleration or otherwise), aftersuch maturity on demand and (with respect to LIBO Loans) upon any repayment orprepayment thereof (on the amount prepaid).

 

SECTION 2.11       DefaultInterest.

 

Effective upon the occurrence of any Event ofDefault and at all times thereafter while such Event of Default is continuing,at the option of the Administrative Agent or upon the direction of the RequiredLenders, interest shall accrue on all outstanding Loans (including SwinglineLoans) (after as well as before judgment, as and to the extent permitted bylaw) at a rate per annum (computed on the basis of the actual number of dayselapsed over a year of 360 days) equal to the rate (including the ApplicableMargin for Loans) in effect from time to time plus 2.00% per annum, andsuch interest shall be payable on demand.

 

SECTION 2.12       CertainFees.

 

The Borrower shall pay to the AdministrativeAgent, for the account of the Administrative Agent, the fees set forth in theFee Letter as and when payment of such fees is due as therein set forth.

 

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SECTION 2.13       UnusedCommitment Fee.

 

Each Lender shall be paid the Line Fee at thetimes and in the manner set forth below. The Borrower shall pay to the Administrative Agent for the account ofthe Lenders, a commitment fee (the “Commitment Fee”) equal to 0.375% perannum (on the basis of actual days elapsed in a year of 360 days) of theaverage daily balance of the Unused Commitment for each day commencing on andincluding the Closing Date and ending on but excluding the Termination Date.The Commitment Fee so accrued in any calendar month shall be payable on thefirst Business Day of the immediately succeeding calendar month, except thatall Commitment Fees so accrued as of the Termination Date shall be payable onthe Termination Date.  If the CommitmentFee actually paid by the Borrower is insufficient to pay the Line Fee due theLenders, the deficiency shall be paid to the Lenders by the Swingline Lenderfrom its own funds (and the Borrower shall have no liability with respectthereto).  The Administrative Agentshall pay the Commitment Fee (and any amounts payable by the Swingline Lenderhereunder) to the Lenders based upon their Commitment Percentages of theaggregate Line Fee due to all Lenders; provided that for purposes ofcalculating the share of any Person which is both the Swingline Lender and aLender, such Person’s share shall be equal to the difference between (i) suchPerson’s Commitment, and (ii) the sum of (A) such Person’s CommitmentPercentage of the principal amount of Revolving Loans then outstanding(including the principal amount of Swingline Loans then outstanding), and (B)such Person’s Commitment Percentage of the then Letter of Credit Outstandings.

 

SECTION 2.14       Letterof Credit Fees.

 

(a)                                  The Borrower shall pay theAdministrative Agent, for the account of the Lenders, on the first day of eachcalendar quarter, in arrears, a fee (each, a “Letter of Credit Fee”) equal tothe following per annum percentages of the average face amount of the followingcategories of Letters of Credit outstanding during the subject quarter:

 

(i)            StandbyLetters of Credit:  At a per annum rateequal to the then Applicable Margin for LIBO Loans.

 

(ii)           CommercialLetters of Credit:  At a per annum rateequal to the then Applicable Margin for LIBO Loans minus 0.50%.

 

(iii)          Afterthe occurrence and during the continuance of an Event of Default, at the optionof the Administrative Agent or upon the direction of the Required Lenders, theLetter of Credit Fee shall be increased by an amount equal to two percent (2%)per annum.

 

(b)           TheBorrower shall pay to the Administrative Agent, for the account of the IssuingBank, and in addition to all Letter of Credit Fees otherwise provided forhereunder, such fronting fees (each, a “Fronting Fee”) and such other fees andcharges in connection with the issuance, negotiation, settlement, amendment andprocessing of each Letter of Credit issued by the Issuing Bank as arecustomarily imposed by the Issuing Bank from time to time in connection withletter of credit transactions.

 

(c)           AllLetter of Credit Fees shall be calculated on the basis of a 360-day year andactual days elapsed.

 

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SECTION 2.15       Natureof Fees.

 

All fees shall be paid on the dates due, inimmediately available funds, to the Administrative Agent, for the respectiveaccounts of the Administrative Agent, the Issuing Bank, and the Lenders, asprovided herein. All fees shall be fully earned on the date when due and shallnot be refundable under any circumstances.

 

SECTION 2.16       Terminationor Reduction of Commitments.

 

(a)           Uponat least three (3) Business Days’ prior written notice to the AdministrativeAgent, the Borrower may, at any time, in whole permanently terminate, or fromtime to time in part permanently reduce, the Commitments. Each such reductionshall be in the principal amount of $5,000,000 or any integral multiple of$1,000,000 in excess thereof. Each such reduction or termination shall (i) beapplied ratably to the Commitments of each Lender and (ii) be irrevocable whengiven. At the effective time of each such reduction or termination, theBorrower shall pay to the Administrative Agent for application as providedherein (i) all Commitment Fees accrued on the amount of the Commitments soterminated or reduced through the date thereof, and (ii) any amount by whichthe Credit Extensions outstanding on such date exceed the amount to which theCommitments are to be reduced effective on such date, in each case proratabased on the amount prepaid.

 

(b)           TheCommitments shall immediately terminate, without any notice or further action,upon any Change in Control unless all of the Required Lenders otherwise agree.

 

SECTION 2.17       AlternateRate of Interest.

 

If prior to the commencement of any InterestPeriod for a LIBO Borrowing:

 

(a)           theAdministrative Agent determines (which determination shall be conclusive absentmanifest error) that adequate and reasonable means do not exist for ascertainingthe Adjusted LIBO Rate for such Interest Period; or

 

(b)           theAdministrative Agent is advised by the Required Lenders that, as a result of aChange in Law after the Closing Date, the Adjusted LIBO Rate for such InterestPeriod will not adequately and fairly reflect the cost to such Lenders ofmaking or maintaining their Loans included in such Borrowing for such InterestPeriod;

 

then theAdministrative Agent shall give notice thereof to the Borrower and the Lendersby telephone or telecopy as promptly as practicable thereafter and, until theAdministrative Agent notifies the Borrower and the Lenders that thecircumstances giving rise to such notice no longer exist, (i) any BorrowingRequest that requests the conversion of any Borrowing to, or continuation ofany Borrowing as, a LIBO Borrowing shall be ineffective and (ii) if anyBorrowing Request requests a LIBO Borrowing, such Borrowing shall be made as aBorrowing of Prime Rate Loans.

 

SECTION 2.18       Conversionand Continuation of Loans.

 

The Borrower shall have the right at any time,on three Business Days’ prior irrevocable notice to the Administrative Agent(which notice, to be effective, must be received by the Administrative Agentnot later than 11:00 a.m., Boston time, on the third Business Day

 

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preceding the date ofany conversion), (x) to convert any outstanding Borrowings of Loans (but in noevent Swingline Loans) of one Type (or a portion thereof) to a Borrowing ofLoans of the other Type or (y) to continue an outstanding Borrowing of LIBOLoans for an additional Interest Period, subject to the following:

 

(a)           noBorrowing of Loans may be converted into, or continued as, LIBO Loans at anytime when an Event of Default has occurred and is continuing;

 

(b)           ifless than a full Borrowing of Loans is converted, such conversion shall be madeprorata among the Lenders based upon their CommitmentPerecentages in accordance with the respective principal amounts of the Loanscomprising such Borrowing held by such Lenders immediately prior to suchconversion;

 

(c)           theaggregate principal amount of Loans being converted into or continued as LIBOLoans shall be in an integral of $500,000 and at least $1,000,000;

 

(d)           eachLender shall effect each conversion by applying the proceeds of its new LIBOLoan or Prime Rate Loan, as the case may be, to its Loan being so converted;

 

(e)           theInterest Period with respect to a Borrowing of LIBO Loans effected by aconversion or in respect to the Borrowing of LIBO Loans being continued as LIBOLoans shall commence on the date of conversion or the expiration of the currentInterest Period applicable to such continuing Borrowing, as the case may be;

 

(f)            aBorrowing of LIBO Loans may be converted only on the last day of an InterestPeriod applicable thereto;

 

(g)           eachrequest for a conversion or continuation of a Borrowing of LIBO Loans whichfails to state an applicable Interest Period shall be deemed to be a requestfor an Interest Period of one month; and

 

(h)           nomore than five (5) Borrowings of LIBO Loans may be outstanding at any time.

 

If the Borrower doesnot give notice to convert any Borrowing of LIBO Loans, or does not give noticeto continue, or does not have the right to continue, any Borrowing as LIBOLoans, in each case as provided above, such Borrowing shall automatically beconverted to a Borrowing of Prime Rate Loans at the expiration of thethen-current Interest Period. The Administrative Agent shall, after it receivesnotice from the Borrower, promptly give each Lender notice of any conversion,in whole or part, of any Loan made by such Lender.

 

SECTION 2.19       MandatoryPrepayment; Commitment Termination; Cash Collateral.

 

The outstanding Obligations shall be subjectto mandatory prepayment as follows:

 

(a)           Ifat any time the amount of the Credit Extensions exceeds the lower of (i) thethen amount of the Commitments and (ii) the then amount of the Borrowing Base,the Borrower will immediately upon notice from the Administrative Agent (A)prepay the Loans in an amount necessary to eliminate such excess, and (B) if,after giving effect to the prepayment in full of all outstanding Loans suchexcess has not been eliminated, deposit cash into the Cash Collateral Accountin an amount equal to 103% of the Letters of Credit Outstanding.

 

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(b)           TheRevolving Loans shall be repaid daily in accordance with the provisions ofSection 2.23 hereof.

 

(c)           AllObligations shall be immediately repaid in full upon any Change in Control unlessall of the Required Lenders otherwise agree.

 

(d)           Subjectto the provisions of Sections 2.19(a) and (b), outstanding Prime Rate Loansshall be prepaid before outstanding LIBO Loans are prepaid. Each partialprepayment of LIBO Loans shall be in an integral multiple of $500,000. Noprepayment of LIBO Loans shall be permitted pursuant to this Section 2.19 otherthan on the last day of an Interest Period applicable thereto, unless theBorrower simultaneously reimburses the Lenders for all “Breakage Costs” (asdefined in Section 2.20(b) below) associated therewith. In order to avoid suchBreakage Costs, as long as no Event of Default has occurred and is continuing,at the request of the Borrower, the Administrative Agent shall hold all amountsrequired to be applied to LIBO Loans in the Cash Collateral Account and willapply such funds to the applicable LIBO Loans at the end of the then pendingInterest Period therefor and such LIBO Loans shall continue to bear interest atthe rate set forth in Section 2.10 until the amounts in the Cash CollateralAccount have been so applied (provided that the foregoing shall in no way limitor restrict the Agents’ rights upon the subsequent occurrence of an Event ofDefault). No partial prepayment of a Borrowing of LIBO Loans shall result inthe aggregate principal amount of the LIBO Loans remaining outstanding pursuantto such Borrowing being less than $1,000,000. Except as provided in Section2.16 and Section 2.19(c), any prepayment of the Revolving Loans shall notpermanently reduce the Commitments.

 

(e)           Allamounts required to be applied to all Loans hereunder (other than SwinglineLoans) shall be applied ratably in accordance with each Lender’s CommitmentPercentage.

 

(f)            Uponthe Termination Date, the Commitments and the credit facility providedhereunder shall be terminated in full and the Borrower shall pay, in full andin cash, all outstanding Loans and all other outstanding Obligations.

 

SECTION 2.20       OptionalPrepayment of Loans; Reimbursement of Lenders.

 

(a)           TheBorrower shall have the right at any time and from time to time to prepayoutstanding Loans in whole or in part, (x) with respect to LIBO Loans, upon atleast two (2) Business Days’ prior written, telex or facsimile notice to theAdministrative Agent prior to 11:00 a.m., Boston time, and (y) with respect toPrime Rate Loans, on the same Business Day if written, telex or facsimilenotice is received by the Administrative Agent prior to 1:00 p.m., Boston time,subject to the following limitations:

 

(i)            Subjectto Section 2.19, all prepayments shall be paid to the Administrative Agent forapplication, first, to the prepayment of outstanding Swingline Loans, second,to the prepayment of other outstanding Loans ratably in accordance with eachLender’s Commitment Percentage, and third, to the funding of a cashcollateral deposit in the Cash Collateral Account in an amount equal to 103% ofall Letter of Credit Outstandings.

 

(ii)           Subjectto the foregoing, outstanding Prime Rate Loans shall be prepaid beforeoutstanding LIBO Loans are prepaid. Each partial prepayment of

 

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LIBO Loans shall be in an integral multiple of$500,000. No prepayment of LIBO Loans shall be permitted pursuant to thisSection 2.20 other than on the last day of an Interest Period applicablethereto, unless the Borrower simultaneously reimburses the Lenders for all“Breakage Costs” (as defined in Section 2.20(b) below) associated therewith. 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 $1,000,000.

 

(iii)          Eachnotice of prepayment shall specify the prepayment date, the principal amountand Type of the Loans to be prepaid and, in the case of LIBO Loans, theBorrowing or Borrowings pursuant to which such Loans were made. Each notice ofprepayment shall be irrevocable and shall commit the Borrower to prepay suchLoan by the amount and on the date stated therein. The Administrative Agentshall, promptly after receiving notice from the Borrower hereunder, notify eachLender of the principal amount and Type of the Loans held by such Lender whichare to be prepaid, the prepayment date and the manner of application of the prepayment.

 

(b)          TheBorrower shall reimburse each Lender on demand for any loss incurred or to beincurred by it in the reemployment of the funds released (i) resulting from anyprepayment (for any reason whatsoever, including, without limitation,conversion to Prime Rate Loans or acceleration by virtue of, and after, theoccurrence of an Event of Default) of any LIBO Loan required or permitted underthis Agreement, if such Loan is prepaid other than on the last day of theInterest Period for such Loan or (ii) in the event that after the Borrowerdelivers a notice of borrowing under Section 2.04 in respect of LIBO Loans,such Loans are not made on the first day of the Interest Period specified insuch notice of borrowing for any reason other than a breach by such Lender ofits obligations hereunder or the delivery of any notice pursuant to Section2.17. Such loss shall be the amount as reasonably determined by such Lender asthe excess, if any, of (A) the amount of interest which would have accrued tosuch Lender on the amount so paid or not borrowed at a rate of interest equalto the Adjusted LIBO Rate for such Loan, for the period from the date of suchpayment or failure to borrow to the last day (x) in the case of a payment orrefinancing with Prime Rate Loans other than on the last day of the InterestPeriod for such Loan, of the then current Interest Period for such Loan or (y)in the case of such failure to borrow, of the Interest Period for such Loanwhich would have commenced on the date of such failure to borrow, over (B) theamount of interest which would have accrued to such Lender on such amount byinvesting such amount in United States Treasury securities (bills on adiscounted basis shall be converted to a bond equivalent) with a maturity dateclosest to the last day of the applicable Interest Period (collectively, “BreakageCosts”). Any Lender demanding reimbursement for such loss shall deliver tothe Borrower from time to time one or more certificates setting forth theamount of such loss as determined by such Lender and setting forth inreasonable detail the manner in which such amount was determined.

 

(c)           Inthe event the Borrower fails to prepay any Loan on the date specified in anyprepayment notice delivered pursuant to Section 2.20(a), the Borrower on demandby any Lender shall pay to the Administrative Agent for the account of suchLender any amounts required to compensate such Lender for any loss incurred bysuch Lender as a result of such failure to prepay, including, withoutlimitation, any loss, cost or expenses incurred by reason of the acquisition ofdeposits or other funds by such Lender to fulfill deposit obligations incurredin anticipation of such prepayment. Any Lender demanding such payment shalldeliver to the Borrower from time to time one or more certificates settingforth the amount of such loss as

 

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determined by suchLender and setting forth in reasonable detail the manner in which such amountwas determined.

 

(d)           Wheneverany partial prepayment of Loans are to be applied to LIBO Loans, such LIBOLoans shall be prepaid in the chronological order of their Interest PaymentDates.

 

SECTION 2.21       Maintenanceof Loan Account; Statements of Account.

 

(a)           TheAdministrative Agent shall maintain an account on its books in the name of theBorrower (the “Loan Account”) which will reflect (i) all SwinglineLoans, all Revolving Loans and other advances made by the Lenders to theBorrower or for the Borrower’s account, (ii) all L/C Disbursements, fees andinterest that have become payable as herein set forth, and (iii) any and allother Obligations that have become payable.

 

(b)           TheLoan Account will be credited with all amounts received by the AdministrativeAgent from the Borrower or otherwise for the Borrower’s account, including allamounts received in the FRF Concentration Account from the Blocked AccountBanks, and the amounts so credited shall be applied as set forthin Section 2.23(a). After the end of each month, the AdministrativeAgent shall send to the Borrower a statement accounting for the charges, loans,advances and other transactions occurring among and between the AdministrativeAgent, the Lenders and the Borrower during that month. The monthly statementsshall, absent manifest error, be final, conclusive and binding on the Borrower.

 

SECTION 2.22       CashReceipts.

 

(a)           Annexedhereto as Schedule 2.22(a) is a list of all present DDAs, which Scheduleincludes, with respect to each depository (i) the name and address of thatdepository; (ii) the account number(s) maintained with such depository; and(iii) to the extent known, a contact person at such depository.

 

(b)           Annexedhereto as Schedule 2.22(b) is a list describing all arrangements towhich the Borrower is a party with respect to the payment to the Borrower ofthe proceeds of all credit card charges for sales by the Borrower.

 

(c)           Onor prior to the Closing Date, the Borrower shall (i) deliver to theAdministrative Agent notifications executed on behalf of the Borrower to each depositoryinstitution with which any DDA is maintained in form satisfactory to theAdministrative Agent, of the Administrative Agent’s interest in such DDA (each,a “DDA Notification”), and (ii) deliver to the Administrative Agentnotifications to each of the Borrower’s credit card clearinghouses andprocessors of notice in form satisfactory to the Administrative Agent, (each, a“Credit Card Notification”), and (iii) enter into agency agreements withthe banks maintaining the deposit accounts identified on Schedule 2.22(c)(collectively, the “Blocked Accounts”), which agreements (the “BlockedAccount Agreements”) shall be in form and substance satisfactory to theAdministrative Agent. The DDA Notifications, Credit Card Notifications andBlocked Account Agreements shall require the sweep on each Business Day of allavailable cash receipts from the sale of Inventory and other assets, allcollections of Accounts, all Net Proceeds, and all other cash payments (butexcluding any and all cash proceeds received by the Borrower or any of itsSubsidiaries in respect of key-man life insurance policies, split-levelinsurance policies or similar policies maintained for the benefit of, andproviding retirement or casualty benefits for, directors and officers of theBorrower, and the spouses, heirs and direct descendants of such

 

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Persons) received bythe Borrower from any Person or from any source or on account of any sale orother transaction or event (all such cash receipts and collections, “CashReceipts”), to a concentration account maintained by the Collateral Agentat Fleet (the “FRF Concentration Account”). In that regard, the Borrowershall cause the ACH or wire transfer to a Blocked Account or to the FRFConcentration Account, no less frequently than daily (and whether or not thereis then an outstanding balance in the Loan Account) of (A) the then contents ofeach DDA, each such transfer to be net of any minimum balance, not to exceed$2,500, as may be required to be maintained in the subject DDA by the bank atwhich such DDA is maintained; and (B) the proceeds of all credit card chargesnot otherwise provided for pursuant hereto. Further, whether or not any Obligations are then outstanding, theBorrower shall cause the ACH or wire transfer to the FRF Concentration Account,no less frequently than daily, of the then entire ledger balance of eachBlocked Account, net of such minimum balance, not to exceed $2,500, as may berequired to be maintained in the subject Blocked Account by the bank at whichsuch Blocked Account is maintained. In the event that, notwithstanding theprovisions of this Section 2.22, the Borrower receives or otherwise hasdominion and control of any such proceeds or collections, such proceeds andcollections shall be held in trust by the Borrower for the Administrative Agentand shall not be commingled with any of the Borrower’s other funds or depositedin any account of the Borrower and shall, within two Business Days afterreceipt, either be deposited into a Blocked Account or the FRF ConcentrationAccount, or dealt with in such other fashion as the Borrower may be instructedby the Administrative Agent.

 

(d)           TheBorrower shall accurately report to the Administrative Agent all amountsdeposited in the Blocked Accounts (other than any such amounts deposited withFleet) to ensure the proper transfer of funds as set forth above. If at anytime other than the times set forth above any cash or cash equivalents owned bythe Borrower are deposited to any account, or held or invested in any manner,otherwise than in a Blocked Account that is subject to a Blocked AccountAgreement, the Administrative Agent shall require the Borrower to close suchaccount and have all funds therein transferred to an account maintained by theAdministrative Agent at Fleet and all future deposits made to a Blocked Accountwhich is subject to a Blocked Account Agreement.

 

(e)           TheBorrower may close DDAs or Blocked Accounts and/or open new DDAs or BlockedAccounts, subject to the execution and delivery to the Administrative Agent ofappropriate DDA Notifications or Blocked Account Agreements (unless expresslywaived by the Administrative Agent) consistent with the provisions of thisSection 2.22 and otherwise satisfactory to the Administrative Agent. Unlessconsented to in writing by the Administrative Agent, the Borrower may notmaintain any bank accounts (other than accounts that in the aggregate havebalances of $2,500 or less) or enter into any agreements with credit card processorsother than the ones expressly contemplated herein.

 

(f)            TheBorrower may also maintain with the Administrative Agent at Fleet one or moredisbursement accounts (the “Fleet Disbursement Accounts”) to be used bythe Borrower for disbursements and payments (including payroll) in the ordinarycourse of business or as otherwise permitted hereunder. The only DisbursementAccounts as of the Closing Date are those described in Schedule 2.22(f).

 

(g)           TheFRF Concentration Account is, and shall remain, under the sole dominion andcontrol of the Collateral Agent. The Borrower acknowledges and agrees that (i)the Borrower has no right of withdrawal from the FRF Concentration Account,(ii) the funds on deposit in the FRF Concentration Account shall continue to becollateral security for all of the Obligations and

 

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(iii) the funds ondeposit in the FRF Concentration Account shall be applied as provided inSection 2.23(a).

 

SECTION 2.23       Applicationof Payments.

 

(a)           Aslong as the Obligations have not been accelerated, all amounts received in theFRF Concentration Account from any source, including the Blocked Account Banks,shall be applied in the following order: first, to pay interest due andpayable on Credit Extensions and to pay fees and expense reimbursements andindemnification then due and payable to the Administrative Agent, FSI, theIssuing Bank, the Collateral Agent, and the Lenders (other than fees, expensesand indemnifications relating to Obligations described in clause SIXTH of thisSection 2.23(a)); second to repay outstanding Swingline Loans; third,to repay other outstanding Revolving Loans that are Prime Rate Loans and alloutstanding reimbursement obligations under Letters of Credit; fourth,to repay outstanding Revolving Loans that are LIBO Loans and all Breakage Costsdue in respect of such repayment pursuant to Section 2.20(b) or, at theBorrower’s option (if no Event of Default has occurred and is then continuing),to fund a cash collateral deposit to the Cash Collateral Account sufficient topay, and with direction to pay, all such outstanding LIBO Loans on the last dayof the then-pending Interest Period therefor; fifth if an Event ofDefault then exists, to fund a cash collateral deposit in the Cash CollateralAccount in an amount equal to 103% of all Letter of Credit Outstandings; sixth,to pay all other Obligations that are then outstanding and then due andpayable, including without limitation, all Obligations arising out of any cashmanagement, depository, investment, letter of credit, Hedging Agreement, orother banking or financial services provided by FRF or Fleet. If allObligations are paid, any excess amounts shall be deposited in a separate cashcollateral account, and as long as no Event of Default then exists, shall bereleased to the Borrower upon the request of the Borrower and utilized by theBorrower prior to any further Revolving Loans being made. Any other amountsreceived by the Administrative Agent, the Issuing Bank, the Collateral Agent,or any Lender as contemplated by Section 2.22 shall also be applied in theorder set forth above in this Section 2.23.

 

(b)           Allcredits against the Obligations shall be conditioned upon final payment to theAdministrative Agent of the items giving rise to such credits. If any itemdeposited to the FRF Concentration Account and credited to the Loan Account isdishonored or returned unpaid for any reason, whether or not such return isrightful or timely, the Administrative Agent shall have the right to reversesuch credit and charge the amount of such item to the Loan Account and theBorrower shall indemnify the Administrative Agent, the Collateral Agent, theIssuing Bank and the Lenders against all claims and losses resulting from suchdishonor or return.

 

SECTION 2.24       IncreasedCosts.

 

(a)                               If any Change in Law shall:

 

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

 

(ii)           imposeon any Lender or the Issuing Bank or the London interbank market any othercondition (not including, for the avoidance of doubt, any condition withrespect to Taxes, which shall only give rise to additional payments to theextent provided

 

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by Section 2.27) affecting this Agreement orLIBO Loans made by such Lender or any Letter of Credit or participationtherein;

 

and the result of anyof the foregoing shall be to increase the cost to such Lender of making ormaintaining any LIBO Loan (or of maintaining its obligation to make any suchLoan) or to increase the cost to such Lender or the Issuing Bank ofparticipating in, issuing or maintaining any Letter of Credit or to reduce theamount of any sum received or receivable by such Lender or the Issuing Bankhereunder (whether of principal, interest or otherwise), then the Borrower willpay to such Lender or the Issuing Bank, as the case may be, such additionalamount or amounts as will compensate such Lender or the Issuing Bank, as thecase may be, for such additional costs incurred or reduction suffered.

 

(b)           Ifany Lender or the 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 the Issuing Bank’s capital or on the capital of suchLender’s or the Issuing Bank’s holding company, if any, as a consequence ofthis Agreement or the Loans made by, or participations in Letters of Creditheld by, such Lender, or the Letters of Credit issued by the Issuing Bank, to alevel below that which such Lender or the Issuing Bank or such Lender’s or theIssuing Bank’s holding company could have achieved but for such Change in Law(taking into consideration such Lender’s or the Issuing Bank’s policies and thepolicies of such Lender’s or the Issuing Bank’s holding company with respect tocapital adequacy), then from time to time the Borrower will pay to such Lenderor the Issuing Bank, as the case may be, such additional amount or amounts aswill compensate such Lender or the Issuing Bank or such Lender’s or the IssuingBank’s holding company for any such reduction suffered.

 

(c)           Acertificate of a Lender or the Issuing Bank setting forth the amount or amountsnecessary to compensate such Lender or the Issuing Bank or its holding company,as the case may be, as specified in paragraph (a) or (b) of this Section andsetting forth in reasonable detail the manner in which such amount or amountswere determined shall be delivered to the Borrower and shall be conclusiveabsent manifest error. The Borrower shall pay such Lender or the Issuing Bank,as the case may be, the amount shown as due on any such certificate withinthirty (30) days after receipt thereof.

 

(d)           Failureor delay on the part of any Lender or the Issuing Bank to demand compensationpursuant to this Section shall not constitute a waiver of such Lender’s or theIssuing Bank’s right to demand such compensation.

 

SECTION 2.25       Changein Legality.

 

(a)           Notwithstandinganything to the contrary contained elsewhere in this Agreement, if (x) anyChange in Law shall make it unlawful for a Lender to make or maintain a LIBOLoan or to give effect to its obligations as contemplated hereby with respectto a LIBO Loan or (y) at any time any Lender determines that the making orcontinuance of any of its LIBO Loans has become impracticable as a result of acontingency occurring after the date hereof which adversely affects the Londoninterbank market or the position of such Lender in the London interbank market,then, by written notice to the Borrower, such Lender may (i) declare that LIBOLoans will not thereafter be made by such Lender hereunder, whereupon anyrequest by the Borrower for a LIBO Borrowing shall, as to such Lender only, bedeemed a request for a Prime Rate Loan unless such declaration shall besubsequently withdrawn; and (ii) require that all outstanding LIBO Loans madeby it be converted to Prime Rate Loans, in which event all

 

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such LIBO Loans shallbe automatically converted to Prime Rate Loans as of the effective date of suchnotice as provided in paragraph (b) below. In the event any Lender shallexercise its rights under clause (i) or (ii) of this paragraph (a), allpayments and prepayments of principal which would otherwise have been appliedto repay the LIBO Loans that would have been made by such Lender or theconverted LIBO Loans of such Lender shall instead be applied to repay the PrimeRate Loans made by such Lender in lieu of, or resulting from the conversion of,such LIBO Loans.

 

(b)           Forpurposes of this Section 2.25, a notice to the Borrower by any Lender pursuantto paragraph (a) above shall be effective, if any LIBO Loans shall then beoutstanding, on the last day of the then-current Interest Period; and otherwisesuch notice shall be effective on the date of receipt by the Borrower.

 

SECTION 2.26       Payments;Sharing of Setoff.

 

(a)           TheBorrower shall make each payment required to be made by it hereunder or underany other Loan Document (whether of principal, interest, fees or reimbursementof drawings under Letters of Credit, or of amounts payable under Sections2.20(b), 2.24 or 2.27, or otherwise) prior to 12:00 noon, Boston time, on thedate when due, in immediately available funds, without setoff or counterclaim.Any amounts received after such time on any date may, in the discretion of theAdministrative Agent, be deemed to have been received on the next succeedingBusiness Day for purposes of calculating interest thereon. All such paymentsshall be made to the Administrative Agent at its offices at 100 Federal Street,Boston, Massachusetts, except payments to be made directly to the Issuing Bankor Swingline Lender as expressly provided herein and except that paymentspursuant to Sections 2.20(b), 2.24, 2.27 and 9.03 shall be made directly to thePersons entitled thereto and payments pursuant to other Loan Documents shall bemade to the Persons specified therein. The Administrative Agent shalldistribute any such payments received by it for the account of any other Personto the appropriate recipient promptly following receipt thereof. If any paymentunder any Loan Document shall be due on a day that is not a Business Day,except with respect to LIBO Borrowings, the date for payment shall be extendedto the next succeeding Business Day, and, in the case of any payment accruinginterest, interest thereon shall be payable for the period of such extension.All payments under each Loan Document shall be made in dollars.

 

(b)           Allfunds received by and available to the Administrative Agent to pay principal,unreimbursed drawings under Letters of Credit, interest and fees then duehereunder, shall be applied in accordance with the provisions of Section2.23(a) hereof or Section 6.02 of the Security Agreement, as applicable,ratably among the parties entitled thereto in accordance with the amounts ofprincipal, unreimbursed drawings under Letters of Credit, interest, and feesthen due to such respective parties.

 

(c)           Ifany Lender shall, by exercising any right of setoff or counterclaim orotherwise, obtain payment in respect of any principal of or interest on any ofits Loans or participations in drawings under Letters of Credit or SwinglineLoans resulting in such Lender’s receiving payment of a greater proportion ofthe aggregate amount of its Loans and participations in drawings under Lettersof Credit and Swingline Loans and accrued interest thereon than the proportionreceived by any other Lender, then the Lender receiving such greater proportionshall purchase (for cash at face value) participations in the Loans and participationsin drawings under Letters of Credit and Swingline Loans of other Lenders to theextent necessary so that the benefit of all such payments shall be shared bythe Lenders ratably in accordance with the aggregate

 

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amount of principalof and accrued interest on their respective Loans and participations indrawings under Letters of Credit and Swingline Loans, provided that (i)if any such participations are purchased and all or any portion of the paymentgiving rise thereto is recovered, such participations shall be rescinded andthe purchase price restored to the extent of such recovery, without interest,and (ii) the provisions of this paragraph shall not be construed to apply toany payment made by the Borrower pursuant to and in accordance with the expressterms of this Agreement or any payment obtained by a Lender as considerationfor the assignment of or sale of a participation in any of its Loans orparticipations in drawings under Letters of Credit to any assignee orparticipant, other than to the Borrower or any Affiliate thereof (as to whichthe provisions of this paragraph shall apply). The Borrower consents to theforegoing and agrees, to the extent it may effectively do so under Applicable Law,that any Lender acquiring a participation pursuant to the foregoingarrangements may exercise against the Borrower rights of setoff andcounterclaim with respect to such participation as fully as if such Lender werea direct creditor of the Borrower in the amount of such participation.

 

(d)           Unlessthe Administrative Agent shall have received notice from the Borrower prior tothe date on which any payment is due to the Administrative Agent for theaccount of the Lenders or the Issuing Bank hereunder that the Borrower will notmake such payment, the Administrative Agent may assume that the Borrower hasmade such payment on such date in accordance herewith and may, in reliance uponsuch assumption, distribute to the Lenders or the Issuing Bank, as the case maybe, the amount due. In such event, if the Borrower has not in fact made suchpayment, then each of the Lenders or the Issuing Bank, as the case may be,severally agrees to repay to the Administrative Agent forthwith on demand theamount so distributed to such Lender or Issuing Bank with interest thereon, foreach day from and including the date such amount is distributed to it to butexcluding the date of payment to the Administrative Agent, at the greater ofthe Federal Funds Effective Rate and a rate determined by the AdministrativeAgent in accordance with banking industry rules on interbank compensation.

 

(e)           Ifany Lender shall fail to make any payment required to be made by it pursuant tothis Agreement, then the Administrative Agent may, in its discretion(notwithstanding any contrary provision hereof), apply any amounts thereafterreceived by the Administrative Agent for the account of such Lender to satisfysuch Lender’s obligations under such Sections until all such unsatisfiedobligations are fully paid.

 

SECTION 2.27       Taxes.

 

(a)           Anyand all payments by or on account of any obligation of the Borrower hereunderor under any other Loan Document shall be made free and clear of and withoutdeduction for any Indemnified Taxes, provided that if the Borrower shallbe required to deduct any Indemnified Taxes from such payments, then (i) thesum payable shall be increased as necessary so that after making all requireddeductions for Indemnified Taxes (including deductions for Indemnified Taxesapplicable to additional sums payable under this Section) the Agents, suchLender or the Issuing Bank (as the case may be) receives an amount equal to thesum it would have received had no such deductions been made, (ii) the Borrowershall make such deductions, and (iii) the Borrower shall pay the full amountdeducted to the relevant Governmental Authority in accordance with ApplicableLaw.

 

(b)           Inaddition, the Borrower shall pay any Other Taxes to the relevant GovernmentalAuthority in accordance with Applicable Law.

 

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(c)           TheBorrower shall indemnify the Agents, each Lender and the Issuing Bank, withinthirty (30) days after written demand therefor, for the full amount of anyIndemnified Taxes or Other Taxes paid by the Agents, such Lender or the IssuingBank, as the case may be, on or with respect to any payment by or on account ofany obligation of the Borrower hereunder or under any other Loan Document(including Indemnified Taxes or Other Taxes imposed or asserted on orattributable to amounts payable under this Section) and any penalties, interestand reasonable expenses arising therefrom or with respect thereto. Acertificate as to the amount of such payment or liability delivered to theBorrower by a Lender or the Issuing Bank, or by the Administrative Agent on itsown behalf or on behalf of an Agent, a Lender or the Issuing Bank setting forthin reasonable detail the manner in which such amount was determined, shall bepresumed correct absent manifest error.

 

(d)           Assoon as practicable after any payment of Indemnified Taxes or Other Taxes bythe Borrower to a Governmental Authority, the Borrower shall deliver to theAdministrative Agent the original or a certified copy of a receipt issued bysuch Governmental Authority evidencing such payment, a copy of the returnreporting such payment or other evidence of such payment reasonablysatisfactory to the Administrative Agent.

 

(e)           AnyForeign Lender that is entitled to an exemption from or reduction in U.S.Federal withholding tax shall deliver to the Borrower and the AdministrativeAgent two copies of either United States Internal Revenue ServiceForm W-8BEN or Form W-8ECI, or any subsequent versions thereof orsuccessors thereto, or, in the case of a Foreign Lender claiming exemption fromin U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code withrespect to payments of “portfolio interest”, a (i) Form W-8BEN, or anysubsequent versions thereof or successors thereto and (ii) a certificate representingthat such Foreign Lender is not (A) a bank for purposes of Section 881(c) ofthe Code, (B) is not a 10-percent shareholder (within the meaning of Section871(h)(3)(B) of the Code) of the Borrower and (C) is not a controlled foreigncorporation related to the Borrower (within the meaning of Section 864(d)(4) ofthe Code)), properly completed and duly executed by such Foreign Lenderclaiming, as applicable, complete exemption from or reduced rate of, U.S.Federal withholding Tax on payments by the Borrower under this Agreement andthe other Loan Documents, or in the case of a Foreign Lender claiming exemptionfor “portfolio interest” certifying that it is not a foreign corporation,partnership, estate or trust. Such forms shall be delivered by each ForeignLender on or before the date it becomes a party to this Agreement (or, in thecase of a transferee that is a participation holder, on or before the date suchparticipation holder becomes a transferee hereunder) and on or before the date,if any, such Foreign Lender changes its applicable lending office bydesignating a different lending office (a “New Lending Office”). In addition,each Foreign Lender shall deliver such forms promptly upon the obsolescence orinvalidity of any form previously delivered by such Foreign Lender.Notwithstanding any other provision of this Section 2.27(e), a Foreign Lendershall not be required to deliver any form pursuant to this Section 2.27(e) thatsuch Foreign Lender is not legally able to deliver.

 

(f)            Uponthe request of the Borrower, any Lender that is not a Foreign Lender shalldeliver to the Borrower two copies of United States Internal Revenue ServiceForm W-9  or any subsequent versionsthereof or successors thereto, properly completed and duly executed.  If any Lender fails to deliver Form W-9  or any subsequent versions thereof orsuccessors thereto as required herein, then the Borrower may withhold from anypayment to such party an amount equivalent to the applicable backup withholdingTax imposed by the Code, without reduction.

 

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(g)           TheBorrower shall not be required to indemnify any Lender or to pay any additionalamounts to any Lender in respect of U.S. Federal withholding tax pursuant toparagraph (a) or (c) above 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 paragraphs (e) or (f) above. Should a Lenderbecome subject to Taxes because of its failure to deliver a form requiredhereunder, the Borrower shall, at such Lender’s expense, take such steps assuch Lender shall reasonably request to assist such Lender to recover suchTaxes.

 

(h)           Eachof the Lenders agrees that upon the occurrence of any circumstances entitlingsuch party to indemnification or additional amounts pursuant to Section 2.27(a)or (c), such party shall use reasonable efforts to take any action (includingdesignating a new lending office and signing any prescribed forms or otherdocumentation appropriate in the circumstances) if such action would reduce oreliminate any Tax (including penalties or interest, as applicable) with respectto which such indemnification or additional amounts may thereafter accrue.

 

(i)            Ifany Lender reasonably determines that it has actually and finally realized, byreason of a refund, deduction or credit of any Taxes paid or reimbursed by theBorrower pursuant to subsection (a) or (c) above in respect of payments underthe Loan Documents, a current monetary benefit that it would otherwise not haveobtained and that would result in the total payments under this Section 2.27exceeding the amount needed to make such Lender whole, such Lender shall pay tothe Borrower, with reasonable promptness following the date upon which itactually realizes such benefit, an amount equal to the lesser of the amount ofsuch benefit or the amount of such excess, in each case net of allout-of-pocket expenses incurred in securing such refund, deduction or credit.

 

SECTION 2.28       SecurityInterests in Collateral.

 

To secure their Obligations under thisAgreement and the other Loan Documents, the Loan Parties shall grant to theCollateral Agent, for its benefit and the ratable benefit of the other SecuredParties, a first-priority security interest in all of the Collateral pursuantto the Security Documents.

 

SECTION 2.29       MitigationObligations; Replacement of Lenders.

 

(a)           Ifany Lender requests compensation under Section 2.24, or if the Borrower isrequired to pay any additional amount to any Lender or any GovernmentalAuthority for the account of any Lender pursuant to Section 2.27, then suchLender shall use reasonable efforts to designate a different lending office forfunding or booking its Loans hereunder or to assign its rights and obligationshereunder to another of its offices, branches or affiliates, if, in thejudgment of such Lender, such designation or assignment (i) would eliminate orreduce amounts payable pursuant to Section 2.24 or 2.27, as the case may be, inthe future and (ii) would not subject such Lender to any unreimbursed cost orexpense and would not otherwise be disadvantageous to such Lender. The Borrowerhereby agrees to pay all reasonable costs and expenses incurred by any Lenderin connection with any such designation or assignment; provided, however,that the Borrower 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.

 

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(b)           Ifany Lender requests compensation under Section 2.24, or if the Borrower isrequired to pay any additional amount to any Lender or any GovernmentalAuthority for the account of any Lender pursuant to Section 2.27, or if anyLender defaults in its obligation to fund Loans hereunder, then the Borrowermay, at its sole expense and effort, upon notice to such Lender and the AdministrativeAgent, require such Lender to assign and delegate, without recourse (inaccordance with and subject to the restrictions contained in Section 9.04), allits interests, rights and obligations under this Agreement to an assignee thatshall assume such obligations (which assignee may be another Lender, if aLender accepts such assignment), provided that (i) the Borrower shallhave received the prior written consent of the Administrative Agent, theIssuing Bank and Swingline Lender, which consent shall not unreasonably bewithheld, (ii) such Lender shall have received payment of an amount equal tothe outstanding principal of its Loans and participations in unreimburseddrawings under Letters of Credit and Swingline Loans, accrued interest thereon,accrued fees and all other amounts payable to it hereunder from the assignee(to the extent of such outstanding principal and accrued interest and fees) orthe Borrower (in the case of all other amounts) and (iii) in the case of anysuch assignment resulting from a claim for compensationunder Section 2.24 or payments required to be made pursuantto Section 2.27, such assignment will result in a reduction in suchcompensation or payments. A Lender shall not be required to make any suchassignment and delegation if, prior thereto, as a result of a waiver by suchLender or otherwise, the circumstances entitling the Borrower to require suchassignment and delegation cease to apply.

 

ARTICLE III

 

###### Representationsand Warranties

 

Each Loan Party represents and warrants to theAgents and the Lenders that:

 

SECTION 3.01       Organization;Powers. Each Loan Party is duly organized, validly existing and in goodstanding under the laws of the jurisdiction of its organization, has allrequisite power and authority to carry on its business as now conducted and,except where the failure to do so, individually or in the aggregate, could notreasonably be expected to result in a Material Adverse Effect, is qualified todo business in, and is in good standing in, every jurisdiction where suchqualification is required.

 

SECTION 3.02       Authorization;Enforceability. The transactions contemplated hereby and by the other LoanDocuments to be entered into by each Loan Party are within such Loan Party’scorporate or partnership and other powers and have been duly authorized by allnecessary corporate and, if required, stockholder action. This Agreement hasbeen duly executed and delivered by each Loan Party that is a party hereto andconstitutes, and each other Loan Document to which any Loan Party is a party,when executed and delivered by such Loan Party will constitute, a legal, validand binding obligation of such Loan Party (as the case may be), enforceable inaccordance with its terms, subject to applicable bankruptcy, insolvency, reorganization,moratorium or other laws affecting creditors’ rights generally and subject togeneral principles of equity, regardless of whether considered in a proceedingin equity or at law.

 

SECTION 3.03       GovernmentalApprovals; No Conflicts. The transactions to be entered into contemplatedby the Loan Documents (a) do not require any consent or approval of,registration or filing with, or any other action by, any GovernmentalAuthority, except for such as have been obtained or made and are in full forceand effect and except filings and recordings necessary to perfect Liens createdunder the Loan Documents, (b) will not violate any Applicable

 

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Law or the OrganicDocuments of any Loan Party or any order of any Governmental Authority, (c)will not violate or result in a default under any indenture, material agreementor other material instrument binding upon any Loan Party or its assets(including, without limitation, the Convertible Indenture), or give rise to aright thereunder to require any payment to be made by any Loan Party, and (d)will not result in the creation or imposition of any Lien on any asset of anyLoan Party, except Liens created under the Loan Documents.

 

SECTION 3.04       FinancialCondition.  The Parent hasheretofore furnished to the Lenders the Consolidated balance sheet, andstatements of income, stockholders’ equity, and cash flows for the Parent andits Subsidiaries as of and for the Fiscal Year ending December 28, 2002 and asof and for the Fiscal Quarter ending March 29, 2003, certified by a FinancialOfficer of the Borrower. Such financial statements present fairly, in allmaterial respects, the financial position, results of operations and cash flowsof the Parent and its Subsidiaries as of such dates and for such periods inaccordance with GAAP, subject to year end audit adjustments and the absence offootnotes. Since March 29, 2003, there have been no changes in the assets,liabilities, financial condition, or business of the Parent and itsSubsidiaries other than changes in the ordinary course of business, the effectof which has had a Material Adverse Effect.

 

SECTION 3.05       Properties.(a)  Except as disclosed in Schedules3.05(c)(i) and 3.05(c)(ii), each Loan Party has good title to, or validleasehold interests in, all its real and personal property material to itsbusiness, except for defects which could not reasonably be expected to have aMaterial Adverse Effect.

 

(b)           EachLoan Party owns, or is licensed to use, all trademarks, trade names,copyrights, patents and other intellectual property material to its business,and the use thereof by the Loan Parties does not infringe upon the rights ofany other Person, except for any such infringements that, individually or inthe aggregate, could not reasonably be expected to result in a Material AdverseEffect.

 

(c)           Schedule3.05(c)(i) sets forth the address (including county) of all Real Estate that isowned by the Loan Parties, together with a list of the holders of any mortgageor other Lien thereon as of the Closing Date. Schedule 3.05(c)(ii) sets forththe address (including county) of all Leases of the Loan Parties, together witha list of the holders of any mortgage or other Lien on the Borrower’s interestin such Lease as of the Closing Date. Each of such Leases is in full force and effect and the Loan Parties arenot in default of the terms thereof.

 

SECTION 3.06       Litigationand Environmental Matters. (a) There are no actions, suits or proceedings(including, without limitation, any relating to any Pharmaceutical Law) by orbefore any arbitrator or Governmental Authority pending against or, to theknowledge of the Borrower, threatened in writing against or affecting any LoanParty (i)  as to which there is areasonable probability of an adverse determination and that, if adverselydetermined, could reasonably be expected, individually or in the aggregate, toresult in a Material Adverse Effect (other than those set forth on Schedule3.06) or (ii) that involve any of the Loan Documents.

 

(b)           Exceptfor the matters set forth on Schedule 3.06 and except with respect to any othermatters that, individually or in the aggregate, could not reasonably beexpected to result in a Material Adverse Effect, no Loan Party (i) has failedto comply with any Environmental Law or to obtain, maintain or comply with anypermit, license or other approval required under any Environmental Law, (ii)has become subject to any Environmental Liability,

 

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(iii) has receivednotice of any claim with respect to any Environmental Liability or (iv) knowsof any basis for any Environmental Liability.

 

(c)           Sincethe date of this Agreement, there has been no change in the status of thematters set forth on Schedule 3.06 that, individually or in the aggregate, hasresulted in, or could reasonably be expected to result in, a Material AdverseEffect.

 

SECTION 3.07       Compliancewith Laws and Agreements. Each Loan Party is in compliance with allApplicable Law and all indentures, material agreements and other instrumentsbinding upon it or its property (including, without limitation, the ConvertibleIndenture), except where the failure to do so, individually or in theaggregate, could not reasonably be expected to result in a Material AdverseEffect. No Default has occurred and is continuing.

 

SECTION 3.08       Investmentand Holding Company Status. No Loan Party is (a) an “investment company” asdefined in, or subject to regulation under, the Investment Company Act of 1940or (b) a “holding company” as defined in, or subject to regulation under, thePublic Utility Holding Company Act of 1935.

 

SECTION 3.09       Taxes.Except as set forth on Schedule 3.09 hereto, each Loan Party has timely filedor caused to be filed all federal and state Tax returns and reports required tohave been filed and has paid or caused to be paid all Taxes required to havebeen paid by it, except (a) Taxes that are being contested in good faith byappropriate proceedings, for which such Loan Party has set aside on its booksadequate reserves, and as to which no Lien has been filed, or (b) to the extentthat the failure to do so could not reasonably be expected to result in aMaterial Adverse Effect.  The LoanParties do not intend to treat any of the transactions contemplated by the LoanDocuments as being a “reportable transaction” within the meaning of 26 CFR1.6011-4.

 

SECTION 3.10       ERISA.No ERISA Event has occurred or is reasonably expected to occur that, when takentogether with all other such ERISA Events for which liability is reasonablyexpected to occur, could reasonably be expected to result in a Material AdverseEffect. The present value of all accumulated benefit obligations under eachPlan (based on the assumptions used for purposes of Statement of FinancialAccounting Standards No. 87) did not, as of the date of the most recentfinancial statements reflecting such amounts, exceed the fair market value ofthe assets of such Plan, and the present value of all accumulated benefitobligations of all underfunded Plans (based on the assumptions used forpurposes of Statement of Financial Accounting Standards No. 87) did not, as ofthe date of the most recent financial statements reflecting such amounts,exceed the fair market value of the assets of all such underfunded Plans.

 

SECTION 3.11       Disclosure.The Borrower has disclosed to the Lenders all agreements, instruments andcorporate or other restrictions to which any Loan Party is subject, and allother matters known to any of them, that, individually or in the aggregate,could reasonably be expected to result in a Material Adverse Effect. None ofany of the reports, financial statements, certificates or other writteninformation furnished by or on behalf of any Loan Party to the AdministrativeAgent or any Lender in connection with the negotiation of this Agreement or anyother Loan Document or delivered hereunder or thereunder (as modified orsupplemented by other information so furnished) 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 misleading.

 

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SECTION 3.12       Subsidiaries.

 

(a)           Schedule3.12 sets forth the name of, and the ownership interest of each Loan Party ineach Subsidiary as of the Closing Date. There is no other capital stock orownership interest of any class outstanding as of the Closing Date. The LoanParties are not party to any joint venture, general or limited partnership, orlimited liability company, agreements or any other business ventures orentities as of the Closing Date.

 

(b)           TheParent and its Subsidiaries have received the consideration for which thecapital stock and other ownership interests was authorized to be issued andhave otherwise complied with all legal requirements relating to theauthorization and issuance of shares of stock and other ownership interests,and all such shares and ownership interests are validly issued, fully paid, andnon-assessable.

 

SECTION 3.13       Insurance.Schedule 3.13 sets forth a description of all insurance maintained by or onbehalf of the Loan Parties and their Subsidiaries. Each of such policies is infull force and effect.  All premiums inrespect of such insurance that are due and payable have been paid.

 

SECTION 3.14       LaborMatters.  There are no strikes,lockouts or slowdowns against any Loan Party pending or, to the knowledge ofthe Borrower, threatened. The hours worked by and payments made to employees ofthe Loan Parties have not been in violation of the Fair Labor Standards Act orany other applicable federal, state, local or foreign law dealing with suchmatters to the extent that any such violation could reasonably be expected tohave a Material Adverse Effect. All payments due from any Loan Party, or forwhich any claim may be made against any Loan Party, on account of wages andemployee health and welfare insurance and other benefits, have been paid oraccrued as a liability on the books of such member. The consummation of thetransactions contemplated by the Loan Documents will not give rise to any rightof termination or right of renegotiation on the part of any union under anycollective bargaining agreement to which any Loan Party is bound.

 

SECTION 3.15       SecurityDocuments. The Security Documents create in favor of the Collateral Agent,for the ratable benefit of the Secured Parties, a legal, valid and enforceablesecurity interest in the Collateral, and the Security Documents constitute thecreation of a fully perfected first priority Lien on, and security interest in,all right, title and interest of the Loan Parties thereunder in suchCollateral, in each case prior and superior in right to any other Person (otherthan Permitted Encumbrances having priority under Applicable Law).

 

SECTION 3.16       FederalReserve Regulations. (a)  No LoanParty is engaged principally, or as one of its important activities, in thebusiness of extending credit for the purpose of buying or carrying MarginStock.

 

(b)           Nopart of the proceeds of any Loan or any Letter of Credit will be used, whetherdirectly or indirectly, and whether immediately, incidentally or ultimately,(i) to buy or carry Margin Stock or to extend credit to others for the purposeof buying or carrying Margin Stock or to refund indebtedness originallyincurred for such purpose or (ii) for any purpose that entails a violation of,or that is inconsistent with, the provisions of the Regulations of the Board,including Regulation U or X.

 

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SECTION 3.17       Solvency.The Loan Parties, on a Consolidated basis, are Solvent. No transfer of propertyis being made by any Loan Party and no obligation is being incurred by any LoanParty in connection with the transactions contemplated by this Agreement or theother Loan Documents with the intent to hinder, delay, or defraud eitherpresent or future creditors of any Loan Party.

 

SECTION 3.18       PharmaceuticalLaws.

 

(a)           TheLoan Parties have obtained all permits, licenses and other authorizations whichare required with respect to the ownership and operations of their businessesunder any Pharmaceutical Law, except where the failure to obtain such permits,licenses or other authorizations could not reasonably be expected to have a MaterialAdverse Effect.

 

(b)           TheLoan Parties are in compliance with all terms and conditions of all suchpermits, licenses, orders and authorizations, and are also in compliance withall Pharmaceutical Laws, including all other limitations, restrictions, conditions,standards, prohibitions, requirements, obligations, schedules and timetablescontained in the Pharmaceutical Laws, except where the failure to comply withsuch terms, conditions or laws could not reasonably be expected to have aMaterial Adverse Effect.

 

(c)           Noneof the Loan Parties have any liabilities, claims against them, and presentlyoutstanding notices imposed or based upon any provision of any PharmaceuticalLaw, except for such liabilities, claims, citations or notices whichindividually or in the aggregate could not reasonably be expected to have aMaterial Adverse Effect.

 

ARTICLE IV

 

###### Conditions

 

SECTION 4.01       ClosingDate.  The obligation of the Lendersto make each Loan and of the Issuing Bank to issue each Letter of Credit,including the initial Loan and the initial Letters of Credit, if any, on theClosing Date, is subject to the following conditions precedent:

 

(a)           TheAgents (or their counsel) shall have received from each party hereto other thanthe Lenders either (i) a counterpart of this Agreement and all other LoanDocuments (including, without limitation, the Security Documents) signed onbehalf of such party or (ii) written evidence satisfactory to the Agents (whichmay include telecopy transmission of a signed signature page of this Agreement)that such party has signed a counterpart of this Agreement and all other LoanDocuments.

 

(b)           TheAgents shall have received a favorable written opinion (addressed to each Agentand the Lenders and dated the Closing Date) of Shearman & Sterling LLP,counsel for the Loan Parties substantially in the form of Exhibit C, andcovering such other matters relating to the Loan Parties, the Loan Documents orthe transactions contemplated thereby as the Required Lenders shall reasonablyrequest. The Borrower hereby requests such counsel to deliver such opinion.

 

(c)           TheAgents shall have received such documents and certificates as the Agents ortheir counsel may reasonably request relating to the organization, existenceand good standing of each Loan Party, the authorization of the transactionscontemplated by the Loan Documents and

 

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any other legalmatters relating to the Loan Parties, the Loan Documents or the transactionscontemplated thereby, all in form and substance satisfactory to the Agents andtheir counsel.

 

(d)           Aftergiving effect to the first funding under the Loans; any charges to the LoanAccount made in connection with the establishment of the credit facilitycontemplated hereby; and all Letters of Credit to be issued at, or immediatelysubsequent to, such establishment, Excess Availability shall be not less than$70,000,000. The Agents shall have received a Borrowing Base Certificate datedthe Closing Date, relating to the month ended on June 28, 2003, and executed bya Financial Officer of the Borrower.

 

(e)           TheAgents shall have received a certificate, reasonably satisfactory in form andsubstance to the Agents, (i) with respect to the Solvency of the Loan Partiesas of the Closing Date, and (ii) certifying that, as of the Closing Date, therepresentations and warranties made by the Loan Parties in the Loan Documentsand otherwise are true and complete and that no Default or Event of Defaultexists.

 

(f)            IntentionallyOmitted.

 

(g)           Allnecessary consents and approvals to the transactions contemplated hereby shallhave been obtained and shall be satisfactory to the Agents.

 

(h)           TheCollateral Agent shall have received (a) appraisals of the Collateralconsisting of Inventory and prescription lists by a third party appraiseracceptable to the Collateral Agent, the results of which are reasonablysatisfactory to the Collateral Agent; and (b) a written report regarding theresults of a commercial finance examination of the Loan Parties, which shall bereasonably satisfactory to the Collateral Agent.

 

(i)            TheAgents shall be reasonably satisfied that any financial statements delivered tothem fairly present the business and financial condition of the Parent and itsSubsidiaries, and that there has been no material adverse change in the assets,business, financial condition, income or prospects of the Parent and itsSubsidiaries since the date of the most recent financial information deliveredto the Agents.

 

(j)            TheAdministrative Agent shall have received and be satisfied with (a) monthlydetailed one-year financial projections and business assumptions for the Parentand its Subsidiaries, and (b) such other information (financial or otherwise)reasonably requested by the Administrative Agent.

 

(k)           Thereshall not be pending any litigation or other proceeding, the result of whichcould reasonably be expected to have a Material Adverse Effect (other thanthose described on Schedule 3.06).

 

(l)            Thereshall not have occurred any default of any material contract or agreement ofany Loan Party (including, without limitation, the Convertible Indenture),which could reasonably be expected to have a Material Adverse Effect.

 

(m)          TheCollateral Agent shall have received results of searches or other evidence reasonablysatisfactory to the Collateral Agent (in each case dated as of a datereasonably satisfactory to the Collateral Agent) indicating the absence ofLiens on the assets of the Loan Parties, except for Permitted Encumbrances andLiens for which termination statements and

 

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releases or subordination agreementsreasonably satisfactory to the Collateral Agent are being tendered concurrentlywith such extension of credit.

 

(n)           TheCollateral Agent shall have received (i) all documents and instruments,including Uniform Commercial Code financing statements, required by law orreasonably requested by the Collateral Agent to be filed, registered orrecorded to create or perfect the first priority Liens intended to be createdunder the Loan Documents and all such documents and instruments shall have beenso filed, registered or recorded to the satisfaction of the Collateral Agent,and (ii) the DDA Notifications, Credit Card Notifications, and Blocked Account Agreementsrequired pursuant to Section 2.22(c) hereof.

 

(o)           TheCollateral Agent shall have entered into an intercreditor agreement withAmerisource Bergen, such agreement to be reasonably satisfactory to theCollateral Agent.

 

(p)           TheCollateral Agent shall have received, and be satisfied with, evidence of theLoan Parties’ insurance, together with such endorsements as are required by theLoan Documents.

 

(q)           Allfees due at or immediately after the Closing Date and all costs and expensesincurred by the Agents in connection with the establishment of the creditfacility contemplated hereby (including the fees and expenses of counsel to theAgents) shall have been paid in full.

 

(r)            Theconsummation of the transactions contemplated hereby shall not (a) violate anyApplicable Law or (b) conflict with, or result in a default or event of defaultunder, any material agreement of any Loan Party, including, without limitation,the Convertible Indenture (and the Agents and the Lenders shall receive asatisfactory opinion of Loan Parties’ counsel to that effect). No event shallexist which is, or solely with the passage of time, the giving of notice orboth, would be a default under any material agreement of any Loan Party.

 

(s)           Nomaterial changes in governmental regulations or policies affecting the LoanParties, the Agents, the Arranger or any Lender involved in this transactionshall have occurred prior to the Closing Date.

 

(t)            Thereshall not have occurred any disruption or material adverse change in the UnitedStates financial or capital markets in general that has had, in the reasonableopinion of the Agents, a material adverse effect on the market for loansyndications or adversely affecting the syndication of the Loans.

 

(u)           Thereshall have been delivered to the Administrative Agent such additionalinstruments and documents as the Agents or counsel to the Agents reasonably mayrequire or request.

 

The Administrative Agent shall notify theBorrower and the Lenders of the Closing Date, and such notice shall be conclusiveand binding. Notwithstanding the foregoing, the obligations of the Lenders tomake Loans and of the Issuing Bank to issue Letters of Credit hereunder shallnot become effective unless each of the foregoing conditions is satisfied (orwaived by the Administrative Agent in writing) at or prior to 12:00 noon,Boston time, on July 15, 2003 (and, in the event such conditions are not sosatisfied or waived, this Agreement shall terminate at such time).

 

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SECTION 4.02       ConditionsPrecedent to Each Loan and Each Letter of Credit.

 

In addition to those conditions described inSection 4.01, the obligation of the Lenders to make each Revolving Loan and ofthe Issuing Bank to issue each Letter of Credit, is subject to the followingconditions precedent:

 

(a)           Notice.The Administrative Agent shall have received a notice with respect to suchBorrowing or issuance, as the case may be, as required by Article II.

 

(b)           Representationsand Warranties. All representations and warranties contained in thisAgreement and the other Loan Documents or otherwise made in writing inconnection herewith or therewith shall be true and correct in all materialrespects on and as of the date of each Borrowing or the issuance of each Letterof Credit hereunder with the same effect as if made on and as of such date,other than representations and warranties that relate solely to an earlierdate.

 

(c)           NoDefault. On the date of each Borrowing hereunder and the issuance of eachLetter of Credit, no Default or Event of Default shall have occurred and becontinuing.

 

(d)           BorrowingBase Certificate. The Administrative Agent shall have received the timelydelivery of the most recently required Borrowing Base Certificate, with eachsuch Borrowing Base Certificate including schedules as required by theAdministrative Agent.

 

The request by the Borrower for, and theacceptance by the Borrower of, each extension of credit hereunder shall bedeemed to be a representation and warranty by the Borrower that the conditionsspecified in this Section 4.02 have been satisfied at that time and that aftergiving effect to such extension of credit the Borrower shall continue to be incompliance with the Borrowing Base.  Theconditions set forth in this Section 4.02 are for the sole benefit of theAdministrative Agent and each Lender and may be waived by the AdministrativeAgent, in whole or in part, without prejudice to the Administrative Agent orany Lender.

 

ARTICLEV

 

# AffirmativeCovenants

 

Until (i) the Commitments have expired or beenterminated, and (ii) the principal of and interest on each Loan and all feespayable hereunder shall have been paid in full, and (iii) all Letters of Creditshall have expired or terminated or been collateralized, to the extent of 103%of the then Letter of Credit Outstandings, by cash or a letter of credit issuedby a financial institution and on terms reasonably satisfactory to theAdministrative Agent, and (iv) all L/C Disbursements shall have beenreimbursed, each Loan Party covenants and agrees with the Agents and theLenders that:

 

SECTION 5.01       FinancialStatements and Other Information. The Borrower will furnish to the Agents:

 

(a)           withinninety (90) days after the end of each Fiscal Year of the Parent, itsConsolidated balance sheet and related statements of operations, stockholders’equity and cash flows as of the end of and for such year, setting forth in eachcase in comparative form the figures for the previous Fiscal Year, all auditedand reported on by PricewaterhouseCoopers, LLP

 

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or another independent public accountants ofrecognized national standing (without a “going concern” or like qualificationor exception and without a qualification or exception as to the scope of suchaudit) to the effect that such Consolidated financial statements present fairlyin all material respects the financial condition and results of operations ofthe Parent and its Subsidiaries on a Consolidated basis in accordance with GAAPconsistently applied;

 

(b)           withinforty-five (45) days after the end of each Fiscal Quarter of the Parent, itsConsolidated balance sheet and related statements of operations, stockholders’equity and cash flows, and a summary of all Capital Expenditures in the formpreviously delivered to the Administrative Agent, as of the end of and for suchFiscal Quarter and the elapsed portion of the Fiscal Year, setting forth ineach case in comparative form the figures for the previous Fiscal Year and thefigures as set forth in the projections delivered pursuant to Section 5.01(e)hereof, all certified by one of its Financial Officers as presenting in allmaterial respects the financial condition and results of operations of theParent and its Subsidiaries on a Consolidated basis in accordance with GAAPconsistently applied, subject to normal year end audit adjustments and theabsence of footnotes;

 

(c)           withinthirty (30) days after the end of each fiscal month of the Parent, itsConsolidated balance sheet and related statements of operations, stockholders’equity and cash flows, and a summary of all Capital Expenditures in the formpreviously delivered to the Administrative Agent, as of the end of and for suchfiscal month and the elapsed portion of the Fiscal Year, setting forth in eachcase in comparative form the figures for the previous Fiscal Year and thefigures as set forth in the projections delivered pursuant to Section 5.01(e)hereof, all certified by one of its Financial Officers as presenting in allmaterial respects the financial condition and results of operations of theParent and its Subsidiaries on a Consolidated basis in accordance with GAAPconsistently applied, subject to normal year end audit adjustments and theabsence of footnotes;

 

(d)           concurrentlywith any delivery of financial statements under clause (a), (b), or (c) above,a certificate of a Financial Officer of the Borrower in the form of Exhibit D(i) certifying as to whether a Default has occurred and, if a Default hasoccurred, specifying the details thereof and any action taken or proposed to betaken with respect thereto, and (ii) setting forth reasonably detailedcalculations (A) with respect to the average Excess Availability for suchperiod, and (B) demonstrating compliance with Section 6.11 (whether or not theBorrower’s obligation to comply with the Fixed Charge Coverage Ratio is then ineffect), and (iii) stating whether any change in GAAP or in the applicationthereof has occurred since the date of the Parent’s audited financial statementsreferred to in Section 3.04 and, if any such change has occurred, specifyingthe effect of such change on the financial statements accompanying suchcertificate;

 

(e)           withinthirty (30) days after the commencement of each Fiscal Year of the Parent, adetailed Consolidated budget by month for such Fiscal Year (including aprojected Consolidated balance sheet and related statements of projectedoperations and cash flow as of the end of and for such Fiscal Year);

 

(f)            onthe tenth day of each month, a certificate in the form of Exhibit E (a “BorrowingBase Certificate”) showing the Borrowing Base as of the close of businesson the last day of the immediately preceding month, each Borrowing BaseCertificate to be certified as complete and correct on behalf of the Borrowerby a Financial Officer of the Borrower; provided that at any timethat,  and as long as, ExcessAvailability is less than $30,000,000, a Borrowing Base Certificate shall beprovided weekly on Wednesday of each week (or, if Wednesday is not a

 

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Business Day, on the next succeeding BusinessDay) showing the Borrowing Base as of the close of business on the immediatelypreceding Saturday;

 

(g)           promptlyafter the same become publicly available, copies of all periodic and otherreports, proxy statements and other materials filed in final form by any LoanParty with the Securities and Exchange Commission (including, withoutlimitation, Forms 10K and 10Q but excluding any registration statement on FormS-8 or its equivalent), or any Governmental Authority succeeding to any or allof the functions of said Commission, or with any national securities exchange,as the case may be;

 

(h)           IntentionallyOmitted;

 

(i)            thefinancial and collateral reports described on Schedule 5.01(i) hereto, at thetimes set forth in such Schedule;

 

(j)            noticeof any intended Permitted Acquisition, the aggregate consideration paid(whether in cash, capital stock, assumption of indebtedness or otherwise) forwhich shall exceed $20,000,000, at least thirty (30) days prior to the intendeddate of the consummation thereof;

 

(k)           Withrespect to any Permitted Acquisition, the aggregate consideration paid (whetherin cash, capital stock, assumption of indebtedness or otherwise) for whichshall exceed $20,000,000, (i) copies of the most recent audited, and if later,unaudited financial statements of the Person which is the subject of thePermitted Acquisition, (ii) a description of the proposed Permitted Acquisitionin such detail as the Administrative Agent may reasonably request, includingcopies of letters of intent and purchase and sale agreements or otheracquisition documents executed in connection with the proposed PermittedAcquisition, (iii) an unaudited proforma Consolidated balancesheet and income statement of the Parent and its Subsidiaries as of the end ofthe most recently completed Fiscal Quarter but prepared as though the PermittedAcquisition had occurred on such date and related proformacalculations of average Excess Availability for the subsequent four FiscalQuarters period, and (iv) unaudited projections of balance sheets and incomestatements and related calculations for the following four Fiscal Quarters,assuming the Permitted Acquisition has closed;

 

(l)            noticeof any intended (i) sale or other disposition of assets of any Loan Partypermitted under Sections 6.05(c), 6.05(d) or 6.05(e) hereof at least three(3) Business Days prior to the date of consummation such sale or disposition or(ii) incurrence of any Indebtedness permitted hereunder promptly following theincurrence of such Indebtedness; and

 

(m)          promptlyfollowing any request therefor, such other information regarding theoperations, business affairs and financial condition of any Loan Party, orcompliance with the terms of any Loan Document, as the Agents or any Lender mayreasonably request.

 

SECTION 5.02       Noticesof Material Events. The Borrower will furnish to the Agents prompt writtennotice of the following:

 

(a)           theoccurrence of any Default or Event of Default;

 

(b)           thefiling or commencement of any action, suit or proceeding by or before anyarbitrator or Governmental Authority against or affecting any Loan Party or anyAffiliate thereof

 

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that, if adversely determined, couldreasonably be expected to result in a Material Adverse Effect;

 

(c)           theoccurrence of any ERISA Event that, alone or together with any other ERISAEvents that have occurred, could reasonably be expected to result in a MaterialAdverse Effect;

 

(d)           anyother development that results in, or could reasonably be expected to resultin, a Material Adverse Effect;

 

(e)           anychange in any Loan Party’s senior executive officers;

 

(f)            anyfailure by any Loan Party to pay rent at any of such Loan Party’s locations,which failure continues for more than ten (10) days following the day on whichsuch rent first came due if the result of such failure would be reasonablylikely to result in a Material Adverse Effect;

 

(g)           thedischarge by any Loan Party of its present independent accountants or anywithdrawal or resignation by such independent accountants;

 

(h)           anycollective bargaining agreement or other labor contract to which a Loan Partybecomes a party, or the application for the certification of a collectivebargaining agent;

 

(i)            thefiling of any Lien for unpaid Taxes against any Loan Party in excess of$1,000,000; and

 

(j)            promptlyupon receipt any management letter from the Borrower’s accountants specifying amaterial weakness in internal controls, notice of receipt thereof specifying inreasonable detail the issues raised by such accountants.

 

Each notice delivered under this Section shallbe accompanied by a statement of a Financial Officer or other executive officerof the Borrower setting forth the details of the event or development requiringsuch notice and, if applicable, any action taken or proposed to be taken withrespect thereto.

 

SECTION 5.03       InformationRegarding Collateral. (a)  TheBorrower will furnish to the Agents at least ten (10) days prior written noticeof any change (i) in any Loan Party’s corporate name or in any trade name usedto identify it in the conduct of its business or in the ownership of itsproperties, (ii) in the location of any Loan Party’s chief executive office,its principal place of business, any office in which it maintains books orrecords relating to Collateral owned by it or any office or facility at whichCollateral owned by it is located (including the establishment of any such newoffice or facility), (iii) in any Loan Party’s corporate structure orjurisdiction of incorporation or formation, or (iv) in any Loan Party’s FederalTaxpayer Identification Number or organizational identification number assignedto it by its state of organization. The Borrower also agrees promptly to notifythe Agents if any material portion of the Collateral is damaged or destroyed.

 

(b)           Eachyear, at the time of delivery of annual financial statements with respect tothe preceding Fiscal Year pursuant to clause (a) of Section 5.01, the Borrowershall deliver to the Agents a certificate of a Financial Officer of theBorrower setting forth the information required pursuant to Section 2 of thePerfection Certificate or confirming that there

 

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has been no change in such information sincethe date of the Perfection Certificate delivered on the Closing Date or thedate of the most recent certificate delivered pursuant to this Section.

 

SECTION 5.04       Existence;Conduct of Business. Each Loan Party will, and will cause each of itsSubsidiaries to, do or cause to be done all things necessary to comply with itsrespective Organic Documents, as applicable, and to preserve, renew and keep infull force and effect its legal existence and the rights, licenses, permits,privileges, franchises, patents, copyrights, trademarks and trade namesmaterial to the conduct of its business, provided that the foregoingshall not prohibit any merger, consolidation, liquidation or dissolution permittedunder Section 6.03, and provided further that neither the Borrower norany of its Subsidiaries shall be required to preserve any right, license,permit, privilege, franchise, patent, copyright, trademark or trade name if theBoard of Directors (or the equivalent governing body or committee of the Boardor such other body given responsibility therefor) shall determine that thepreservation thereof is no longer desirable in the conduct of the business ofthe Borrower or such Subsidiary, as the case may be, and the loss thereof wouldnot reasonably be likely to result in a Material Adverse Effect.

 

SECTION 5.05       Paymentof Obligations. Each Loan Party will, and will cause each of theSubsidiaries to, pay its Indebtedness and other obligations, including Taxliabilities, and claims for labor, materials, or supplies, before the sameshall become delinquent or in default, except where (a) the validity or amountthereof is being contested in good faith by appropriate proceedings, (b) suchLoan Party or such Subsidiary has set aside on its books adequate reserves withrespect thereto in accordance with GAAP, (c) such contest effectively suspendscollection of the contested obligation and enforcement of any Lien securingsuch obligation, (d) no Lien has been filed with respect thereto, and (e) thefailure to make payment pending such contest could not reasonably be expectedto result in a Material Adverse Effect. Nothing contained herein shall bedeemed to limit the rights of the Administrative Agent under Section 2.03(b)hereof.

 

SECTION 5.06       Maintenanceof Properties. Each Loan Party will, and will cause each of theSubsidiaries to, keep and maintain all property material to the conduct of itsbusiness in good working order and condition, ordinary wear and tear exceptedand with the exception of storing closings and asset dispositions permittedhereunder.

 

SECTION 5.07       Insurance.(a)  Each Loan Party shall (i) maintaininsurance with financially sound and reputable insurers reasonably acceptableto the Administrative Agent (or, to the extent consistent with prudent businesspractice, a program of self-insurance approved by the Administrative Agent) onsuch of its property and in at least such amounts and against at least suchrisks as is customary with companies in the same or similar businessesoperating in the same or similar locations, including public liabilityinsurance against claims for personal injury or death occurring upon, in orabout or in connection with the use of any properties owned, occupied or controlledby it (including the insurance required pursuant to the Security Documents);(ii) maintain such other insurance as may be required by law; and (iii) furnishto the Administrative Agent, upon written request, full information as to theinsurance carried.

 

(b)           Fireand extended coverage policies maintained with respect to any Collateral shallbe endorsed or otherwise amended to include (i) a non-contributing mortgageclause (regarding improvements to real property) and lenders’ loss payableclause (regarding personal property), in form and substance satisfactory to theCollateral Agent, which endorsements or amendments shall provide that theinsurer shall pay all proceeds otherwise payable to the Loan Parties under thepolicies directly to the Collateral Agent, (ii) a provision to

 

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the effect that none of the Loan Parties, theAdministrative Agent, the Collateral Agent, or any other party shall be acoinsurer and (iii) such other provisions as the Collateral Agent mayreasonably require from time to time to protect the interests of the Lenders.Commercial general liability policies shall be endorsed to name the CollateralAgent as an additional insured. Business interruption policies shall name the Collateral Agent as a losspayee and shall be endorsed or amended to include (i) a provision that, fromand after the Closing Date, the insurer shall pay all proceeds otherwisepayable to the Loan Parties under the policies directly to the AdministrativeAgent or the Collateral Agent, (ii) a provision to the effect that none of theLoan Parties, the Administrative Agent, the Collateral Agent or any other partyshall be a co-insurer and (iii) such other provisions as the Collateral Agentmay reasonably require from time to time to protect the interests of theLenders. Each such policy referred to in this paragraph also shall provide thatit shall not be canceled, modified or not renewed (i) by reason of nonpaymentof premium except upon not less than 10 days’ prior written notice thereof bythe insurer to the Collateral Agent (giving the Collateral Agent the right tocure defaults in the payment of premiums) or (ii) for any other reason exceptupon not less than 60 days’ prior written notice thereof by the insurer to theCollateral Agent. The Borrower shall deliver to the Collateral Agent, prior tothe cancellation, modification or nonrenewal of any such policy of insurance, acopy of a renewal or replacement policy (or other evidence of renewal of apolicy previously delivered to the Collateral Agent, including an insurancebinder) together with evidence satisfactory to the Collateral Agent of paymentof the premium therefor.

 

SECTION 5.08       Casualtyand Condemnation. The Borrower will furnish to the Agents and the Lendersprompt written notice of any casualty or other insured damage to any materialportion of the Collateral or the commencement of any action or proceeding forthe taking of any interest in a material portion of the Collateral under powerof eminent domain or by condemnation or similar proceeding.

 

SECTION 5.09       Booksand Records; Inspection and Audit Rights; Appraisals; Accountants. (a)  Each Loan Party will, and will cause each ofthe Subsidiaries to, keep proper books of record and account in accordance withGAAP and in which full, true and correct entries are made of all dealings andtransactions in relation to its business and activities. Each Loan Party will,and will cause each of the Subsidiaries to, permit any representativesdesignated by any Agent, upon reasonable prior notice, to visit and inspect itsproperties, to examine and make extracts from its books and records, and todiscuss its affairs, finances and condition with its officers and, with anofficer of the Borrower present, its independent accountants, all at suchreasonable times and as often as reasonably requested.

 

(b)           EachLoan Party will, and will cause each of the Subsidiaries to, from time to timeupon the request of the Collateral Agent or the Required Lenders through theAdministrative Agent and after reasonable prior notice, permit any Agent orprofessionals (including investment bankers, consultants, accountants, lawyersand appraisers) retained by the Agents to conduct appraisals, commercialfinance examinations and other evaluations, including, without limitation, of(i) the Borrower’s practices in the computation of the Borrowing Base and (ii)the assets included in the Borrowing Base and related financial informationsuch as, but not limited to, sales, gross margins, payables, accruals andreserves, and pay the reasonable fees and expenses of the Agents or suchprofessionals with respect to such evaluations and appraisals. Without limitingthe foregoing, the Loan Parties acknowledge that the Agents intend to undertakeat least three (3) inventory appraisals and three (3) commercial financeexaminations each Fiscal Year after the Closing Date, at the Loan Parties’expense.  Notwithstanding the foregoing,the Agents may cause additional appraisals and commercial finance examinationsto

 

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be undertaken as they in their discretion deemnecessary or appropriate, or as may be required by Applicable Law, providedthat the Loan Parties shall not be obligated to pay for any such additionalappraisals and commercial finance examinations unless an Event of Default hasoccurred and is continuing.

 

(c)           TheLoan Parties shall, at all times, retain independent certified publicaccountants who are reasonably satisfactory to the Administrative Agent andinstruct such accountants to cooperate with, and be available to, theAdministrative Agent or its representatives to discuss, with an officer of theBorrower present, the Loan Parties’ financial performance, financial condition,operating results, controls, and such other matters, within the scope of theretention of such accountants, as may be raised by the Administrative Agent.

 

SECTION 5.10       PhysicalInventories.

 

(a)           TheCollateral Agent, at the expense of the Loan Parties, may participate in and/orobserve each physical count and/or inventory of so much of the Collateral asconsists of Inventory which is undertaken on behalf of the Borrower so long assuch participation does not disrupt the normal inventory schedule or process.

 

(b)           TheBorrower, at its own expense, shall cause not less than one physical inventoryof the Borrower’s distribution centers in each twelve (12) month period and onephysical inventory of the Borrower’s retail stores (on a cycle basis) to beundertaken in each twelve (12) month period during which this Agreement is ineffect, conducted by nationally recognized inventory takers (other than withrespect to the distribution centers which count may be undertaken by theBorrower’s employees) and using practices consistent with practices in effecton the date hereof

 

(c)           TheBorrower shall provide the Collateral Agent with the preliminary Inventorylevels at each of the Borrower’s stores within ten (10) days following thecompletion of such inventory.

 

(d)           TheBorrower, within forty-five (45) days following the completion of suchinventory, shall provide the Collateral Agent with a reconciliation of theresults of each such inventory (as well as of any other physical inventoryundertaken by the Borrower) and shall post such results to the Borrower’s stockledger and general ledger, as applicable.

 

(e)           TheBorrower shall promptly furnish the Agent with a copy of the results of anyphysical inventory undertaken in accordance with the Amerisource BergenAgreement.

 

(f)            TheCollateral Agent, in its discretion, if any Default exists, may cause suchadditional inventories to be taken as the Collateral Agent determines (each, atthe expense of the Borrower).  TheCollateral Agent shall use its best efforts to schedule any such inventories soas to not unreasonably disrupt the operation of the Borrower’s business.

 

SECTION 5.11       Compliancewith Laws. Each Loan Party will, and will cause each of the Subsidiariesto, comply with all Applicable Laws (including Pharmaceutical Laws), except wherethe failure to do so, individually or in the aggregate, could not reasonably beexpected to result in a Material Adverse Effect.

 

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SECTION 5.12       Useof Proceeds and Letters of Credit. The proceeds of Loans made hereunder andLetters of Credit issued hereunder will be used only (a) to refinance theIndebtedness under the Existing Financing Agreement, (b) to finance theacquisition of working capital assets of the Borrower, including the purchaseof inventory, in the ordinary course of business, (c) to finance CapitalExpenditures of the Borrower and the Facility Guarantors, and (d) for generalcorporate purposes, including repurchases of capital stock of the Parent,repurchase or retirement of Indebtedness evidenced by the Convertible Indentureand Permitted Acquisitions, all to the extent permitted herein. No part of theproceeds of any Loan will be used, whether directly or indirectly, for anypurpose that entails a violation of any of the Regulations of the Board,including Regulations U and X.

 

SECTION 5.13       AdditionalSubsidiaries. If any additional Subsidiary of any Loan Party is formed oracquired after the Closing Date, the Borrower will notify the Agents and theLenders thereof and (a) if such Subsidiary is not a Foreign Subsidiary, theBorrower will cause such Subsidiary to become a Loan Party hereunder and undereach applicable Security Document in the manner provided therein within fifteen(15) days after such Subsidiary is formed or acquired and promptly take suchactions to create and perfect Liens on such Subsidiary’s assets to secure theObligations as any Agent or the Required Lenders shall reasonably request and(b) if any shares of capital stock or Indebtedness of such Subsidiary are ownedby or on behalf of any Loan Party, the Borrower will cause such shares andpromissory notes evidencing such Indebtedness to be pledged within fifteen (15)Days after such Subsidiary is formed or acquired (except that, if suchSubsidiary is a Foreign Subsidiary (other than an Immaterial Foreign Subsidiaryuntil it no longer qualifies as an Immaterial Foreign Subsidiary), shares ofstock of such Subsidiary to be pledged may be limited to 65% of the outstandingshares of Voting Stock of such Subsidiary and such time period may be extendedbased on local law or practice).

 

SECTION 5.14       FurtherAssurances. Each Loan Party will execute any and all further documents,financing statements, agreements and instruments, and take all such furtheractions (including the filing and recording of financing statements and otherdocuments), that may be required under any Applicable Law, or which any Agentmay reasonably request, to effectuate the transactions contemplated by the LoanDocuments or to grant, preserve, protect or perfect the Liens created orintended to be created by the Security Documents or the validity or priority ofany such Lien, all at the expense of the Loan Parties. The Loan Parties alsoagree to provide to the Agents, from time to time upon request, evidencereasonably satisfactory to the Agents as to the perfection and priority of theLiens created or intended to be created by the Security Documents.

 

(b)           Ifany material assets are acquired by any Loan Party after the Closing Date(other than assets constituting Collateral under the Security Agreement thatbecome subject to the Lien of the Security Agreement upon acquisition thereof),the Borrower will notify the Agents and the Lenders thereof, and the LoanParties will cause such assets to be subjected to a Lien securing theObligations and will take such actions as shall be necessary or reasonablyrequested by any Agent to grant and perfect such Liens, including actionsdescribed in paragraph (a) of this Section, all at the expense of the LoanParties.

 

(c)           Uponthe request of the Administrative Agent, the Borrower shall cause each of itscustoms brokers to deliver an agreement to the Administrative Agent coveringsuch matters and in such form as the Administrative Agent may reasonablyrequire.

 

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ARTICLEVI

 

## NegativeCovenants

 

Until (i) theCommitments have expired or been terminated, and (ii) the principal of andinterest on each Loan and all fees payable hereunder shall have been paid infull, and (iii) all Letters of Credit shall have expired or terminated or beencollateralized, to the extent of 103% of the then Letter of CreditOutstandings, by cash or a letter of credit issued by a financial institutionand on terms reasonably satisfactory to the Administrative Agent, and (iv) allL/C Disbursements shall have been reimbursed, each Loan Party covenants andagrees with the Agents and the Lenders that:

 

SECTION 6.01       Indebtednessand Other Obligations. (a)  The LoanParties will not, and will not permit any Subsidiary to, create, incur, assumeor permit to exist any Indebtedness, except:

 

(i)            Indebtednesscreated under the Loan Documents;

 

(ii)           Indebtednessset forth in Schedule 6.01 and extensions, renewals and replacements of anysuch Indebtedness provided that after giving effect to the refinancing(i) the principal amount of the outstanding Indebtedness is not increased, (ii)neither the tenor nor the average life is reduced, and (iii) the holders ofsuch refinancing Indebtedness are not afforded covenants, defaults, rights orremedies more burdensome in any material respect to the obligor or obligorsthan those contained in the Indebtedness being refinanced;

 

(iii)          Indebtednessof any Loan Party to any other Loan Party, all of which Indebtedness shall be reflectedin the Loan Parties’ books and records in accordance with GAAP;

 

(iv)          Indebtednessof any Loan Party to finance the acquisition of any fixed or capital assets,including Capital Lease Obligations and any Indebtedness assumed in connectionwith the acquisition of any such assets or secured by a Lien on any such assetsprior to the acquisition thereof, and extensions, renewals and replacements ofany such Indebtedness that do not increase the outstanding principal amountthereof or result in an earlier maturity date or decreased weighted averagelife thereof, provided that the aggregate principal amount ofIndebtedness permitted by this clause (v) shall not exceed $25,000,000 at anytime outstanding;

 

(v)           Indebtednessincurred to refinance any Real Estate owned by any Loan Party or incurred inconnection with sale-leaseback transactions permitted hereunder;

 

(vi)          Indebtednessunder Hedging Agreements, other than for speculative purposes, entered into inthe ordinary course of business;

 

(vii)         Contingentliabilities under surety bonds or similar instruments incurred in the ordinarycourse of business in connection with the construction or improvement ofstores;

 

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(viii)        Indebtednessarising under the Convertible Indenture and related documents and anyIndebtedness which refinances same, provided however that after givingeffect to the refinancing (i) the principal amount of the outstandingIndebtedness is not increased, (ii) neither the tenor nor the average life isreduced, (iii) the refinancing Indebtedness shall be unsecured, and (iv) theholders of such refinancing Indebtedness are not afforded covenants, defaults,rights or remedies more burdensome in any material respect to the obligor orobligors than those contained in the Indebtedness being refinanced;

 

(ix)           Indebtednessdue to Amerisource Bergen on account of the consignment of pharmaceuticalInventory pursuant to the Amerisource Bergen Agreement;

 

(x)            Indebtednessof (i) Duane Reade Realty, Inc. consisting of lease obligations in respect ofleases relating to realty that is leased to the Borrower, and (ii) the Parentand the Borrower consisting of guarantees in respect of such Indebtedness ofDuane Reade Realty, Inc.; and

 

(xi)           otherunsecured Indebtedness, including Subordinated Indebtedness, in an aggregateprincipal amount not exceeding $100,000,000 at any time outstanding.

 

(b)           Noneof the Loan Parties will, nor will they permit any Subsidiary to, issue anypreferred stock (except for preferred stock (i) all dividends in respect ofwhich are to be paid (and all other payments in respect of which are to bemade) in additional shares of such preferred stock, in lieu of cash, (ii) thatis not subject to redemption other than redemption at the option of the LoanParty issuing such preferred stock and (iii) all payments in respect of whichare expressly subordinated to the Obligations) or be or become liable inrespect of any obligation (contingent or otherwise) to purchase, redeem,retire, acquire or make any other payment in respect of (i) any shares ofcapital stock of any Loan Party or (ii) any option, warrant or other right toacquire any such shares of capital stock.

 

SECTION 6.02       Liens.  The Loan Parties will not, and will notpermit any Subsidiary to, create, incur, assume or permit to exist any Lien onany property or asset now owned or hereafter acquired by it, or assign or sellany income or revenues (including accounts receivable) or rights in respect ofany thereof, except:

 

(a)           Lienscreated under the Loan Documents;

 

(b)           PermittedEncumbrances;

 

(c)           anyLien on any property or asset of any Loan Party set forth in Schedule 6.02,provided that (i) such Lien shall not apply to any other property orasset of any Loan Party and (ii) such Lien shall secure only those obligationsthat it secures as of the Closing Date, and extensions, renewals andreplacements thereof that do not increase the outstanding principal amountthereof;

 

(d)           Lienson fixed or capital assets acquired by any Loan Party, provided that (i)such Liens secure Indebtedness permitted by clause (iv) of Section 6.01(a),(ii) such Liens and the Indebtedness secured thereby are incurred prior to orwithin 90 days after such acquisition or the

 

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completion of such construction orimprovement, (iii) the Indebtedness secured thereby does not exceed 100% of thecost of acquiring such fixed or capital assets and (iv) such Liens shall notextend to any other property or assets of the Loan Parties; and

 

(e)           Liensto secure Indebtedness permitted by clause (v) of Section 6.01(a) providedthat such Liens shall not apply to any property or assets of the LoanParties other than the Real Estate so refinanced or which is the subject of asale-leaseback transaction.

 

SECTION 6.03       FundamentalChanges. (a)  The Loan Parties willnot merge into or consolidate with any other Person, or permit any other Personto merge into or consolidate with it, or liquidate or dissolve, except that, ifat the time thereof and immediately after giving effect thereto no Default orEvent of Default shall have occurred and be continuing, (i) any FacilityGuarantor may merge into any other Facility Guarantor, provided that inany such transaction involving the Parent, the Parent shall be the survivingentity, and (ii) mergers may take place in connection with PermittedAcquisitions, and (iii) any Facility Guarantor (other than the Parent) mayliquidate or dissolve voluntarily into the Parent.

 

(b)           TheLoan Parties will not engage to any material extent in any business other thanbusinesses of the type conducted by the Loan Parties on the date of executionof this Agreement and businesses reasonably related thereto.

 

SECTION 6.04       Investments,Loans, Advances, Guarantees and Acquisitions. The Loan Parties will notpurchase, hold or acquire (including pursuant to any merger with any Personthat was not a wholly owned Subsidiary prior to such merger) any capital stock,evidences of Indebtedness or other securities (including any option, warrant orother right to acquire any of the foregoing) of, make or permit to exist anyloans or advances to, guarantee any obligations of, or make or permit to existany Investment or any other interest in, any other Person, or purchase or otherwiseacquire (in one transaction or a series of transactions) any assets of anyother Person constituting a business unit, except:

 

(a)           PermittedInvestments;

 

(b)           Investmentsexisting on the Closing Date, and set forth on Schedule 6.04;

 

(c)           loansor advances made by any Loan Party to any other Loan Party;

 

(d)           EquityInvestments made by any Facility Guarantor in the Borrower or by any FacilityGuarantor or by the Borrower in another Facility Guarantor;

 

(e)           Guaranteesconstituting Indebtedness permitted by Section 6.01;

 

(f)            Investmentsreceived in connection with the bankruptcy or reorganization of, or settlementof delinquent accounts and disputes with, customers and suppliers, in each casein the ordinary course of business;

 

(g)           PermittedAcquisitions;

 

(h)           loansor advances to employees for the purpose of travel, entertainment or relocationin the ordinary course of business in an amount not to exceed $1,000,000 in theaggregate at any time outstanding; and

 

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(i)            otherInvestments not to exceed $5,000,000 in the aggregate at any time outstanding.

 

SECTION 6.05       AssetSales. The Loan Parties will not, and will not permit any of theSubsidiaries to, sell, transfer, lease or otherwise dispose of any asset, includingany capital stock, nor will the Loan Parties permit any of the Subsidiaries toissue any additional shares of its capital stock or other ownership interest insuch Subsidiary, except:

 

(a)           (i)sales of Inventory in the ordinary course of business, or (ii) sales of used orsurplus equipment, or (iii)  PermittedInvestments, in each case in the ordinary course of business;

 

(b)           sales,transfers and dispositions among the Loan Parties and their Subsidiaries, providedthat any such sales, transfers or dispositions involving a Subsidiary that isnot a Loan Party shall be made in compliance with Section 6.07;

 

(c)           sale-leasebacktransactions involving any Loan Party’s Real Estate as long as if theAdministrative Agent so requests, the Administrative Agent shall have receivedan intercreditor agreement executed by the purchaser of such Real Estate onterms and conditions reasonably satisfactory to the Administrative Agent;

 

(d)           salesof pharmacy files in the ordinary course of business; and

 

(e)           theclosure of any locations at which the Borrower maintains, offers for sale orstores any of its Inventory or other Collateral and the disposition ofCollateral located thereat not to exceed twenty percent (20%) of the number oflocations (net of any new store openings after the Closing Date) in existenceas of the Closing Date.

 

provided that all sales, transfers,leases and other dispositions permitted hereby (other than sales, transfers andother disposition permitted under clause (b)) shall be made at arm’s length andfor fair value and solely for cash consideration; and further provided thatthe authority granted under clauses (c) through (e) hereof may be terminated inwhole or in part by the Agents upon the occurrence and during the continuanceof any Event of Default.

 

SECTION 6.06       RestrictedPayments; Certain Payments of Indebtedness. (a)  The Loan Parties will not, and will not permit any Subsidiary to,declare or make, or agree to pay or make, directly or indirectly, anyRestricted Payment, except as long as no Default or Event of Default exists orwould arise therefrom (i) the Loan Parties may declare and pay dividends withrespect to their capital stock payable solely in additional shares of orwarrants to purchase their common stock, (ii) splits or reclassifications ofits stock into additional or other shares of its common stock, and (iii) onlyif the Payment Conditions are then satisfied, (x) the Parent may repurchase itscapital stock and/or declare and pay cash dividends to its shareholders, and(y) the Subsidiaries of the Parent may declare and pay cash dividends to theParent or to any other Loan Party which is its stockholder.

 

(b)           TheLoan Parties will not, and will not permit any Subsidiary to, make or agree topay or make, directly or indirectly, any payment or other distribution (whetherin cash securities or other property) of or in respect of principal of orinterest on any Indebtedness, or any payment or other distribution (whether incash, securities or other property), including any

 

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sinking fund or similar deposit, on account ofthe purchase, redemption, retirement, acquisition, cancellation or terminationof any Indebtedness, except:

 

(i)  aslong as the Payment Conditions are satisfied, the repayment, redemption, orrepurchase of Indebtedness evidenced by the Convertible Indenture or ofSubordinated Indebtedness;

 

(ii) payment of regularly scheduled interest and principal payments as andwhen due in respect of any other Indebtedness permitted hereunder; and

 

(iii) refinancings of Indebtedness described in clause (ii), above, to theextent permitted by Section 6.01.

 

SECTION 6.07       Transactionswith Affiliates. The Loan Parties will not, and will not permit anySubsidiary to, sell, lease or otherwise transfer any property or assets to, orpurchase, lease or otherwise acquire any property or assets from, or otherwiseengage in any other transactions with, any of its Affiliates, except (a)transactions in the ordinary course of business that are at prices and on termsand conditions not less favorable to the Loan Parties or such Subsidiary thancould be obtained on an arm’s-length basis from unrelated third parties, (b)royalty payments to Duane Reade International, Inc. at or less than fair marketvalue under the royalty and licensing agreement between the Borrower and DuaneReade International, Inc. for the licensing and use of intellectual property,(c) sublease payments to Duane Reade Realty Inc. at or less than fair marketvalue under the sublease agreements between the Borrower and said Duane ReadeRealty Inc., and (d) transactions disclosed on Schedule 6.07 hereto inexistence on the Closing Date.

 

SECTION 6.08       RestrictiveAgreements. The Loan Parties will not, and will not permit any Subsidiaryto, directly or indirectly, enter into, incur or permit to exist any agreementor other arrangement that prohibits, restricts or imposes any condition upon(a) the ability of the Loan Parties or any Subsidiary to create, incur orpermit to exist any Lien upon any of its property or assets or (b) the abilityof any Subsidiary to pay dividends or other distributions with respect to anyshares of its capital stock or to make or repay loans or advances to the LoanParties or any other Subsidiary or to guarantee Indebtedness of the LoanParties or any other Subsidiary, provided that (i) the foregoing shallnot apply to restrictions and conditions imposed by law or by any LoanDocument, (ii) clause (a) of the foregoing shall not apply to restrictions orconditions imposed by any agreement relating to secured Indebtedness permittedby this Agreement if such restrictions or conditions apply only to the propertyor assets securing such Indebtedness and (iii) clause (a) of the foregoingshall not apply to customary provisions in leases restricting the assignment orsubleasing thereof.

 

SECTION 6.09       Amendmentof Material Documents. The Loan Parties will not, and will not permit anySubsidiary to, amend, modify or waive any of its rights under (a) its OrganicDocuments, to the extent that such amendment, modification or waiver wouldreasonably likely have a Material Adverse Effect, (b) the Convertible Indentureand related documents, (c) any Subordinated Indebtedness, (d) the AmerisourceBergen Agreement, to the extent that such amendment (i) increases the amount ofConsigned Inventory (as defined in the Amerisource Bergen Agreement) to anamount in excess of $30,000,000, (ii) modifies the rights or obligations of theBorrower to purchase or return the Consigned Inventory upon expiration ortermination of the Amerisource Bergen Agreement, (iii) modifies the definitionof “Cost”, “Consigned Inventory” or “Products”, or (iv) would otherwisereasonably likely have a Material Adverse

 

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Effect, or (e) any other instruments,documents or agreements, in each case with respect to this clause (e), to theextent that such amendment, modification or waiver would be materially adverseto the interests of the Lenders.

 

SECTION 6.10       AdditionalSubsidiaries. The Loan Parties will not, and will not permit any Subsidiaryto, create any additional Subsidiary unless no Default or Event of Defaultwould arise therefrom and the requirements of Section 5.13 are satisfied.

 

SECTION 6.11       FixedCharge Coverage Ratio; Capital Expenditures.  (a)  At any time thatExcess Availability is less than ten percent (10%) of the then Borrowing Base,the Loan Parties shall maintain a Fixed Charge Coverage Ratio, calculated as ofthe last day of each month, during the Fiscal Years set forth below as follows:

 

| **Period**                      |   | **Minimum Ratio** |
|---------------------------------|--------|-------------------|
| Fiscal Year 2003                |   | 1.10:1.00         |
| Fiscal Year 2004                |   | 1.20:1.00         |
| Fiscal Year 2005 and thereafter |   | 1.35:1.00         |

 

(b) The Loan Parties shall not make or incur Capital Expenditures in excessof $70,000,000 in any Fiscal Year.

 

SECTION 6.12       FiscalYear.  The Parent and itsSubsidiaries shall not change their Fiscal Year without the prior writtenconsent of the Administrative Agent, which consent shall not be unreasonablywithheld.

 

SECTION 6.13       EnvironmentalLaws.  The Loan Parties shall not(a)  fail to comply with anyEnvironmental Law or to obtain, maintain or comply with any permit, license orother approval required under any Environmental Law, or (b) become subject toany Environmental Liability, in each case which is reasonably likely to have aMaterial Adverse Effect.

 

ARTICLE VII

 

##### Events ofDefault

 

SECTION 7.01 If any of the following events (“Eventsof Default”) shall occur:

 

(a)           theLoan Parties shall fail to pay any principal of any Loan or any reimbursementobligation in respect of any L/C Disbursement when and as the same shall becomedue and payable, whether at the due date thereof or at a date fixed forprepayment thereof or otherwise;

 

(b)           theLoan Parties shall fail to pay any interest on any Loan or any fee or any otheramount (other than an amount referred to in clause (a) of this Article) payableunder this Agreement or any other Loan Document, within three (3) Business Daysafter the same shall become due and payable;

 

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(c)           anyrepresentation or warranty made or deemed made by or on behalf of any LoanParty in or in connection with any Loan Document or any amendment ormodification thereof or waiver thereunder, or in any report, certificate,financial statement or other document furnished pursuant to or in connectionwith any Loan Document or any amendment or modification thereof or waiverthereunder, shall prove to have been incorrect in any material respect whenmade or deemed made;

 

(d)           theLoan Parties shall fail to observe or perform any covenant, condition oragreement contained in Sections 2.22, 5.01(f), 5.07 (with respect toinsurance covering the Collateral), 5.09, or 5.12, or in Article VI;

 

(e)           anyLoan Party shall fail to observe or perform any covenant, condition oragreement contained in any Loan Document (other than those specified in clause(a), (b), (c), or (d) of this Article), and such failure shall continueunremedied for a period of 25 days after notice thereof from the AdministrativeAgent to the Borrower;

 

(f)            anyLoan Party shall fail to make any payment (whether of principal or interest andregardless of amount) in respect of any Material Indebtedness when and as thesame shall become due and payable (after giving effect to the expiration of anygrace or cure period set forth therein);

 

(g)           anyevent or condition occurs that results in any Material Indebtedness becomingdue prior to its scheduled maturity or that enables or permits (with or withoutthe giving of notice, the lapse of time or both) the holder or holders of anysuch Material Indebtedness or any trustee or agent on its or their behalf tocause any such Material Indebtedness to become due, or to require theprepayment, repurchase, redemption or defeasance thereof, prior to itsscheduled maturity;

 

(h)           aninvoluntary proceeding shall be commenced or an involuntary petition shall befiled seeking (i) liquidation, reorganization or other relief in respect of anyLoan Party or its debts, or of a substantial part of its assets, under anyfederal or state bankruptcy, insolvency, receivership or similar law now orhereafter in effect or (ii) the appointment of a receiver, trustee, custodian,sequestrator, conservator or similar official for any Loan Party or for asubstantial part of its assets, and, in any such case, such proceeding orpetition shall continue undismissed for 60 days or an order or decree approvingor ordering any of the foregoing shall be entered;

 

(i)            anyLoan Party shall (i) voluntarily commence any proceeding or file any petitionseeking liquidation, reorganization or other relief under any federal or statebankruptcy, insolvency, receivership or similar law now or hereafter in effect,(ii) consent to the institution of, or fail to contest in a timely andappropriate manner, any proceeding or petition described in clause (h) of thisSection 7.01, (iii) apply for or consent to the appointment of a receiver,trustee, custodian, sequestrator, conservator or similar official for any LoanParty or for a substantial part of its assets, (iv) file an answer admittingthe material allegations of a petition filed against it in any such proceeding,(v) make a general assignment for the benefit of creditors or (vi) take anyaction for the purpose of effecting any of the foregoing;

 

(j)            anyLoan Party shall become unable, admit in writing its inability or failgenerally to pay its debts as they become due;

 

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(k)           oneor more judgments for the payment of money in an aggregate amount in excess of$10,000,000 shall be rendered against any Loan Party or any combination thereofand the same shall remain undischarged for a period of 30 consecutive daysduring which execution shall not be effectively stayed, or any action shall belegally taken by a judgment creditor to attach or levy upon any material assetsof any Loan Party to enforce any such judgment;

 

(l)            anERISA Event shall have occurred that when taken together with all other ERISAEvents that have occurred, could reasonably be expected to result in liabilityof the Loan Parties in an aggregate amount exceeding $10,000,000;

 

(m)          (i)            any challenge by or on behalf of anyLoan Party to the validity of any Loan Document or the applicability orenforceability of any Loan Document strictly in accordance with the subjectLoan Document’s terms or which seeks to void, avoid, limit, or otherwiseadversely affect any security interest created by or in any Loan Document orany payment made pursuant thereto;

 

(ii)           anychallenge by or on behalf of any other Person to the validity of any LoanDocument or the applicability or enforceability of any Loan Document strictlyin accordance with the subject Loan Document’s terms or which seeks to void,avoid, limit, or otherwise adversely affect any security interest created by orin any Loan Document or any payment made pursuant thereto.

 

(iii)          anyLien purported to be created under any Security Document shall cease to be, orshall be asserted by any Loan Party not to be, a valid and perfected Lien onany Collateral, with the priority required by the applicable Security Document,except as a result of any acts or omissions of any Agent or the sale or otherdisposition of the applicable Collateral in a transaction permitted under theLoan Documents;

 

(n)           theoccurrence of any uninsured loss to any material portion of the Collateral;

 

(o)           theindictment of, or institution of any legal process or proceeding against, anyLoan Party, under any federal, state, municipal, and other civil or criminalstatute, rule, regulation, order, or other requirement having the force of lawwhere the relief, penalties, or remedies sought or available include theforfeiture of any material property of any Loan Party and/or the imposition ofany stay or other order, the effect of which could reasonably be to restrain inany material way the conduct by the Loan Parties, taken as a whole, of theirbusiness in the ordinary course;

 

(p)           thedetermination by the Borrower, whether by vote of the Borrower’s partners orotherwise to: suspend the operation of the Borrower’s business in the ordinarycourse, liquidate all or a material portion of the Borrower’s assets or storelocations, or employ an agent or other third party to conduct a program ofclosings, liquidations or “Going-Out-Of-Business” sales of any material portionof the business; or

 

(q)           theoccurrence of any default by the Borrower under the Amerisource BergenAgreement, which could reasonably be expected to have a Material AdverseEffect;

 

then, and in every such event (other than anevent with respect to any Loan Party described in clause (h) or (i) of thisSection 7.01), and at any time thereafter during the continuance of such event,the Administrative Agent may, and at the request of the Required Lenders shall,by notice

 

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to the Borrower, take either or both of thefollowing actions, at the same or different times:  (i) terminate the Commitments, and thereupon the Commitmentsshall terminate immediately, and (ii) declare the Loans then outstanding to bedue and payable in whole (or in part, in which case any principal not sodeclared to be due and payable may thereafter be declared to be due andpayable), and thereupon the principal of the Loans so declared to be due andpayable, together with accrued interest thereon and all fees and otherobligations of the Borrower accrued hereunder, shall become due and payableimmediately, without presentment, demand, protest or other notice of any kind, allof which are hereby waived by the Loan Parties; and in case of any event withrespect to any Loan Party described in clause (h) or (i) of this Article, theCommitments shall automatically terminate and the principal of the Loans thenoutstanding, together with accrued interest thereon and all fees and otherobligations of the Borrower accrued hereunder, shall automatically become dueand payable, without presentment, demand, protest or other notice of any kind,all of which are hereby waived by the Loan Parties.

 

SECTION 7.02       WhenContinuing.

 

For all purposes under this Agreement, eachDefault and Event of Default that has occurred shall be deemed to be continuingat all times thereafter unless it either (a) is cured or corrected to thereasonable written satisfaction of the Lenders in accordance with Section 9.02,or (b) is waived in writing by the Lenders in accordance with Section 9.02.

 

SECTION 7.03       Remedieson Default

 

In case any one or more of the Events ofDefault shall have occurred and be continuing, and whether or not the maturityof the Loans shall have been accelerated pursuant hereto, the AdministrativeAgent may proceed to protect and enforce its rights and remedies under thisAgreement, the Notes or any of the other Loan Documents by suit in equity,action at law or other appropriate proceeding, whether for the specificperformance of any covenant or agreement contained in this Agreement and theother Loan Documents or any instrument pursuant to which the Obligations areevidenced, and, if such amount shall have become due, by declaration orotherwise, proceed to enforce the payment thereof or any other legal orequitable right of the Agents or the Lenders. No remedy herein is intended tobe exclusive of any other remedy and each and every remedy shall be cumulativeand shall be in addition to every other remedy given hereunder or now orhereafter existing at law or in equity or by statute or any other provision oflaw.

 

SECTION 7.04       Applicationof Proceeds

 

After the occurrence of an Event of Defaultand acceleration of the Obligations, all proceeds realized from any Loan Partyor on account of any Collateral shall be applied in the manner set forth inSection 6.02 of the Security Agreement. All amounts required to be applied toLoans hereunder (other than Swingline Loans) shall be applied ratably inaccordance with each Lender’s Commitment Percentage.

 

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ARTICLE VIII

 

###### The Agents

 

SECTION 8.01       Administrationby Administrative Agent.

 

Each Lender, the Collateral Agent and theIssuing Bank hereby irrevocably designate Fleet as Administrative Agent underthis Agreement and the other Loan Documents. The general administration of theLoan Documents shall be by the Administrative Agent. The Lenders, theCollateral Agent and the Issuing Bank each hereby irrevocably authorizes theAdministrative Agent (i) to enter into the Loan Documents to which it is aparty and (ii) at its discretion, to take or refrain from taking such actionsas agent on its behalf and to exercise or refrain from exercising such powersunder the Loan Documents and the Notes as are delegated by the terms hereof orthereof, as appropriate, together with all powers reasonably incidentalthereto. The Administrative Agent shall have no duties or responsibilitiesexcept as set forth in this Agreement and the remaining Loan Documents, norshall it have any fiduciary relationship with any Lender, and no impliedcovenants, responsibilities, duties, obligations, or liabilities shall be readinto the Loan Documents or otherwise exist against the Administrative Agent.

 

SECTION 8.02       TheCollateral Agent.

 

Each Lender, the Administrative Agent and theIssuing Bank hereby irrevocably (i) designate FRF as Collateral Agent underthis Agreement and the other Loan Documents, (ii) authorize the CollateralAgent to enter into the Collateral Documents and the other Loan Documents towhich it is a party and to perform its duties and obligations thereunder,together with all powers reasonably incidental thereto, and (iii) agree andconsent to all of the provisions of the Security Documents. All Collateralshall be held or administered by the Collateral Agent (or its duly-appointedagent) for its benefit and for the ratable benefit of the other SecuredParties. Any proceeds received by the Collateral Agent from the foreclosure,sale, lease or other disposition of any of the Collateral and any otherproceeds received pursuant to the terms of the Security Documents or the otherLoan Documents shall be paid over to the Administrative Agent for applicationas provided in Sections 2.19, 2.23, or 7.04, as applicable. The CollateralAgent shall have no duties or responsibilities except as set forth in thisAgreement and the remaining Loan Documents, nor shall it have any fiduciaryrelationship with any Lender, and no implied covenants, responsibilities,duties, obligations, or liabilities shall be read into the Loan Documents orotherwise exist against the Collateral Agent.

 

SECTION 8.03       Sharingof Excess Payments.

 

Each of the Lenders, the Agents and theIssuing Bank agrees that if it shall, through the exercise of a right ofbanker’s lien, setoff or counterclaim against the Loan Parties, including, butnot limited to, a secured claim under Section 506 of the Bankruptcy Code orother security or interest arising from, or in lieu of, such secured claim andreceived by such Lender, any Agent or the Issuing Bank under any applicablebankruptcy, insolvency or other similar law, or otherwise, obtain payment inrespect of the Obligations owed it (an “excess payment”) as a result ofwhich such Lender, such Agent or the Issuing Bank has received payment of anyLoans or other Obligations outstanding to it in excess of the amount that itwould have received if all payments at any time applied to the Loans and otherObligations had been applied in the order of priority set forth in Section7.04, then such Lender, Agent or the Issuing Bank shall promptly purchase atpar (and shall be deemed to have thereupon purchased) from the other Lenders,such Agent and the Issuing Bank, as applicable, a participation in the Loansand Obligations outstanding to such other Persons, in an amount determined bythe Administrative Agent in good faith as the amount necessary to ensure thatthe economic benefit of such excess payment is reallocated in such

 

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manner as to cause such excess payment and allother payments at any time applied to the Loans and other Obligations to beeffectively applied in the order of priority set forth in Section 7.04 inproportion to its Commitment Percentages; provided, that if any suchexcess payment is thereafter recovered or otherwise set aside such purchase ofparticipations shall be correspondingly rescinded (without interest). The LoanParties expressly consent to the foregoing arrangements and agree that anyLender, any Agent or the Issuing Bank holding (or deemed to be holding) aparticipation in any Loan or other Obligation may exercise any and all rightsof banker’s lien, setoff or counterclaim with respect to any and all moneysowing by such Loan Party to such Lender, such Agent or the Issuing Bank asfully as if such Lender, Agent or the Issuing Bank held a Note and was theoriginal obligee thereon, in the amount of such participation.

 

SECTION 8.04       Agreementof Required Lenders.

 

(i)            Uponany occasion requiring or permitting an approval, consent, waiver, election orother action on the part of only the Required Lenders, action shall be taken bythe Agents for and on behalf or for the benefit of all Lenders upon thedirection of the Required Lenders, and any such action shall be binding on allLenders, and (ii) upon any occasion requiring or permitting an approval,consent, waiver, election or other action on the part of the RequiredSupermajority Lenders, action shall be taken by the Agents for and on behalf orfor the benefit of all Lenders upon the direction of the Required SupermajorityLenders and any such action shall be binding on all Lenders. No amendment, modification,consent, or waiver shall be effective except in accordance with the provisionsof Section 9.02.

 

(ii)           Uponthe occurrence of an Event of Default, the Agents shall (subject to theprovisions of Section 9.02) take such action with respect thereto as may bereasonably directed by the Required Lenders; provided that unless anduntil the Agents shall have received such directions, the Agents may (but shallnot be obligated to) take such action as it shall deem advisable in the bestinterests of the Lenders. In no event shall the Agents be required to complywith any such directions to the extent that the Agents believe that the Agents’compliance with such directions would be unlawful.

 

SECTION 8.05       Liabilityof Agents.

 

(i)            Eachof the Agents, when acting on behalf of the Lenders and the Issuing Bank, mayexecute any of its respective duties under this Agreement by or through any ofits respective officers, agents and employees, and none of the Agents nor theirrespective directors, officers, agents or employees shall be liable to theLenders or the Issuing Bank or any of them for any action taken or omitted tobe taken in good faith, or be responsible to the Lenders or the Issuing Bank orto any of them for the consequences of any oversight or error of judgment, orfor any loss, except to the extent of any liability imposed by law by reason ofsuch Agent’s own gross negligence or willful misconduct. The Agents and theirrespective directors, officers, agents and employees shall in no event beliable to the Lenders or the Issuing Bank or to any of them for any actiontaken or omitted to be taken by them pursuant to instructions received by themfrom the Required Lenders, or Required Supermajority Lenders, as applicable, orin reliance upon the advice of counsel selected by it. Without limiting theforegoing, none of the Agents, nor any of their respective directors, officers,employees, or agents (A) shall be responsible to any Lender or the Issuing Bankfor the due execution, validity, genuineness, effectiveness, sufficiency, orenforceability of, or for any recital, statement, warranty or representationin, this Agreement, any Loan Document or any related agreement, document ororder, or (B) shall be required to

 

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ascertain or to make any inquiry concerning the performance orobservance by any Loan Party of any of the terms, conditions, covenants, oragreements of this Agreement or any of the Loan Documents, or (C) shall beresponsible to any Lender or the Issuing Bank for the state or condition of anyproperties of the Borrower or any other obligor hereunder constitutingCollateral for the Obligations of the Borrower hereunder, or any informationcontained in the books or records of the Borrower; or (D) shall be responsibleto any Lender or the Issuing Bank for the validity, enforceability,collectibility, effectiveness or genuineness of this Agreement or any otherLoan Document or any other certificate, document or instrument furnished inconnection therewith; or (E) shall be responsible to any Lender or the IssuingBank for the validity, priority or perfection of any lien securing orpurporting to secure the Obligations or the value or sufficiency of any of theCollateral.

 

(ii)           TheAgents may execute any of their duties under this Agreement or any other LoanDocument by or through their agents or attorneys-in-fact, and shall be entitledto the advice of counsel concerning all matters pertaining to its rights andduties hereunder or under the Loan Documents. The Agents shall not be responsible for the negligence or misconduct ofany agents or attorneys-in-fact selected by them with reasonable care.

 

(iii)          Noneof the Agents nor any of their respective directors, officers, employees, oragents shall have any responsibility to the Loan Parties on account of thefailure or delay in performance or breach by any Lender (other than by theAgent in its capacity as a Lender) or the Issuing Bank of any of theirrespective obligations under this Agreement or the Notes or any of the LoanDocuments or in connection herewith or therewith.

 

(iv)          TheAgents shall be entitled to rely, and shall be fully protected in relying, uponany notice, consent, certificate, affidavit, or other document or writingbelieved by it to be genuine and correct and to have been signed, sent or madeby the proper person or persons, and upon the advice and statements of legalcounsel (including, without, limitation, counsel to the Loan Parties),independent accountants and other experts selected by the Agents.  The Agents shall be fully justified infailing or refusing to take any action under this Agreement or any other LoanDocument unless they shall first receive such advice or concurrence of theRequired Lenders as they deem appropriate or they shall first be indemnified totheir satisfaction by the Lenders against any and all liability and expensewhich may be incurred by them by reason of the taking or failing to take anysuch action.

 

SECTION 8.06       Notice ofDefault.  The Agents shall not be deemedto have knowledge or notice of the occurrence of any Default or Event ofDefault unless the Agents have actual knowledge of the same or has receivednotice from a Lender or the Loan Parties referring to this Agreement,describing such Default or Event of Default and stating that such notice is a“notice of default”.  In the event thatthe Agents obtain such actual knowledge or receive such a notice, the Agentsshall give prompt notice thereof to each of the Lenders.  The Agents shall take such action withrespect to such Default or Event of Default as shall be reasonably directed bythe Required Lenders.  Unless and untilthe Agents shall have received such direction, the Agents may (but shall not beobligated to) take such action, or refrain from taking such action, withrespect to any such Default or Event of Default as they shall deem advisable inthe best interest of the Lenders.

 

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SECTION 8.07       Lenders’Credit Decisions.  Each Lenderacknowledges that it has, independently and without reliance upon the Agents orany other Lender, and based on the financial statements prepared by the LoanParties and such other documents and information as it has deemed appropriate,made its own credit analysis and investigation into the business, assets,operations, property, and financial and other condition of the Loan Parties andhas made its own decision to enter into this Agreement and the other LoanDocuments.  Each Lender alsoacknowledges that it will, independently and without reliance upon the Agentsor any other Lender, and based on such documents and information as it shalldeem appropriate at the time, continue to make its own credit decisions indetermining whether or not conditions precedent to closing any Loan hereunderhave been satisfied and in taking or not taking any action under this Agreementand the other Loan Documents.

 

SECTION 8.08       Reimbursementand Indemnification.

 

Each Lender agrees (i) to reimburse (x) eachAgent for such Lender’s Commitment Percentage of any expenses and fees incurredby such Agent for the benefit of the Lenders or the Issuing Bank under thisAgreement, the Notes and any of the Loan Documents, including, withoutlimitation, counsel fees and compensation of agents and employees paid forservices rendered on behalf of the Lenders or the Issuing Bank, and any otherexpense incurred in connection with the operations or enforcement thereof notreimbursed by the Loan Parties and (y) each Agent for such Lender’s CommitmentPercentage of any expenses of such Agent incurred for the benefit of theLenders or the Issuing Bank that the Loan Parties have agreed to reimbursepursuant to Section 9.03 and has failed to so reimburse and (ii) to indemnifyand hold harmless the Agents and any of their directors, officers, employees,or agents, on demand, in the amount of such Lender’s Commitment Percentage,from and against any and all liabilities, obligations, losses, damages,penalties, actions, judgments, suits, costs, expenses, or disbursements of anykind or nature whatsoever which may be imposed on, incurred by, or assertedagainst it or any of them in any way relating to or arising out of thisAgreement, the Notes or any of the Loan Documents or any action taken oromitted by it or any of them under this Agreement, the Notes or any of the LoanDocuments to the extent not reimbursed by the Loan Parties (except such asshall result from their respective gross negligence or willfulmisconduct).  The provisions of thisSection 8.08 shall survive the repayment of the Obligations and the terminationof the Commitments.

 

SECTION 8.09       Rights ofAgents.

 

It is understood and agreed that Fleet and FRFshall each have the same rights and powers hereunder (including the right togive such instructions) as the other Lenders and may exercise such rights andpowers, as well as its rights and powers under other agreements and instrumentsto which it is or may be party, and engage in other transactions with theBorrower, as though they were not the Administrative Agent or the CollateralAgent, respectively, of the Lenders under this Agreement.  The Agents and their affiliates may acceptdeposits from, lend money to, and generally engage in any kind of commercial orinvestment banking, trust, advisory or other business with the Loan Parties andtheir Subsidiaries and Affiliates as if it were not the Agent hereunder.

 

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SECTION 8.10       IndependentLenders and Issuing Bank.

 

The Lenders and the Issuing Bank eachacknowledge that they have decided to enter into this Agreement and to make theLoans or issue the Letters of Credit hereunder based on their own analysis ofthe transactions contemplated hereby and of the creditworthiness of the LoanParties and agrees that the Agents shall bear no responsibility therefor.

 

SECTION 8.11       Noticeof Transfer.

 

The Agents may deem and treat a Lender partyto this Agreement as the owner of such Lender’s portion of the Loans for allpurposes, unless and until, and except to the extent, an Assignment andAcceptance shall have become effective as set forth in Section 9.04(b).

 

SECTION 8.12       SuccessorAgent

 

Any Agent may resign at any time by givingfive (5) Business Days’ written notice thereof to the Lenders, the IssuingBank, the other Agents and the Borrower. Upon any such resignation of anyAgent, the Required Lenders shall have the right to appoint a successor Agent,which so long as there is no Default or Event of Default, shall be reasonablysatisfactory to the Borrower (whose consent shall not be unreasonably withheldor delayed). If no successor Agent shall have been so appointed by the RequiredLenders and shall have accepted such appointment, within 30 days after theretiring Agent’s giving of notice of resignation, the retiring Agent may, onbehalf of the Lenders, the other Agents and the Issuing Bank, appoint asuccessor Agent which shall be a Person capable of complying with all of theduties of such Agent (and the Issuing Bank), hereunder (in the opinion of theretiring Agent and as certified to the Lenders in writing by such successorAgent) which, so long as there is no Default or Event of Default, shall bereasonably satisfactory to the Borrower (whose consent shall not beunreasonably withheld or delayed). Notwithstanding the foregoing, if Fleetresigns as Administrative Agent, FRF may, at its option, become successorAdministrative Agent; and if FRF resigns as Collateral Agent, Fleet may, at itsoption, become successor Collateral Agent. Upon the acceptance of any appointmentas Agent by a successor Agent, such successor Agent shall thereupon succeed toand become vested with all the rights, powers, privileges and duties of theretiring Agent and the retiring Agent shall be discharged from its duties andobligations under this Agreement. After any retiring Agent’s resignationhereunder as such Agent, the provisions of this Article VIII shall inure to itsbenefit as to any actions taken or omitted to be taken by it while it was suchAgent under this Agreement.

 

SECTION 8.13       Reports andFinancial Statements.

 

Promptly after receipt thereof from theBorrower, the Administrative Agent shall remit to each Lender and theCollateral Agent copies of all financial statements and Borrowing BaseCertificates required to be delivered by the Borrower hereunder and allcommercial finance examinations and appraisals of the Collateral received bythe Administrative Agent.

 

SECTION 8.14       DelinquentLender.  If for any reason anyLender shall fail or refuse to abide by its obligations under this Agreement,including without limitation its obligation to make available to AdministrativeAgent its Commitment Percentage of any Revolving Loans, expenses or setoff orpurchase its Commitment Percentage of a participation interest in the SwinglineLoans (a “Delinquent Lender”) and such failure is not cured within ten(10) days of receipt from the Administrative Agent of written notice thereof,then, in addition to the rights and remedies

 

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that may be available to Agents, otherLenders, the Loan Parties or any other party at law or in equity, and not atlimitation thereof, (i) such Delinquent Lender’s right to participate in theadministration of, or decision-making rights related to, the Loans, thisAgreement or the other Loan Documents shall be suspended during the pendency ofsuch failure or refusal, and (ii) a Delinquent Lender shall be deemed to haveassigned any and all payments due to it from the Loan Parties, whether onaccount of outstanding Loans, interest, fees or otherwise, to the remainingnon-delinquent Lenders for application to, and reduction of, theirproportionate shares of all outstanding Loans until, as a result of applicationof such assigned payments the Lenders’ respective Commitment Percentage of alloutstanding Loans shall have returned to those in effect immediately prior tosuch delinquency and without giving effect to the nonpayment causing suchdelinquency.  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 Loans, any participation obligation,or expenses as to which it is delinquent, together with interest thereon at therate set forth in Section 2.11 hereof from the date when originally due untilthe date upon which any such amounts are actually paid.

 

The non-delinquent Lenders shall also have theright, but not the obligation, in their respective, sole and absolutediscretion, to acquire for no cash consideration, (prorata,based on the respective Commitments of those Lenders electing to exercise suchright) the Delinquent Lender’s Commitment to fund future Loans (the “DelinquentLender’s Future Commitment”). Upon any such purchase of the CommitmentPercentage of any Delinquent Lender’s Future Commitment, the DelinquentLender’s share in future Loans 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.  Each Delinquent Lendershall indemnify the Agents and each non-delinquent Lender from and against anyand all loss, damage or expenses, including but not limited to reasonableattorneys’ fees and funds advanced by any Agent or by any non-delinquentLender, on account of a Delinquent Lender’s failure to timely fund itsCommitment Percentage of a Loan or to otherwise perform its obligations underthe Loan Documents.

 

SECTION 8.15       DocumentationAgent and Arranger. Notwithstanding the provisions of this Agreement or anyof the other Loan Documents, the Documentation Agent and, except as provided inthe commitment letter for this transaction, the Arranger shall have no powers,rights, duties, responsibilities or liabilities with respect to this Agreementand the other Loan Documents.

 

ARTICLE IX

 

Miscellaneous

 

SECTION 9.01       Notices.Except in the case of notices and other communications expressly permitted tobe given by telephone, all notices and other communications provided for hereinshall be in writing and shall be delivered by hand or overnight courierservice, mailed by certified or registered mail or sent by telecopy, asfollows:

 

(a)           ifto any Loan Party, to it at 440 Ninth Avenue, New York, New York 10011,Attention: Chief Financial Officer (Telecopy No. (212) 494-8294), Attention:Vice President and General Counsel (Telecopy No. (212) 594-0832) with a copy toShearman & Sterling LLP, 599

 

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Lexington Avenue, New York, New York 10022,Attention: Howard Fine, Esquire (Telecopy No. (212) 848-7179);

 

(b)           ifto the Administrative Agent or the Collateral Agent, or the Swingline Lender toFleet Retail Finance Inc., 40 Broad Street, Boston, Massachusetts 02109,Attention Mark Forti (Telecopy No. (617) 434-4339), with a copy to Riemer &Braunstein, LLP, Three Center Plaza, Boston, Massachusetts 02108, Attention:David S. Berman, Esquire (Telecopy No. (617) 880 3456);

 

(c)           ifto any other Lender, to it at its address (or telecopy number) set forth on thesignature pages hereto or on any Assignment and Acceptance for such Lender.

 

Any party hereto may change its address ortelecopy number for notices and other communications hereunder by notice to theother parties hereto. All notices and other communications given to any partyhereto in accordance with the provisions of this Agreement shall be deemed tohave been given on the date of receipt.

 

SECTION 9.02       Waivers;Amendments. (a)  No failure or delayby the Agents, the Issuing Bank or any Lender in exercising any right or powerhereunder or under any other Loan Document shall operate as a waiver thereof,nor shall any single or partial exercise of any such right or power, or anyabandonment or discontinuance of steps to enforce such a right or power,preclude any other or further exercise thereof or the exercise of any other rightor power. The rights and remedies of the Agents, the Issuing Bank and theLenders hereunder and under the other Loan Documents are cumulative and are notexclusive of any rights or remedies that they would otherwise have. No waiverof any provision of any Loan Document or consent to any departure by any LoanParty therefrom shall in any event be effective unless the same shall bepermitted by paragraph (b) of this Section, and then such waiver or consentshall be effective only in the specific instance and for the purpose for whichgiven. Without limiting the generality of the foregoing, the making of a Loanor issuance of a Letter of Credit shall not be construed as a waiver of anyDefault, regardless of whether the Agents, any Lender or the Issuing Bank mayhave had notice or knowledge of such Default at the time.

 

(b)           Neitherthis Agreement nor any other Loan Document nor any provision hereof or thereofmay be waived, amended or modified except, in the case of this Agreement,pursuant to an agreement or agreements in writing entered into by the Borrowerand the Required Lenders or, in the case of any other Loan Document, pursuantto an agreement or agreements in writing entered into by the Agents and theLoan Parties that are parties thereto, in each case with the Consent of theRequired Lenders, provided that no such agreement shall (i) increase theCommitment of any Lender without the Consent of such Lender or increase theTotal Commitments to an amount greater than $225,000,000, (ii) reduce the principalamount of any Loan or L/C Disbursement or reduce the rate of interest thereon,or reduce any fees payable hereunder, without the Consent of each Lenderaffected thereby, (iii) postpone the scheduled date of payment of the principalamount of any Loan or L/C Disbursement, or any interest thereon, or any feespayable hereunder, or reduce the amount of, waive or excuse any such payment,or postpone the scheduled date of expiration of the Commitments or the MaturityDate, without the Consent of each Lender affected thereby, (iv) change Sections2.02, 2.19, 2.22, or 2.23 or Section 6.02 of the Security Agreement, withoutthe Consent of each Lender, (v) change any of the provisions of this Section9.02 or the definition of the term “Required Lenders” or “RequiredSupermajority Lenders” or any other provision of any Loan Document specifyingthe number or percentage of Lenders required to waive, amend or modify anyrights thereunder or make any

 

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determination or grant any consent thereunder,without the Consent of each Lender, (vi) release any Loan Party from itsobligations under any Loan Document, or limit its liability in respect of suchLoan Document, without the Consent of each Lender, (vii) except for salesdescribed in Section 6.05 or as permitted in the Security Documents, releaseany material portion of the Collateral from the Liens of the SecurityDocuments, without the Consent of each Lender, (viii) change the definition ofthe term “Borrowing Base” or any component definition thereof if as a resultthereof the amounts available to be borrowed by the Borrower would beincreased, without the Consent of each Lender, *providedthat* the foregoing shall not limit the discretion of theAdministrative Agent to change, establish or eliminate any Reserves, (ix)increase the Permitted Overadvance, without the Consent of each Lender, (x)subordinate the Obligations hereunder, or the Liens granted hereunder or underthe other Loan Documents, to any other Indebtedness or Lien, as the case may bewithout the prior Consent of each Lender, and provided further that nosuch agreement shall amend, modify or otherwise affect the rights or duties ofthe Agents or the Issuing Bank without the prior written consent of the Agentsor the Issuing Bank, as the case may be.

 

(c)           Notwithstandinganything to the contrary contained herein, no modification, amendment or waiverwhich increases the maximum amount of the Swingline Loans to an amount inexcess of $25,000,000 (or such greater amount to which such limit has beenpreviously increased in accordance with the provisions of this Section 9.02(c))shall be made without the Consent of the Required Supermajority Lenders.

 

(d)           Notwithstandinganything to the contrary contained in this Section 9.02, in the event that theBorrower requests that this Agreement or any other Loan Document be modified,amended or waived in a manner which would require the Consent of the Lenderspursuant to Sections 9.02(b) or 9.02(c) and such amendment is approved by theRequired Lenders, but not by the percentage of the Lenders set forth in saidSections 9.02(b) or 9.02(c), as applicable, the Borrower, and the RequiredLenders shall be permitted to amend this Agreement without the Consent of theLender or Lenders which did not agree to the modification or amendmentrequested by the Borrower (such Lender or Lenders, collectively the “MinorityLenders”) to provide for (w) the termination of the Commitment of each ofthe Minority Lenders, (x) the addition to this Agreement of one or more otherfinancial institutions, or an increase in the Commitment of one or more of theRequired Lenders, so that the aggregate Commitments after giving effect to suchamendment shall be in the same amount as the aggregate Commitments immediatelybefore giving effect to such amendment, (y) if any Loans are outstanding at thetime of such amendment, the making of such additional Loans by such new orincreasing Lender or Lenders, as the case may be, as may be necessary to repayin full the outstanding Loans (including principal, interest, and fees) of theMinority Lenders immediately before giving effect to such amendment and (z)such other modifications to this Agreement or the Loan Documents as may beappropriate and incidental to the foregoing.

 

(e)           Nonotice to or demand on any Loan Party shall entitle any Loan Party to any otheror further notice or demand in the same, similar or other circumstances. Eachholder of a Note shall be bound by any amendment, modification, waiver or consentauthorized as provided herein, whether or not a Note shall have been marked toindicate such amendment, modification, waiver or consent and any consent by aLender, or any holder of a Note, shall bind any Person subsequently acquiring aNote, whether or not a Note is so marked. No amendment to this Agreement or anyother Loan Document shall be effective against the Borrower unless signed bythe Borrower or other applicable Loan Party.

 

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SECTION 9.03       Expenses;Indemnity; Damage Waiver. (a)  TheLoan Parties shall jointly and severally pay (i) all reasonable out-of-pocketexpenses incurred by the Agents and their Affiliates, including the reasonablefees, charges and disbursements of counsel for the Agents, outside consultantsfor the Agents, appraisers, for commercial finance examinations andenvironmental site assessments, in connection with the syndication of thecredit facilities provided for herein, the preparation and administration ofthe Loan Documents or any amendments, modifications or waivers of theprovisions thereof (whether or not the transactions contemplated hereby orthereby shall be consummated), (ii) all reasonable out-of-pocket expensesincurred by the Issuing Bank in connection with the issuance, amendment,renewal or extension of any Letter of Credit or any demand for paymentthereunder, and (iii) all reasonable out-of-pocket expenses incurred by theAgents, the Issuing Bank or any Lender, including the reasonable fees, chargesand disbursements of any counsel and any outside consultants for the Agents,the Issuing Bank or any Lender, for appraisers, commercial financeexaminations, and environmental site assessments, in connection with theenforcement or protection of its rights in connection with the Loan Documents,including its rights under this Section, or in connection with the Loans madeor Letters of Credit issued hereunder; *providedthat* the Lenders who are not the Agents or the Issuing Bank shall beentitled to reimbursement for no more than one counsel representing all suchLenders (absent a conflict of interest in which case the Lenders may engage andbe reimbursed for additional counsel).

 

(b)           TheLoan Parties shall, jointly and severally, indemnify the Agents, the IssuingBank and each Lender, and each Related Party of any of the foregoing Persons(each such Person being called an “Indemnitee”) against, and hold eachIndemnitee harmless from, any and all losses, claims, damages, liabilities andrelated expenses, including the reasonable and documented fees, charges anddisbursements of any counsel for any Indemnitee, incurred by or assertedagainst any Indemnitee arising out of, in connection with, or as a result of(i) the execution or delivery of any Loan Document or any other agreement orinstrument contemplated hereby, the performance by the parties to the LoanDocuments of their respective obligations thereunder or the consummation of thetransactions contemplated by the Loan Documents or any other transactionscontemplated hereby, (ii) any Loan or Letter of Credit or the use of theproceeds therefrom (including any refusal by the 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), (iii) any actual or alleged presence or release of Hazardous Materialson or from any property currently or formerly owned or operated by any LoanParty or any of the Subsidiaries, or any Environmental Liability related in anyway to any Loan Party or any of the Subsidiaries, or (iv) any actual orprospective claim, litigation, investigation or proceeding relating to any ofthe foregoing, whether based on contract, tort or any other theory andregardless of whether any Indemnitee is a party thereto, provided thatsuch indemnity shall not, as to any Indemnitee, be available to the extent thatsuch losses, claims, damages, liabilities or related expenses resulted from thegross negligence, wilful misconduct or bad faith of such Indemnitee or anyAffiliate of such Indemnitee (or of any officer, director, employee, advisor oragent of such Indemnitee or any such Indemnitee’s Affiliates).  In connection with any indemnified claim hereunder,the Indemnitee shall be entitled to select its own counsel and the Loan Partiesshall promptly pay the reasonable fees and expenses of such counsel.

 

(c)           Tothe extent that any Loan Party fails to pay any amount required to be paid byit to the Agents or the Issuing Bank under paragraph (a) or (b) of thisSection, each Lender severally agrees to pay to the Agents or the Issuing Bank,as the case may be, such Lender’s pro rata share (determined as of the timethat the applicable unreimbursed expense or

 

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indemnity payment is sought) of such unpaidamount, provided that the unreimbursed expense or indemnified loss,claim, damage, liability or related expense, as the case may be, was incurredby or asserted against the Agents or the Issuing Bank. For purposes hereof, aLender’s “pro rata share” shall be determined based upon its share of the TotalCommitments at the time.

 

(d)           Tothe extent permitted by Applicable Law, no Loan Party shall assert, and eachhereby waives, any claim against any Indemnitee, on any theory of liability,for special, indirect, consequential or punitive damages (as opposed to director actual damages) arising out of, in connection with, or as a result of, thisAgreement or any agreement or instrument contemplated hereby, the transactionscontemplated by the Loan Documents, any Loan or Letter of Credit or the use ofthe proceeds thereof.  The Loan Partiesfurther agree that no Indemnitee shall have any liability to the Loan Parties,any Person asserting claims by or on behalf of any Loan Party or any otherPerson in connection with this Agreement or the other Loan Documents except (i)for breach of the Indemnitee’s obligations under this Agreement and the otherLoan Documents, or (ii) the Indemnitee’s gross negligence, willful misconductor bad faith.

 

(e)           Allamounts due under this Section shall be payable promptly after written demandtherefor.

 

SECTION 9.04       Successorsand Assigns. (a)  The provisions ofthis Agreement shall be binding upon and inure to the benefit of the partieshereto and their respective successors and assigns permitted hereby (includingany Affiliate of the Issuing Bank that issues any Letter of Credit), exceptthat no Loan Party may assign or otherwise transfer any of its rights orobligations hereunder without the prior written consent of each Lender (and anysuch attempted assignment or transfer without such consent shall be null andvoid). Nothing in this Agreement, expressed or implied, shall be construed toconfer upon any Person (other than the parties hereto, their respectivesuccessors and assigns permitted hereby (including any Affiliate of the IssuingBank that issues any Letter of Credit) and, to the extent expresslycontemplated hereby, the Related Parties of each of the Agents, the IssuingBank and the Lenders) any legal or equitable right, remedy or claim under or byreason of this Agreement.

 

(b)           AnyLender may assign to one or more Eligible Assignees all or a portion of itsrights and obligations under this Agreement (including all or a portion of itsCommitment and the Loans at the time owing to it), provided that (i)except in the case of an assignment to a Lender or an Affiliate of a Lender,the Borrower (but only if no Default then exists), the Agents and the IssuingBank must give their prior written consent to such assignment (which consentshall not be unreasonably withheld or delayed), (ii) except in the case of anassignment to a Lender or an Affiliate of a Lender or an assignment of theentire remaining amount of the assigning Lender’s Commitment or Loans, theamount of the Commitment or Loans of the assigning Lender subject to each suchassignment (determined as of the date the Assignment and Acceptance withrespect to such assignment is delivered to the Administrative Agent) shall notbe less than $5,000,000 unless the Administrative Agent otherwise consents,(iii) each partial assignment shall be made as an assignment of a proportionatepart of all the assigning Lender’s rights and obligations, (iv) the parties toeach assignment shall execute and deliver to the Administrative Agent anAssignment and Acceptance, and, after completion of the syndication of theLoans, together with a processing and recordation fee of $3,500.  Subject to acceptance and recording thereofpursuant to paragraph (d) of this Section, from and after the effective datespecified in each Assignment and Acceptance the assignee thereunder shall be aparty hereto and, to the extent of the interest assigned by such Assignment andAcceptance, have the rights and obligations of a Lender under this Agreement,and the assigning Lender thereunder shall, to the

 

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extent of the interest assigned by suchAssignment and Acceptance, be released from its obligations under thisAgreement (and, in the case of an Assignment and Acceptance covering all of theassigning Lender’s rights and obligations under this Agreement, such Lendershall cease to be a party hereto but shall continue to be entitled to thebenefits of Section 9.03). Any assignment or transfer by a Lender of rights orobligations under this Agreement that does not comply with this paragraph shallbe treated for purposes of this Agreement as a sale by such Lender of aparticipation in such rights and obligations in accordance withparagraph (e) of this Section.

 

(c)           TheAdministrative Agent, acting for this purpose as an agent of the Loan Parties,shall maintain at one of its offices in Boston, Massachusetts a copy of eachAssignment and Acceptance delivered to it and a register for the recordation ofthe names and addresses of the Lenders, and the Commitment of, and principalamount of the Loans and L/C Disbursements owing to, each Lender pursuant to theterms hereof from time to time (the “Register”). The entries in theRegister shall be conclusive and the Loan Parties, the Administrative Agent,the Issuing Bank and the Lenders may treat each Person whose name is recordedin the Register pursuant to the terms hereof as a Lender hereunder for allpurposes of this Agreement, notwithstanding notice to the contrary. TheRegister shall be available for inspection by the Borrower, the Issuing Bankand any Lender, at any reasonable time and from time to time upon reasonableprior notice.

 

(d)           Uponits receipt of a duly completed Assignment and Acceptance executed by anassigning Lender and an assignee, the processing and recordation fee referredto in paragraph (b) of this Section and any written consent to such assignmentrequired by paragraph (b) of this Section, the Administrative Agent shallaccept such Assignment and Acceptance and record the information containedtherein in the Register. No assignment shall be effective for purposes of thisAgreement unless it has been recorded in the Register as provided in this paragraph.

 

(e)           AnyLender may, without the consent of the Loan Parties, the Agents, and theIssuing Bank, sell participations to one or more banks or other entities (a “Participant”)in all or a portion of such Lender’s rights and obligations under this Agreement(including all or a portion of its Commitment and the Loans owing to it), providedthat (i) such Lender’s obligations under this Agreement shall remain unchanged,(ii) such Lender shall remain solely responsible to the other parties heretofor the performance of such obligations and (iii) the Loan Parties, the Agents,the Issuing Bank and the other Lenders shall continue to deal solely anddirectly with such Lender in connection with such Lender’s rights andobligations under this Agreement. Any agreement or instrument pursuant to whicha Lender sells such a participation in the Commitments, the Loans and theLetters of Credit Outstandings shall provide that such Lender shall retain thesole right to enforce the Loan Documents and to approve any amendment,modification or waiver of any provision of the Loan Documents, providedthat such agreement or instrument may provide that such Lender will not,without the consent of the Participant, agree to any amendment, modification orwaiver described in the first proviso to Section 9.02(b) that affects suchParticipant. Subject to paragraph (f) of this Section, the Loan Parties agreethat each Participant shall be entitled to the benefits of Sections 2.24, 2.26and 2.27 to the same extent as if it were a Lender and had acquired itsinterest by assignment pursuant to paragraph (b) of this Section. To the extentpermitted by law, each Participant also shall be entitled to the benefits ofSection 9.08 as though it were a Lender, provided such Participantagrees to be subject to Section 2.26(c) as though it were a Lender.  Each Lender, acting for this purpose as anagent of the Loan Parties, shall maintain at its offices a record of eachagreement or instrument effecting any participation and a register for the recordationof the names and addresses of its Participants

 

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and their rights with respect to principalamounts and other Obligations from time to time (each a “ParticipationRegister”). The entries in each Participation Register shall be conclusiveand the Loan Parties, the Administrative Agent, the Issuing Bank and theLenders may treat each Person whose name is recorded in a Participant Registeras a Participant for all purposes of this Agreement (including, for theavoidance of doubt, for purposes of entitlement to benefits under Sections2.24, 2.26, 2.27 or 9.08). The Participation Register shall be available forinspection by the Borrower, the Issuing Bank and any Lender, at any reasonabletime and from time to time upon reasonable prior notice.

 

(f)            AParticipant shall not be entitled to receive any greater payment under Section2.24 or 2.27 than the applicable Lender would have been entitled to receivewith respect to the participation sold to such Participant, unless the sale ofthe participation to such Participant is made with the Borrower’s prior writtenconsent. A Participant that would be a Foreign Lender if it were a Lender shallnot be entitled to the benefits of Section 2.27 unless (i) the Borrower isnotified of the participation sold to such Participant and such Participantagrees, for the benefit of the Borrower, to comply with Section 2.27(e) asthough it were a Lender and (ii) such Participant is eligible for exemptionfrom the withholding Tax referred to therein, following compliance with Section2.27(e).

 

(g)           AnyLender may at any time pledge or assign a security interest in all or anyportion of its rights under this Agreement to secure obligations of suchLender, including any pledge or assignment to secure obligations to any of thetwelve Federal Reserve Banks organized under Section 4 of the Federal ReserveAct, 12 U.S.C. Section 341, and this Section shall not apply to any such pledgeor assignment of a security interest, provided that no such pledge orassignment of a security interest shall release a Lender from any of itsobligations hereunder or substitute any such pledgee or assignee for suchLender as a party hereto.

 

SECTION 9.05       Survival.All covenants, agreements, representations and warranties made by the LoanParties 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 Loans and issuance of any Letters of Credit, regardless ofany investigation made by any such other party or on its behalf andnotwithstanding that the Agents, the Issuing Bank or any Lender may have hadnotice or knowledge of any Default or incorrect representation or warranty atthe time any credit is extended hereunder, and shall continue in full force andeffect as long as the principal of or any accrued interest on any Loan or anyfee or any other amount payable under this Agreement is outstanding and unpaidor any Letter of Credit is outstanding and so long as the Commitments have notexpired or terminated. The provisions of Sections 2.24, 2.27 and 9.03 andArticle VIII shall survive and remain in full force and effect regardless ofthe consummation of the transactions contemplated hereby, the repayment of theLoans, the expiration or termination of the Letters of Credit and theCommitments or the termination of this Agreement or any provision hereof.

 

SECTION 9.06       Counterparts;Integration; Effectiveness. This Agreement may be executed in counterparts(and by different parties hereto on different counterparts), each of whichshall constitute an original, but all of which when taken together shallconstitute a single contract. This Agreement, the other Loan Documents and anyseparate letter agreements with respect to fees payable to the Agentsconstitute the entire contract among the parties relating to the subject matterhereof and supersede any and all contemporaneous or previous agreements and

 

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understandings, oral or written, relating tothe subject matter hereof. Except as provided in Section 4.01, this Agreementshall become effective when it shall have been executed by the Agents and theLenders and when the Administrative Agent shall have received counterpartshereof that, when taken together, bear the signatures of each of the otherparties hereto, and thereafter shall be binding upon and inure to the benefitof the parties hereto and their respective successors and assigns. Delivery ofan executed counterpart of a signature page of this Agreement by telecopy shallbe effective as delivery of a manually executed counterpart of this Agreement.

 

SECTION 9.07       Severability.Any provision of this Agreement held to be invalid, illegal or unenforceable inany jurisdiction shall, as to such jurisdiction, be ineffective to the extentof such invalidity, illegality or unenforceability without affecting thevalidity, legality and enforceability of the remaining provisions hereof; andthe invalidity of a particular provision in a particular jurisdiction shall notinvalidate such provision in any other jurisdiction.

 

SECTION 9.08       Rightof Setoff. If an Event of Default shall have occurred and be continuing,each Lender and each of its Affiliates is hereby authorized at any time andfrom time to time, to the fullest extent permitted by law, to set off and applyany and all deposits (general or special, time or demand, provisional or final)at any time held and other obligations at any time owing by such Lender orAffiliate to or for the credit or the account of the Loan Parties against anyof and all the obligations of the Loan Parties now or hereafter existing underthis Agreement held by such Lender, irrespective of whether or not such Lendershall have made any demand under this Agreement and although such obligationsmay be unmatured. The rights of each Lender under this Section are in additionto other rights and remedies (including other rights of setoff) that suchLender may have.

 

SECTION 9.09       GoverningLaw; Jurisdiction; Consent to Service of Process.

 

(a)           THISAGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,THE LAWS OF THE STATE OF NEW YORK.

 

(b)           TheLoan Parties agree that any suit for the enforcement of this Agreement or anyother Loan Document may be brought in any New York state or federal courtsitting in the Borough of Manhattan in New York City as the AdministrativeAgent may elect in its sole discretion and consent to the non-exclusivejurisdiction of such courts.  The LoanParties hereby waive any objection which they may now or hereafter have to thevenue of any such suit or any such court or that such suit is brought in aninconvenient forum. The Loan Parties agree that any action commenced by anyLoan Party asserting any claim or counterclaim arising under or in connectionwith this Agreement or any other Loan Document shall be brought solely in anyNew York state or federal court sitting in the Borough of Manhattan in New YorkCity as the Administrative Agent may elect in its sole discretion and consentto the exclusive jurisdiction of such courts with respect to any such action.

 

(c)           Eachparty to this Agreement irrevocably consents to service of process in themanner provided for notices in Section 9.01. Nothing in this Agreement or anyother Loan Document will affect the right of any party to this Agreement toserve process in any other manner permitted by law.

 

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SECTION 9.10       WAIVEROF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENTPERMITTED BY APPLICABLE LAW, ANY RIGHT TO A JURY IN ANY TRIAL OF ANY CASE ORCONTROVERSY IN WHICH THE BORROWER, ANY AGENT, FLEET, FSI,, ANY LENDER OR ANYPARTICIPANT IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY ISINITIATED BY OR AGAINST THE BORROWER, THE AGENT, FLEET, FSI, AND/OR SUCH LENDEROR PARTICIPANT OR IN WHICH THE BORROWER, THE AGENT, FLEET, FSI, OR SUCH LENDEROR PARTICIPANT, IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSYARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THEBORROWER OR ANY OTHER PERSON AND THE AGENT, FSI, FLEET, OR SUCH LENDER ORPARTICIPANT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT ORATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCHOTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THEFOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVEBEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUALWAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

SECTION 9.11       Headings.Article and Section headings and the Table of Contents used herein are forconvenience of reference only, are not part of this Agreement and shall notaffect the construction of, or be taken into consideration in interpreting,this Agreement.

 

SECTION 9.12       InterestRate Limitation. Notwithstanding anything herein to the contrary, if at anytime the interest rate applicable to any Loan, together with all fees, chargesand other amounts that are treated as interest on such Loan under ApplicableLaw (collectively the “Charges”), shall exceed the maximum lawful rate(the “Maximum Rate”) that may be contracted for, charged, taken,received or reserved by the Lender holding such Loan in accordance withApplicable Law, the rate of interest payable in respect of such Loan hereunder,together with all Charges payable in respect thereof, shall be limited to theMaximum Rate and, to the extent lawful, the interest and Charges that wouldhave been payable in respect of such Loan but were not payable as a result ofthe operation of this Section shall be cumulated and the interest and Chargespayable to such Lender in respect of other Loans or periods shall be increased(but not above the Maximum Rate therefor) until such cumulated amount, togetherwith interest thereon at the Federal Funds Effective Rate to the date ofrepayment, shall have been received by such Lender.

 

SECTION 9.13       AdditionalWaivers.

 

(a)           TheObligations are the joint and several obligations of each Loan Party. To thefullest extent permitted by Applicable Law, the obligations of each Loan Partyhereunder shall not be affected by (i) the failure of any Agent or any otherSecured 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 otherwise, (ii) any rescission, waiver, amendment ormodification of, or any release from any of the terms or provisions of, thisAgreement, any other Loan Document, or any other agreement, including withrespect to any other Loan Party, or (iii) the failure to perfect any securityinterest in, or the release of, any of the security held by or on behalf of theCollateral Agent or any other Secured Party.

 

(b)           Tothe fullest extent permitted by Applicable Law, the obligations of each Loan

 

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Party hereunder shall not be subject to anyreduction, limitation, impairment or termination for any reason (other than theindefeasible payment in full in cash of the Obligations), including any claimof waiver, release, surrender, alteration or compromise of any of theObligations, and shall not be subject to any defense or set-off, counterclaim,recoupment or termination whatsoever by reason of the invalidity, illegality orunenforceability of the Obligations or otherwise. Without limiting thegenerality of the foregoing, the obligations of each Loan Party hereunder shallnot be discharged or impaired or otherwise affected by any default, failure ordelay, wilful or otherwise, in the performance of the Obligations, or by anyother act or omission that may or might in any manner or to any extent vary therisk of any Loan Party or that would otherwise operate as a discharge of anyLoan Party as a matter of law or equity (other than the indefeasible payment infull in cash of all the Obligations).

 

(c)           Tothe fullest extent permitted by Applicable Law, each Loan Party waives anydefense based on or arising out of any defense of any other Loan Party or theunenforceability of the Obligations or any part thereof from any cause, or thecessation from any cause of the liability of any other Loan Party, other thanthe indefeasible payment in full in cash of all the Obligations. The CollateralAgent and the other Secured Parties may, at their election, foreclose on anysecurity held by one or more of them by one or more judicial or nonjudicialsales, accept an assignment of any such security in lieu of foreclosure,compromise or adjust any part of the Obligations, make any other accommodationwith any other Loan Party, or exercise any other right or remedy available tothem against any other Loan Party, without affecting or impairing in any waythe liability of any Loan Party hereunder except to the extent that all theObligations have been indefeasibly paid in full in cash. Pursuant to ApplicableLaw, each Loan Party waives any defense arising out of any such election eventhough such election operates, pursuant to Applicable Law, to impair or toextinguish any right of reimbursement or subrogation or other right or remedyof such Loan Party against any other Loan Party, as the case may be, or anysecurity.

 

(d)           Uponpayment by any Loan Party of any Obligations, all rights of such Loan Partyagainst any other Loan Party arising as a result thereof by way of right ofsubrogation, contribution, reimbursement, indemnity or otherwise shall in allrespects be subordinate and junior in right of payment to the priorindefeasible payment in full in cash of all the Obligations. In addition, anyindebtedness of any Loan Party now or hereafter held by any other Loan Party ishereby subordinated in right of payment to the prior payment in full of theObligations.  Notwithstanding theforegoing, prior to the occurrence of an Event of Default, Loan Party may makepayments to any other Loan Party on account of any such indebtedness. After theoccurrence and during the continuance of an Event of Default, none of the LoanParties will demand, sue for, or otherwise attempt to collect any suchindebtedness.

 

SECTION 9.14       Confidentiality.

 

Each of the Lenders agrees that it will useits best efforts not to disclose without the prior consent of the Borrower(other than to its employees, auditors, counsel or other professional advisors,to affiliates or to another Lender if the Lender or such Lender’s holding orparent company in its sole discretion determines that any such party shouldhave access to such information) any information with respect to the Borroweror any other Loan Party which is furnished pursuant to this Agreement providedthat any Lender may disclose any such information (a) as has become generallyavailable to the public, (b) as may be required or appropriate in any report,statement or testimony submitted to any municipal, state or federal regulatorybody having or claiming to have jurisdiction over such Lender or to the Federal

 

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Reserve Board or the Federal Deposit InsuranceCorporation or similar organizations (whether in the United States orelsewhere) or their successors, (c) as may be required or appropriate inresponse to any summons or subpoena or in connection with any litigation, providedthat if the Lender is able to do so prior to complying with the summons orsubpoena, such Lender shall provide the Borrower with prompt notice of suchrequested disclosure so that the Borrower may seek a protective order or otherappropriate remedy (nothing contained herein however shall result in suchLender’s non-compliance with Applicable Law), (d) in order to comply with any law,order, regulation or ruling applicable to such Lender, (e) in connection withthe enforcement of remedies under this Agreement and the other Loan Documents,and (f) to any prospective transferee in connection with any contemplatedtransfer of any of the Loans or Notes or any interest therein by such Lenderprovided that such prospective transferee agrees to be bound by the provisionsof this Section. The Lenders shall endeavor in good faith in making anydisclosures pursuant to clauses (b), (c), or (d) above to provide only thatportion of such information, which, in the reasonable judgment of such Lender,is relevant and legally required to be provided.  The Loan Parties hereby agree that the failure of a Lender tocomply with the provisions of this Section 9.14 shall not relieve the LoanParties of any of its obligations to such Lender under this Agreement and theother Loan Documents.  Notwithstandinganything to the contrary herein contained, and except to the extent reasonablynecessary to comply with applicable securities laws, each party (and theirrespective employees, representatives and other agents) may disclose to anyPerson the tax treatment and tax structure of the transactions contemplated bythis Agreement and all materials (including opinions or other tax analyses)that are provided to such part relating to such tax treatment and taxstructure.

 

[**SIGNATURE PAGES FOLLOW**]

 

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IN WITNESS WHEREOF, the parties hereto havecaused this Agreement to be duly executed by their respective authorizedofficers as a sealed instrument as of the day and year first above written.

 
|   | DUANE READE                   |
|--------|-------------------------------|
|   | as Borrower                   |
|   |
|   | By:                           | DUANE READE INC., its |
|   |                          | General Partner |
|   |
|   | by                            | /s/ John K. Henry |   |
|   | Name:                         | John K. Henry |   |
|   | Title:                        | Chief Financial Officer |   |
|   |
|   |
|   | by                            | /s/ Michelle D. Bergman |   |
|   | Name:                         | Michelle D. Bergman |   |
|   | Title:                        | Vice President |   |
|   |
|   |
|   | By:                           | DRI I INC., its General |   |
|   |                          |   | Partner |   |
|   |                          |   |   |   |
|   | by                            | /s/ John K. Henry |   |
|   | Name:                         | John K. Henry |   |
|   | Title:                        | Chief Financial Officer |   |
|   |
|   |
|   | by                            | /s/ Michelle D. Bergman |   |
|   | Name:                         | Michelle D. Bergman |   |
|   | Title:                        | Vice President |   |
|   |
|   |
|   | DUANE READE INC., as Facility |
|   | Guarantor                     |   |
|   |
|   |
|   | by                            | /s/ John K. Henry |   |
|   | Name:                         | John K. Henry |   |
|   | Title:                        | Chief Financial Officer |   |
|   |
|   |
|   | by                            | /s/ Michelle D. Bergman |   |
|   | Name:                         | Michelle D. Bergman |   |
|   | Title:                        | Vice President |   |

 

S-1

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|   | DRI I INC., as Facility Guarantor |
|--------|-----------------------------------|
|   |
|   |
|   | by                                | /s/ John K. Henry |   |
|   | Name:                             | John K. Henry |   |
|   | Title:                            | Chief Financial Officer |   |
|   |
|   |
|   | by                                | /s/ Michelle D. Bergman |   |
|   | Name:                             | Michelle D. Bergman |   |
|   | Title:                            | Vice President |   |
|   |
|   |
|   | DUANE READE                       |   |
|   | INTERNATIONAL, INC., as           |   |
|   | Facility Guarantor                |   |
|   |
|   |
|   | by                                | /s/ John K. Henry |   |
|   | Name:                             | John K. Henry |   |
|   | Title:                            | Chief Financial Officer |   |
|   |
|   |
|   | by                                | /s/ Michelle D. Bergman |   |
|   | Name:                             | Michelle D. Bergman |   |
|   | Title:                            | Vice President |   |
|   |
|   |
|   | DUANE READE REALTY, INC.,         |   |
|   | as Facility Guarantor             |   |
|   |
|   |
|   | by                                | /s/ John K. Henry |   |
|   | Name:                             | John K. Henry |   |
|   | Title:                            | Chief Financial Officer |   |
|   |
|   |
|   | by                                | /s/ Michelle D. Bergman |   |
|   | Name:                             | Michelle D. Bergman |   |
|   | Title:                            | Vice President |   |
|        |                                   |  |  |  |

 

S-2

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|   | FLEET RETAIL FINANCE INC.,        |           |
|--------|-----------------------------------|----------------|
|   | As Collateral Agent, as Swingline |           |
|   | Lender and as Lender              |           |
|   |
|   | By:                               | /s/ Mark Forti |   |
|   | Name:                             | Mark Forti     |   |
|   | Title:                            | Director       |   |
|   |
|   | Address:                          |           |
|   | 40 Broad Street, 10th Floor       |           |
|   | Boston, Massachusetts 02109       |           |
|   | Attn: Mark Forti                  |           |
|   | Telephone: (617) 434-4364         |           |
|   | Telecopy: (617) 434-4339          |           |
|   |
|   |
|   | FLEET NATIONAL BANK,              |           |
|   | as Administrative Agent and as    |           |
|   | Issuing Bank                      |           |
|   |
|   |
|   | By:                               | /s/ Mark Forti |   |
|   | Name:                             | Mark Forti     |   |
|   | Title:                            | Director       |   |
|   |
|   | Address:                          |           |
|   | 40 Broad Street                   |           |
|   | Boston, Massachusetts 02109       |           |
|   | Attn: Mark Forti                  |           |
|   | Telephone: (617) 434-4364         |           |
|   | Telecopy: (617) 434-4339          |           |
|        |                                   |                |  |  |

 

S-3

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|   | CONGRESS FINANCIAL                  |       |
|--------|-------------------------------------|------------|
|   | CORPORATION, as Documentation Agent |
|   | and Lender                          |       |
|   |                                |
|   |                                |
|   |                                | By:        | /s/ Christopher S. Hudik |   |
|   |
|   |                                | Name:      | Christopher S. Hudik |   |
|   |
|   |                                | Title:     | 1st Vice President |   |
|   |
|   |                                | Address:   |   |
|   |
|   |                                | Telephone: |   |
|   |                                | Telecopy:  |   |
|        |                                     |            |  |  |  |  |  |  |  |

 

S-4

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|   | GENERAL ELECTRIC CAPITAL              |       |
|--------|---------------------------------------|------------|
|   | CORPORATION, as Syndication Agent and |       |
|   | Lender                                |       |
|   |
|   |                                  | By:        | /s/ Craig Winslow |   |
|   |                                  |       |   |
|   |                                  | Name:      | Craig Winslow |   |
|   |
|   |                                  | Title:     | Authorized Signatory |   |
|   |
|   |                                  | Address:   |   |
|   |                                  | Telephone: |   |
|   |                                  | Telecopy:  |   |
|        |                                       |            |  |  |  |  |  |

 

S-5

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|   |   | THE CIT GROUP/BUSINESS  CREDIT, INC., as Lender |
|--------|--------|-------------------------------------------------|
|   |   |                                            |
|   |   |                                            |
|   |   | By:                                             | /s/ Steven Schuit |   |
|   |   |                                            |   |
|   |   | Name:                                           | Steven Schuit |   |
|   |   |                                            |   |
|   |   | Title:                                          | Vice President |   |
|   |   |                                            |   |
|   |   | Address:                                        |   |
|   |   | Telephone:                                      |   |
|   |   | Telecopy:                                       |   |
|        |        |                                                 |  |  |  |  |

 

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