Document:

<PAGE>
                                                                    EXHIBIT 10.9

UCC FINANCING STATEMENT
FOLLOW INSTRUCTIONS (front and back) CAREFULLY

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  A.  NAME & PHONE OF CONTACT AT FILER (optional)
        Shirley J. Dietrich                   (402) 346-6000
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  B.  SEND ACKNOWLEDGEMENT TO:  (Name and Address)
         Kutak Rock LLP
         1660 Famam Street
         Omaha, NE 68102
                                                         CT Lien Ref #L: 196988
                                             Filed with: NV: Secretary of State
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1.   DEBTOR'S EXACT FULL LEGAL NAME

          Absorption Corp.
          1051 Hilton Avenue
          Bellingham, WA 98225
     TYPE OF ORGANIZATION               Corporation

     JURISDICTION OF ORGANIZATION:      Nevada

     ORGANIZATIONAL ID #:               NV C4963-1985

2.   ADDITIONAL DEBTORS EXACT FULL LEGAL NAME

          Not  applicable

3.   SECURED PARTY'S NAME

          GE Capital Public Finance, Inc.
          Suite 470, 8400 Normandale Lake
          Minneapolis
          MN US  55437

4.   THIS FINANCING STTAEMENT COVERS THE FOLLOWING COLLERTAL:

          The Property, as defined in the Commercial Deed of Trust, Security
          Agreement, Assignment of Leases and Rents and Fixture Filing, as more
          fully described in Exhibit A, which is attached hereto and made a part
          hereof. See Exhibit B for name and address of record owner and legal
          description of real estate.

5.   ALTERNATIVE DESIGNATION: Not Applicable

6.   THIS FINANCING STATEMENT IS TO BE FILED: Not Applicable

7.   CHECK TO REQUEST SEARCH REPORTS ON DEBTOR(S): Not Applicable

8.   OPTIONAL FILER REFERENCE DATA: Not Applicable
<PAGE>
                      EXHIBIT A TO UCC FINANCING STATEMENT

DEBTOR:                               SECURED PARTY:
ABSORPTION CORP.                      GE CAPITAL PUBLIC FINANCE, INC.
1051 HILTON AVENUE                    SUITE 470
BELLINGHAM, WA 98225                  8400 NORMANDALE LAKE BOULEVARD
                                      MINNEAPOLIS, MN 55437

     THE PROPERTY AS DEFINED IN THE COMMERCIAL DEED OF TRUST, SECURITY
AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING DATED AS OF MARCH
1, 2003 BETWEEN ABSORPTION CORP. ("GRANTOR") AND GE CAPITAL PUBLIC FINANCE, INC.
("BENEFICIARY'). THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPES OF
COLLATERAL ("COLLATERAL"):"

     ALL OF GRANTOR'S ESTATE, RIGHT, TITLE AND INTEREST, NOW OWNED OR HEREAFTER
ACQUIRED, INCLUDING ANY REVERSION OR REMAINDER INTEREST, IN THE REAL PROPERTY
LOCATED IN AN UNINCORPORATED AREA OF WHATCOM COUNTY, WASHINGTON AND MORE
PARTICULARLY DESCRIBED ON EXHIBIT B ATTACHED HERETO AND INCORPORATED HEREIN,
WHICH REAL PROPERTY IS NOT USE PRINCIPALLY FOR AGRICULTURAL OR FARMING PURPOSES,
INCLUDING ALL HERETOFORE OR HEREAFTER VACATED ALLEYS AND STREET ABUTTING THE
PROPERTY, AND ALL EASEMENTS, RIGHTS, APPURTENANCES, TENEMENTS, HEREDITAMENTS,
RENTS, ROYALTIES, MINERAL, OIL AND GAS RIGHTS AND PROFITS, WATER, WATER RIGHTS
AND WATER STOCK APPURTENANT TO THE PROPERTY (COLLECTIVELY, "PREMISES");

     TOGETHER WITH ALL OF GRANTOR'S ESTATE, RIGHT, TITLE AND INTEREST, NOW OWNED
OR HEREAFTER ACQUIRED, IN UNDER AND TO:

     (a) ALL BUILDINGS, STRUCTURES, IMPROVEMENTS, PARKING AREAS, LANDSCAPING
EQUIPMENT, SOFTWARE INTANGIBLES, FIXTURES AND ARTICLES OF PROPERTY NOW OR
HEREAFTER ERECTED ON, ATTACHED T O OR USED OR ADAPTED FOR USE IN THE OPERATION
OF THE PREMISES; INCLUDING, BUT WITHOUT BEING LIMITED TO, ALL HEATING, AIR
CONDITIONING, MANUFACTURING AND INCINERATING APPARATUS AND EQUIPMENT; ALL
BOILERS, ENGINES, MOTORS, DYNAMOS, GENERATING EQUIPMENT, PIPING AND PLUMBING
FIXTURES, WATER HEATERS, RANGES, COOKING APPARATUS AND MECHANICAL KITCHEN
EQUIPMENT, REFRIGERATORS, FREEZERS, COOLING, VENTILATING, SPRINKLING AND VACUUM
CLEANING SYSTEMS, FIRE EXTINGUISHING APPARATUS, GAS AND ELECTRIC FIXTURES,
CARPETING, FLOOR COVERINGS, UNDERPADDING, ELEVATORS, ESCALATORS, PARTITIONS,
MANTELS, BUILD-IN-MIRRORS, WINDOW SHADES, BLINDS, DRAPERIES, SCREENS STORM SASH,
AWNINGS,
<PAGE>
SIGNS FURNISHINGS OF PUBLIC SPACES, HALLS AND LOBBIES, AND SHRUBBERY
AND PLANTS, AND INCLUDING ALSO ALL INTEREST OF ANY OWNER OF THE PREMISES IN ANY
OF SUCH ITEMS HEREAFTER AT ANY TIME ACQUIRED UNDER CONDITIONAL SALE CONTRACT,
CHATTEL MORTGAGE OR OTHER TITLE RETAINING OR SECURITY INSTRUMENT, ALL OF WHICH
PROPERTY MENTIONED IN THIS CLAUSE (A) SHALL BE DEEMED PART OF THE REALTY COVERED
BY THIS DEED OF TRUST AND NOT SEVERABLE WHOLLY OR IN THE FOREGOING PART WITHOUT
MATERIAL INJURY TO THE FREEHOLD OF THE PREMISES (ALL OF THE FOREGOING TOGETHER
WITH REPLACEMENTS AND ADDITIONS THERETO ARE REFERRED TO HEREIN AS
"IMPROVEMENTS"); AND

     (b) ALL COMPENSATION, AWARDS, DAMAGES, RIGHTS OF ACTION AND PROCEEDS,
INCLUDING INTEREST THEREON AND/OR THE PROCEEDS OF ANY POLICIES OF INSURANCE
THEREFORE, ARISING OUT OF OR RELATING TO A (I) TAKING OR DAMAGING OF THE
PREMISES OR IMPROVEMENTS THEREON BY REASON OF ANY PUBLIC OR PRIVATE IMPROVEMENT,
CONDEMNATION PROCEEDING (INCLUDING CHANGE OF GRADE), SALE OR TRANSFER IN LIEU OF
CONDEMNATION, OR FIRE, EARTHQUAKE OR OTHER CASUALTY, OR (II) ANY INJURY TO OR
DECREASE IN THE VALUE OF THE PREMISES OR THE IMPROVEMENTS FOR ANY REASON
WHATSOEVER;

     (c) RETURN PREMIUMS OR OTHER PAYMENTS UPON ANY INSURANCE ANY TIME PROVIDED
WITH RESPECT TO THE PREMISES, IMPROVEMENTS AND OTHER COLLATERAL DESCRIBED HEREIN
FOR THE BENEFIT OF OR NAMING BENEFICIARY, AND REFUNDS OR REBATES OF TAXES OR
ASSESSMENTS ON THE PREMISES;

     (d) ALL WRITTEN AND ORAL LEASES AND RENTAL AGREEMENTS (INCLUDING
EXTENSIONS, RENEWALS AND SUBLEASES; EACH OF THE FOREGOING SINGULARLY SHALL BE
REFERRED TO HEREIN AS A "LEASE," AND ALL OF THE FOREGOING SHALL BE REFERRED TO
COLLECTIVELY HEREIN AS THE "LEASES") NOW OR HEREAFTER AFFECTING THE PREMISES
INCLUDING, WITHOUT LIMITATION, ALL RENTS, ISSUES, INCOME, PROFITS AND OTHER
REVENUES AND INCOME THEREFROM AND FROM THE RENTING, LEASING OR BAILMENT OF
IMPROVEMENTS AND EQUIPMENT ("RENTS"), ALL GUARANTIES OF TENANTS' PERFORMANCE
UNDER THE LEASE, ALL LETTER-OF-CREDIT RIGHTS AND ALL OTHER SUPPORTING
OBLIGATIONS ASSOCIATED WITH THE LEASES AND ALL RIGHTS AND CLAIMS OF ANY KIND
THAT GRANTOR MAY HAVE AGAINST ANY TENANT UNDER THE LEASES OR IN CONNECTION WITH
THE TERMINATION OR REJECTION OF THE LEASES IN A BANKRUPTCY OR INSOLVENCY
PROCEEDING; AND THE LEASEHOLD ESTATE IN THE EVENT THIS DEED OF TRUST IS ON A
LEASEHOLD;
<PAGE>
     (e) PLANS, SPECIFICATIONS, DOCUMENTS, CONTRACTS AND AGREEMENTS RELATING TO
THE DESIGN OR CONSTRUCTION OF THE IMPROVEMENTS; GRANTOR'S RIGHTS UNDER ANY
PAYMENT, PERFORMANCE, OR OTHER BOND IN CONNECTION WITH THE DESIGN OR
CONSTRUCTION OF THE IMPROVEMENTS; ALL LANDSCAPING AND CONSTRUCTION MATERIALS,
SUPPLIES, AND EQUIPMENT USED OR TO BE USED OR CONSUMED IN CONNECTION WITH
CONSTRUCTION OF THE IMPROVEMENTS, WHETHER STORED ON THE PREMISES OR AT SOME
OTHER LOCATION; AND CONTRACTS, AGREEMENTS, AND PURCHASE ORDERS WITH CONTRACTORS,
SUBCONTRACTORS, SUPPLIERS, AND MATERIALMEN INCIDENTAL TO THE DESIGN OR
CONSTRUCTION OF THE IMPROVEMENTS;

     (f) ALL CONTRACTS, DOCUMENTS, ACCOUNTS, DEPOSIT ACCOUNTS, RIGHTS, CLAIMS OR
CAUSES OF ACTION PERTAINING TO OR AFFECTING THE PREMISES OR THE IMPROVEMENTS,
INCLUDING, WITHOUT LIMITATION, ALL OPTIONS OR CONTRACTS TO ACQUIRE OTHER
PROPERTY FOR USE IN CONNECTION WITH OPERATIONS OR DEVELOPMENT OF THE PREMISES OR
IMPROVEMENTS, PROMISSORY NOTES, MANAGEMENT CONTRACTS, SERVICE OR SUPPLY
CONTRACTS, DEPOSITS, BANK ACCOUNTS, GENERAL INTANGIBLES (INCLUDING WITHOUT
LIMITATION TRADEMARKS, TRADE NAMES, SYMBOLS AND PAYMENT INTANGIBLES), PERMITS,
LICENSES, FRANCHISES AND CERTIFICATES, AND ALL COMMITMENTS OR AGREEMENTS, NOW OR
HEREAFTER IN EXISTENCE, INTENDED BY THE OBLIGOR THEREFORE TO PROVIDE GRANTOR
WITH PROCEEDS TO SATISFY THE LOAN EVIDENCED HEREBY OR IMPROVE THE PREMISES OR
IMPROVEMENTS, AND THE RIGHT TO RECEIVE ALL PROCEEDS DUE UNDER SUCH COMMITMENTS
OR AGREEMENTS INCLUDING REFUNDABLE DEPOSITS AND FEES;

     (g) ALL BOOKS, RECORDS, SURVEYS, REPORTS AND OTHER DOCUMENTS RELATED TO THE
PREMISES, THE IMPROVEMENTS, THE LEASES OR OTHER ITEMS OF COLLATERAL DESCRIBED
HEREIN; AND

     (h) ALL ADDITIONS, ACCESSIONS, REPLACEMENTS, SUBSTITUTIONS, PROCEEDS AND
PRODUCTS OF THE REAL AND PERSONAL PROPERTY, TANGIBLE AND INTANGIBLE, DESCRIBED
HEREIN.

     THE PREMISES, THE IMPROVEMENTS, THE LEASES AND ALL OF THE REST OF THE
FOREGOING PROPERTY AND HEREIN REFERRED TO AS THE "PROPERTY."

     GRANTOR WAS WAIVED ANY RIGHT THAT IT MAY HAVE TO FILE WITH THE APPLICABLE
FILING OFFICER ANY FINANCING STATEMENT, AMENDMENT, TERMINATION OR OTHER RECORD
PERTAINING TO THE PROPERTY AND/OR BENEFICIARY'S INTEREST THEREIN.
<PAGE>
                      EXHIBIT B TO UCC FINANCING STATEMENT

DEBTOR:                                     SECURED PARTY:
ABSORPTION CORP.                            GE CAPITAL PUBLIC FINANCE, INC.
1051 HILTON AVENUE                          SUITE 470
BELLINGHAM, WA 98225                        8400 NORMANDALE LAKE BOULEVARD
                                            MINNEAPOLIS, MN 55437

THE LEGAL DESCRIPTION OF THE REAL ESTATE IS:

Real property in the County of Whatcom, State of Washington, described as
follows:

Parcel A

Lots 5 and 6, Grandview Light Industrial Park, General and Specific Binding Site
Plan as per the map thereof, recorded January 10, 1992, under Whatcom County
Auditor's file No. 920110138, records of Whatcom County, Washington, being a
portion of Section 6, Township 39 North, Range 2 East of W.M.

Parcel A-1

An easement for ingress, egress and utilities as delineated on the face of
Grandview Light Industrial Park Binding Site Plan.

Parcel B

Lot 4, Grandview Light Industrial Park General Binding Site Plan Modifications
and Specific Binding Site Plan No. 4, as per the map thereof, recorded August 8,
1996, under Whatcom County Auditor's file No. 960808016, records of Whatcom
County, Washington, being a portion of Section 6, Township 39 North, Range 2
East of W.M.

Parcel B-1

An easement for ingress, egress and utilities as delineated on the face of
Grandview Light Industrial Park General Binding Site Plan Modification and
Specific Binding Site Plan No. 4.

APN: 390206 122168 0000
APN: 390206 092195 0000
APN: 390206 063216 0000

THE NAME AND ADDRESS OF THE RECORD OWNER ARE:

                                ABSORPTION CORP.
                               1051 HILTON AVENUE
                              BELLINGHAM, WA 98225exv10w4

 

Exhibit 10.4

FIRST AMENDMENT AND WAIVER

TO CREDIT AND SECURITY AGREEMENT

          FIRST AMENDMENT AND WAIVER TO CREDIT AND SECURITY AGREEMENT, dated as of
January 23, 2003 (the “Amendment”), among FRANK’S NURSERY & CRAFTS, INC., a
Delaware corporation (“Borrower”), and KIMCO CAPITAL CORP., as lender
(“Lender”):

W I T N E S S E T H:

          WHEREAS, Borrower and Lender are parties to that certain Credit and
Security Agreement, dated as of May 20, 2002, (as the same may be further
amended, modified or supplemented from time to time, the “Credit Agreement”);
and

          WHEREAS, Borrower has advised Lender that it has failed to comply with
certain covenants and requirements set forth in the Credit Agreement and, as a
result, certain Defaults and Events of Default identified on Schedule A hereto
have occurred and are continuing (collectively, the “Existing Defaults”); and

          WHEREAS, Borrower has requested that Lender waive the Existing Defaults
and, subject to the terms and conditions of this Amendment, Lender has agreed
to waive the Existing Defaults; and

          WHEREAS, Borrower has requested and Lender has agreed, subject to the
terms and conditions of this Amendment, to increase the Revolving Credit
Commitment by $10,000,000; and

          WHEREAS, Borrower and Lender have agreed, subject to and upon the terms
and conditions set forth herein, to amend the Credit Agreement as set forth
herein; and

          WHEREAS, in consideration of the foregoing, Borrower has agreed to grant
to Lender a mortgage in the Additional Property (as defined herein) and a
security interest in the Inventory Collateral (as defined in Exhibit A hereto);
and

          NOW, THEREFORE, the parties hereto hereby agree as follows:

          1. Definitions. As used herein, all terms that are defined in the Credit
Agreement shall have the same meanings herein.

          2. Waiver. Subject to the terms and conditions hereof, Lender hereby
agrees to waive (the “Waiver”) the Existing Defaults with the exception of the
Event of Default pursuant to Section 6(n) of the Credit Agreement which has
occurred and is continuing as a result of Borrower’s default under the Working
Capital Facility (the

1

 

“Congress Default”). Lender hereby further agrees to forbear during the
Forbearance Period (as defined below) from the exercise of remedies available
under the Credit Agreement and the other Fundamental Documents as a result of
the Congress Default. As used herein, the term “Forbearance Period” shall mean
the period beginning on the First Amendment Effective Date and ending on the
earliest to occur of: (i) February 7, 2003, and (ii) the date on which the
Borrower shall have satisfied the condition subsequent set forth in Section
7(a) hereof. Upon the satisfaction by Borrower of the condition subsequent set
forth in Section 7(a) hereof within the Forbearance Period, the Congress
Default shall be deemed waived as of the First Amendment Effective Date in
accordance with the first sentence of this Section 2.

          3. Amendments. The Credit Agreement is hereby amended by inserting each
of the provisions which appear with computerized underscoring and by deleting
each of the provisions which appear with computerized strike-through in the
document annexed hereto as Exhibit A.

          4. Ratification. Except to the extent hereby amended, the Credit
Agreement and each of the Fundamental Documents remain in full force and effect
and are hereby ratified and affirmed.

          5. Representations and Warranties. Borrower represents and warrants to,
and agrees with, Lender that:

     (i)  Borrower has the corporate power and authority to (x) execute, deliver
and perform, as applicable, its obligations under this Amendment and any other
documents contemplated hereby or thereby to which it is or will be a party and
(y) upon execution and delivery of the Intercreditor Agreement, grant to Lender
a security interest in the Inventory Collateral;

     (ii)  the execution, delivery and performance of this Amendment, the grant
to Lender of the security interest in the Inventory Collateral as contemplated
by this Amendment and the other Fundamental Documents (as amended) to which it
is or will be a party (a) have been duly authorized by all necessary corporate
action on the part of Borrower, (b) upon execution and delivery of the
Intercreditor Agreement, will not constitute a violation of any provision of
any Applicable Law or any order of any Governmental Authority applicable to
Borrower or any of its properties or assets, (c) will not violate any provision
of the Certificate of Incorporation, By-Laws, or any other organizational
document of, or other similar instrument to which Borrower is a party or by
which Borrower or any of its properties or assets are bound or to which
Borrower is subject, (d) upon execution and delivery of the Intercreditor
Agreement, will not be in conflict with, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under, or create any right
to terminate, any indenture, agreement, bond, note, mortgage, deed of trust, or
other instrument to which Borrower is a party or by which Borrower or any of
its properties or assets are bound or to which Borrower is subject and (e) will
not result in the creation or imposition of (or the obligation to create or
impose) any Lien, charge or encumbrance of any nature whatsoever upon any of
the properties or

2

 

assets of Borrower other than pursuant to the Credit Agreement (as amended) or
the other Fundamental Documents (as amended);

     (iii)  upon its execution and delivery by Borrower, this Amendment and each
Fundamental Document amended pursuant hereto shall constitute or continue to
constitute the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency and similar laws affecting
creditors’ rights general and to general principles of equity, whether such
enforceability is considered in a proceeding at law or in equity;

     (iv)  Borrower has good and marketable title to the Inventory Collateral
and such property is free and clear of Liens, except Permitted Liens (as
defined in the Credit Agreement, as amended hereby);

     (v)  after giving effect to the Waiver herein, there are no outstanding
Defaults or Events of Default under the Credit Agreement;

     (vi)  Borrower is not in violation of any Applicable Law (including,
without limitation, any Environmental Law) or any restrictions of record or
agreements affecting the Collateral or the Inventory Collateral, except for
violations which in the aggregate could not reasonably be expected to have a
Material Adverse Effect; and

     (vii)  Upon the execution of the Additional Warrant Agreement, (i) the
holder of the warrants under the Additional Warrant Agreement will acquire good
and marketable title to such warrants, free and clear of all Liens. Upon
exercise of the warrants under the Additional Warrant Agreement, in whole or,
from time to time, in part, and upon payment of the exercise price therefor, in
accordance with the terms of the warrants under the Additional Warrant
Agreement, (i) the holder of such warrants will acquire good and marketable
title to the shares of Borrower’s common stock, par value $.001 per share (the
“Common Stock”) issued pursuant thereto, free and clear of all Liens, and (ii)
such shares of Common Stock (A) will be validly issued, fully paid and
nonassessable, (B) will not subject the holder thereof to any personal
liability by reason of being such holder and (C) will not be issued in
violation of any preemptive right, right of first refusal or similar right.
The Board of Directors has approved the issuance of the warrants under the
Additional Warrant Agreement and the shares of Common Stock to be issued
thereunder pursuant to the terms hereof and thereof. The shares of Common
Stock issuable pursuant to the Additional Warrant Agreement are “Registrable
Securities” as that term is defined in the Investors’ Rights Agreement, dated
as of May 20, 2002, by and between the Borrower and the signatories thereto.
There are no anti-dilution or price adjustment provisions contained in any
security issued by the Borrower (or in any agreement providing rights to
security holders) that will be triggered by the issuance of the warrants and,
upon exercise, the shares of Common Stock issuable pursuant to the Additional
Warrant Agreement.

3

 

          6. Conditions to Effectiveness. This Amendment shall become effective
(the “First Amendment Effective Date”) upon Lender being satisfied that each of
the following conditions shall have been satisfied:

		
	 	     (i) Lender shall have received executed counterparts of this
Amendment which, when taken together, bear the signatures of Lender and
Borrower;
	 
	 	     (ii) Lender, Congress and Borrower shall have entered into an
Intercreditor Agreement in form and substance substantially similar to
Exhibit B;
	 
	 	     (iii) Borrower shall have (a) duly executed and delivered to Lender
a First Amendment to Mortgage, Open End Mortgage, Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Financing
Statement, substantially in the form of Exhibit C hereto, for each Fee
Property and each Leased Property and (b) provided evidence reasonably
satisfactory to Lender that Borrower has paid (or reimbursed Lender), or
deposited with Lender an amount sufficient for payment of, all applicable
mortgage recording taxes, transfer taxes, filing fees and any other fees,
costs or expenses in connection with the foregoing;
	 
	 	     (iv) Borrower shall have duly executed and delivered to Lender the
Additional Warrant Agreement substantially in the form of Exhibit D
hereto;
	 
	 	     (v) Lender shall have received such UCC amendments and UCC financing
statements as requested by Lender each of which, when filed, will modify
the existing UCC financing statements previously filed pursuant to the
Credit Agreement and/or create in favor of Lender a perfected security
interest in the Inventory Collateral;
	 
	 	     (vi) Lender shall have received a favorable written opinion of
Michael McBride, Esq., general counsel to Borrower, dated the date of
this Amendment covering the items listed in Exhibit E hereto and in form
and substance reasonably satisfactory to Lender and its counsel;
	 
	 	     (vii) Borrower shall have reimbursed Lender for the fees and
expenses incurred by counsel to Lender in connection with the
preparation, execution and delivery of this Amendment;
	 
	 	     (viii) Borrower shall have duly executed and delivered to Lender a
Closing Certificate substantially in the form of Exhibit F hereto,
together with any certificates, exhibits and schedules thereto; and
	 
	 	     (viii) Borrower shall have delivered to Lender such other documents
and information as Lender may reasonably request.

          7. Conditions Subsequent. (a) By no later than February 7, 2003, Borrower
shall deliver to Lender evidence in form and substance satisfactory to Lender

4

 

of the waiver by Congress of any defaults or events of default that have
occurred as of the date of such waiver of delivery under the Working Capital
Facility.

     (b)  By no later than the date which is 90 days from the First Amendment
Effective Date, Borrower shall (a) duly execute and deliver to Lender a
Mortgage on certain real property acceptable to Lender (the “Additional
Property”) (it being understood that a first priority Mortgage on Borrower’s
fee property located in Huntington, New York or a second priority Mortgage on
each of Borrower’s fee properties referred to as stores numbered 99, 101, 106,
140, 163, 623 and 628 (subject only to first mortgages on such properties in
the aggregate of not more than $7,900,000) shall be acceptable to Lender),
which, when filed, will create in favor of Lender a perfected security interest
in and mortgage on the Additional Property free and clear of Liens other than
Permitted Liens, all in form and substance satisfactory to Lender in its sole
and absolute discretion; (b) cause to be delivered to Lender, an ALTA form loan
policy or policies from the Title Company (I) insuring the Mortgage on the
Additional Property to be a valid lien with respect to such Fee Property, (II)
without exceptions and subject to no Liens (other than Permitted Liens), (III)
in policy amounts acceptable to Lender, (IV) with such endorsements and
affirmative coverage as Lender shall require and (V) otherwise in form and
substance acceptable to Lender in its sole and absolute discretion; (c) provide
evidence reasonably satisfactory to Lender that Borrower has paid (or
reimbursed Lender), or deposited with Lender an amount sufficient for the
payment of, all applicable mortgage recording taxes, transfer taxes, title
charges, filing fees and any other fees, costs or expenses in connection with
the foregoing; and Lender shall be satisfied that Borrower has sufficient
right, title and interest in and to the Additional Property; (d) deliver to
Lender updated Schedules to the Credit Agreement reflecting the addition of the
Additional Property to the Collateral and such other documents or information
as Lender may reasonably request.

          8. Fees and Expenses. Borrower agrees that its obligations set forth in
Section 7.4 of the Credit Agreement shall extend to the preparation, execution
and delivery of this Amendment, including the reasonable and necessary fees and
disbursements of counsel to Lender.

          9. Limitations. This Amendment shall be limited precisely as written and
shall not be deemed (a) to be a consent granted pursuant to, or a waiver (other
than the Waiver) or modification of, any other term or condition of the Credit
Agreement or any of the instruments or agreements referred to therein or (b) to
prejudice any right or rights which Lender may now have or have in the future
under or in connection with the Credit Agreement or any of the instruments or
agreements referred to therein. Whenever the Credit Agreement is referred to
in the Credit Agreement or any of the instruments, agreements or other
documents or papers executed or delivered in connection therewith, such
reference shall be deemed to mean the Credit Agreement as modified by this
Amendment.

          10. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which

5

 

when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same instrument.

          11. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.

[Signature Page Follows]

6

 

          IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed as of the day and the year first written.

	 	BORROWER:

	 	FRANK’S NURSERY & CRAFTS, INC.

	 	By: /s/ Michael D. McBride     

Name: Michael D. McBride

Title: Vice President Legal and Secretary

	 	LENDER:

	 	KIMCO CAPITAL CORP.

	 	By: /s/ David Samber     

Name: David Samber

Title: Vice President

7

 

INDEX OF EXHIBITS AND SCHEDULE TO

FIRST AMENDMENT

Exhibit A – Blackline of Credit Agreement

Exhibit B – Form of Intercreditor Agreement

Exhibit C – Form of First Amendment to Mortgage

Exhibit D – Form of Additional Warrant Agreement

Exhibit E – Items to be Covered by Opinion of Counsel

Exhibit F – Form of Closing Certificate

Schedule A – Existing Defaults

 

Exhibit A

[EXECUTION VERSION]

CREDIT AND SECURITY AGREEMENT

Dated as of May 20, 2002

between

FRANK’S NURSERY & CRAFTS, INC.

as Borrower

and

KIMCO CAPITAL CORP.

as Lender

CONFORMED TO REFLECT MODIFICATIONS SET FORTH IN THE FIRST AMENDMENT AND WAIVER
TO CREDIT AND SECURITY AGREEMENT DATED AS OF JANUARY 23, 2003

 

 

     CREDIT AND SECURITY AGREEMENT, dated as of May 20, 2002 (as this agreement
may be further amended, amended and restated, supplemented or otherwise
modified, renewed or replaced from time to time, the “Credit Agreement”),
between FRANK’S NURSERY & CRAFTS, INC., a Delaware corporation (“Borrower”)
and KIMCO CAPITAL CORP., as Lender (in such capacity, “Lender”).

INTRODUCTORY STATEMENT

     Subject to and upon the terms and conditions set forth herein, Lender is
willing to make available to Borrower: (a) Revolving Credit Loans (as defined
herein) in the amount of $[10,000,000,]20,000,000, and (b) a Term Loan (as
defined herein) in the amount of $20,000,000.

     To provide assurance for the repayment of the Loans (as defined herein)
hereunder and the other Obligations (as defined herein) of Borrower hereunder,
Borrower will, among other things, provide or cause to be provided to Lender,
Mortgages and other Security Documents (each as defined herein) with respect to
the Collateral [(]and the Inventory Collateral (each as defined herein).

     Accordingly, the parties hereto hereby agree as follows:

1. THE LOANS

     SECTION 1.1 Term Loan. The Lender agrees, upon the terms and subject to
the conditions hereinafter set forth to make a term loan (the “Term Loan”) to
Borrower on the Closing Date in a single draw in a principal amount up to the
Term Loan Commitment. Once repaid, the Term Loan may not be re-borrowed.

     SECTION 1.2 Revolving Credit Loans. (a) The Lender agrees, upon the
terms and subject to the conditions hereinafter set forth, to make loans equal
to the Revolving Credit Commitment (each a “Revolving Credit Loan” and
collectively, the “Revolving Credit Loans”) to Borrower on any Business Day and
from time to time from the Closing Date to but excluding the Revolving Credit
Commitment Termination Date; provided, that such Revolving Credit Loans when
added to the aggregate principal amount of all Revolving Credit Loans then
outstanding, do not exceed the Revolving Credit Commitment (after giving effect
to all Revolving Credit Loans repaid concurrently with the making of any
Revolving Credit Loans); provided, further that Borrower shall not request more
than four (4) Borrowings during any one Accounting Period.

     (b)  Subject to the terms and conditions of this Credit Agreement, at any
time prior to the Revolving Credit Commitment Termination Date, Borrower may
borrow, repay and re-borrow amounts constituting the Revolving Credit Loans.

     SECTION 1.3 Disbursement of Funds and Notice of Borrowing. (a) The
Borrower shall give Lender prior written or facsimile notice of each Borrowing
hereunder; such notice shall be irrevocable and to be effective, must be
received by Lender not later than 12:00 noon (Eastern time), no less than three (3) Business Days
prior to the date on which such Loan is

 

 

to be made. Each such written notice
shall be given in substantially the form of the Borrowing Certificate
appropriately completed to specify (A) the amount of the proposed Borrowing and
(B) the date thereof (which shall be a Business Day).

     (b)  The aggregate amount of any Borrowing of a Revolving Credit Loan shall
be in a minimum aggregate principal amount of $100,000 or such greater amount
which is an integral multiple thereof (or such lesser amount as shall equal the
available but unused portion of the Revolving Credit Commitment then in
effect).

     (c)  The Lender shall disburse the proceeds of Loans by depositing them on
the date of the Borrowing in an account of Borrower as Borrower may specify to
Lender in writing.

     SECTION 1.4 Repayment; Extension of Initial Maturity Date; Evidence of
Debt; Administration. (a) The Loans shall be subject to voluntary prepayment
as provided in Section 1.8 hereto, to mandatory prepayment as provided in
Section 1.9 hereof, and to acceleration as provided in Article 6 hereof.

     (b)  The outstanding principal balance of the Revolving Credit Loans shall
be payable in full on the Revolving Credit Commitment Termination Date, and the
outstanding principal balance of the Term Loans shall be payable in full on the
Term Loan Maturity Date.

     (c)  The Initial Maturity Date shall be extended for a period of up to two
years (any such period, an “Extension Period”) with respect to all or a portion
of the principal amount of Loans outstanding, at Borrower’s option, provided,
however, that (i) at the time of the commencement of any such Extension Period,
no Default or Event of Default shall have occurred and be continuing, (ii) at
least thirty (30) days prior to the Initial Maturity Date, Borrower shall
provide to Lender written notice of such extension, the length of the Extension
Period and the Loans to which such extension shall apply and (iii) concurrently
with the giving of notice as set forth in clause (ii) of this subsection,
Borrower shall pay to Lender a fee (the “Extension Fee”) in an amount equal to
one percent (1%) of the principal amount of Loans with respect to which the
Initial Maturity Date is being extended, pro-rated to the extent that the
Extension Period is less than two years.

     (d)  The Lender shall maintain an account or accounts evidencing the
indebtedness of Borrower to Lender resulting from each Loan made by Lender,
including the amounts of principal and interest payable and paid to Lender from
time to time hereunder.

     (e)  The entries made in the account(s) maintained pursuant to
sub-paragraph (d) of this Section shall be prima facie evidence of the
existence and amounts of the Obligations recorded therein; provided, however,
that the failure of Lender to maintain such account(s) or any error therein
shall not in any manner affect the obligation of Borrower to repay the Loans
and other Obligations in accordance with the terms of this Credit Agreement.

     (f)  The Lender may request that Loans made by it be evidenced by a
promissory note. In such event, Borrower shall promptly prepare, execute and
deliver to Lender a promissory note payable to the order of Lender (or, if
requested by Lender, to Lender and its registered assigns), in a form furnished
by Lender and reasonably acceptable to Borrower. Thereafter, the Loans evidenced by such promissory note and interest
thereon shall at all times

2

 

(including after assignment pursuant to Section 7.3
hereof) be represented by one or more promissory notes in such form payable to
the order of the payee named therein.

     SECTION 1.5 Interest. (a) Interest shall be payable at a rate per annum
(computed on the basis of the actual number of days elapsed over a year of 360
days) equal to ten and one quarter percent (10.25%); provided that in the event
that Borrower shall elect to extend the Initial Maturity Date in accordance
with Section 1.4(c), interest shall be payable during the Extension Period at a
rate per annum (computed on the basis of the actual number of days elapsed over
a year of 360 days) equal to ten and three quarters percent (10.75%). Interest
shall be payable in arrears on the last Business Day of each March, June,
September and December, on the Term Loan Maturity Date and on the Revolving
Credit Commitment Termination Date.

     (b)  Interest in respect of any Loan hereunder shall accrue from and
including the date of such Loan to but excluding the date on which such Loan is
paid.

     (c)  Anything in this Credit Agreement or in any note evidencing any Loan
hereunder to the contrary notwithstanding, the interest rate on the Loans shall
in no event be in excess of the maximum rate permitted by Applicable Law.

     SECTION 1.6 Loan Fee. The Borrower agrees to pay to Lender a loan fee in
the amount of $300,000, payable as follows: (a) $75,000 on the Closing Date;
(b) $75,000 on the date that is 90 days after the Closing Date; (c) $75,000 on
the date that is 180 days after the Closing Date; and (d) $75,000 on the date
that is 270 days after the Closing Date; provided that upon the occurrence of
an Event of Default or the Revolving Credit Commitment Termination Date, the
entire remaining balance of the loan fee shall become immediately due and
payable.

     SECTION 1.7 Termination and/or Reduction of the Revolving Credit
Commitment[ and the Term Loan Commitment]. (a) Upon at least three (3)
Business Days’ prior written notice to Lender, Borrower may at any time in
whole permanently terminate, or from time to time in part permanently reduce,
the Revolving Credit Commitment. In the case of a partial reduction, each such
reduction shall be in a minimum aggregate principal amount of $1,000,000 or an
integral multiple thereof; provided, however, that the Revolving Credit
Commitment may not be reduced to an amount less than the aggregate principal
amount of all Revolving Credit Loans then outstanding.

     (b)  The Revolving Credit Commitment shall automatically and permanently
reduce on the date of any mandatory prepayment or repayment of Revolving Credit
Loans, pursuant to Sections 1.9(b) or (c)[,] in an amount equal to such
mandatory prepayment or repayment of Revolving Credit Loans.

     (c) In the event that either or both of the conditions subsequent set
forth in Section 7 of the First Amendment are neither satisfied by the Borrower
nor waived by Lender by the specified date, then as of such date the Revolving
Credit Commitment shall be automatically and permanently reduced by an amount
equal to $10,000,000.

     SECTION 1.8 Voluntary Prepayments. The Borrower shall have the right at
its option at any time and from time to time to prepay any Loan, in whole or in
part, upon two (2)

3

 

Business Days’ prior written notice to Lender received not
later than 11:30 a.m. (Eastern time) on such day, in the principal amount of
$100,000 or such greater amount which is an integral multiple of $100,000 if
prepaid in part. Each notice of prepayment shall specify the prepayment date,
each Loan to be prepaid and the principal amount thereof, shall be irrevocable
and shall commit Borrower to prepay each such Loan in the amount and on the
date stated therein.

     SECTION 1.9 Mandatory Prepayments; Warrant Agreement. (a) If at any time
the sum of the aggregate principal amount of all Revolving Credit Loans
outstanding, shall exceed the Revolving Credit Commitment, Borrower will
immediately prepay such Revolving Credit Loans to the extent necessary to
eliminate such excess.

     (b)  Within two (2) Business Days of the receipt of any Net Cash Proceeds
by Borrower, Borrower shall prepay the Loans in an amount equal to 100% of the
Net Cash Proceeds received, provided, however, that prior to such prepayment
such Net Cash Proceeds (i) shall be deemed at all times to be held by Borrower
in trust for the benefit of Lender, (ii) shall be deposited and held in the
Kimco Collateral Account and (iii) shall at no time be deposited or held in
either the Concentration Account (as defined in the Working Capital Facility)
or any deposit account whose balances are transferred to such Concentration
Account under the Working Capital Facility.

     (c)  Subject to the terms of any lease on any Leased Property as in effect
on the Closing Date, within two (2) Business Days following the receipt by
Borrower (or, if applicable, by Lender as loss payee) of any payment of
proceeds of (x) any insurance (other than business interruption insurance)
required to be maintained pursuant to this Credit Agreement or any other
Fundamental Document on account of each separate loss, damage or injury in
excess of $500,000 to any property constituting Collateral or Inventory
Collateral, or (y) the condemnation (whether in whole or in any part) of any
property constituting Collateral, Borrower shall prepay or, to the extent
Lender is loss payee under any insurance policy, irrevocably direct Lender to
apply as a prepayment of the Loans, an amount equal to 100% of such insurance
or condemnation proceeds (or such lesser percentage which represents that
portion of such proceeds not expended or committed pursuant to the first
proviso of this Section), provided, however, that solely with respect to
insurance proceeds and so long as no Default or Event of Default shall have
occurred and then be continuing, such insurance proceeds (or any portion
thereof) may be expended or irrevocably committed by Borrower to repair or
replace such property (or, with respect to fixtures, to purchase new fixtures
used or useful in Borrower’s business; provided, further, that Borrower shall
execute all documents and take all other actions necessary to grant Lender a
first priority security interest in any such fixtures) within 270 days of such
loss, damage or injury and Borrower shall furnish to Lender evidence reasonably
satisfactory to Lender of such expenditure or commitment and shall have
certified to Lender that such proceeds (or such proceeds together with other
funds available to Borrower) are sufficient to repair or replace such property.
Prior to the making of any prepayment required pursuant to this Section
1.9(c), any such proceeds shall be (i) deposited and held in the Kimco
Collateral Account and, if permitted hereunder, withdrawn by Borrower upon
prior written notice to Lender as such repair costs are incurred and (ii) shall
at no time be deposited or held in either the Concentration Account (as defined in the Working Capital Facility) or any
deposit account whose balances are transferred to such Concentration Account
under the Working Capital Facility; provided, further, that if an Event of
Default shall have occurred and be continuing, all

4

 

proceeds of insurance
required to be maintained pursuant to this Credit Agreement or any other
Fundamental Document which would otherwise be payable to Borrower shall be paid
to Lender and applied pursuant to Section 1.9(d).

     (d)  So long as no Default or Event of Default has occurred and is then
continuing, any prepayments required under Section 1.9(b) or (c) shall be
applied: (i) first to any outstanding unpaid Fees, costs and expenses of
Lender, (ii) second to any outstanding interest due hereunder, (iii) third to
the outstanding principal balance of the Term Loan and (iv) fourth to the
outstanding principal balance of the Revolving Credit Loans.

     (e)  In the event that Lender elects to exercise its purchase rights under
the Warrant Agreement by either application of unpaid principal of the Loans or
by payment to Borrower, in each case in accordance with section 1B(i)(d) of the
Warrant Agreement, such application or payment, as the case may be, may, at the
option of Lender, be deemed to be a prepayment of the Loans hereunder, and
Lender’s interest in the outstanding principal amount of Loans shall be reduced
by the amount so applied or paid, with such reduction applying first to the
outstanding principal amount of the Term Loans and next, to the extent that the
amount applied or paid exceeds the outstanding principal amount of the Term
Loans, such excess shall be applied to the reduction of the outstanding
principal amount of the Revolving Credit Loans.

     (f) In the event that either or both of the conditions subsequent set
forth in Section 7 of the First Amendment are neither satisfied by the Borrower
nor waived by Lender, then, Borrower will immediately prepay Revolving Credit
Loans in an amount equal to the amount by which the then outstanding principal
amount of Revolving Credit Loans exceeds $10,000,000.

     (g)  All prepayments under this Section shall be accompanied by accrued but
unpaid interest on the principal amount being prepaid to (but not including)
the date of prepayment.

     SECTION 1.10 Default Interest. In the event that, and for so long as, any
Event of Default shall have occurred and be continuing, Borrower shall on
demand from time to time pay interest, to the extent permitted by Applicable
Law, on all Loans and overdue amounts outstanding up to (but not including) the
date of actual payment of such Loan or overdue amount (after as well as before
judgment) for all Loans and for all other overdue amounts hereunder, at 2% in
excess of the rate then in effect for Loans.

     SECTION 1.11 INTENTIONALLY OMITTED.

     SECTION 1.12 Interest Adjustments. If the provisions of this Credit
Agreement or any note evidencing any of the Loans hereunder would at any time
require payment by Borrower to Lender of any amount of interest in excess of
the maximum amount then permitted by Applicable Law, the applicable interest
payments to Lender in connection with such Loan shall be reduced to the extent
and in such a manner as is necessary in order that Lender shall not receive interest in excess of such maximum amount. If,
as a result of the foregoing, Lender shall receive interest payments hereunder
with respect to a Loan or under a note evidencing such Loan in an amount less
than the amount otherwise provided hereunder or thereunder, such deficit

5

 

(hereinafter called the “Interest Deficit”) will, to the fullest extent
permitted by Applicable Law, cumulate and will be carried forward (without
interest) until the Facility Termination Date (except to the extent paid
pursuant to the immediately succeeding sentence). Interest otherwise payable
to Lender hereunder with respect to such Loan and under any note evidencing
such Loan for any subsequent period shall be increased by the maximum amount of
the Interest Deficit that may be so added without causing Lender to receive
interest in excess of the maximum amount then permitted by Applicable Law.

     The amount of any Interest Deficit relating to any Loan and any note
evidencing such Loan shall be treated as a prepayment premium and shall, to the
fullest extent permitted by Applicable Law, be paid in full at the time of any
optional prepayment by Borrower to Lender of all the Loans within the
applicable Tranche at that time outstanding pursuant to Section 1.8 hereof.
The amount of any Interest Deficit relating to a Loan and any note at the time
of any complete payment of the Loans within the applicable Tranche at that time
outstanding (other than an optional prepayment thereof pursuant to Section 1.8
hereof) shall be canceled and not paid.

     SECTION 1.13 Manner of Payments. All payments by Borrower hereunder and
under any notes evidencing the Loans hereunder shall be made without offset,
counterclaim, recoupment, defense, setoff or other deduction in Dollars, in
Federal or other immediately available funds, at JPMorgan Chase Bank, 380
Madison Avenue, New York, New York 10017-2591, ABA No. 021-000-021, For credit
to: Kimco Capital Corp. c/o Kimco Realty Corp. Agency Account, Account No.
006-007996, Reference: Frank’s Nursery Mortgage Loan, Attention Michael V.
Pappagallo (516-869-7185), no later than 1:00 p.m.(Eastern time), on the date
on which such payment shall be due. Any payment received after such time shall
be deemed received on the following Business Day.

     SECTION 1.14 Use of Proceeds. The Loans shall be used to finance
Borrower’s obligations under the Plan of Reorganization, to pay Fees and other
expenses incurred in connection with this Credit Agreement and for general
corporate purposes in accordance with the provisions of this Credit Agreement.

2. REPRESENTATIONS AND WARRANTIES

     In order to induce Lender to enter into this Credit Agreement and to make
Loans, Borrower makes the following representations and warranties to, and
agreements with, Lender, all of which shall survive the execution and delivery
of this Credit Agreement, the issuance of any notes evidencing any of the Loans
hereunder and the making of the Loans:

     SECTION 2.1 Existence and Power. (a) The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of Delaware and
is qualified to do business and is in good standing in all jurisdictions where
either (i) the nature of its properties or business so requires or (ii) the
failure to be in good standing could reasonably be expected to have a Material Adverse Effect. Schedule 2.1(a)
hereto sets forth a list of all jurisdictions in which Borrower is so
qualified.

6

 

     (b)  The Borrower has the corporate power and authority (i) to own its
properties and carry on its business as now being, or as now intended to be,
conducted, (ii) to execute, deliver and perform, as applicable, its obligations
under the Fundamental Documents and any other documents contemplated hereby or
thereby to which it is or will be a party, and (iii) to grant to Lender a
security interest in the Collateral and the Inventory Collateral, in all cases
as contemplated by this Credit Agreement and the other Fundamental Documents to
which it is or will be a party; and to execute, deliver and perform its
obligations under this Credit Agreement and any notes evidencing any of the
Loans hereunder and to borrow hereunder.

     SECTION 2.2 Authority and No Violation. The execution, delivery and
performance of this Credit Agreement and the other Fundamental Documents to
which it is a party, the grant to Lender of the security interest in the
Collateral and the Inventory Collateral, in all cases as contemplated by this
Credit Agreement and the other Fundamental Documents to which it is or will be
a party, and, the Borrowings hereunder and the execution, delivery and
performance of any notes evidencing any of the Loans hereunder, (i) have been
duly authorized by all necessary corporate action on the part of Borrower, (ii)
will not constitute a violation of any provision of Applicable Law or any order
of any Governmental Authority applicable to Borrower or any of its properties
or assets, (iii) will not violate any provision of the Certificate of
Incorporation, By-Laws, or any other organizational document of, or any
provision of any material indenture, agreement, bond, note, mortgage, deed of
trust, or other similar instrument to which Borrower is a party or by which
Borrower or any of its properties or assets are bound or to which Borrower is
subject, (iv) upon execution and delivery of the Intercreditor Agreement by the
parties thereto, will not be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under, or
create any right to terminate, any such indenture, agreement, bond, note,
mortgage, deed of trust, or other instrument and (v) will not result in the
creation or imposition of (or the obligation to create or impose) any Lien,
charge or encumbrance of any nature whatsoever upon any of the properties or
assets of Borrower other than pursuant to this Credit Agreement or the other
Fundamental Documents.

     SECTION 2.3 Governmental Approval. (a) All authorizations, approvals,
orders, consents, licenses, registrations or filings from or with any
Governmental Authority (other than the Security Documents all of which will be
delivered to Lender in accordance with the terms of this Credit Agreement, in
form suitable for recording or filing with the appropriate filing office)
required for the execution, delivery and performance by Borrower of this Credit
Agreement and the other Fundamental Documents to which it is a party, and the
execution and delivery by Borrower of any notes evidencing any of the Loans
hereunder, have been duly obtained or made, and are in full force and effect,
and if any further authorizations, approvals, orders, consents, licenses,
registrations or filings should hereafter become necessary, Borrower shall
obtain or make all such authorizations, approvals, orders, consents, licenses,
registrations or filings.

     (b)  The Borrower has obtained and holds in full force and effect all
licenses, authorizations, consents, franchises, permits, certificates,
accreditations, easements, rights of way and other approvals necessary to own
its [respective] property and assets and
to carry on its [respective] business as now being, or as now intended to be, conducted,
other than those the absence of which is not reasonably likely to have a
Material Adverse Effect.

7

 

     SECTION 2.4 Binding Agreements. The Borrower has duly executed and
delivered this Credit Agreement and each other Fundamental Document to which it
is a party. Each of this Credit Agreement and the other Fundamental Documents
constitutes the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws affecting creditors’ rights generally and to general principles of equity,
whether such enforceability is considered in a proceeding at law or in equity.

     SECTION 2.5 Title to Properties. (a) Except as set forth on Schedule
2.5(a) hereto, Borrower has good and marketable title to, or valid leasehold
interests in, the Collateral and other leasehold interests of Borrower listed
on Schedules 2.14(a) and 2.14(b) hereto (other than such properties or assets
disposed of in the ordinary course of business as permitted hereunder) and all
such properties and assets are free and clear of Liens, except Permitted Liens.

     (b)  The Borrower has complied in all material respects with all leases
constituting Collateral to which it is a party and as specified on Schedule
2.14(b), and, except as specified on Schedule 2.5(b), is aware of no defaults
by Borrower under any such lease or any conditions which with the passage of
time or delivery of notice would constitute a default thereunder and all such
leases are in full force and effect. The Borrower enjoys peaceful and
undisturbed possession of the leasehold interest in each Leased Property
subject to Permitted Liens.

     (c)  Except as set forth on Schedule 2.5(c) hereto, Borrower has not
received any notice of, nor has any knowledge of, any pending or contemplated
condemnation proceeding affecting any Collateral or any sale or disposition
thereof in lieu of condemnation which proceeding or sale or disposition is
reasonably likely to adversely affect Borrower’s current use of the property or
likely to result in a taking of a material portion of the real property to
which it relates or any portion of a building.

     (d)  The Borrower is not obligated under any right of first refusal, option
or other contractual right to sell, assign or otherwise dispose of any of the
Collateral or the Inventory Collateral or any interest therein except for such
rights of first refusal, options or other contractual rights described on
Schedule 2.5(d) hereto and, in the case of the Inventory Collateral, as may be
required under the Working Capital Facility.

     SECTION 2.6 Litigation; Judgments. (a) Except as set forth on Schedule
2.6 hereto, there are no actions, suits or other proceedings at law or in
equity by or before any arbitrator or arbitration panel, or any Governmental
Authority (including, but not limited to, matters relating to environmental
liability) or, to the best of Borrower’s knowledge, any investigation by any
Governmental Authority of the affairs of, or to the best of Borrower’s
knowledge, threatened action, suit or other proceeding against or affecting,
Borrower or any of its properties which could reasonably be expected to have a
Material Adverse Effect or which relate to this Credit Agreement, any
Fundamental Document, any of the Collateral or the Inventory Collateral or any
of the transactions contemplated hereby or
thereby or the Loans hereunder. The Borrower is not in default with respect to
any order, writ, injunction, decree, rule or regulation of any Governmental
Authority binding upon Borrower, which default could reasonably be expected to
have a Material Adverse Effect.

8

 

     (b)  There are no unpaid final, nonappealable judgments or decrees in an
aggregate amount of $500,000 or more entered by a court or courts of competent
jurisdiction against Borrower (other than any judgment as to which, and only to
the extent, a reputable insurance company has acknowledged coverage of such
claim in writing).

     SECTION 2.7 Taxes. Except as set forth on Schedule 2.7 hereto, Borrower
has filed or caused to be filed all United States federal tax returns, material
state income tax returns and all other material tax returns which are required
to be filed with any Governmental Authority after giving effect to applicable
extensions, and has paid or has caused to be paid all taxes as shown on said
returns or on any assessment received by them, to the extent that such taxes
have become due, except as permitted by Section 4.8 hereof. The Borrower has
no knowledge of any material additional assessments or any basis therefor. In
the reasonable, good faith opinion of Borrower, the charges, accruals and
reserves on the books of Borrower in respect of taxes or other governmental
charges are adequate.

     SECTION 2.8 Compliance with ERISA. (a) Each Plan has been maintained and
operated in all material respects in accordance with all Applicable Laws,
including ERISA and the Code except to the extent that any failure thereof
could not reasonably be expected to result in a material liability. Each Plan
intended to qualify under Section 401(a) of the Code so qualifies except to the
extent that any failure to so qualify could not reasonably be expected to
result in a material liability. No Reportable Event has occurred since the
effective date of the Plan of Reorganization. No Plan has an “accumulated
funding deficiency,” within the meaning of Section 412 of the Code or Section
302 of ERISA, or has applied for or received a waiver of the minimum funding
standards or an extension of any amortization period, within the meaning of
Section 412 of the Code or Section 303 or 304 of ERISA. No material liability
has been, and no circumstances exist pursuant to which any such material
liability could reasonably likely be, imposed upon any Credit Party or ERISA
Affiliate (i) under Sections 4971 through 4980B of the Code, Section 409,
502(i), 502(l) or 515 of ERISA, or under Title IV of ERISA with respect to any
Plan or Multiemployer Plan, or with respect to any plan heretofore maintained
by Borrower or ERISA Affiliate, or any entity that heretofore was an ERISA
Affiliate, or (ii) for the failure to fulfill any obligation to contribute to
any Multiemployer Plan. Neither Borrower nor any ERISA Affiliate has received
any notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, no Multiemployer Plan is
reasonably expected to be in reorganization or to be terminated and, using
actuarial assumptions and computation methods consistent with Part 1 of
Subtitle E of Title IV of ERISA, the aggregate liabilities of Borrower and its
ERISA Affiliates to all Multiemployer Plans in the event of a complete
withdrawal therefrom, as of the close of the most recent fiscal year of each
such Plan then ended would not exceed $1,000,000.

     (b)  Assuming Lender is not using assets of any employee benefit plan
subject to Title I of ERISA or any “plan” (within the meaning of Section
4975(e) of the Code) maintained by Borrower or any of its ERISA Affiliates to
make the Loans, the execution, delivery and performance of the Fundamental Documents and the consummation of the
transactions contemplated hereby and thereby will not involve any “prohibited
transaction” within the meaning of Section 406 of ERISA or Section 4975 of the
Code.

9

 

     SECTION 2.9 Agreements. (a) The Borrower is not in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party or
by which it or any of its property or assets is bound in any respect except for
defaults which could not reasonably be expected to result in a Material Adverse
Effect.

     (b)  Schedule 2.9(b) hereto is a true and complete listing as of the
Closing Date of (i) all material credit agreements, indentures, and other
agreements related to any Indebtedness of Borrower, other than the Fundamental
Documents, (ii) all material joint venture agreements to which Borrower is a
party, (iii) all material agreements or other arrangements pursuant to which
Borrower has granted a Lien to any Person, and (iv) all other contractual
arrangements entered into by Borrower or by which Borrower or any of its
property or assets is bound which arrangements are material to Borrower,
including but not limited to, Guaranties.

     SECTION 2.10 Security Documents. The Security Documents, (i) when
executed and delivered, will create in favor of Lender, a legal, valid and
enforceable first priority Lien on all of Borrower’s right, title and interest
in and to the Collateral and the proceeds thereof and (ii) from and after the
First Amendment Effective Date, will create in favor of Lender, a legal, valid
and enforceable Lien on all of Borrower’s right, title and interest in and to
the Inventory Collateral and the proceeds thereof, (in each case subject only
to Permitted Liens), and when the Security Documents are filed in the offices
specified on Schedule 2.10 hereto, the proper amount of mortgage recording or
similar taxes (if any and if not paid as a result of an exemption under 11
U.S.C. 1146(c)) are paid and when the UCC financing statements relating to
fixtures, Assigned Lease Proceeds, Inventory Collateral and all Proceeds (as
defined in the UCC) [relating to]of any of the foregoing are duly filed with
the filing offices listed on Schedule 2.10 hereto and in Delaware, the Security
Documents shall constitute fully perfected first priority Liens on, and fully
perfected first priority (or, in the case of (x) Inventory Collateral, junior
to the Liens in favor of the lenders under the Working Capital Facility and (y)
the Additional Property, junior only to the Liens in favor of the mortgagee of
such property (if any) as in effect as of the Closing Date) security interests
in, all right, title and interest of Borrower in the Collateral and the
Inventory Collateral and the proceeds thereof, in each case subject only to
Permitted Liens.

     SECTION 2.11 Disclosure. Neither this Credit Agreement nor any other
Fundamental Document nor any agreement, document, certificate or statement
furnished to Lender by or on behalf of Borrower in connection with the
transactions contemplated hereby, at the time it was furnished or delivered,
contained any untrue statement of a material fact regarding Borrower or, when
taken together with all such other agreements, documents, certificates and
statements, omitted to state a material fact necessary under the circumstances
under which it was made in order to make the statements contained herein or
therein not misleading.

     SECTION 2.12 Environmental Matters. Except as set forth on Schedule 2.12
hereto:

     (a)  There are no past, pending, or, to the knowledge of Borrower,
threatened Environmental Claims against, affecting or with respect to
Borrower’s or any Premises, and

10

 

Borrower is not aware of any facts or
circumstances which could reasonably be expected to form the basis for any such
Environmental Claim, except to the extent that any such Environmental Claims,
individually or in the aggregate, would not have a Material Adverse Effect;

     (b)  No Premises is currently or was formerly used for the handling,
storage, treatment, disposal, manufacture, processing or generation of
Hazardous Materials, except to the extent that any such activity, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect;

     (c)  The Borrower and any tenants, operators or occupants of any Premises
have obtained and hold all required material Environmental Permits, except to
the extent that any failure to obtain or hold any such Environmental Permit,
individually or in the aggregate, would not have a Material Adverse Effect;

     (d)  The Borrower is in compliance with all terms, conditions and
provisions of all applicable (1) Environmental Permits, and (2) Environmental
Laws, except to the extent that any such non-compliance, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect;

     (e)  No Releases of Hazardous Materials have occurred at, from, in, to, on,
or under any Premises, and no Hazardous Materials are present in, on, about or
migrating to or from any Premises, except to the extent that any such Releases
or presence of Hazardous Materials, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect;

     (f)  Neither Borrower, nor any predecessor of Borrower, nor any entity
previously owned by Borrower, has transported or arranged for the treatment,
storage, handling, disposal, or transportation of any Hazardous Material to any
location (other than any Premises) which could result in an Environmental Claim
against Borrower, except to the extent that any such activity, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect;

     (g)  No Premises is a current, or to the knowledge of Borrower, a proposed
Environmental Clean-up Site, except to the extent as would not reasonably be
expected to have a Material Adverse Effect;

     (h)  There are no (i) underground storage tanks (active or abandoned), (ii)
polychlorinated biphenyl containing equipment, (iii) asbestos-containing
material at any Premises, or (iv) lead-based paint located at any Premises,
except to the extent that the presence of any of the foregoing, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect; and

     (i)  There have been no material environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or on behalf of, and
which are in the possession of Borrower with respect to any Premises which have
not been delivered to Lender except for such investigations, studies, audits,
tests, reviews or analyses which do not individually or in the aggregate reveal
environmental conditions that could have a Material Adverse Effect.

11

 

     SECTION 2.13 Compliance with Laws. (a) The Borrower is not in violation
of any Applicable Law (including, without limitation, any Environmental Law) or
any restrictions of record or agreements affecting the Collateral or the
Inventory Collateral, except for such violations which in the aggregate are not
reasonably likely to have a Material Adverse Effect.

     (b)  The Borrower is not in violation of any zoning or building law,
ordinance, rule, regulation or restriction affecting any of the Collateral or
any building permit, including, without limitation, any certificate of
occupancy, where such violation could reasonably be expected to result in a
Material Adverse Effect.

     SECTION 2.14 Real Property. (a) Schedule 2.14(a) is a true and complete
list as of the Closing Date of (i) the facility number and street address of
each Fee Property, (ii) the lease(s), if any, to which each such Fee Property
is subject, together with any amendments thereto, and (iii) the name and
address of the lessee of each such Fee Property. Subject to Section 2.5
hereof, the Borrower has a fee simple title to each Fee Property.

     (b)  Schedule 2.14(b) is a true and complete list as of the Closing Date of
(i) the facility number and the street address of each Leased Property and each
of the other leases to which Borrower is a party, (ii) the name and address of
the owner/lessor of each such leased property, (iii) the leases to which each
such leased property is subject, together with any amendments thereto, and (v)
the name and address of any sublessee of each such leased property. Subject to
Section 2.5 hereof, the Borrower has a valid leasehold interest in each leased
property on Schedule 2.14(b).

     SECTION 2.15 No Default. No Default or Event of Default exists under or
with respect to any Fundamental Document.

     SECTION 2.16 No Tenants in Possession. Except as set forth on Schedule
2.16 hereto, or as may be otherwise agreed to in writing between the parties
hereto, there are no tenants in possession with respect to any of the
Collateral.

     SECTION 2.17 Subsidiaries. (a) Except as set forth on Schedule 2.17,
Borrower does not have any direct or indirect Subsidiaries or Affiliates and is
not engaged in any joint venture or partnership.

     (b)  Borrower is the record and beneficial owner of all issued and
outstanding shares of capital stock of each of its Subsidiaries listed on
Schedule 2.17 and there are no proxies, irrevocable or otherwise, with respect
to such shares and no equity securities of any of the Subsidiaries are or may
become required to be issued by reason of any options, warrants, rights to
subscribe to, calls or commitments of any kind or nature and there are no
contracts, commitments, understandings or arrangements by which any such
Subsidiary is or may become bound to issue additional shares of its capital stock or securities
convertible into or exchangeable for such shares.

     (c)  None of Borrower’s Subsidiaries is engaged in any business or
operation nor has title to any asset material to the business or operation of
Borrower.

12

 

     SECTION 2.18 Compliance with Securities Laws. Borrower has not taken, and
will not take, any action which would subject the issuance of the warrants
under the Warrant Agreement or the Additional Warrant Agreement or the shares
of Borrower’s common stock, par value $.001 per share (the “Common Stock”),
issued pursuant to the Warrant Agreement or the Additional Warrant Agreement to
the provisions of Section 5 of the Securities Act of 1933, or violate the
registration or qualification provisions of any securities laws or “blue-sky”
laws of any applicable jurisdiction, and, the issuance of the warrants under
the Warrant Agreement or the Additional Warrant Agreement, and the issuance of
the shares of Common Stock from time to time upon exercise of the warrants
under the Warrant Agreement or the Additional Warrant Agreement, complies with
all applicable requirements of applicable federal securities laws and
“blue-sky” laws. The issuance of the warrants under the Warrant Agreement or
the Additional Warrant Agreement to the holder of such warrants will not be
integrated with any other issuance of Borrower’s securities (past, current or
future) which would result in a violation of the Securities Act of 1933. The
issuance of the warrants under the Additional Warrant Agreement and the shares
of Borrower’s Common Stock constitute a transaction exempt from the
registration requirement of Section 5 of the Securities Act of 1933.

3.     CONDITIONS TO THE EFFECTIVENESS OF THIS CREDIT AGREEMENT AND THE MAKING OF
THE LOANS

     SECTION 3.1 Conditions Precedent to the Effectiveness of This Credit
Agreement and the Making of the Loans. The effectiveness of this Credit
Agreement and the making of the Loans are subject to the satisfaction in full
or waiver of the following conditions precedent:

     (a)  The Credit Agreement. The Lender shall have received executed
counterparts of this Credit Agreement, which, when taken together, bear the
signatures of Lender and Borrower;

     (b)  The Warrant Agreement. The Lender shall have received executed
counterparts of the Warrant Agreement, which, when taken together, bear the
signatures of all parties thereto;

     (c)  Opinion of Counsel. The Lender shall have received the written
opinion of Willkie, Farr & Gallagher, counsel to Borrower, dated the Closing
Date and addressed to Lender with respect to such matters relating to this
Credit Agreement and the Fundamental Documents as may be requested by Lender
and its counsel, which opinion shall be in form and substance satisfactory to
Lender and its counsel;

     (d)  Material Agreements. The Lender or its counsel shall have received a
copy, certified by Borrower, of each agreement listed on Schedule 2.9(b)
hereto;

     (e)  Security Documents. The Lender shall have received duly executed
Mortgages, appropriate UCC financing statements, and any other Security
Documents requested by Lender with respect to the Collateral, and evidence
satisfactory to Lender that Borrower has

13

 

paid (or reimbursed Lender) all
applicable mortgage recording taxes, transfer taxes, title charges, filing fees
and any other fees, costs or expenses in connection with the foregoing;

     (f)  Title Policies; Surveys. (i) The Lender shall have received from
the Title Company an ALTA-form loan policy or policies (A) insuring each
Mortgage to be a valid first lien with respect to each Fee Property and each of
the following nine (9) Leased Properties: 8, 38, 53, 95, 96, 97, 203, 207 and
647 (as identified on Schedule 2.14(b)), (B) without exceptions and subject to
no Liens (other than the Permitted Liens), (C) in policy amounts acceptable to
Lender, (D) with such endorsements and affirmative coverage as Lender shall
require (including, without limitation, such “date down” endorsements as Lender
may desire from time to time to insure Lender’s first lien position) and (E)
otherwise in form and substance acceptable to Lender in its sole and absolute
discretion;

          (ii) With respect to each Fee Property, Lender shall have received a
current ALTA survey in form and substance acceptable to Lender together with
any affidavits of Borrower sufficient to remove the standard survey exception,
or Lender shall have received a current ALTA survey in form and substance
acceptable to Lender in its sole and absolute discretion (A) updated to within
30 days of the Closing, (B) certified to the Title Company, Lender and their
respective successors and assigns, and (C) prepared, signed and sealed by a
surveyor in the state in which each Fee Property is located. In addition,
Lender shall have received a subordination agreement in favor of Lender from
any tenant or subtenant of any Fee Property unless such lease shall be
subordinate by its terms;

     (g)  Zoning Laws, etc. The Lender shall be satisfied with Borrower’s
compliance with all zoning, environmental and other laws, ordinances, rules and
regulations affecting or relating to each Fee Property and each Leased
Property;

     (h)  Leases. The Lender or its counsel shall have received certified true
and complete copies of (i) all leases with respect to each Leased Property and
each of the other leased properties listed on Schedule 2.14(b), (ii) a
recordable memorandum of lease or evidence of a previously recorded memorandum
of lease satisfactory in all respects to Lender of each Leased Property
together with such executed and acknowledged subordination, non-disturbance and
attornment agreements as Lender may request from the holder of each mortgage
encumbering the fee interest with respect to each such Leased Property
identified on Schedule 2.14(b)(1), (iii) such estoppel certificates as Lender
may request, in form and substance reasonably satisfactory to Lender and
Borrower, and (iv) such other certificates, documents and agreements
respecting each Leased Property as Lender may, in its sole discretion,
reasonably request (including, but not limited to, estoppel certificates
identified on Schedule 2.14(b)(2) from lessors under any such lease, consents
from lessors under any lease of each Leased Property identified on Schedule
2.14(b)(3), and modifications of any lease of any Leased Property identified on
Schedule 2.14(b)(4) to incorporate customary leasehold financing provisions);

     (i)  Evidence of Title. The Lender shall be satisfied that Borrower has
sufficient right, title and interest in and to the Collateral, and other assets
which it purports to own, as set forth in the documents and other materials
presented to Lender to enable Borrower to grant to Lender for the benefit of
Lender the security interests contemplated by the Fundamental Documents, and
that all financing statements, mortgages and other filings under Applicable Law

14

 

necessary to provide Lender with a first priority perfected security interest
in the Collateral and proceeds thereof (subject to Permitted Liens, if any)
have been filed, or, have been delivered to Lender in satisfactory form for
filing and all taxes, recording or other fees due and payable with respect
thereto have been paid; provided, however, that with respect to the Fee
Properties, the delivery of a lender’s title insurance policy in accordance
with Section 3.1(f) shall satisfy this condition;

     (j)  Insurance. The Lender shall have received (i) a summary of all
existing insurance coverage maintained by Borrower which summary shall include
for each insurance policy, the policy number, the type of coverage, the policy
limits and deductibles, the insurer and the expiration date and (ii) evidence
acceptable to Lender that the insurance policies required by Section 4.5 have
been obtained and are in full force and effect, including Certificates of
Insurance with respect to all existing insurance coverage maintained by
Borrower which is set forth on the summary delivered pursuant to clause (i)
above, which certificates shall comply with the requirements set forth in
Section 4.5 hereof;

     (k)  Payment of Fees. The Lender shall have received all Fees due and
payable on or before the Closing Date pursuant to this Credit Agreement;

     (l)  Notes. If Lender requests that the Loans made by it be evidenced by a
promissory note, Lender shall have received one or more promissory notes each
duly executed on behalf of Borrower, dated the date hereof and payable to the
order of Lender in the principal amount equal to Lender’s Term Loan and
Revolving Credit Commitment;

     (m)  Payment of Other Fees and Expenses. All reasonable out-of-pocket
expenses incurred by Lender in connection with this Credit Agreement and the
transactions contemplated hereby, including, without limitation, all statements
presented for reasonable fees and disbursements of any financial, accounting or
valuation advisors or special counsel retained by Lender (including, but not
limited to, Morgan, Lewis & Bockius LLP, counsel to Lender), shall have been
paid by Borrower;

     (n)  Litigation. No litigation, inquiry, injunction or restraining order
shall be pending, entered or threatened which involves this Credit Agreement or
any of the other Fundamental Documents or which could reasonably be expected to
have a Material Adverse Effect;

     (o)  Representations and Warranties; No Default. The representations and
warranties set forth in Article 2 hereof and in any other Fundamental Documents
then in existence shall be true and correct in all material respects, and no
Default or Event of Default shall have occurred and be continuing hereunder;

     (p)  Closing Certificate. The Lender shall have received a closing
certificate signed by an Authorized Officer of Borrower, substantially in the
form of Exhibit C hereto;

     (q)  Final Order. A Final Order approving the Plan of Reorganization and
the credit facilities contemplated hereby shall have been entered by the
Bankruptcy Court (which shall, among other things, approve this Credit
Agreement, the Fundamental Documents, the

15

 

Loans and the transactions contemplated by this Credit Agreement and the Fundamental Documents);

     (r)  Termination Documents. The Lender shall have received, in form and
substance satisfactory to Lender, all releases, terminations and such other
documents as Lender may request to evidence and effectuate the termination by
Wells Fargo Retail Finance LLC and the other existing lenders of their
respective financing arrangements with Borrower and the termination and release
by such lenders of any interest in and to the Collateral;

     (s)  Post-Closing Undertaking. The Lender shall have received executed
counterparts of the Post-Closing Undertaking which, when taken together, bear
the signatures of all parties thereto; and

     (t)  Other Documents. The Lender and its counsel shall have received fully
executed originals of such other documentation as Lender or its counsel may
reasonably request.

     SECTION 3.2 Conditions Precedent to Each Revolving Credit Loan. The
obligation of Lender to make each Revolving Credit Loan (including the initial
Revolving Credit Loan) is subject to the following conditions precedent:

     (a)  Borrowing Certificate. The Lender shall have received a Borrowing
Certificate with respect to such Borrowing, duly executed by an Authorized
Officer of Borrower;

     (b)  Representations and Warranties. The representations and warranties
set forth in Article 2 hereof and in the other Fundamental Documents shall be
true and correct in all material respects on and as of the date of each
Borrowing (except to the extent that such representations and warranties
expressly relate to an earlier date) with the same effect as if made on and as
of such date;

     (c)  No Event of Default. On the date of each Borrowing hereunder, no
Default or Event of Default shall have occurred and be continuing, nor shall
any such Default or Event of Default occur by reason of the making of the
requested Revolving Credit Loan; and

     (d)  [Total ]Revolving Credit Commitment. After giving effect to the
Revolving Credit Loans to be made, the aggregate principal amount outstanding
of all Revolving Credit Loans shall not exceed the [Total ]Revolving Credit
Commitment.

Each request for a Borrowing hereunder shall be deemed to be a representation
and warranty by Borrower on the date of such Borrowing hereunder as to the
matters specified in paragraphs (b), (c) and (d) of this Section.

4. AFFIRMATIVE COVENANTS

     From the date hereof and for so long as any Commitments shall be in
effect, any amount remains outstanding with respect to any Loan, or any
Obligation remains unpaid or unsatisfied, Borrower agrees that, unless Lender
shall otherwise consent in writing, it will:

16

 

     SECTION 4.1 Financial Statements and Reports. Furnish or cause to be
furnished to Lender:

     (a)  As soon as available, but in any event simultaneously with the
delivery of any such financial statements pursuant to the Working Capital
Facility, the annual, quarterly and monthly balance sheets of Borrower, as at
the end of, and the related statements of income, stockholders’ equity and cash
flows for, such period, and the corresponding figures as at the end of, and
for, the preceding period, together with any accompanying opinions, officers
certificates or other documents delivered pursuant to the Working Capital
Facility;

     (b)  Promptly and in any event within five (5) Business Days after receipt
of any material notice or correspondence from any company or agent for any
company providing insurance coverage to Borrower relating to any material loss
or loss with respect to any item of Collateral or (from and after the First
Amendment Effective Date) Inventory Collateral, copies of such notices and/or
correspondence;

     (c)  Simultaneously with the delivery pursuant to the Working Capital
Facility, copies of any documents, agreements, notices, reports, financial
statements or other information required to be delivered pursuant to the
Working Capital Facility (other than borrowing notices)[;] including, without
limitation, perpetual inventory reports and inventory reports by location and
category (as required by Section 7.1(a)(ii) of the Congress Credit Agreement)
and if requested by Congress (from and after the First Amendment Effective
Date) copies of purchase orders, invoices and delivery documents for Inventory
Collateral (as required by Section 7.1(a)(iv) of the Congress Credit
Agreement).

     (d)  From time to time such additional information regarding the financial
condition or business of Borrower or any Collateral or (from and after the
First Amendment Effective Date) Inventory Collateral, promptly following a
request by Lender; provided that Borrower shall not be obligated hereby to
provide such additional information unless it is information (w) prepared for
[Congress]the agent or a lender under the Working Capital Facility, (x)
prepared pursuant to any other agreements of Borrower, (y)prepared in the
ordinary course of Borrower’s business, or (z) is otherwise available from
Borrower’s records.

     SECTION 4.2 Compliance with Laws. (a) Do or cause to be done all things
necessary (i) to preserve, renew and keep in full force and effect its
existence, licenses, permits, franchises, certificates (including, without
limitation, certificates of need), authorization, accreditations, easements,
rights of way and other rights, consents and approvals the nonexistence of
which is reasonably likely to have a Material Adverse Effect and (ii) to comply
with all applicable statutes, ordinances, rules, regulations and orders of, and
all applicable restrictions or requirements imposed by, any Governmental
Authority (including, without limitation, Environmental Laws, all zoning and
building codes and ERISA) or any other Requirements except where the necessity of compliance therewith is
contested in good faith by the appropriate proceedings or where such
noncompliance in the aggregate would not reasonably be expected to have a
Material Adverse Effect; provided, in each case, that Borrower shall have set
aside on its books reasonable reserves (the presentation of which is segregated
to the extent required by GAAP) with respect thereto if such reserves are
required by GAAP or where such

17

 

noncompliance in the aggregate would not
reasonably be expected to have a Material Adverse Effect.

     (b)  Obtain or make all further authorizations, approvals, orders,
consents, licenses, registration or filings from or with any Governmental
Authority required for the performance by Borrower of this Credit Agreement and
the other Fundamental Documents to which it is a party.

     SECTION 4.3 Maintenance of Properties. Keep each item of Collateral[,] and (from
and after the First Amendment Effective Date) Inventory Collateral in
good repair, working order and condition (ordinary wear and tear and damage by
casualty excepted) and, from time to time (i) subject to the terms hereof, make
all necessary, proper and material repairs, renewals, replacements, additions
and improvements thereto and (ii) comply at all times with the provisions of
all leases and other material agreements to which it is a party so as to
prevent any loss or forfeiture thereof or thereunder unless compliance
therewith is being currently contested in good faith by appropriate proceedings
and appropriate reserves have been established in accordance with GAAP or where
such noncompliance in the aggregate would not reasonably be expected to have a
Material Adverse Effect.

     SECTION 4.4 Notice of Material Events. (a) Promptly upon, but in any
event within five (5) days after, an Authorized Officer or other executive
officer of Borrower obtaining knowledge of (i) any (X) Default or (Y) Event of
Default, (ii) any Material Adverse Effect, (iii) any action, event or condition
(other than market conditions generally except those that may affect the
industries in which Borrower operates) which could reasonably be expected to
have a Material Adverse Effect, (iv) the opening of any office of Borrower or
the change of the chief executive office or the principal place of business of
Borrower or of the location of Borrower’s books and records with respect to any
Collateral or (from and after the First Amendment Effective Date) Inventory
Collateral (v) any change in the name, corporate structure or the jurisdiction
of organization of Borrower, (vi) a change in the organizational identification
number of Borrower; (vii) any other event which could reasonably be expected to
materially decrease the value of any of the Collateral or (from and after the
First Amendment Effective Date) Inventory Collateral, (viii) any proposed
material amendment to any agreements that are a material part of or relate to
any of the Collateral or (from and after the First Amendment Effective Date)
Inventory Collateral or (ix) any Person giving any notice to Borrower or taking
any other action to enforce remedies with respect to a claimed default or event
or condition of the type referred to in paragraphs (g), (h), (i) or (j) of
Article 6, (ix) any strike, walkout, work stoppage or other material labor
difficulty with respect to Borrower, (x) any pending or contemplated
condemnation proceeding affecting any of the Collateral which would result in
Net Cash Proceeds of $500,000 or more, give written notice thereof to Lender
specifying the nature and period of existence of any such condition or event,
or specifying the notice given or action taken by such Person and the nature of
such claimed Event of Default or condition and what action Lender has taken, is
taking and proposes to take with respect thereto.

     (b)  Promptly upon, but in any event within ten (10) days after, an
Authorized Officer or other executive officer of Borrower obtains knowledge of
(i) the institution of, or threat of, any action, suit, proceeding,
investigation or arbitration by any Governmental Authority or other Person
against or affecting Borrower or any of its assets including, without

18

 

limitation, any of the Collateral or (from and after the First Amendment
Effective Date) Inventory Collateral, but excluding any condemnation proceeding
or any sale or disposition in lieu of condemnation with respect to any of the
Collateral which would result in Net Cash Proceeds of less than $500,000 and
(ii) any material development in any such action, suit, proceeding,
investigation or arbitration (whether or not previously disclosed to Lender),
which, in the case of clause (i) or (ii) above, is reasonably likely to have a
Material Adverse Effect, Borrower shall promptly give written notice thereof to
Lender and provide such other information as may be available to it to enable
Lender to evaluate such matters; and, in addition to the requirements set forth
in clauses (i) and (ii) of this subsection (b), Borrower upon request shall
promptly give notice to Lender of the status of any action, suit, proceeding,
investigation or arbitration covered by a report delivered to Lender pursuant
to this subsection and provide such other information as may be reasonably
available to it to enable Lender to evaluate such matters.

     SECTION 4.5 Insurance. (a) Keep the Collateral and (from and after the
First Amendment Effective Date) the Inventory Collateral, or cause its tenants
under applicable leases to keep its Collateral and (from and after the First
Amendment Effective Date) Inventory Collateral insured at all times with
financially sound and reputable insurance companies, against such risks as is
customary for companies of the same or similar size in the same or similar
businesses; provided, that such insurance shall (i) insure the Collateral and
(from and after the First Amendment Effective Date) Inventory Collateral
against all risk of loss or damage including, without limitation, loss by fire,
explosion, theft and such other casualties as may be reasonably satisfactory to
Lender, but in no event in an amount less than the replacement cost value
thereof, and (ii) insure Borrower, and Lender, against comprehensive general
and automobile liability, such policies to be in accordance with customary
industry practice and in such form and amounts and having such coverage as is
customary for companies of the same or similar size in the same or similar
businesses or as otherwise may be reasonably satisfactory to Lender. All such
insurance shall (i) contain a lender’s Loss Payable Endorsement in all loss or
damage insurance policies, (ii) provide that no cancellation, material
reduction in amount or material change in coverage thereof shall be effective
until at least thirty (30) days after written notice to Lender thereof, (iii)
name Lender as loss payee for physical damage insurance with respect to
property which constitutes Collateral and, from and after the date upon which
all of the obligations under the Working Capital Facility shall have been
satisfied in full, Inventory Collateral, as to which a Lien has been granted to
Lender, with the right, if an Event of Default has occurred and is then
continuing, to adjust losses and claims with respect to such property, and as
an additional insured for liability insurance, (iv) state that Lender shall not
be responsible for premiums, commissions, club calls, assessments or advances
and (v) be reasonably satisfactory in all other respects (including
deductibles) to Lender.

     (b)  Upon the request of Lender, furnish to such Lender, an updated
schedule describing all insurance maintained by Borrower, which schedule shall
set forth, for each insurance policy, the policy number, the type of coverage,
the policy limits and deductibles, the insurer and the expiration date.

     (c)  Furnish to Lender, to the extent not previously delivered, original
certificates of insurance for all insurance maintained by Borrower which
certificates shall comply with the requirements of this Section 4.5 set forth
above and contain signatures of duly authorized representatives of the insurer,
at all times prior to policy termination, cessation or cancellation.

19

 

     SECTION 4.6 Books and Records. (a) Maintain or cause to be maintained at
all times, in accordance with GAAP, true and complete books and records of its
financial operations.

     (b)  Provide Lender and its representatives (at Borrower’s expense) access
to such books and records and to any of its properties or assets upon
reasonable notice and during regular business hours in order that Lender may
make such audits and examinations and make abstracts from such books, accounts,
records and other papers of Borrower pertaining to any of the Collateral and
(from and after the First Amendment Effective Date) Inventory Collateral and
upon notification to Borrower, permit Lender or its representatives to discuss
the affairs, finances and accounts with, and be advised as to the same by,
officers and independent accountants, all as Lender may deem appropriate for
the purpose of verifying any report delivered by Borrower to Lender pursuant to
this Credit Agreement or for otherwise ascertaining compliance with this Credit
Agreement or any other Fundamental Document. The Lender will not prohibit any
representative of Borrower from being present at such meetings or discussions.

     SECTION 4.7 Observance of Agreements. (a) Duly observe and perform all
material terms and conditions of any agreement relating to any of the
Collateral and (from and after the First Amendment Effective Date) Inventory
Collateral, or any other agreement which is material to Borrower and diligently
protect and enforce the rights of Borrower under all such agreements in a
manner consistent with prudent business judgment and subject to the terms and
conditions of such agreements.

     (b)  Promptly provide Lender copies of any and all agreements amending,
altering, modifying, waiving or supplementing in any material respect any
agreement set forth on Schedule 2.9(b).

     (c)  Promptly provide Lender copies of any Licenses.

     SECTION 4.8 Taxes and Charges. (a) Duly pay and discharge, or cause to
be paid and discharged, before the same shall become in arrears (after giving
effect to applicable extensions), all taxes, assessments, levies and other
governmental charges, imposed upon Borrower or its properties, sales and
activities, or any part thereof, or upon the income or profits therefrom, as
well as all claims for labor, materials, or supplies which if unpaid might by
law become a Lien upon any property of any Borrower; provided, however, that
any tax, assessment, levy, governmental charge or claim for labor, material or
supplies need not be paid if the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if Borrower shall have
set aside on its books reasonable reserves (the presentation of which is
segregated to the extent required by GAAP) with respect thereto if such
reserves are required by GAAP; and provided, further, that Borrower will pay
all such taxes, assessments, levies or other governmental charges and claims
for labor, material or supplies forthwith upon the commencement of proceedings to foreclose any Lien which
may have attached as security therefor.

     (b)  Unless and until such time as Borrower’s long-term unsecured debt
shall be rated at least investment grade by either Standard & Poor’s, a
division of The McGraw-Hill Companies or Moody’s Investors Services, Inc.,
deposit with Lender on the first Business Day of

20

 

each month a sum equal to the
amount of all general and special real estate taxes and assessments next due
and payable by Borrower upon the Collateral divided by the number of months to
elapse before one month prior to the date when such taxes and assessments will
become due and payable. If such deposits are insufficient to pay any such
taxes or assessments when the same become due and payable by Borrower,
Borrower, within ten days after the receipt of a demand therefor from Lender,
shall deposit such additional funds as may be necessary to eliminate such
insufficiency. If such deposits exceed the amount required to pay such taxes
and assessments for any tax payment period, the excess shall be credited
against the next succeeding deposit or deposits to be made by Borrower. Such
deposits shall be used for the payment of taxes and assessments on the
Collateral next due and payable by Borrower when they become due, provided,
however, that Lender shall not be liable for any failure to apply such deposits
to the payment of such taxes and assessments unless Lender shall have received
from Borrower a request for payment accompanied by the bills for such taxes and
assessments not less than thirty days prior to the due date. Except as may be
required by Applicable Law, such deposits may be commingled with other funds of
Lender. Upon the request of Borrower, Lender shall account to Borrower for the
amounts then on deposit.

     SECTION 4.9 Liens. Defend the Collateral and (from and after the First
Amendment Effective Date) the Inventory Collateral against any and all Liens,
claims and other impediments howsoever arising, other than Permitted Liens, and
in any event defend the same against any attempted foreclosure.

     SECTION 4.10 Further Assurances; Security Interests. (a) Upon the
request of Lender, duly execute and deliver, or cause to be duly executed and
delivered, at the cost and expense of Borrower, such further instruments as may
be necessary in the reasonable judgment of Lender or its counsel to carry out
the provisions and purposes of this Credit Agreement and the other Fundamental
Documents.

     (b)  Upon the request of Lender, promptly execute and deliver or cause to
be executed and delivered, at the cost and expense of Borrower, such further
instruments as may be appropriate in the reasonable judgment of Lender or its
counsel, to provide Lender a perfected first priority Lien in the Collateral
and (from and after the First Amendment Effective Date) Inventory Collateral (subject
to Permitted Liens), and any and all documents (including, without
limitation, an amendment or supplement of any financing statement and a
continuation statement or other statement) for filing under the provisions of
the UCC and the rules and regulations thereunder, or any other Applicable Law
of the United States or any other jurisdiction which Lender may deem reasonably
necessary or advisable, and perform or cause to be performed such other
ministerial acts which are reasonably necessary or advisable, from time to
time, in order to grant and maintain in favor of Lender the security interest
in the Collateral and (from and after the First Amendment Effective Date)
Inventory Collateral contemplated hereunder and under the other Fundamental
Documents, subject only to Permitted Liens.

     (c)  Promptly undertake to deliver or cause to be delivered to Lender from
time to time such other documentation, consents, authorizations and approvals,
in form and substance reasonably satisfactory to Lender, as Lender or its
counsel shall reasonably deem necessary or advisable to perfect or maintain the
Liens (and security interests) of Lender contemplated hereby and pursuant to
the other Fundamental Documents.

21

 

     (d)  Without limiting the generality of the foregoing provisions of this
Section 4.10, use commercially reasonable efforts to correct as soon as
practicable, matters with respect to title concerning each Fee Property not
otherwise permitted hereunder.

     SECTION 4.11 Environmental Laws. (a) Promptly notify Lender upon
Borrower gaining actual knowledge of any violation or non-compliance with, or
liability or potential liability under, any Environmental Laws which, when
taken together with all other violations of, or liability under, Environmental
Law is reasonably expected to have a Material Adverse Effect, and promptly
furnish to Lender all written notices of any nature which Borrower may receive
from any Governmental Authority or other Person with respect to any violation,
or potential violation or non-compliance with, or liability or potential
liability under, any Environmental Laws which, in any case or when taken
together with all such other notices, could reasonably be expected to have a
Material Adverse Effect.

     (b)  Comply with and use reasonable efforts to ensure compliance by all
tenants and subtenants with all Environmental Laws, and obtain and comply in
all respects with and maintain and use reasonable efforts to ensure that all
tenants and subtenants obtain and comply in all respects with and maintain any
and all Environmental Permits required by Environmental Laws, except where
failure to do so is not reasonably likely to have a Material Adverse Effect.

     (c)  Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under all
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities, except where failure to
do so would not have a Material Adverse Effect. Any order or directive whose
lawfulness is being contested in good faith by appropriate proceedings shall be
considered a lawful order or directive when such proceedings, including any
judicial review of such proceedings, have been finally concluded by the
issuance of a final non-appealable order; provided, however, that Borrower
shall have set aside on its books reasonable reserves (the presentation of
which is segregated to the extent required by GAAP) with respect thereto.

     (d)  Indemnify, defend and hold harmless Lender, and its respective
officers, directors, shareholders, employees, agents, representatives,
successors and assigns from and against any liability, fine, penalty, loss,
damage, suit, settlement, action, expense and cost (including, but not limited
to, reasonable attorneys’ fees (including cost of in-house counsel) and
environmental consultant fees), arising out of or relating to: (A) the
presence or Release of any Hazardous Materials at, to, on, under, from, or
about any Premises; (B) any violation of any Environmental Law or Environmental
Permit by Borrower; (C) the transportation or the arrangement for the
transportation, handling, treatment, or disposal of any Hazardous Materials to
any location other than any Premises by or on behalf of Borrower; (D) any
Environmental Claim relating to any Premises or any activities conducted at any
Premises; and (E) any breach of any environmental representation or covenant in
this Credit Agreement or any other Fundamental Document (but excluding any such liability, fine, penalty,
loss, damage, suit, settlement, action, expense or cost of an indemnified party
to the extent primarily caused by the gross negligence or willful misconduct of
such indemnified party as determined by a final judgment of a court of
competent jurisdiction). The obligations of Borrower under this Section
4.11(d) shall survive the Facility Termination Date, the termination of this
Credit Agreement and the payment of the Obligations hereunder indefinitely.

22

 

     (e)  Promptly, but in no event later than sixty (60) days after the Closing
Date, undertake the following activities and submit a report to Lender, in form
and substance reasonably satisfactory to Lender, confirming that such
activities have been undertaken: (1) bring the water supply wells located at
the Fee Properties located at 7141 East Broad Street, Columbus, Ohio and 840
Route 46, Roxbury, New Jersey into compliance with applicable Environmental
Laws (including but not limited to undertaking all required water sampling and
testing and submission of the same to applicable Governmental Authorities) and
develop and implement a compliance program to ensure that Borrower will
continue to be in compliance with such requirements in the future; or (2) close
such water supply wells in compliance with applicable Environmental Laws.

     SECTION 4.12 Lease Agreements. From time to time (i) furnish to Lender
such information and reports regarding any lease agreement with respect to any
Fee Property, Leased Property or any other property listed on Schedule 2.14(b)
to which Borrower is a party as Lender may reasonably request and (ii) upon the
occurrence and continuation of an Event of Default and the reasonable request
of Lender, make such demands and requests for information, reports or action to
the other parties to a lease agreement to which Borrower is a party, as
Borrower is entitled to make under each such lease agreement.

     SECTION 4.13 Use of Proceeds of Loans. Use the proceeds of the Loans for
the purposes identified in Section 1.14.

     SECTION 4.14 ERISA Plan Compliance and Reports. Furnish to Lender (i) as
soon as possible, and in any event within thirty (30) days after any executive
officer of Borrower has knowledge that (A) any Reportable Event with respect to
any Plan has occurred, a statement of an executive officer of Borrower, setting
forth details as to such Reportable Event and the action which it proposes to
take with respect thereto, together with a copy of the notice, if any, required
to be filed of such Reportable Event given to the PBGC or (B) an accumulated
funding deficiency has been incurred or an application has been made to the
Secretary of the Treasury for a waiver or modification of the minimum funding
standard or an extension of any amortization period under Section 412 of the
Code with respect to a Plan or Multiemployer Plan has been or is proposed to be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA, proceedings have been instituted to terminate a Plan if such Plan is
subject to Title IV of ERISA, an action has been instituted pursuant to Section
515 of ERISA to collect a delinquent contribution to a Multiemployer Plan, or
Borrower or ERISA Affiliate will incur any liability to or on account of the
termination of or withdrawal from a Plan subject to Title IV of ERISA or
Multiemployer Plan under Sections 4062, 4063, 4201 or 4204 of ERISA, a
statement of an executive officer of Borrower, setting forth details as to such
event and the action Borrower proposes to take with respect thereto, (ii)
promptly upon reasonable request of Lender, copies of each annual and other
report with respect to each Plan and (iii) promptly after receipt thereof, a
copy of any notice Borrower or ERISA Affiliate may receive from the PBGC
relating to the PBGC’s intention to terminate any Plan subject to Title IV of
ERISA or to appoint a trustee to administer any Plan subject to Title IV of
ERISA.

     SECTION 4.15 Kimco Collateral Account. By no later than May 30, 2002,
establish a deposit account (the “Kimco Collateral Account”) with a bank
acceptable to Lender into which all [cash ]Collateral in the form of cash and
cash proceeds[ of] of Collateral and

23

 

from and after the date upon which all of
the obligations under the Working Capital Facility shall have been satisfied in
full, proceeds of Inventory Collateral shall be deposited in accordance with
the terms hereof, which account shall be for all purposes part of the
Collateral hereunder.

     SECTION 4.16 Covenants Regarding Inventory Collateral. From and after the
First Amendment Effective Date: (a) Borrower shall at all times maintain
inventory records satisfactory to Lender, keeping correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory
Collateral, Borrower’s cost therefore and daily withdrawals therefrom and
additions thereto; (b) Borrower shall conduct a physical count of the Inventory
Collateral at least once each year but at any time or times as Lender may
request on or after an Event of Default, and promptly following such physical
count shall supply Lender with a report in the form and with such specificity
as may be satisfactory to Lender concerning such physical count, and Borrower
shall conduct cycle counts of the Inventory Collateral in the ordinary course
of its business consistent with past practices by at any time or times as
Lender may request on or after an Event of Default, and promptly following such
cycle count shall supply Lender with a report in the form and with such
specificity as may be satisfactory to Lender concerning such cycle count; (c)
Borrower shall not remove any Inventory Collateral from the locations set forth
or permitted herein, without the prior written consent of Lender, except for
sales of Inventory Collateral in the ordinary course of its business and except
to move Inventory Collateral directly from one location set forth or permitted
herein to another such location and except for Inventory Collateral shipped
from manufacturer thereof to Borrower which is in transit to the locations set
forth or permitted herein; (d) upon Lender’s request, Borrower shall, at its
expense, no more than four (4) times in any twelve (12) month period, but at
any time or times as Lender may request on or after an Event of Default or a
Minimum Inventory Violation (as such term is defined in the Working Capital
Facility), deliver or cause to be delivered to Lender written appraisals as to
the Inventory Collateral in form, scope and methodology acceptable to Lender
and by an appraiser acceptable to Lender addressed to lender and upon which
Lender is expressly permitted to rely; (e) Borrower shall produce, use, store
and maintain the Inventory Collateral with all reasonable care and caution and
in accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(f) except as set forth on Schedule 7.3 to the Congress Credit Agreement none
of the Inventory Collateral constitutes farm products or the proceeds thereof
or is subject to the trust imposed under the Perishable Agricultural
Commodities Act; (g) Borrower assumes all responsibility and liability arising
from or relating to the production, use, sale or other disposition of the
Inventory Collateral; (h) Borrower shall not sell Inventory Collateral to any
customer on approval, or any other basis which entitles the customer to
return or may obligate Borrower to repurchase such Inventory Collateral,
except in the ordinary course of Borrower’s business consistent with past
practices; (i) Borrower shall keep the Inventory Collateral in good and
marketable condition; and (j) Borrower shall not acquire or accept any
Inventory Collateral on consignment or approval unless as may be permitted
under the Working Capital Facility.

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5. NEGATIVE COVENANTS

     From the date hereof and for so long as any Commitments shall be in
effect, any amount remains outstanding with respect to any Loan, or any
Obligation remains unpaid or unsatisfied, Borrower agrees that, unless Lender
shall otherwise consent in writing, it will not:

     SECTION 5.1 Limitations on Indebtedness and Preferred Stock. Incur,
create, assume or suffer to exist any Preferred Stock or Indebtedness, other
than:

     (a)  the Indebtedness and other Obligations of Borrower under this Credit
Agreement, and any Indebtedness refinancing all or any portion of the
Indebtedness and/or other Obligations under this Credit Agreement; provided,
that the terms of any Indebtedness refinancing only a portion of the
Indebtedness and other Obligations under this Credit Agreement shall have been
approved in writing by Lender;

     (b)  existing Indebtedness of Borrower described on Schedule 5.1(b) hereto,
but not any extensions or renewals or refinancings thereof unless effected on
substantially the same terms or terms more favorable to Borrower (provided,
that the interest rate may be at the then prevailing rate for the same type of
Indebtedness);

     (c)  Indebtedness of Borrower under the Working Capital Facility;

     (d)  obligations of Borrower under Interest Rate Protection Agreements
entered into in the ordinary course of business and not for purposes of
speculation;

     (e)  (i) any revocable license (each, a “License”) demising an aggregate of
less than one thousand (1,000) useable square feet per Fee Property and per
Leased Property which is entered into after the date hereof, or (ii) any lease
of all or any portion of a Fee Property or Leased Property (each, a “Substitute
Lease”) which is entered into by Borrower after the date of this Agreement
which is entered into in substitution for a lease in effect as of the date of
this Agreement; provided, that in the case of either (i) or (ii), (w) such
License or Substitute Lease, as the case may be, is on a form license or lease
agreement previously approved in writing by Lender (which approval Lender shall
not unreasonably withhold or delay), (x) such License or Substitute Lease is on
not less than fair market rental terms as determined by Lender in its
reasonable discretion, (y) such License or Substitute Lease is by its express
terms subject and subordinate to each Mortgage, and (z) no Event of Default
shall have occurred under this Agreement or any other Fundamental Documents.;

     (f)  unsecured Indebtedness of Borrower not in excess of $500,000 in an
aggregate principal amount outstanding at any time;

     (g)  Indebtedness of Borrower secured by purchase money Liens not in excess
of $1,000,000 in an aggregate principal amount outstanding at any time;

     (h)  Indebtedness of Borrower incurred in connection with insurance premium
financing not in excess of $7,000,000 in an aggregate principal amount
outstanding at any time;

25

 

     (i)  Preferred Stock which does not require the redemption thereof at the
option of the holder prior to the Facility Termination Date; and

     (j)  extensions, renewals or refinancings by Borrower of any Indebtedness
permitted under this Section (“Refinancing Indebtedness”) so long as (i) such
Refinancing Indebtedness is in an original aggregate principal amount not
greater than the aggregate principal amount of and unpaid interest on the
Indebtedness being extended, renewed or refinanced plus the amount of any
premiums required to be paid thereon and fees and expenses associated
therewith, (ii) if the Indebtedness being extended, renewed or refinanced is
subordinated to the Obligations, such Refinancing Indebtedness is subordinated
to the Obligations on terms not less favorable to the Lender than the
subordination provisions governing the Indebtedness being extended, renewed or
refinanced, (iii) at the time of and after giving effect to such extension,
renewal or refinancing, no Event of Default shall have occurred and be
continuing, and (iv) the other terms and conditions of such Refinancing
Indebtedness (including, without limitation, amortization, interest rates and
fees) are no less favorable to Borrower than the Indebtedness being extended,
renewed or refinanced (provided that the restrictions set forth in clauses
(iii) and (iv) shall not be applicable to any refinancing of the Indebtedness
under the Working Capital Facility).

     SECTION 5.2 Limitations on Liens. Incur, create, assume or suffer to
exist any Lien on the Collateral and (from and after the First Amendment
Effective Date) Inventory Collateral, including, any right of first refusal,
option or other contractual right to sell, assign, lease or otherwise dispose
of any of the Collateral and (from and after the First Amendment Effective
Date) Inventory Collateral (and, in the case of Inventory Collateral, except as
required under the Working Capital Facility), whether now owned or hereafter
acquired, except:

     (a)  the Liens in favor of Lender under this Credit Agreement, the other
Fundamental Documents and any other document contemplated hereby or thereby;

     (b)  to the extent incurred after the Closing Date, Liens customarily
granted or incurred in the ordinary course of business with regard to services
rendered by carriers, warehouses, suppliers of materials and equipment,
mechanics and repairmen and other Liens imposed by Applicable Law which
obligations are not yet due and payable (unless such obligations are being
contested in good faith and with respect to which appropriate reserves have
been established in accordance with GAAP);

     (c)  existing Liens listed on Schedule 5.2(c) hereto;

     (d)  to the extent incurred after the Closing Date, Liens arising out of
attachments, judgments or awards as to which an appeal or other appropriate
proceedings for contest or review are timely commenced (and as to which
foreclosure and other enforcement proceedings shall not have been commenced (unless fully bonded or otherwise
effectively stayed)) and as to which appropriate reserves have been established
in accordance with GAAP;

     (e)  to the extent incurred after the Closing Date, Liens for taxes,
assessments or other governmental charges or levies not yet due and payable, or
the validity or amount of which

26

 

is currently being contested in good faith by
appropriate proceedings and for which reserves have been set aside on the books
of Borrower, in each case pursuant to and in accordance with the terms of
Section 4.8 hereof;

     (f)  to the extent incurred after the Closing Date, easements (including,
without limitation, reciprocal easement agreements and utility agreements),
rights of way requirements, restrictions (including, without limitation, zoning
restrictions), covenants, consents, reservations, encroachments, variations and
other similar restrictions, charges, encumbrances (whether or not recorded)
(but specifically excluding rights of first refusal, options and other
contractual rights to sell, assign or otherwise dispose of any Collateral or
any interest therein) on any Collateral which, in the aggregate, (i) do not
materially detract from the value of the applicable Collateral subject thereto,
(ii) do not materially interfere with the ordinary conduct of the business of
Borrower or any lessee under a lease or (iii) do not materially impair the use
of the applicable item of Collateral by Borrower or any lessee under a lease;

     (g)  to the extent incurred after the Closing Date, Liens securing
refinancing Indebtedness permitted by Section 5.1(b); provided, that such Liens
shall by their terms cover only such property or assets as are covered by the
Liens securing the Indebtedness being refinanced and no new or additional
property or assets and any Liens granted with respect to such refinancing
Indebtedness shall be subordinated to at least the same extent as the existing
Liens securing such Indebtedness being refinanced;

     (h)  to the extent incurred after the Closing Date, Liens securing purchase
money Indebtedness permitted by Section 5.1(g); provided that such Liens shall
by their terms cover only such property or assets as are covered by the Liens
securing such Indebtedness; [and]

     (i)  to the extent incurred after the Closing Date, Liens arising from the
filing of UCC financing statements or other documents (x) as to which Borrower
has not authorized such filing, (y) as to which Borrower shall promptly, after
it has knowledge thereof, use reasonable efforts to obtain a termination or
release, and (z) which have not been in place for more than 30 days after
Borrower has knowledge thereof[.]; and

     (j) Liens existing as of the Closing Date on the Inventory Collateral
securing the obligations under the Working Capital Facility.

     SECTION 5.3 Merger, Sale of Assets, Purchases, etc. Whether in one
transaction or a series of transactions, wind up, liquidate or dissolve its
affairs, or enter into any transaction of merger or consolidation, or sell or
otherwise dispose of any of the Collateral or (from and after the First
Amendment Effective Date) Inventory Collateral or agree to do or suffer any of
the foregoing, except for (i) sales or dispositions by Borrower of up to ten
(10) of the Fee Properties for fair market value in arms-length transactions,
the Net Cash Proceeds of which are applied as mandatory prepayments of the Loans as required by
Section 1.9(b) hereof, and (ii) the dissolution, liquidation, winding up or
merger of the Borrower’s Subsidiaries.

     SECTION 5.4 Places of Business; Change of Name. Change the location of
its chief executive office or principal place of business (except to another
location in Troy, Michigan with prior written notice to Lender) or any of the
locations where it keeps any portion

27

 

of the books and records with respect to
the Collateral and (from and after the First Amendment Effective Date)
Inventory Collateral, change its name or change its jurisdiction of
incorporation or organization, without in each case (i) giving Lender thirty
(30) days prior written notice of such change and (ii) filing any additional
UCC financing statements, Security Documents and such other documents requested
by either Lender to maintain perfection of the security interest of Lender in
the Collateral and (from and after the First Amendment Effective Date)
Inventory Collateral.

     SECTION 5.5 Sale and Leaseback. Enter into any arrangement with any
Person or Persons, whereby in contemporaneous transactions Borrower sells
essentially all of its right, title and interest in an asset and, in connection
therewith, acquires, leases or licenses back the right to use such asset,
except to the extent the asset subject to such sale and leaseback arrangement
was sold by Borrower in a transaction permitted by Section 5.3 hereof.

     SECTION 5.6 Changes to Material Agreements.

     (a)  Consent to any modification or waiver of any material agreement listed
on Schedule 2.9(b) hereto if such modification or waiver would have a Material
Adverse Effect with respect to Borrower. The Borrower will not consent to the
assignment by any other party to any material agreement of any rights,
obligations or interests of such party thereunder except as expressly permitted
by any such material agreement.

     (b)  Amend the [articles]certificate of incorporation or by-laws of
Borrower in any manner which could be reasonably expected to have a Material
Adverse Effect.

     SECTION 5.7 ERISA Compliance. Engage in a “prohibited transaction,” as
defined in Section 406 of ERISA or Section 4975 of the Code, with respect to
any Plan or Multiemployer Plan or knowingly consent to any “party in interest”
or any “disqualified person”, as such terms are defined in Section 3(14) or
ERISA and Section 4975(e)(2) of the Code, respectively, engaging in any
“prohibited transaction”, with respect to any Plan or Multiemployer Plan; or
permit any Plan to incur any “accumulated funding deficiency”, as defined in
Section 302 of ERISA or Section 412 of the Code; or terminate any Plan in a
manner which could result in the imposition of a Lien on any property of
Borrower or any ERISA Affiliate pursuant to Section 4068 of ERISA; or breach or
knowingly permit any employee or officer or any trustee or administrator of any
Plan to breach any fiduciary responsibility imposed under Title I of ERISA with
respect to any Plan; engage in any transaction which would result in the
incurrence of a liability under Section 4069 of ERISA; or fail to make
contributions to a Plan or Multiemployer Plan which could result in the
imposition of a Lien on any property of Borrower or any ERISA Affiliate
pursuant to Section 302(f) of ERISA or Section 412(n) of the Code, if the
occurrence of any of the foregoing events (alone or in the aggregate) would
result in a liability which has a Material Adverse Effect.

     SECTION 5.8 Hazardous Materials. Cause or permit any of its properties or
assets to be used to generate, manufacture, refine, transport, treat, store,
handle, dispose, transfer, produce or process Hazardous Materials, except in
compliance with all applicable Environmental Laws; nor release, discharge,
dispose of or permit or suffer any release or disposal as a result of any
intentional act or omission on its part of Hazardous Materials onto any such
property or asset

28

 

in violation of any Environmental Law or in a manner that
could result in liability under any Environmental Law, except as are not
reasonably likely to have a Material Adverse Effect.

     SECTION 5.9 Transactions with Subsidiaries. Except as otherwise permitted
hereunder, sell or transfer any property to, or sell, convey or purchase any
assets from, or enter into any other transaction (whether material or
otherwise) with, make any investment with or to, or engage in any other
business arrangement with, any Subsidiary or Affiliate of Borrower, or enter
into an agreement to do any of the foregoing.

6. EVENTS OF DEFAULT

     SECTION 6.1 Events of Default. In the case of the happening and during
the continuance of any of the following events (herein called “Events of
Default”):

     (a)  any representation, warranty, certification or statement made by
Borrower in this Credit Agreement or any other Fundamental Document to which it
is a party or in connection with this Credit Agreement or any Fundamental
Document or any statement or representation made by or on behalf of Borrower in
any report, financial statement, certificate or other document furnished to
Lender pursuant to, or in connection with, this Credit Agreement or any other
Fundamental Document, shall prove to have been false or misleading in any
material respect when made or delivered;

     (b)  default shall be made in the payment of principal of any of the Loans
as and when due and payable, whether at the due date thereof, by reason of
maturity, mandatory prepayment, acceleration or otherwise;

     (c)  default shall be made in the payment of interest on the Loans, the
Fees, or other amounts payable to Lender under this Credit Agreement, when and
as the same shall become due and payable, whether at the due date thereof or at
a date fixed for prepayment thereof or by acceleration thereof or otherwise and
such default shall continue unremedied for two (2) Business Days, provided,
however, that such two Business Day period shall be extended to five (5)
Business Days if and only if (x) such default relates to amounts other than
interest and (y) no other such default has occurred during the immediately
preceding 12-month period;

     (d)  default shall be made by Borrower in the due observance or performance
of any covenant, condition or agreement contained in Sections 4.4, 4.5 or
Article 5 of this Credit Agreement;

     (e)  default shall be made by Borrower in the due observance or performance
of Section 4.1 of the Credit Agreement, and such default shall continue
unremedied for ten (10) days;

     (f)  default shall be made by Borrower in the due observance or performance
of any other covenant, condition or agreement to be observed or performed
pursuant to the terms of this Credit Agreement or any other Fundamental
Document (other than those covered by paragraphs (a), (b), (c), (d) or (e) of
this Article 6), and such default shall continue unremedied

29

 

for thirty (30)
days after Borrower receives written notice or obtains knowledge of such
occurrence, and Borrower shall not be diligently moving towards curing such
default;

     (g)  default shall be made by Borrower with respect to any payment, when
due, of any Indebtedness in excess of $500,000 of Borrower, or any other
default shall occur, if the effect of such non-payment default is to accelerate
the maturity of such Indebtedness or to permit the holder thereof to cause such
Indebtedness to become due prior to its stated maturity, and such default shall
not be remedied, cured, waived or consented to within the period of grace with
respect thereto; or any such Indebtedness shall become or be declared to be due
and payable prior to its stated maturity;

     (h)  Borrower shall generally not pay its debts as they become due or shall
admit in writing its inability to pay its debts, or shall make a general
assignment for the benefit of creditors; or Borrower shall commence any case,
proceeding or other action seeking to have an order for relief entered on its
behalf as a debtor or to adjudicate it a bankrupt or insolvent or seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its property or shall file an answer or other pleading in
any such case, proceeding or other action admitting the material allegations of
any petition, complaint or similar pleading filed against it or consenting to
the relief sought therein; or Borrower shall take any action to authorize, or
in contemplation of, any of the foregoing;

     (i)  any involuntary case, proceeding or other action against Borrower
shall be commenced seeking to have an order for relief entered against it as
debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
property, and such case, proceeding or other action (i) results in the entry of
any order for relief against it or (ii) shall remain undismissed for a period
of sixty (60) days;

     (j)  one or more judgment(s) for the payment of money in excess of $500,000
in the aggregate (other than a judgment as to which, and only to the extent, a
reputable insurance company has acknowledged coverage of such claim in writing
or which, but only to the extent, a surety bond has been provided by a
reputable insurance or other company) shall be rendered against Borrower and
either (i) within thirty (30) days from the entry of such judgment, shall not
have been discharged or stayed pending appeal, or shall not have been
discharged within thirty (30) days from the entry of a final order of
affirmance on appeal or (ii) enforcement proceedings shall be commenced by any
creditor on any such judgment;

     (k)  (i) failure by Borrower or any ERISA Affiliate to make any
contributions required to be made to a Plan subject to Title IV of ERISA or a
Multiemployer Plan, (ii) any accumulated funding deficiency (within the meaning of Section 4971(c) of
the Code) shall exist with respect to any Plan (whether or not waived), (iii)
failure by any Plan to satisfy the minimum funding standard required for any
plan year or part thereof under Section 412 of the Code or Section 302 of ERISA
or a waiver of such standard or an extension of any amortization period is

30

 

sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA,
(iv) Borrower or any ERISA Affiliate shall have been notified by the sponsor of
a Multiemployer Plan that it has incurred withdrawal liability to such
Multiemployer Plan, or that a Multiemployer Plan is in reorganization or is
being terminated, (v) a Reportable Event with respect to a Plan shall have
occurred, (vi) the withdrawal by Borrower or any ERISA Affiliate from a Plan
during a plan year in which it was a substantial employer (within the meaning
of Section 4001(a)(2) or 4062(e) of ERISA), (vii) the termination of a Plan, or
the filing of a notice of intent to terminate a Plan under Section 4041(c) of
ERISA, (viii) the institution of proceedings to terminate, or the appointment
of a trustee with respect to, a Plan by the PBGC, (ix) any other event or
condition which could constitute grounds under Section 4042(a) of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or (x)
the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of
ERISA as to any Credit Party or ERISA Affiliate; and the occurrence of any of
the foregoing events, individually or in the aggregate, could reasonably be
expected to result in a liability in excess of $1,000,000;

     (l)  Borrower is liable under or in violation of any Environmental Law
which liability or violation is reasonably likely to have a Material Adverse
Effect and either (i) such liability or violation shall not have been resolved
within thirty (30) days after Borrower has knowledge thereof or (ii)
enforcement proceedings shall be commenced with respect to any such liability
or violation;

     (m)  (i) this Credit Agreement, any Mortgage, or any other Fundamental
Document shall, for any reason, not be or shall cease to be in full force and
effect or shall be declared null and void or any of the Fundamental Documents
shall not give or shall cease to give Lender the Liens, rights, powers and
privileges purported to be created thereby in favor of Lender, superior to and
prior to the rights of all third Persons and subject to no other Liens (other
than Permitted Liens), or (ii) the validity or enforceability of the Liens
granted, to be granted, or purported to be granted, by any of the Fundamental
Documents shall be contested by Borrower or any of its Affiliates;

     (n)  any Event of Default shall occur and be continuing under the Working
Capital Facility;

     (o)  at any time, for any reason, Borrower shall repudiate, or seek to
repudiate, any of its Obligations under any Fundamental Document to which it is
a party; and

     (p)  failure by Borrower, on or before June 19, 2002, to make any payments
required to be made by it under Section 6.02 of the Plan of Reorganization on
account of any executory contract and unexpired lease to be assumed by it under
the Plan of Reorganization;

then, in every such event and at any time thereafter during the continuance of
such event, Lender may take any or all of the following actions, at the same or
different times: (x) terminate forthwith the Commitments and/or (y) declare
the principal of and the interest on the Loans and
the notes evidencing the Loans hereunder and all other amounts payable
hereunder or thereunder to be forthwith due and payable, whereupon the same
shall become and be forthwith due and payable, without presentment, demand,
protest, notice of acceleration or other notice of any kind, all of which are
hereby expressly waived, anything in this Credit Agreement or in any note

31

 

evidencing any Loan hereunder to the contrary notwithstanding. If an Event of
Default specified in subsection (h) or (i) above shall have occurred, the
Commitments shall automatically terminate and the principal of, and interest
on, the Loans and any notes evidencing the Loans hereunder and all other
amounts payable hereunder and thereunder shall automatically become due and
payable without presentment, demand, protest, or other notice of any kind, all
of which are hereby expressly waived, anything in this Credit Agreement or any
note evidencing any Loan hereunder to the contrary notwithstanding. Such
remedies shall be in addition to any other remedy available to Lender pursuant
to Applicable Law or otherwise.

     SECTION 6.2 Certain Remedies. At any time an Event of Default exists or
has occurred and is continuing, Lender shall have all rights and remedies
provided in, and subject to, this Credit Agreement, the other Fundamental
Documents, the UCC and other Applicable Law, all of which rights and remedies
may be exercised without notice to or consent by Borrower, except as such
notice or consent is expressly provided for hereunder or required by Applicable
Law. All rights, remedies and powers granted to Lender hereunder, under any of
the other Fundamental Documents, the UCC or other Applicable Law, are
cumulative and not exclusive, and enforceable in Lender’s discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Credit Agreement or any of the other Fundamental Documents. Lender may at any
time or times, proceed directly against Borrower to collect the Obligations
without prior recourse to the Collateral or Inventory Collateral.

7. MISCELLANEOUS

     SECTION 7.1 Notices. (a) Notices and other communications provided for
herein shall be in writing and shall be delivered addressed:

	 	(i) if to Lender:

KIMCO CAPITAL CORP.

c/o Kimco Realty Corporation

3333 New Hyde Park Drive

New Hyde Park, NY 11042

Attn: Mr. David Samber

	 	With a courtesy copy to:

	 	Morgan, Lewis & Bockius LLP

101 Park Avenue

New York, NY 10178

Attn: Neil E. Herman, Esq.

Facsimile No.: (212) 309-6273

E-mail: nherman@morganlewis.com

	 	(ii) if to Borrower:

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	 	Frank’s Nursery & Crafts, Inc.

[1175 West Long Lake Road]580 Kirts Boulevard, Suite 300

Troy, Michigan [48098]48084

Attn: Mr. [Steven]Alan[Fishman]Minker

[Mr. Larry Lakin]Michael McBride, Esq.

	 	With a courtesy copy to:

	 	[Willkie Farr & Gallagher]Honigman, Miller, Schwartz & Cohn, LLC

2290 First National Building

[787 Seventh]660 Woodward Avenue

[New York, NY 10019-6099]Detroit, Michigan 48226-3583

Attn: [William E. Hiller]Donald Kunz, Esq.

Facsimile No.: [ (212)][728-8111]

E-mail: [whiller@willkie.com]

or such other address as such party may from time to time designate by giving
written notice to the other parties hereunder.

Any failure of any Person giving notice pursuant to this Section, to provide a
courtesy copy to a party as provided herein, shall not affect the validity of
such notice. All notices and other communications given to any party hereto in
accordance with the provisions of this Credit Agreement shall be deemed to have
been given (x) on the fifth Business Day after the date when sent by registered
or certified mail, postage prepaid, return receipt requested, if by mail, (y)
when delivered, if delivered by hand or overnight courier service or (z) when
receipt is acknowledged, if by facsimile communications equipment or e-mail in
each case addressed to such party as provided in this Section or in accordance
with the latest unrevoked written direction from such party.

     (b)  No notice to or demand on Borrower shall entitle Borrower to any other
or further notice or demand in the same, similar or other circumstances.

     SECTION 7.2 Survival of Agreement, Representations and Warranties, etc.
All warranties, representations and covenants made by Borrower herein, in any
other Fundamental Document or in any certificate or other instrument delivered
by it or on its behalf in connection with this Credit Agreement or any other
Fundamental Document shall be considered to have been relied upon by Lender
and, except for any terminations, amendments, modifications or waivers thereof
in accordance with the terms hereof, shall survive the execution and delivery
of this Credit Agreement, the making of the Loans herein contemplated and the
execution and delivery of any notes evidencing any Loan hereunder regardless of
any investigation made by Lender or on its behalf, and shall continue in full
force and effect so long as any Obligation is outstanding and unpaid and so
long as the Commitments have not been terminated. All statements in any such certificate or other instrument shall constitute
representations and warranties by Borrower hereunder.

     SECTION 7.3 Successors and Assigns; Syndications; Loan Sales;
Participations.

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     (a)  Whenever in this Credit Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party; provided, however, that Borrower may not assign its
rights hereunder without the prior written consent of Lender, and all
covenants, promises and agreements by or on behalf of Borrower which are
contained in this Credit Agreement shall inure to the benefit of the successors
and assigns of Lender.

     (b)  The Lender may (but only with the prior written consent of Borrower,
which consent shall not be unreasonably withheld and which consent shall not be
required if at the time an Event of Default has occurred and is then
continuing) assign to an Eligible Assignee all or a portion of its interests,
rights and obligations under this Credit Agreement (including, without
limitation, all or a portion of any Loans at the time owing to it, any note
held by it evidencing such Loans, or all or a portion of its Commitment(s) and
the same portion of all Loans at the time owing to it and any notes held by it
evidencing its Loans) provided, however, that the aggregate amount of the
Commitment and/or Loans of Lender subject to each such assignment shall in no
event be less than $5,000,000 or, if less, the remaining portion of Lender’s
Commitment and/or Loans. The Lender and such assignee shall execute
appropriate documentation (i) evidencing such assignment, which documentation
shall set forth the respective rights and obligations of Lender and such
assignee and (ii) to the extent that Lender shall retain a portion of the
Commitment, appointing Kimco Capital Corp., as agent for Lender and such
assignee(s). Upon the effectiveness of such assignment, the assignee
thereunder shall become a party to this Credit Agreement. The Lender shall
give prompt written notice to Borrower of each assignment made hereunder. The
Borrower will promptly, at its own expense, execute such amendments to the Loan
Documents to which it is a party and such additional documents, and take such
other actions as Lender or the assignee of Lender may reasonably request in
order to give such assignee of Lender the full benefit of the Liens
contemplated by the Fundamental Documents.

     (c)  The Lender may, without the consent of Borrower, sell participations
to one or more banks, mutual funds or other financial institutions in all or a
portion of its rights and obligations under this Credit Agreement (including,
without limitation, all or a portion of any Term Loans at the time owing to it
and any note held by it evidencing such Loans or all or a portion of its
Revolving Credit Commitment and the same portion of all Revolving Credit Loans
(if any) at the time owing to it and any notes held by it evidencing its
Revolving Credit Loans); provided, however, that (i) Lender’s obligations under
this Credit Agreement shall remain unchanged, (ii) such participant shall not
be granted any voting rights or any right to control the vote of Lender under
this Credit Agreement, except that such participant may be granted voting
rights (or a right to control the vote of Lender under this Credit Agreement)
with respect to (A) proposed decreases to interest rates or fees, (B) subject
to Section 7.11 hereof, changes to the amount of the Revolving Credit
Commitment (except for a ratable decrease in the Revolving Credit Commitment),
(C) final maturity of any Loan and fees (in each case, as applicable to such
participant) and (D) releases of all or substantially all of the Collateral or
Inventory Collateral, (iii) Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, (iv) the participating banks or other
entities shall be entitled to the cost protection provisions contained in
Sections 1.12 hereof, but a participant shall not be entitled to receive
pursuant to such provisions an amount larger than its share of the amount to
which Lender granting such participation would have been entitled to receive
and (v) Borrower shall

34

 

continue to deal solely and directly with Lender in
connection with Lender’s and its participants’ rights and obligations under
this Credit Agreement.

     (d)  The Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section, disclose to the
assignee or participant or proposed assignee or participant, any information
relating to Borrower furnished to Lender by or on behalf of Borrower; provided,
that prior to any such disclosure, each such assignee or participant or
proposed assignee or participant shall agree in writing to be bound by the
provisions of Section 7.16 hereof.

     (e)  Any assignment pursuant to subsection (a) of this Section shall
constitute an amendment of the Commitments as of the effective date of such
assignment.

     (f)  Notwithstanding anything contained in this Section Lender may at any
time assign or pledge all or any portion of its rights under this Agreement
without the prior written consent of Borrower to secure extensions of credit to
Lender or in support of obligations owed by Lender; provided that (i) no such
assignment or pledge shall release Lender from any of its obligations hereunder
or substitute any such assignee or pledgee for Lender as a the party hereto and
(ii) the right of any such assignee or pledgee to exercise any of Lender’s the
rights hereunder or to further transfer all or any portion of the rights
pledged or granted to it, whether by means of foreclosure or otherwise shall at
all times be subject to the other terms and provisions of this Section. In
order to facilitate such an assignment, Borrower shall, at the request of
Lender, duly execute and deliver to Lender a note or notes evidencing the Loans
made to Borrower by Lender hereunder.

     SECTION 7.4 Expenses; Documentary Taxes. Whether or not the transactions
hereby contemplated shall be consummated, Borrower agrees to pay (a) all
reasonable out-of-pocket expenses incurred by Lender in connection with, or
arising out of, the performance of due diligence, the negotiation, preparation,
execution, delivery, waiver or modification and administration of this Credit
Agreement and any other documentation contemplated hereby and the making of the
Loans, any Collateral, Inventory Collateral or any Fundamental Document,
including but not limited to, the reasonable out-of-pocket costs of Lender in
connection with the administration of this Credit Agreement, the verification
of financial data or the transactions contemplated hereby, and the reasonable
fees and disbursements of Morgan, Lewis & Bockius LLP, counsel for Lender, and
any other counsel that Lender shall retain and (b) all reasonable out-of-pocket
expenses incurred by Lender in the enforcement or protection (as distinguished
from administration) of the rights and remedies of Lender in connection with
this Credit Agreement, the other Fundamental Documents or any notes evidencing
the Loans hereunder, or as a result of any transaction, action or non-action
arising from any of the foregoing, including but not limited to, the reasonable
fees and disbursements of any counsel for Lender. Such payments shall be made
on the date this Credit Agreement is executed by Borrower and thereafter on
demand. The Borrower agrees that it shall
indemnify Lender from and hold them harmless against any documentary
taxes, assessments or charges made by any Governmental Authority by reason of
the execution and delivery of this Credit Agreement or any notes evidencing any
of the Loans hereunder. The obligations of Borrower under this Section shall
survive the Facility Termination Date, the termination of this Credit Agreement
and the payment of the Loans.

35

 

     SECTION 7.5 Indemnity. The Borrower agrees to indemnify and hold harmless
Lender and its directors, officers, employees, trustees, investments advisors
and agents, and any professionals retained by them (each an “Indemnified
Party”) (to the full extent permitted by Applicable Law) from and against any
and all claims, demands, losses, judgments, damages and liabilities (including
liabilities for penalties) incurred by any of them as a result of, or arising
out of, or in any way related to, or by reason of, any investigation,
litigation or other proceeding (whether or not any Indemnified Party is a party
thereto) related to the entering into and/or performance of this Credit
Agreement or any other Fundamental Document or the use of the proceeds of any
Loans hereunder or the consummation of any other transaction contemplated in
this Credit Agreement or any other Fundamental Document, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses of an
Indemnified Party to the extent incurred by reason of the gross negligence or
willful misconduct of such Indemnified Party as determined by a final order or
judgment of a court of competent jurisdiction). The foregoing indemnity
agreement includes any reasonable costs incurred by an Indemnified Party in
connection with any action or proceeding which may be instituted in respect of
the foregoing by any other Person either against Lender or in connection with
which any officer or employee of Lender is called as a witness or deponent,
including, but not limited to, the reasonable fees and disbursements of Morgan,
Lewis & Bockius LLP, counsel to Lender, and any out-of-pocket costs incurred by
Lender in appearing as a witness or in otherwise complying with legal process
served upon them. The obligations of Borrower under this Section shall survive
the Facility Termination Date, the termination of this Credit Agreement and the
payment of the Loans and shall inure to the benefit of any Person who was a
Lender notwithstanding such Person’s assignment of all its Loans and its
Revolving Credit Commitment hereunder.

     If Borrower shall fail to do any act or thing which it has covenanted to
do hereunder or under a Fundamental Document, or any representation or warranty
of Borrower shall be breached, Lender may (but shall not be obligated to) upon
two Business Days’ notice to Borrower do the same or cause it to be done or
remedy any such breach, and there shall be added to the Obligations hereunder
the cost or expense incurred by Lender in so doing, and any and all amounts
expended by Lender in taking any such action shall be repayable to it upon its
demand therefor and shall bear interest at a rate per annum of 2% in excess of
the rate set forth in Section 1.10(a) from the date advanced to the date of
repayment.

     SECTION 7.6 CHOICE OF LAW. THIS CREDIT AGREEMENT, AND ANY NOTE EVIDENCING
ANY OF THE LOANS HEREUNDER, AND THE OTHER FUNDAMENTAL DOCUMENTS (EXCEPT AS MAY
BE OTHERWISE PROVIDED FOR THEREIN) SHALL IN ALL RESPECTS BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES AND BY FEDERAL LAW TO THE EXTENT APPLICABLE; PROVIDED, HOWEVER,
THAT WITH RESPECT TO ANY SECURITY DOCUMENT FILED IN A JURISDICTION OUTSIDE THE
STATE OF NEW YORK, THE LAWS OF SUCH JURISDICTION WHERE SUCH SECURITY DOCUMENT
WAS FILED SHALL APPLY.

36

 

     SECTION 7.7 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES, AND
COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
CREDIT AGREEMENT, THE SUBJECT MATTER HEREOF, ANY OTHER FUNDAMENTAL DOCUMENT OR
THE SUBJECT MATTER THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN CONTRACT OR TORT OR OTHERWISE. EACH PARTY HERETO
ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THE
PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH SUCH
OTHER PARTIES HAVE RELIED, ARE RELYING AND WILL RELY IN ENTERING INTO THIS
CREDIT AGREEMENT AND ANY OTHER FUNDAMENTAL DOCUMENT. ANY PARTY MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF ANY OTHER PARTY TO THE WAIVER OF ITS RIGHTS TO TRIAL
BY JURY.

     SECTION 7.8 WAIVER WITH RESPECT TO DAMAGES. THE BORROWER ACKNOWLEDGES
THAT THE LENDER HAS NO FIDUCIARY RELATIONSHIP WITH, OR FIDUCIARY DUTY TO, THE
BORROWER ARISING OUT OF OR IN CONNECTION WITH THIS CREDIT AGREEMENT OR ANY
OTHER FUNDAMENTAL DOCUMENT AND THE RELATIONSHIP BETWEEN THE BORROWER AND THE
LENDER IN CONNECTION THEREWITH IS SOLELY THAT OF DEBTOR AND CREDITOR. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER SHALL NOT ASSERT, AND THE
BORROWER HEREBY WAIVES, ANY CLAIMS AGAINST THE LENDER ON ANY THEORY OF
LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED
TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT
OF, THIS CREDIT AGREEMENT, ANY FUNDAMENTAL DOCUMENT, ANY AGREEMENT OR
INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.

     SECTION 7.9 No Waiver. No failure on the part of Lender to exercise, and
no delay in exercising, any right, power or remedy hereunder, under any note
evidencing any Loan hereunder, or any other Fundamental Document shall operate
as a waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.

     SECTION 7.10 Extension of Payment Date. Except as otherwise specifically
provided in Article 1 hereof, should any payment or prepayment of principal of
or interest on any of the Loans or any other amount due hereunder, become due
and payable on a day other than a Business Day, the due date of such payment or
prepayment shall be extended to the next

37

 

succeeding Business Day and, in the
case of a payment or prepayment of principal, interest shall be payable thereon
at the rate herein specified during such extension.

     SECTION 7.11 Amendments, etc. Unless otherwise specifically provided
herein any provision of this Credit Agreement may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by Borrower and
Lender.

     SECTION 7.12 Severability. Any provision of this Credit Agreement or of
any note evidencing any Loan hereunder which is invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without invalidating the remaining provisions hereof, and any such invalidity,
illegality or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

     SECTION 7.13 SERVICE OF PROCESS. EACH PARTY HERETO (EACH A “SUBMITTING
PARTY”) HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE COURTS OF
THE STATE OF NEW YORK IN NEW YORK COUNTY AND TO THE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK SITTING IN NEW YORK
COUNTY, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF
OR BASED UPON THIS CREDIT AGREEMENT (INCLUDING, BUT NOT LIMITED TO THE SUBJECT
MATTER HEREOF AND ANY OTHER FUNDAMENTAL DOCUMENT AND THE SUBJECT MATTER
THEREOF). EACH SUBMITTING PARTY TO THE EXTENT PERMITTED BY APPLICABLE LAW (A)
HEREBY WAIVES, AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE, OR
OTHERWISE, IN ANY SUCH SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN THE
ABOVE-NAMED COURTS, ANY CLAIM THAT IT IS NOT SUBJECT PERSONALLY TO THE
JURISDICTION OF SUCH COURTS, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
ATTACHMENT OR EXECUTION, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS
IMPROPER OR THAT THIS CREDIT AGREEMENT, THE SUBJECT MATTER HEREOF AND ANY OTHER
FUNDAMENTAL DOCUMENT OR THE SUBJECT MATTER THEREOF (AS APPLICABLE) MAY NOT BE
ENFORCED IN OR BY SUCH COURT AND (B) HEREBY WAIVES THE RIGHT TO ASSERT IN ANY
SUCH ACTION, SUIT OR PROCEEDING ANY OFFSETS OR COUNTERCLAIMS EXCEPT
COUNTERCLAIMS THAT ARE COMPULSORY OR OTHERWISE ARISE FROM THE SAME SUBJECT
MATTER. EACH SUBMITTING PARTY HEREBY CONSENTS TO SERVICE OF PROCESS BY MAIL AT
THE ADDRESS TO WHICH NOTICES ARE TO BE GIVEN TO IT PURSUANT TO SECTION 7.1
HEREOF. EACH SUBMITTING PARTY AGREES THAT ITS SUBMISSION TO JURISDICTION AND
CONSENT TO SERVICE OF PROCESS BY MAIL IS MADE FOR THE EXPRESS BENEFIT OF EACH
OF THE OTHER SUBMITTING PARTIES. FINAL JUDGMENT AGAINST ANY SUBMITTING PARTY IN ANY
SUCH ACTION, SUIT OR PROCEEDING SHALL BE CONCLUSIVE, AND MAY BE ENFORCED IN ANY
OTHER JURISDICTION (X) BY SUIT, ACTION OR PROCEEDING ON THE JUDGMENT, A
CERTIFIED OR TRUE COPY OF WHICH

38

 

SHALL BE CONCLUSIVE EVIDENCE OF THE FACT AND OF
THE AMOUNT OF INDEBTEDNESS OR LIABILITY OF THE SUBMITTING PARTY THEREIN
DESCRIBED OR (Y) IN ANY OTHER MANNER PROVIDED BY OR PURSUANT TO THE LAWS OF
SUCH OTHER JURISDICTION.

     SECTION 7.14 Headings. Section headings used herein and the Table of
Contents are for convenience only and are not to affect the construction of or
be taken into consideration in interpreting this Credit Agreement.

     SECTION 7.15 Execution in Counterparts. This Credit Agreement may be
executed in any number of counterparts, each of which shall constitute an
original, but all of which taken together shall constitute one and the same
instrument. Signature pages may be detached from counterpart documents and
reassembled to form duplicate executed originals. Delivery of an executed
signature page to this Credit Agreement by facsimile shall be as effective as
delivery of a manually executed counterpart of this Credit Agreement.

     SECTION 7.16 Confidentiality. The Lender understands that some of the
information furnished to it pursuant to this Credit Agreement may be received
by it prior to the time that such information shall have been made public, and
Lender hereby agrees that it will keep all the information received by it in
connection with this Credit Agreement confidential except that Lender shall be
permitted to disclose information (i) to such of its officers, directors,
employees, agents, representatives, auditors, consultants, advisors, trustees,
investments advisors, lawyers and affiliates as need to know such information
in connection with this Credit Agreement or any other Fundamental Document;
(ii) to a proposed assignee or participant in accordance with Section 7.3(f)
hereof; (iii) to the extent required by Applicable Law and regulations or by
any subpoena or other legal process (in any which event Lender shall promptly
notify Borrower to the extent not prohibited by Applicable Law); (iv) to the
extent requested by any bank regulatory authority or other regulatory
authority; (v) to the extent such information (A) becomes publicly available
other than as a result of a breach of this Credit Agreement, (B) becomes
available to Lender on a nonconfidential basis from a source other than
Borrower or any of its Affiliates, which source is not known to Lender to be
prohibited from transmitting the information to Lender by any contractual or
other obligation to Borrower or (C) was available to Lender on a
nonconfidential basis prior to its disclosure to Lender; (vi) to the extent
Borrower shall have consented to such disclosure in writing; or (vii) in
connection with the servicing of the Loans hereunder, in protecting or
enforcing any rights and/or remedies in connection with any Fundamental
Document or in any proceeding in connection with any Fundamental Document or
any of the transactions contemplated thereby.

     SECTION 7.17 Entire Agreement. This Credit Agreement (including the
Exhibits and Schedules hereto) represents the entire agreement of the parties
with regard to the subject matter hereof and the terms of any letters and other
documentation entered into between any of the parties hereto (other than the
Commitment Letter) prior to the execution
of this Credit Agreement which relate to Loans to be made hereunder shall
be replaced by the terms of this Credit Agreement.

     SECTION 7.18 Enforcement of Rights; No Obligation to Marshall Assets. In
enforcing any rights under this Credit Agreement or any other Fundamental
Document, Lender

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shall not be required to resort to any particular security,
right or remedy through foreclosure or otherwise, or to proceed in any
particular order of priority, or to otherwise act or refrain from acting; and,
to the extent permitted by Applicable Law, Borrower hereby waives and releases
any right to a marshaling of assets or a sale in inverse order of alienation.

     SECTION 7.19 Reproduction of Documents. The Credit Agreement, all
documents constituting Schedules or Exhibits hereto, and all documents relating
hereto received by a party hereto, including, without limitation: (a)
consents, waivers and modifications that may hereafter be executed; (b) the
Fundamental Documents; and (c) financial statements, certificates, and other
information previously or hereafter furnished to Lender may be reproduced by
Lender by any photographic, photostatic, microfilm, micro-card, miniature
photographic or other similar process. Each of the parties hereto agrees and
stipulates that, to the extent permitted by Applicable Law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by such party in the
regular course of business) and that, to the extent permitted by applicable
law, any enlargement, facsimile, or further reproduction of such reproduction
shall likewise be admissible in evidence.

     SECTION 7.20 Right of Set-Off. Upon the occurrence and during the
continuance of any Event of Default, Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law and without order
of or application to any court, to set-off and apply any and all deposits
(general or special, time or demand, provisional or final, but excluding trust
funds) at any time held and other indebtedness at any time owing by Lender to
or for the credit or the account of Borrower against any and all of the
Obligations, irrespective of whether or not Lender shall have made any demand
under any Fundamental Document and although the Obligations may not have been
accelerated. The rights of Lender under this Section are in addition to other
rights and remedies which Lender may have upon the occurrence and during the
continuance of any Event of Default.

8. GRANT OF SECURITY INTEREST; REMEDIES

     SECTION 8.1 Security Interests. (a) As security for the due and
punctual payment of the Obligations (including interest accruing on and after
the filing of any petition in bankruptcy or of reorganization of Borrower
whether or not post filing interest is allowed in such proceeding), Borrower
hereby mortgages, pledges, assigns, transfers, sets over, conveys and delivers
to Lender and grants to Lender (i) a first priority security interest in the
Collateral (other than the Additional Property pending the satisfaction by
Borrower or waiver by Lender of the condition subsequent set forth in Section
7(b) of the First Amendment and, if satisfied, to the extent that the
Additional Property is subject to an existing first priority mortgage) and the
proceeds thereof, including, without limitation, the
Assigned Lease Proceeds and (ii) from and after the First Amendment
Effective Date, a security interest in the Inventory Collateral and the
proceeds thereof.

     (b)  It is expressly agreed and understood by Borrower that, with respect
to the Assigned Lease Proceeds, the foregoing security interests shall apply to
any future sale of the underlying lease whether such underlying lease is sold
individually or as a package, whether sold

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as part of a merger or consolidation
or “going concern” sale of Borrower or its assets, and whether sold pursuant to
Section 363 or Section 365 of the Bankruptcy Code or otherwise. It is further
expressly agreed and understood by Borrower that the Lien and security interest
granted by Borrower to Lender herein in the Assigned Lease Proceeds shall also
apply and be fully enforceable in any future or subsequent bankruptcy filing by
Borrower under Chapter 7 or 11 of the Bankruptcy Code and in any bankruptcy
court as well as in Borrower’s existing bankruptcy case in the Bankruptcy
Court.

     (c)  It is the express intention of Borrower that Lender be treated in all
respects as a secured lender in any subsequent bankruptcy case of Borrower
under Chapter 7 or 11 and in any bankruptcy court and that Lender be treated as
a secured creditor under Section 506 of the Bankruptcy Code with a duly
perfected Lien and mortgage in all of Borrower’s Collateral and the proceeds
thereof, regardless of whether any such Collateral or any proceeds thereof is
conveyed under Section 363 or 365 of the Bankruptcy Code or by any other means
including, but not limited to, any secured creditor sale.

     (d)  Any Assigned Lease Proceeds received by Borrower shall be immediately
paid to Lender, provided, however, that prior to such payment, such Assigned
Lease Proceeds shall (i) be deemed at all times to be held by Borrower in trust
for the benefit of Lender, (ii) be deposited in the Kimco Collateral Account,
and (iii) at no time be deposited or held in either the Concentration Account
(as defined in the Working Capital Facility) or any deposit account whose
balances are transferred to such Concentration Account under the Working
Capital Facility.

     (e) It is the express intention of Borrower and Lender that all of
Lender’s rights with respect to its security interest in and to Inventory
Collateral be, and are hereby made, subject to the terms and conditions of the
Intercreditor Agreement.

     SECTION 8.2 Use of Collateral. So long as no Event of Default shall have
occurred and be continuing, and subject to the various provisions and
limitations of this Credit Agreement and the other Fundamental Documents,
Borrower may use the Collateral and (from and after the First Amendment
Effective Date) the Inventory Collateral in any lawful manner and as permitted
by the provisions of this Credit Agreement and the other Fundamental Documents.

     SECTION 8.3 Borrower to Hold in Trust. Upon the occurrence and during the
continuance of an Event of Default, Borrower will, upon receipt by it of any
revenue, income, proceeds, profits or other sums in which a security interest
is granted by this Article 8 or by the other Fundamental Documents, payable
pursuant to any agreement or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the sum or instrument in trust for Lender, segregate such sum or
instrument from
Borrower’s own assets (including segregation from any Concentration
Account (as defined in the Working Capital Facility) and any deposit account
whose balances are transferred to such Concentration Account) by, in the case
of any such sum, depositing same into the Kimco Collateral Account and
forthwith, without any notice, demand or other action whatsoever (all notices,
demands, or other actions being expressly waived), endorse, transfer and
deliver any

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such sums or instruments or both, to Lender to be applied to the
repayment of the Obligations in accordance with the provisions of this Credit
Agreement.

     SECTION 8.4 Application of Proceeds on Default. Upon the occurrence and
during the continuance of an Event of Default, all income and/or proceeds from
the Collateral and (from and after the First Amendment Effective Date)
Inventory Collateral shall be applied first toward payment of the reasonable
out-of-pocket costs and expenses paid or incurred by Lender in enforcing this
Credit Agreement or the other Fundamental Documents, in realizing on or
protecting any Collateral and (from and after the First Amendment Effective
Date) Inventory Collateral and in enforcing or collecting any Obligations,
including, without limitation, court costs, reasonable attorneys’ fees and
expenses and reasonable financial consultants’ fees incurred by Lender and then
to the indefeasible payment in full in cash of the Obligations in accordance
with the provisions of this Credit Agreement. Any amounts remaining after such
indefeasible payment in full shall be remitted to Borrower or as a court of
competent jurisdiction may otherwise direct.

     SECTION 8.5 Power of Attorney. Upon the occurrence and during the
continuance of an Event of Default (a) Borrower does hereby irrevocably make,
constitute and appoint Lender or any of its officers or designees its true and
lawful attorney-in-fact with full power in the name of Lender, such other
Person or Borrower to receive, open and dispose of all mail addressed to
Borrower, and to endorse any notes, checks, drafts, money orders or other
evidences of payment relating to the Collateral and (from and after the First
Amendment Effective Date) Inventory Collateral that may come into the
possession of Lender with full power and right to cause the mail of such
Persons to be transferred to Lender’s own offices or otherwise, and to do any
and all other acts necessary or proper to carry out the intent of this Credit
Agreement and the grant of the security interests hereunder and under the
Fundamental Documents, and Borrower does hereby ratify and confirm all that
Lender or its substitutes shall properly do by virtue hereof, and (b) Borrower
does hereby further irrevocably make, constitute and appoint Lender or any of
its officers or designees its true and lawful attorney-in-fact in the name of
Lender, such other Person or Borrower (i) to enforce all of Borrower’s rights
under and pursuant to all agreements with respect to the Collateral and (from
and after the First Amendment Effective Date) Inventory Collateral, all for the
sole benefit of Lender, (ii) to enter into and perform such agreements as may
be necessary in order to carry out the terms, covenants and conditions of the
Fundamental Documents that are required to be observed or performed by
Borrower, (iii) to execute such other and further mortgages, pledges and
assignments of the Collateral and (from and after the First Amendment Effective
Date) Inventory Collateral, and related instruments or agreements, as Lender
may reasonably require for the purpose of perfecting, protecting, maintaining
or enforcing the security interests granted to Lender hereunder and under the
other Fundamental Documents, and (iv) to do any and all other things necessary
or proper to carry out the intention of this Credit Agreement and the grant of
the security interests hereunder and under the other Fundamental Documents. The
Borrower
hereby ratifies and confirms in advance all that Lender as such
attorney-in-fact or its substitutes shall properly do by virtue of this power
of attorney in accordance with the terms hereof.

     SECTION 8.6 Financing Statements, Direct Payments. The Borrower hereby
authorizes Lender to file UCC financing statements and any amendments thereto
or continuations thereof and any other appropriate security documents or
instruments and to give

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any notices necessary or desirable to perfect its Lien
on the Collateral and (from and after the First Amendment Effective Date)
Inventory Collateral and proceeds thereof, in all cases without the signature
of Borrower or to execute such items as attorney-in-fact for Borrower;
provided, that Lender shall provide copies of any such documents or instruments
to Borrower. The Borrower further authorizes Lender upon the occurrence of a
default under Article 6(b) or Article 6(c) hereof, and during the continuation
of any such default, to notify any tenants that all sums payable to Borrower
relating to the Collateral shall be paid directly to Lender.

     SECTION 8.7 Further Assurances. Upon the request of Lender, Borrower
hereby authorizes Lender to file UCC financing statements and any amendments
thereto or continuations thereof and any other appropriate security documents
or instruments and to give any notices necessary or desirable to perfect its
Lien on the Collateral and (from and after the First Amendment Effective Date)
Inventory Collateral and proceeds thereof, in all cases without the signature
of Borrower or to execute such items as attorney-in-fact for Borrower;
provided, however that Lender shall provide copies of any such documents or
instruments to Borrower. The Borrower further authorizes Lender upon the
occurrence of a default under Article 6(b) or Article 6(c) hereof, and during
the continuation of any such default, to notify any tenants that all sums
payable to Borrower relating to the Collateral and (from and after the First
Amendment Effective Date) Inventory Collateral shall be paid directly to
Lender.

     SECTION 8.8 Termination and Release. (a) The security interests granted
under this Article 8 shall terminate on the Facility Termination Date. Upon
request by Borrower (and at its sole expense) following such termination,
Lender will take all reasonable action and do all things reasonably necessary,
including executing UCC termination statements, to terminate the security
interest granted to it hereunder and under the other Fundamental Documents.

     (b)  Upon the written request of Borrower, Lender shall at the sole cost
and expense of Borrower release its security interest, if any, in any
Collateral or Inventory Collateral sold, transferred or otherwise disposed of
by Borrower to the extent such sale, transfer or other disposition is permitted
by, and made in accordance with the terms of, this Credit Agreement.

     (c)  Upon payment in full of all of the Obligations and termination of the
Commitments (except by reason of the occurrence and continuance of an Event of
Default and the exercise of any remedies hereunder or under any other
Fundamental Document), deliver in recordable form upon the written request of
Borrower, at Borrower’s expense, to the person or entity making such payment,
at the election of such person or entity, either (i) (x) satisfactions of
Mortgage, or ([ii]y) if permitted by applicable law, an assignment without
recourse representation or warranty, of its right, title and interest in Mortgages,
and (ii) UCC termination statements with respect to the Inventory Collateral,
Assigned Lease Proceeds, other Collateral constituting cash and Proceeds
thereof.

     SECTION 8.9 Remedies Not Exclusive. The remedies conferred upon or
reserved to Lender in this Article 8 are intended to be in addition to, and not
in limitation of, any other remedy or remedies available to Lender under this
Credit Agreement, the other Fundamental Documents and applicable law. Without
limiting the generality of the foregoing,

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Lender shall have all rights and
remedies of a secured creditor under Article 9 of the UCC and under any other
Applicable Law.

     SECTION 8.10 Continuation and Reinstatement. The Borrower further agrees
that the security interest granted hereunder shall continue to be effective or
be reinstated, as the case may be, if at any time payment or any part thereof
of any Obligation is rescinded or must otherwise be restored by Lender upon the
bankruptcy or reorganization of Borrower or otherwise.

9. DEFINITIONS

     For the purposes hereof unless the context otherwise requires, all
references to Sections, Exhibits and Schedules shall be deemed references to
Sections of, and Exhibits and Schedules to, this Credit Agreement. The
following terms shall have the meanings indicated. All accounting terms not
otherwise defined herein shall have the respective meanings accorded to them
under GAAP and all terms defined in the UCC and not otherwise defined herein
shall have the respective meanings accorded to them therein. Whenever the
context may require, any pronoun shall include the masculine, feminine and
neuter forms. Unless the context otherwise requires, any of the following
terms may be used in the singular or the plural, depending on the reference:

     “Accounting Period” shall mean a four-week calendar period within a fiscal
year of Borrower with the first such period commencing on the first day of a
fiscal year and each subsequent such four-week calendar period commencing at
the end of the immediately preceding period such that there are thirteen
four-week periods in each fiscal year, provided, that the thirteenth such
period of any fiscal year may be a five-week period.

     “Additional Property” shall have the meaning given to such term in the
First Amendment.

     “Additional Warrant Agreement” shall mean that certain Stock Purchase
Warrant, dated as of January 23, 2003, and issued to Kimco Realty Services,
Inc.

     “Affiliate” shall mean with respect to any Person (including Borrower),
any other Person which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, a Person shall be deemed to be “controlled by” another Person if
such latter Person possesses, directly or indirectly, power either to (i) vote
fifteen percent (15%) or more of the securities or other ownership interests
having ordinary voting power for the election of directors (or the equivalent)
of such controlled Person or (ii) direct or cause the direction of the management and policies of such
controlled Person whether by contract or otherwise. For purposes of this
definition, neither Lender nor any of its affiliates shall be included in the
definition of the term “Affiliate” hereunder.

     “Affiliated Group” shall mean a group of Persons, each of which is an
Affiliate of some other Person in the group.

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     “Applicable Law” shall mean all applicable provisions of statutes, rules,
regulations and orders of the United States, any state thereof or municipality
therein or of any foreign governmental body or of any regulatory agency
applicable to the Person in question, and all orders and decrees of all courts
and arbitrators in proceedings or actions in which the Person in question is a
party.

     “Assigned Lease Proceeds” shall mean the proceeds of any assignment, sale,
lease or sublease or any other conveyance or transfer of any of the Leased
Properties and any of the other properties listed on Schedule 2.14(b). For the
avoidance of doubt, “Assigned Lease Proceeds” specifically includes any
proceeds from any future assignment, sale, lease or sublease or any other
conveyance or transfer of any of such leases whether assigned, sold, leased or
subleased individually or as a package with other assets, whether assigned,
sold, leased or subleased as part of a merger or consolidation or “going
concern” sale of Borrower or any of Borrower’s assets, and whether assigned,
sold, leased or subleased or otherwise conveyed or transferred pursuant to
Section 363 or Section 365 of the Bankruptcy Code or otherwise in any future or
subsequent bankruptcy filing by Borrower under Chapter 7 or 11 of the
Bankruptcy Code and in any bankruptcy court as well as in Borrower’s existing
bankruptcy case in the Bankruptcy Court.

     “Authorized Officer” shall mean, with respect to Borrower, the president,
vice president, chief financial officer, chief accounting officer, secretary or
treasurer.

     “Bankruptcy Code” shall mean the Bankruptcy Reform Act of 1978, as
heretofore and hereafter amended, as codified at 11 U.S.C. § 101 et seq.

     “Bankruptcy Court” shall mean the United States Bankruptcy Court for the
District of Maryland (Baltimore Division).

     “Borrower” shall have the meaning given to such term in the initial
paragraph of this Credit Agreement.

     “Borrowing” shall mean a Loan or group of Loans of the same Tranche.

     “Borrowing Certificate” shall mean a borrowing certificate, substantially
in the form of Exhibit A hereto, to be delivered by Borrower to Lender in
connection with each Borrowing.

     “Business Day” shall mean any day other than a Saturday, Sunday or other
day on which banks are required or permitted to close in the State of New York.

     “Capital Lease”, as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
accordance with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.

     “Capital Stock” shall mean (i) with respect to corporate stock, any and
all shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) corporate stock,
including without limitation, any Preferred Stock or (ii) with respect to any
other evidence of beneficial ownership of any entity which is not a

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corporation, any and all partnership interests or any other equity interests or
evidences of beneficial ownership, rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated) a
partnership interest or other equity interest or evidence of beneficial
ownership.

     “Closing Date” shall mean the date on which the conditions precedent set
forth in Section 3.1 hereof have been satisfied or waived.

     “Code” shall mean the Internal Revenue Code of 1986, as heretofore and
hereafter amended, as codified at 26 U.S.C. § 1 et seq., and the applicable
regulations promulgated thereunder, or any successor provision thereto.

     “Collateral” shall mean, collectively, the Mortgaged Property, each Fee
Property, each Leased Property, the Assigned Lease Proceeds, the Kimco
Collateral Account and all funds deposited or held therein and (from and after
the date on which the condition subsequent set forth in Section 7(b) of the
First Amendment has been satisfied) the Additional Property, and all of the
proceeds of any kind of the foregoing.

     “Commitment” shall mean any of the commitments of Lender to make Loans,
i.e., whether the Term Loan Commitment or the Revolving Credit Commitment.

     “Commitment Letter” means that certain letter agreement, dated February 8,
2002, between Lender and Borrower.

     “Common Stock” shall have the meaning given to such term in Section 2.18.

     “Congress” shall mean Congress Financial Corporation (Central).

     “Credit Agreement” shall have the meaning given to such term in the
initial paragraph of this agreement.

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

     “Dollars” and “$” shall mean lawful money of the United States of America.

     “Eligible Assignee” shall mean any (x) Affiliate of Lender or (y)
commercial bank, insurance company, investment or mutual fund or other entity
with assets of at least $100,000,000 that is an “accredited investor” (as
defined in Regulation D under the Securities
Act) and which extends credit, buys loans and is in the business of
lending as one of its businesses.

     “Environment” shall mean any surface or subsurface water, groundwater,
water vapor, surface or subsurface land, air, fish, wildlife, microorganisms
and all other natural resources.

     “Environmental Claim” shall mean any and all administrative or judicial
actions, suits, orders, claims, liens, notices, notices of violations,
investigations, complaints, requests for

46

 

information, proceedings, or other
written communication, whether criminal or civil, pursuant to or relating to
any applicable Environmental Law by any Person (including, but not limited to,
any Governmental Authority, private person and citizens’ group) based upon,
alleging, asserting, or claiming any actual or potential (i) violation of or
liability under any Environmental Law, (ii) violation of any Environmental
Permit, or (iii) liability for investigatory costs, cleanup costs, removal
costs, remedial costs, response costs, natural resource damages, damage,
property damage, personal injury, fines, or penalties arising out of, based on,
resulting from, or related to the presence, Release, or threatened Release into
the Environment, of any Hazardous Materials at any location, including, but not
limited to, any Premises or any location other than any Premises to which
Hazardous Materials or materials containing Hazardous Materials were sent for
handling, storage, treatment, or disposal.

     “Environmental Clean-up Site” shall mean any location which is listed or
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on
any similar state list of sites requiring investigation or cleanup, or which is
the subject of any pending action, suit, proceeding, or investigation related
to or arising from a Release, or a threatened or suspected Release of a
Hazardous Material.

     “Environmental Laws” shall mean any and all applicable federal, state,
local or municipal or foreign laws, rules, orders, regulations, statutes,
ordinances, codes, common law doctrines, decrees or enforceable requirements of
any Governmental Authority regulating, relating to, or imposing liability or
standards of conduct concerning, any Hazardous Material or environmental
protection or worker health and safety, as now or at any time hereafter in
effect, including without limitation, the Clean Water Act also known as the
Federal Water Pollution Control Act (“FWPCA”), 33 U.S.C. § 1251 et seq., the
Clean Air Act (“CAA”), 42 U.S.C. §§ 7401 et seq., the Federal Insecticide,
Fungicide and Rodenticide Act (“FIFRA”), 7 U.S.C. §§ 136 et seq., the Surface
Mining Control and Reclamation Act (“SMCRA”), 30 U.S.C. §§ 1201 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act
(“CERCLA”), 42 U.S.C. § 9601 et seq., the Superfund Amendment and
Reauthorization Act of 1986 (“SARA”), Public Law 99-499, 100 Stat. 1613, the
Emergency Planning and Community Right to Know Act (“EPCRA”), 42 U.S.C. § 11001
et seq., the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901
et seq., the Occupational Safety and Health Act as amended (“OSHA”), 29 U.S.C.
§ 655 and § 657, together, in each case, with any amendment thereto, and the
regulations adopted and the publications promulgated thereunder and all
substitutions thereof.

     “Environmental Permit” shall mean any federal, state, local, provincial,
or foreign permits, licenses, approvals, consents or authorizations required by
any Governmental Authority under or in connection with any Environmental Law.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
heretofore and hereafter amended, as codified at 29 U.S.C. § 1001 et seq., and
applicable regulations promulgated thereunder, or any successor provision
thereto.

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     “ERISA Affiliate” shall mean each Person (as defined in Section 3(9) of
ERISA) which is treated as a single employer with Borrower under Section
414(b), (c), (m) or (o) of the Code.

     “Event of Default” shall have the meaning given to such term in Article 6
hereof.

     “Extension Fee” shall have the meaning given to such term in Section
1.4(c) hereof.

     “Extension Period” shall have the meaning given to such term in Section
1.4(c) hereof.

     “Facility Termination Date” shall mean the date on which all of the
Obligations have been indefeasibly paid in full in cash and the Revolving
Credit Commitment and the Term Loan Commitment have been permanently terminated
in their entirety.

     “Fee Property” shall mean each property identified on Schedule 2.14(a).

     “Fees” shall mean all fees payable pursuant to the terms of this Credit
Agreement.

     “Final Order” shall mean an order or judgment of the Bankruptcy Court, or
other court of competent jurisdiction with respect to the subject matter, as to
which no stay has been entered and which has not been reversed, modified,
vacated or overturned and as to which the time to appeal or to seek certiorari
has expired and no appeal or petition for certiorari is pending that (i) would
be material, (ii) related to this Credit Agreement or the Working Capital
Facility or (iii) related to the Plan of Reorganization.

     “First Amendment” shall mean that certain First Amendment and Waiver to
Credit and Security Agreement, dated as of January 23, 2003, between Borrower
and Lender.

     “First Amendment Effective Date” shall mean the date on which all of the
conditions to the effectiveness of the First Amendment shall have been
satisfied or waived.

     “Fundamental Documents” shall mean this Credit Agreement, the Warrant
Agreement, the Additional Warrant Agreement, any note issued to evidence any
Loan hereunder, each Mortgage and each of the other Security Documents, the
[Post-Closing]Intercreditor [Undertaking]Agreement and any other documentation
which is required to be or is otherwise executed by Borrower and delivered in
connection with this Credit Agreement or any of the other documents listed in
this definition.

     “GAAP” shall mean generally accepted accounting principles in the United
States of America as in effect from time to time, consistently applied (except
for accounting changes in response to FASB releases, or other authoritative
pronouncements).

     “Governmental Authority” shall mean any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
or any court, in each case whether of the United States or any foreign
jurisdiction.

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     “Guaranty” shall mean, as to any Person, any direct or indirect obligation
of such Person guaranteeing or intending to guarantee, or otherwise providing
credit support, for any Indebtedness, Capital Lease, dividend or other monetary
obligation (“primary obligation”) of any other Person (the “primary obligor”)
in any manner, whether directly or indirectly, by contract, as a general
partner or otherwise, including, without limitation, any obligation of such
Person, whether or not contingent, (a) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (b) to
advance or supply funds (i) for the purchase or payment of any such primary
obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, or (c) to purchase property, securities or services from the primary
obligor or other Person, in each case, primarily for the purpose of assuring
the performance of the primary obligor of any such primary obligation or
assuring the owner of any such primary obligation of the repayment of such
primary obligation. The amount of any Guaranty shall be deemed to be an amount
equal to (x) the stated or determinable amount of the primary obligation in
respect of which such Guaranty is made (or, if the amount of such primary
obligation is not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder)) or (y) the stated maximum liability under such Guaranty, whichever
is less.

     “Hazardous Materials” shall mean any chemicals, materials, substances or
wastes in any amount or concentration which are now or hereafter become defined
as or included in the definition of “hazardous substances,” “hazardous
materials,” “hazardous wastes,” “extremely hazardous wastes,” “restricted
hazardous wastes,” “toxic substances,” “toxic pollutants,” “pollutants,”
“regulated substances,” “solid wastes,” or “contaminants” or words of similar
import, under any Environmental Law, including petroleum, petroleum
hydrocarbons or petroleum products, petroleum by-products, radioactive
materials, asbestos or asbestos-containing materials, gasoline, diesel fuel,
pesticides, radon, urea formaldehyde, lead or lead-containing materials,
polychlorinated biphenyls.

     “Indebtedness” shall mean (without duplication), at any time and with
respect to any Person, (i) indebtedness of such Person for borrowed money
(whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables arising in the ordinary course of business and
payable in accordance with customary trading terms); (ii) all indebtedness of
such Person evidenced by a note, bond, debenture or similar instrument (whether
or not disbursed in full in the case of a construction loan); (iii)
indebtedness of others which such Person has directly or indirectly assumed or
guaranteed or otherwise provided credit support therefor; (iv) indebtedness of
others secured by a Lien on assets of such Person, whether or not such Person
shall have assumed such indebtedness (provided, that if such Person has not
assumed such
indebtedness of another Person then the amount of indebtedness of such
Person pursuant to this clause (iv) for purposes of this Credit Agreement shall
be equal to the lesser of the amount of the indebtedness of the other Person or
the fair market value of the assets of such Person which secures such other
indebtedness); (v) obligations of such Person in respect of letters of credit,
acceptance facilities, or drafts or similar instruments issued or accepted by
banks and other financial institutions for the account of such Person; (vi) any
Guaranty by such Person; (vii) obligations of such Person under Capital Leases;
(viii) all obligations of such Person under any

49

 

Interest Rate Protection
Agreement; and (ix) deferred payment obligations of such Person resulting from
the adjudication or settlement of any litigation.

     “Initial Maturity Date” shall mean the third anniversary of the Closing
Date.

     “Intercreditor Agreement” shall mean that certain Intercreditor Agreement
dated as of January 23, 2003, by Borrower, Lender and Congress a copy of which
is attached hereto as Exhibit E.

     “Interest Deficit” shall have the meaning given to such term in Section
1.12 hereof.

     “Interest Rate Protection Agreement” shall mean any interest rate swap
agreement, interest rate cap agreement, synthetic cap, collar or floor or other
financial agreement or arrangement designed to protect Borrower against
fluctuations in interest rates or to reduce the effect of any such
fluctuations.

     “Inventory Collateral” shall mean all of Borrower’s now owned or hereafter
existing or acquired goods, wherever located, which (a) are leased by Borrower
as lessor, (b) are held by Borrower for sale or lease or to be furnished under
a contract of service, (c) are furnished by Borrower under a contract of
service or (d) consist of raw materials, works in process, finished goods or
materials used or consumed in its business.

     “Kimco Collateral Account” shall have the meaning given to such term in
Section 4.15.

     “Leased Property” shall mean each property identified on Schedule 2.14(b)
with an asterisk.

     “Lender” shall have the meaning given to such term in the initial
paragraph of this Credit Agreement.

     “License” shall have the meaning given to such term in Section 5.1(e).

     “Lien” shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any agreement to grant a
security interest at a future date, any lease in the nature of security, and
the filing of, or agreement to give, any financing statement under the Uniform
Commercial Code of any jurisdiction).

     “Loans” shall mean, collectively, the Term Loan and the Revolving Credit
Loans. A “Loan” shall mean any one of such Loans individually.

     “Material Adverse Effect” shall mean any event or condition that (i) has a
material adverse effect on the business, assets, properties, performance,
operations, condition (financial or otherwise) of Borrower, (ii) materially
impairs the ability of Borrower to perform its respective obligations under any
Fundamental Document to which it is or will be a party or (iii) materially and
adversely affects the Liens granted to Lender or materially impairs the
validity or

50

 

enforceability of, or materially impairs the rights, remedies or
benefits available to Lender; provided, however, that any event or condition
will be deemed to have a “Material Adverse Effect” if such event or condition
when taken together with all other events and conditions occurring or in
existence at such time (including all other events and conditions which, but
for the fact that a representation, warranty or covenant is subject to a
“Material Adverse Effect” exception, would cause such representation or
warranty contained herein to be untrue or such covenant to be breached) would
result in a “Material Adverse Effect”, even though, individually, such event or
condition would not do so.

     “Mortgage” shall mean a Mortgage, Open End Mortgage, Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Financing Statement,
substantially in the form of Exhibit B hereto, executed and delivered by
Borrower to Lender for each Fee Property[
and], each Leased Property and the
Additional Property, and in each case, as such document may be amended, amended
and restated, supplemented or otherwise modified, renewed or replaced from time
to time.

     “Mortgaged Property” shall have the meaning given to such term in the
Mortgages with respect to each Fee Property[
and], each Leased Property and the
Additional Property.

     “Multiemployer Plan” shall mean a plan described in Section 4001(a)(3) of
ERISA to which Borrower or ERISA Affiliate is making or accruing an obligation
to make contributions, or has within any of the five (5) preceding plan years
made or accrued an obligation to make contributions.

     “Net Cash Proceeds” shall mean (a) the aggregate cash proceeds received by
Borrower in a transaction permitted under Section 5.3 hereof (including,
without limitation, as applicable, all cash proceeds received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received) and minus (b) the sum of (i)
reasonable and customary brokerage commissions and other reasonable and
customary fees and direct expenses (including reasonable and customary fees and
expenses of counsel and investment bankers actually paid by Borrower) related
to such transaction, (ii) payments made to retire Indebtedness (other than the
Loans) secured by any assets being sold or otherwise disposed of where payment
of such Indebtedness is required in connection with such sale or disposition,
(iii) reasonable reserves for indemnification obligations and (iv) taxes
payable in connection with such transaction; provided, that with respect to
taxes, expenses shall only include taxes to the extent that taxes are payable
in cash in the current year or in the next succeeding year with respect to the
current year as a direct result of the applicable transaction.

     “Obligations” shall mean (a) all obligations, whether direct or indirect,
contingent or absolute, of every type or description and at any time existing,
of Borrower to make due and punctual payment of principal of and all interest
on the Loans, the Fees, costs and attorneys’ fees and all other monetary
obligations of Borrower to Lender under or in respect of this Credit Agreement,
any note evidencing any of the Loans hereunder, any other Fundamental Document,
and (b) all other obligations of Borrower pursuant to this Credit Agreement or
any other Fundamental Document.

51

 

     “PBGC” shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.

     “Permitted Liens” shall mean Liens permitted under Section 5.2 hereof.

     “Person” shall mean any natural person, corporation, division of a
corporation, partnership, limited liability partnership, limited liability
company, trust, joint venture, association, company, estate, unincorporated
organization or government or any agency or political subdivision thereof.

     “Plan” shall mean an employee pension benefit plan within the meaning of
Section 3(2) of ERISA, other than a Multiemployer Plan, maintained or
contributed to by Borrowers, or any ERISA Affiliate, or otherwise pursuant to
which Borrowers could have liability.

     “Plan of Reorganization” shall mean the plan of reorganization filed with
the Bankruptcy Court and confirmed by the order dated May 7, 2002 (as amended)
with respect to those certain cases pending under Chapter 11 of the Bankruptcy
Code in the District of Maryland (Baltimore Division) filed by (i) Borrower
(Case No. 01-52415-JS) and (ii) FNC Holdings, Inc. (Case No. 01-52416-JS),
which cases are jointly administered, together with such amendments as may be
approved by Lender.

     “Post-Closing Undertaking” shall mean that certain Post-Closing
Undertaking, dated as of the date hereof, between Lender and Borrower.

     “Preferred Stock” shall mean Capital Stock of any class or classes
(however designated) which is preferred as to the payment of dividends, or as
to the distribution of assets upon any voluntary or involuntary liquidation or
dissolution of the issuer thereof, over shares of Capital Stock of any other
class of such issuer.

     “Premises” shall mean any real property currently or formerly owned,
leased or operated by Borrower, including, but not limited to, all soil,
surface water, or groundwater thereat.

     “Refinancing Indebtedness” shall have the meaning given to such term in
Section 5.2(j).

     “Release” shall mean any discharging, disposing, emitting, leaking,
pumping, pouring, emptying, injecting, escaping, leaching, dumping or spilling
of any Hazardous Material into the Environment.

     “Reportable Event” shall mean any reportable event as defined in Section
4043(c) of ERISA other than those events as to which the 30-day notice period
is waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section
4043.

     “Requirements” shall mean all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, injunctions, rules, regulations and
requirements of every Governmental Authority having jurisdiction over any item
of Collateral and Inventory

52

 

Collateral and all restrictive covenants applicable
to any item of Collateral and Inventory Collateral.

     “Revolving Credit Commitment” shall mean the commitment of Lender to make
Revolving Credit Loans to Borrower from the Closing Date through the Revolving
Credit Commitment Termination Date up to an aggregate principal amount, at any
one time, not in excess of $[10,000,000,]20,000,000, as such amount may be
reduced from time to time in accordance with the terms of this Credit
Agreement.

     “Revolving Credit Commitment Termination Date” shall mean the earlier of
(i) the Revolving Credit Loan Maturity Date, and (ii) the date on which the
Revolving Credit Commitment shall terminate in accordance with Section 1.7 or
Article 6 hereof.

     “Revolving Credit Loan Maturity Date” shall mean the later of (i) the
Initial Maturity Date and (ii) the date to which such date is extended in
accordance with Section 1.4(c) hereof.

     “Revolving Credit Loans” shall have the meaning given to such term in
Section 1.2(a) hereof.

     “Security Documents” shall mean the Mortgages and any other agreements,
documents or instruments (including, without limitation, UCC financing
statements or other statements or filings pursuant to the UCC or Applicable
Law, as well as any amendments, supplements or modifications thereto) executed
in connection with or relating to Lender’s security interest in the Collateral
and (from and after the First Amendment Effective Date) Inventory Collateral.

     “Subsidiary” shall mean with respect to any Person, any corporation,
association, joint venture, partnership or other business entity (whether now
existing or hereafter organized) of which at least a majority of the voting
stock or other ownership interests having ordinary voting power for the
election of directors (or the equivalent) is, at the time as of which any
determination is being made, owned or controlled by such Person or one or more
subsidiaries of such Person or by such Person and one or more subsidiaries of
such Person.

     “Substitute Lease” shall have the meaning given to such term in Section
5.1(e).

     “Term Loan” shall have the meaning given such term in Section 1.1 hereof.

     “Term Loan Commitment” shall mean the commitment of Lender to make the
Term Loan to Borrower up to an aggregate principal amount, at any one time, not
in excess of
$20,000,000 as such amount may be reduced from time to time in accordance
with the terms of this Credit Agreement.

     “Term Loan Maturity Date” shall mean the earlier of (i) the later of (x)
the Initial Maturity Date and (y) the date to which such date is extended in
accordance with Section 1.4(c) hereof, and (ii) the date on which the Term Loan
shall become due and payable pursuant to Article 6 hereof.

53

 

     “Title Company” shall mean Fidelity National Title Insurance Company of
New York or any other title insurance company of recognized national standing
which is acceptable to Lender in its sole discretion.

     “Tranche” when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Revolving Credit
Loans or the Term Loan.

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

     “Warrant Agreement” shall mean those certain Stock Purchase Warrants, each
dated the date hereof, substantially in the form of Exhibit D hereto and issued
to each of Kimco Realty Services, Inc. and Third Avenue Trust, on behalf of the
Third Avenue Real Estate Value Fund Series.

     “Working Capital Facility” shall mean the financing arrangement evidenced
by that certain Loan and Security Agreement, dated as of May [     ]20, 2002 (the
“Congress Credit Agreement”),[ 2002,] among Borrower, Congress, the Lenders
named therein and Congress, as agent, and any agreements, instruments and
documents executed in connection therewith, in each case, as the same may be
amended or modified, and any subsequent financing arrangement that replaces or
refinances such financing arrangement, to the extent such refinancing is
permitted under Section 5.1(j).  In the event that the Working Capital
Facility shall be replaced or refinanced, (x) each reference herein to the
Working Capital Facility shall be deemed to be a reference to such replacement
or refinanced facility and (y) any terms used herein that derive their meanings
from the Working Capital Facility, or sections of the Working Capital Facility
referred to herein, shall be deemed to be a reference to the analogous term or
section in the replacement or refinanced facility.

[Signature [Pages On Following ]Page Follows]

54

 

[IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
to be duly executed as of the day and the year first written above.]

	 	[BORROWER:]

	 	[FRANK’S NURSERY & CRAFTS, INC.]

	 	[By:              

Name:]

[Title:]

	 	[LENDER:]

	 	[KIMCO CAPITAL CORP.]

	 	[By:              

Name:]

[Title:]

55

 

	 	 	 	 	 	 	 
	INTRODUCTORY
STATEMENT
	 	 	1	 
	1.
	THE LOANS
	 	 	 	1	 
	 	SECTION 1.1 
	Term Loan
	 	 	1	 
	 	SECTION 1.2 
	Revolving Credit Loans
	 	 	1	 
	 	SECTION 1.3
	Disbursement of Funds and Notice of Borrowing
	 	 	1	 
	 	SECTION 1.4
	Repayment; Extension of Initial Maturity Date;
Evidence of Debt; Administration
	 	 	2	 
	 	SECTION 1.5
	Interest
	 	 	3	 
	 	SECTION 1.6
	Loan Fee
	 	 	3	 
	 	SECTION 1.7

	Termination and/or Reduction of the
Revolving Credit
	 	 	3	 
	 	SECTION 1.8
	Voluntary Prepayments
	 	 	3	 
	 	SECTION 1.9
	Mandatory Prepayments; Warrant Agreement
	 	 	4	 
	 	SECTION 1.10
	Default Interest
	 	 	5	 
	 	SECTION 1.11
	INTENTIONALLY OMITTED
	 	 	5	 
	 	SECTION 1.12
	Interest Adjustments
	 	 	5	 
	 	SECTION 1.13
	Manner of Payments
	 	 	6	 
	 	SECTION 1.14
	Use of Proceeds
	 	 	6	 
	2.
	REPRESENTATIONS
AND WARRANTIES
	 	6	 
	 	SECTION 2.1
	Existence and Power
	 	 	6	 
	 	SECTION 2.2
	Authority and No Violation
	 	 	[6]7

	 	SECTION 2.3
	Governmental Approval
	 	 	7	 
	 	SECTION 2.4
	Binding Agreements
	 	 	7	 
	 	SECTION 2.5
	Title to Properties
	 	 	[7]8

	 	SECTION 2.6
	Litigation; Judgments
	 	 	8	 
	 	SECTION 2.7
	Taxes
	 	 	[8]9

	 	SECTION 2.8
	Compliance with ERISA
	 	 	9	 
	 	SECTION 2.9
	Agreements
	 	 	[9]10

	 	SECTION 2.10
	Security Documents
	 	 	10	 
	 	SECTION 2.11
	Disclosure
	 	 	10	 
	 	SECTION 2.12
	Environmental Matters
	 	 	10	 
	 	SECTION 2.13
	Compliance with Laws
	 	 	[11]12

	 	SECTION 2.14
	Real Property
	 	 	[11]12

 

 

	 	 	 	 	 	 	 
	 	SECTION 2.15
	No Default
	 	 	12	 
	 	SECTION 2.16
	No Tenants in Possession
	 	 	12	 
	 	SECTION 2.17
	Subsidiaries
	 	 	12	 
	 	SECTION 2.18	Compliance with Securities Laws	 	 	13
	 
	3.
	CONDITIONS TO THE
EFFECTIVENESS OF THIS CREDIT AGREEMENT AND THE MAKING
OF THE LOANS	 	[12]13

	 	SECTION 3.1
	Conditions Precedent to the
Effectiveness of This Credit
Agreement and the Making of the Loans	 	 	[12]13

	 	SECTION 3.2
	Conditions Precedent to Each Revolving
Credit Loan
	 	 	[15]16

	4.
	AFFIRMATIVE
COVENANTS
	 	 	16	 
	 	SECTION 4.1
	Financial Statements and Reports
	 	 	16	 
	 	SECTION 4.2
	Compliance with Laws
	 	 	[16]17

	 	SECTION 4.3
	Maintenance of Properties
	 	 	[17]18

	 	SECTION 4.4
	Notice of Material Events
	 	 	[17]18

	 	SECTION 4.5
	Insurance
	 	 	[18]19

	 	SECTION 4.6
	Books and Records
	 	 	[18]20

	 	SECTION 4.7
	Observance of Agreements
	 	 	[19]20

	 	SECTION 4.8
	Taxes and Charges 
	 	 	[19]20

	 	SECTION 4.9
	Liens
	 	 	[20]21

	 	SECTION 4.10
	Further Assurances; Security Interests
	 	 	[20]21

	 	SECTION 4.11
	Environmental Laws
	 	 	[20]22

	 	SECTION 4.12
	Lease Agreements
	 	 	[22]23

	 	SECTION 4.13
	Use of Proceeds of Loans
	 	 	[22]23

	 	SECTION 4.14
	ERISA Plan Compliance and Reports
	 	 	[22]23

	 	SECTION 4.15
	Kimco Collateral Account
	 	 	[22]23

	 	SECTION 4.16
	Covenants Regarding Inventory
Collateral
	 	 	24

	5.
	NEGATIVE
COVENANTS
	 	 	[23]25

	 	SECTION 5.1
	Limitations on Indebtedness and
Preferred Stock
	 	 	[23]25

	 	SECTION 5.2
	Limitations on Liens
	 	 	[24]26

	 	SECTION 5.3
	Merger, Sale of Assets, Purchases, etc.
	 	 	[25]27

	 	SECTION 5.4
	Places of Business; Change of Name
	 	 	[25]27

	 	SECTION 5.5
	Sale and Leaseback
	 	 	[26]28

	 	SECTION 5.6
	Changes to Material Agreements
	 	 	[26]28

i

 

	 	 	 	 	 	 	 
	 	SECTION 5.7
	ERISA Compliance
	 	 	[26]28

	 	SECTION 5.8
	Hazardous Materials
	 	 	[26]28

	 	SECTION 5.9
	Transactions with Subsidiaries
	 	 	[26]29

	6.
	EVENTS OF
DEFAULT
	 	 	[27]29

	 	SECTION 6.1
	Events of Default
	 	 	29

	 	SECTION 6.2
	Certain Remedies
	 	 	32

	7.
	MISCELLANEOUS
	 	 	 	[30]32

	 	SECTION 7.1
	Notices
	 	 	[30]32

	 	SECTION 7.2
	Survival of Agreement, Representations and
Warranties, etc.
	 	 	[31]33

	 	SECTION 7.3
	Successors and Assigns; Syndications; Loan
Sales; Participations
	 	 	[31]33

	 	SECTION 7.4
	Expenses; Documentary Taxes
	 	 	[32]35

	 	SECTION 7.5
	Indemnity
	 	 	[33]36

	 	SECTION 7.6
	CHOICE OF LAW
	 	 	[34]36

	 	SECTION 7.7
	WAIVER OF JURY TRIAL
	 	 	[34]37

	 	SECTION 7.8
	WAIVER WITH RESPECT TO DAMAGES
	 	 	[34]37

	 	SECTION 7.9
	No Waiver
	 	 	[35]37

	 	SECTION 7.10
	Extension of Payment Date
	 	 	[35]37

	 	SECTION 7.11
	Amendments, etc.
	 	 	[35]38

	 	SECTION 7.12
	Severability
	 	 	[35]38

	 	SECTION 7.13
	SERVICE OF PROCESS
	 	 	[35]38

	 	SECTION 7.14
	Headings
	 	 	[36]39

	 	SECTION 7.15
	Execution in Counterparts
	 	 	[36]39

	 	SECTION 7.16
	Confidentiality
	 	 	[36]39

	 	SECTION 7.17
	Entire Agreement
	 	 	[37]39

	 	SECTION 7.18
	Enforcement of Rights; No Obligation to
Marshall Assets
	 	 	[37]39

	 	SECTION 7.19
	Reproduction of Documents
	 	 	[37]40

	 	SECTION 7.20
	Right of Set-Off
	 	 	[37]40

	8.
	GRANT OF SECURITY
INTEREST; REMEDIES
	 	 	[38]40

	 	SECTION 8.1
	Security Interests
	 	 	[38]40

	 	SECTION 8.2
	Use of Collateral
	 	 	[38]41

	 	SECTION 8.3
	Borrower to Hold in Trust
	 	 	[38]41

	 	SECTION 8.4
	Application of Proceeds on Default
	 	 	[39]42

ii

 

	 	 	 	 	 	 	 
	 	SECTION 8.5 
	Power of Attorney
	 	 	 [39]42
	 
	 	SECTION 8.6  
	Financing Statements, Direct Payments	 	 	 [40]42
	 
	 	SECTION 8.7  
	 Further Assurances	 	 	[40]43
	 
	 	SECTION 8.8 
	Termination and Release 	 	 	 [40]43	 
	 	SECTION 8.9 
	Remedies Not Exclusive 	 	 	 [40]43	 
	 	SECTION 8.10 
	Continuation and Reinstatement 	 	 	[41]43	 
	9.	DEFINITIONS 
	 	 	[41]44	 

	 	 	 
	Schedules	 	
	 
	2.1(a)	 	
List of jurisdictions where Borrower is qualified/not in good standing
	2.5(a)	 	
Matters Affecting Title to Property
	2.5(b)	 	
Defaults under Leases
	2.5(c)	 	
Condemnation Proceedings
	2.5(d)	 	
Contractual Obligations With Respect to Collateral
	2.6	 	
Litigation
	2.7	 	
Taxes
	2.9(b)	 	
Agreements
	2.10	 	
Filing Offices for the Mortgages and Fixture Filings
	2.12	 	
Environmental Matters
	2.14(a)	 	
Fee Properties
	2.14(b)	 	
Leased Properties
	2.14(b)(1)	 	
SNDA Agreements
	2.14(b)(2)	 	
Estoppel Certificates
	2.14(b)(3)	 	
Lessor Consents
	2.14(b)(4)	 	
Lease Modifications
	2.16	 	
Tenants in Possession
	2.17	 	
Subsidiaries
	3.1(c)	 	
Opinion of Willkie, Farr & Gallagher
	5.1(b)	 	
Existing Indebtedness
	5.2(c)	 	
Existing Liens

Exhibits

	 	 	 
	A	 	
Form of Borrowing Certificate
	B	 	
Form of Mortgage
	C	 	
Form of Closing Certificate
	D	 	
Form of Warrant Agreement
	E	 	
Intercreditor Agreement

 

 

EXHIBIT B TO

                                 FIRST AMENDMENT

[FORM OF INTERCREDITOR AGREEMENT]

 

INTERCREDITOR AGREEMENT

     THIS INTERCREDITOR AGREEMENT (the “Agreement”), dated as of
this 23rd day of January, 2003, is made by KIMCO CAPITAL CORP. (“Creditor”),
with an office at c/o Kimco Realty Corporation, 3333 New Hyde Park Drive, New
Hyde Park, New York 11042 and CONGRESS FINANCIAL CORPORATION (CENTRAL), as agent
(“Agent”) for itself and the other Senior Lenders (defined below) party to the
Senior Credit Agreement described below, with an office at 150 South Wacker
Drive, Suite 2200, Chicago, Illinois 60606.

     1.     Background.

     (a)  Frank’s Nursery & Crafts, Inc. (“Borrower”) has requested
that Agent consent, on behalf of itself and the Senior Lenders, to the grant by
Borrower to Creditor of liens upon, and security interests in, the Inventory (as
defined below) to secure loans and advances that have been or hereafter may be
made by Creditor to Borrower.

     (b)  Borrower has granted to Agent liens upon, and security
interests in, the Collateral (as defined below) (including the Inventory) to
secure loans and advances that have been or hereafter may be made by Agent and
Senior Lenders to Borrower.

     (c)  Agent and Creditor desire to agree between themselves on
their relative rights, priorities and interests in the Inventory and certain
other matters as set forth herein.

     Therefore, in consideration of the foregoing and the mutual
covenants set forth below, the parties hereby agree as follows.

     2.     Definitions. For purposes of this Agreement:

     (a)  “Collateral” means the “Collateral” (as defined in the
Senior Credit Agreement).

     (b)  “Congress’ Debt” means all obligations, liabilities and
indebtedness from time to time owing by Borrower to Agent or any Senior Lender,
including without limitation the outstanding balance of principal and accrued
interest (including without limitation any interest accruing after the
commencement of insolvency proceedings with respect to Borrower, whether or not
such interest is allowed as a claim in such proceedings), fees and premiums from
time to time owing by Borrower to Agent or any Senior Lender (including
reasonable attorneys’ fees), including without limitation all amounts owing
under Congress’ Documents.

     (c)  “Congress’ Documents” means any and all agreements,
instruments and documents, together with any amendments, renewals, extensions or
supplements thereto or replacements thereof, evidencing or securing a financing
arrangement or arrangements between Agent, the Senior Lenders and Borrower,
including without limitation the Loan and Security Agreement dated as of May 20,
2002, as amended or supplemented from time to

 

 

time (“Senior Credit Agreement”) by and between Borrower, Congress Financial
Corporation (Central), as agent, for itself and the other lenders from time to
time party thereto as lenders (the “Senior Lenders”).

     (d)  “Creditor’s Debt” means all obligations, liabilities and
indebtedness owing by Borrower to Creditor, including without limitation the
outstanding balance of principal and accrued interest (including without
limitation any interest accruing after the commencement of insolvency
proceedings with respect to Borrower, whether or not such interest is allowed as
a claim in such proceedings), fees and premiums owing by Borrower to Creditor
(including reasonable attorneys’ fees), including, without limitation, all
amounts owing under the Creditor’s Documents.

     (e)  “Creditor’s Documents” means any and all agreements,
instruments and documents, together with any amendments, renewals, extensions or
supplements thereto or replacements thereof, now or hereafter evidencing or
securing a financing arrangement or arrangements between Creditor and Borrower,
including, without limitation, the Credit and Security Agreement, dated as of
May 20, 2002, between Creditor and Borrower, as the same may be amended,
modified or supplemented from time to time (the “Kimco Credit Agreement”).

     (f)  “Inventory” shall mean all of Borrower’s now owned and
hereafter existing or acquired goods, wherever located, which (a) are leased by
Borrower as lessor; (b) are held by Borrower for sale or lease or to be
furnished under a contract of service; (c) are furnished by Borrower under a
contract of service; or (d) consist of raw materials, work in process, finished
goods or materials used or consumed in its business.

     Each term used in this Agreement and not otherwise defined
herein shall have the meaning ascribed to such term in the Uniform Commercial
Code of the State of Illinois.

     3.     Priorities; Subordination; Payments; Standby.

     (a)  Agent consents, on behalf of itself and the other Senior
Lenders, to the grant by Borrower of a security interest in the Inventory in
favor of Creditor to secure Creditor’s Debt.

     (b)  Agent and Creditor each agree that regardless of the time
or order of attachment, or the time, order or manner of perfection, or the time
or order of filing or recording of financing statements or mortgages or deeds of
trust, Agent’s lien on and security interest in the Inventory shall be senior to
that of Creditor in the Inventory. Creditor agrees to subordinate, and does
hereby subordinate, any security interests and liens it now or hereafter has in
and upon the Inventory under Creditor’s Documents or otherwise to the security
interests and liens of Agent in and upon the Inventory.

     (c)  Regardless of whether a default exists under any of
Creditor’s Documents, Creditor shall not, without the prior written consent of
Agent, take any action to enforce any security interest in or lien on, or
exercise any other rights with respect to, the

2

 

Inventory (including without limitation any action to commence a foreclosure
action with respect to the Inventory or exercise any right Creditor may have to
notify any account debtor of Borrower or otherwise attempt to collect payment
from any account debtor) until all of Congress’ Documents have been terminated
and all of Congress’ Debt has been fully paid and satisfied in cash; provided,
that, subject to all of Agent’s rights under this Agreement, including without
limitation Agent’s prior right to all proceeds derived from the sale or other
disposition of the Inventory, in the event that Agent has instituted and is then
maintaining any proceeding or action to foreclose Agent’s liens and security
interests with respect to any of the Inventory, Creditor may foreclose
Creditor’s liens and security interests in such proceeding initiated by Agent so
long as Creditor does not in any event notify account debtors of Borrower or
interfere with or impede such action or proceeding of Agent.

     (d)  In the event Borrower desires to sell any of the Inventory
and Agent consents to such sale, Creditor shall be deemed to have consented to
such sale free and clear of any liens and security interests of Creditor in such
Inventory and Creditor agrees that any purchaser of any Inventory may rely on
this Agreement as evidence of Creditor’s consent to such sale free and clear of
any liens and security interests of Creditor in such Inventory. Creditor agrees
to execute such releases with respect to the Inventory to be sold as Borrower or
as Agent reasonably requests; provided, that the failure of Creditor to execute
such releases shall not affect the right of the purchaser of such Inventory to
rely on this Agreement. In the event Creditor receives any proceeds of Inventory
to which Agent is entitled under Congress’ Documents, Creditor shall hold such
proceeds in trust and promptly remit such proceeds in the same form received to
Agent unless Agent has been paid in full in cash.

     (e)  All proceeds of the Inventory shall be applied first, to
Congress’ Debt, and after the indefeasible payment in cash of Congress’ Debt, to
Creditor’s Debt. If Creditor receives any proceeds of Inventory which are to be
applied to Congress’ Debt as provided above, Creditor shall hold such proceeds
in trust and deliver such proceeds in the same form received to Agent.

     (f)  Creditor shall not contest the validity, perfection,
priority (as established pursuant to the terms of this Agreement) or
enforceability of any lien or security interest on or in the Inventory granted
by Borrower to Agent. The priority of liens established under Section 3(b) above
shall be effective regardless of whether Agent has obtained perfected or
enforceable liens on the Inventory. Agent, on behalf of itself and the Senior
Lenders, shall not contest the validity, perfection, priority (as established
pursuant to the terms of this Agreement) or enforceability of any lien or
security interest on or in the Inventory granted by Borrower to Creditor.

     4.     Representations Warranties and Covenants. Creditor
represents, warrants and covenants that it has not assigned or transferred, and
agrees that it will not assign or transfer at any time this Agreement remains in
effect, any right, claim or interest of any kind in or to the Inventory unless
such right, claim and interest remains subject to this Agreement.

3

 

     5.     Amendments to Documents. Creditor agrees that Agent may at
any time or times, in its discretion, (i) renew or extend the time of payment of
Congress’ Debt, (ii) waive or release any collateral or guaranties which may be
held by Agent and the Senior Lenders therefor, or (iii) modify or amend
Congress’ Documents or Congress’ Debt in any manner, in each case without
further consent from Creditor or any other party, and without impairing or
affecting this Agreement or any of Agent’s or any of the Senior Lender’s rights
hereunder.

     6.     Creditor’s Waivers. Creditor expressly waives all notice of
the acceptance by Agent, on behalf of itself and the other Senior Lenders, of
the subordination and other provisions of this Agreement and all the notices not
specifically required pursuant to the terms of this Agreement whatsoever and
Creditor expressly waives reliance by Agent and the Senior Lenders upon the
subordination and other agreements as herein provided. Creditor agrees that (i)
neither Agent nor any Senior Lender has made any warranty or representation with
respect to the legality, validity, completeness, enforceability or the
collectibility of Congress’ Debt or any liens or security interests securing
Congress Debt, and (ii) Agent and Senior Lenders shall be entitled to manage and
supervise their loans to Borrower in accordance with applicable law and their
usual practices with Borrower without affecting the validity or enforceability
of this Agreement, without regard to the existence of any rights that Creditor
may now or hereafter have in or to any of the assets of Borrower. The validity
and enforceability of this Agreement shall not be affected by (a) any and all
actions which Agent takes or omits to take (including without limitation actions
with respect to the creation, perfection or continuation of liens or security
interests in any Inventory, actions with respect to the occurrence of an Event
of Default under Congress’ Documents, actions with respect to the foreclosure
upon, sale, release or depreciation of, or failure to realize upon any of the
Inventory, (b) Congress’ election, in any proceeding instituted under Chapter 11
of Title 11 of the United Stated Code (11 U.S.C. ss. 101 et seq.) (the
“Bankruptcy Code”), of the application of Section 1111(b)(2) of the Bankruptcy
Code, and/or (c) any borrowing or grant of a security interest under Section 363
or 364 of the Bankruptcy Code by Borrower, as debtor in possession with respect
to the Inventory. In that regard, Creditor agrees that (A) if Borrower desires
to use cash collateral under Section 363 of the Bankruptcy Code constituting
proceeds of Inventory and if Agent consents to such use, Creditor will also
consent to such use without asserting any objection on the grounds of failure to
provide adequate protection for Creditor’s junior lien on the Inventory, and (B)
if Borrower desires to obtain credit from Agent under Section 364 of the
Bankruptcy Code to be secured by the Inventory, Creditor will consent to such
credit without asserting any objection on the grounds of failure to provide
adequate protection for Creditor’s junior lien on such Inventory.

     7.     Marshaling. Creditor hereby waives any rights Creditor has
or may have in the future to require Agent to marshall the Collateral and agrees
that Agent may proceed against the Collateral in any order that it deems
appropriate in the exercise of its absolute discretion.

     8.     Representations Concerning Borrower: Liability of Parties.
Neither of the parties hereto, nor any of such party’s directors, officers,
agents or employees, shall be

4

 

responsible to any other party hereto or to any other person for (i) Borrower’s
solvency, financial condition or ability to repay its indebtedness to any party
hereto, (ii) any oral or written statements of Borrower, or (iii) the validity,
sufficiency or enforceability of such indebtedness, Creditor’s Documents,
Congress’ Documents or the security interests and liens granted by Borrower to
any party hereto. Each party hereto has entered into its financing arrangement
with Borrower based upon such party’s own independent investigation, and makes
no warranty or representation to any other party hereto, nor does such party
rely on any warranty or representation of any other party hereto, with respect
to the matters referred to in this paragraph.

     9.     Miscellaneous.

     (a)  THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS PRINCIPLES. CREDITOR AND
AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. CREDITOR AND AGENT
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

     (b)  This Agreement contains the entire agreement among the
parties hereto with respect to this subject, and may only be modified by a
writing signed by each of the parties hereto.

     (c)  Either party’s failure to exercise any right hereunder
shall not be construed as a waiver of the right to exercise the same or any
other right at any other time and from time to time thereafter, and such rights
shall be cumulative and not exclusive.

     (d)  The knowledge by either party of any breach or other
non-observance by the other party of the terms of this Agreement shall not
constitute a waiver thereof or of any obligations to be performed by such party
hereunder.

     (e)  Paragraph headings used herein are for convenience only,
and shall not affect the meaning of any provision of this Agreement.

     (f)  All notices or consents required under the terms and
provisions of this Agreement shall be in writing and sent to the following
addresses:

5

 

	 	 	 	 	 
	 	 	
If to Creditor:
	 	Kimco Capital Corp. (“KIMCO”)
	 	 	 	 	c/o Kimco Realty Corporation
	 	 	 	 	3333 New Hyde Park Drive
	 	 	 	 	New Hyde Park, New York 11042
	 	 	 	 	 
	 	 	
with a copy to:
	 	Morgan, Lewis & Bockius LLP
	 	 	 	 	101 Park Avenue
	 	 	 	 	New York, New York 10178-0060
	 	 	 	 	Telephone:  (212) 309-6000
	 	 	 	 	Facsimile:  (212) 309-6273
	 	 	 	 	Attention:  Neil E. Herman
	 	 	 	 	 
	 	 	
If to Agent:
	 	Congress Financial Corporation (Central)
	 	 	 	 	150 South Wacker Drive
	 	 	 	 	Suite 2200
	 	 	 	 	Chicago, Illinois 60606
	 	 	 	 	Attention: William Bloom
	 	 	 	 	Telephone No.:  (312) 332-0420
	 	 	 	 	Telecopy No.:   (312) 332-0424
	 	 	 	 	 
	 	 	
with a copy to:
	 	Goldberg, Kohn, Bell, Black, Rosenbloom
	 	 	 	 	    & Moritz, Ltd.
	 	 	 	 	55 East Monroe Street
	 	 	 	 	37th Floor
	 	 	 	 	Chicago, Illinois 60603-5802
	 	 	 	 	Telephone:   (312) 201-4000
	 	 	 	 	Facsimile:   (312) 332-2196
	 	 	 	 	Attention:  Gary T. Zussman

Notices shall be deemed to have been duly given (i) if delivered personally or
otherwise actually received, (ii) if sent by overnight delivery service, (iii)
if mailed by first class United States mail, postage prepaid, registered or
certified, with return receipt requested, or (iv) if sent by telex with telex
confirmation of receipt (with duplicate notice sent by United States mail as
provided above). Notice mailed as provided in clause (iii) above shall be
effective on the earlier of the date of actual receipt or three (3) business
days after its deposit. Notice given in any other manner described in this
paragraph shall be effective upon receipt by the addressee thereof; provided,
however, that if any notice is tendered to an addressee and delivery thereof is
refused by such addressee, such notice shall be effective upon such tender.

     (g)  This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. The term “Borrower” shall include, without limitation, any
successor or assign of Borrower, including without limitation a receiver,
trustee or debtor in possession. This Agreement shall be a continuing agreement
and shall remain in full force and effect notwithstanding the insolvency,
liquidation or dissolution of Borrower. “Borrower” shall include, without
limitation, any successor or assign of Borrower, including without limitation a
receiver, trustee or debtor in possession. This Agreement shall be a continuing
agreement and shall remain in full force and effect notwithstanding the
insolvency, liquidation or dissolution of Borrower.

6

 

     (h)  Creditor hereby agrees that any party that refinances
Congress’ Debt may rely on and enforce this Agreement as if it were Agent.
Creditor further hereby agrees that it will, at the request of Agent, enter into
an agreement, in the form of this Agreement, mutatis mutandis, to subordinate
any security interests or liens it now or hereafter has in or upon the
Inventory, to the same extent as provided herein, to the party refinancing all
or a portion of Congress’ Debt; provided, that the failure of Creditor to
execute such an agreement shall not affect such party’s right to rely on and
enforce the terms of this Agreement.

     IN WITNESS WHEREOF, the parties hereto have signed this
Intercreditor Agreement as of the date first written above.

	 	 	 
	 	 	
KIMCO CAPITAL CORP.
	 	 	 
	 	 	
By

	 	 	
Its
	 	 	

	 	 	 
	 	 	
CONGRESS FINANCIAL CORPORATION (CENTRAL)
	 	 	 
	 	 	
By
	 	 	

	 	 	
Its
	 	 	

CONSENT

     The undersigned hereby consents to the terms of the foregoing
Intercreditor Agreement and agrees to be bound by the terms thereof.

FRANK’S NURSERY & CRAFTS, INC.

By

Its

7

 

EXHIBIT C TO

FIRST AMENDMENT

[FORM OF FIRST AMENDMENT TO MORTGAGE]

 

Prepared by:

Mario J. Suarez, Esq.

Morgan, Lewis & Bockius LLP

101 Park Avenue

New York, New York 10178

(212) 309-6920

FIRST AMENDMENT TO MORTGAGE, OPEN END MORTGAGE,

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FINANCING STATEMENT

Dated: As of January      , 2003

FRANK’S NURSERY & CRAFTS, INC.,

Mortgagor/Trustor/Grantor/Debtor

-TO-

KIMCO CAPITAL CORP.,

Mortgagee/Beneficiary/Grantee/Secured Party

«TRUSTEE»

Store No. «FACILITY_NO»

Address:

«PROPERTY_STREET_ADDRESS»

«CITY», «STATE» «ZIP_CODE»

Tax Parcel ID No.: «PARCEL_ID»

1

 

«BANKRUPTCY_INSERT»

FIRST AMENDMENT TO MORTGAGE, OPEN END MORTGAGE,

DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FINANCING STATEMENT

Dated: As of January      , 2003

FRANK’S NURSERY & CRAFTS, INC.,

Mortgagor/Trustor/Grantor/Debtor

-TO-

KIMCO CAPITAL CORP.,

Mortgagee/Beneficiary/Grantee/Secured Party

«TRUSTEE»

This instrument is a Mortgage, Open End Mortgage, Deed of Trust, Assignment of
Leases and Rents, Security Agreement and Financing Statement of both real
property and fixtures. Notwithstanding anything to the contrary herein
contained, (a) as to any property located in the States of Maryland and
Missouri, this instrument is, among other things, a Deed of Trust; and (b) as
to any property located in the States of Florida, Illinois, Indiana, Kentucky,
Michigan, Minnesota, New Jersey, and Pennsylvania, this instrument is, among
other things, a Mortgage. For purposes of Section 5301.232 of the Ohio Revised
Code and Section 42 Pa. C.S. Sections 8143-8144, et seq, this instrument is,
among other things, an Open-End Mortgage. THIS INSTRUMENT SECURES, AMONG OTHER
THINGS, FUTURE ADVANCES AND FUTURE OBLIGATIONS, AND THE PARTIES INTEND THAT
THIS INSTRUMENT SECURE FUTURE ADVANCES. As to any property located in
Missouri, future advances shall be governed by Section 443.055 RSMO. This
instrument contains after-acquired property provisions and secures obligations
containing provisions for changes in interest rates, extensions of time for
payment and other modifications in the terms of the obligations.

«MORTGAGE_TAX_INSERT»

Store No.: «FACILITY_NO»

Address:

«PROPERTY_STREET_ADDRESS»

«CITY», «STATE» «ZIP_CODE»

2

 

     FIRST AMENDMENT TO MORTGAGE, OPEN END MORTGAGE, DEED OF TRUST, ASSIGNMENT
OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT (the “First
Amendment”) dated as of January      , 2003, by FRANK’S NURSERY & CRAFTS, INC., a
Delaware corporation, having its principal office at 580 Kirts Blvd., Suite
300, Troy, Michigan 48084, as mortgagor, trustor and grantor hereunder
(“Grantor”) and KIMCO CAPITAL CORP., a Delaware corporation, having an office
at 3333 New Hyde Park Road, P.O. Box 5020, New Hyde Park, New York 11042-0020,
as mortgagee hereunder to the extent that this Mortgage operates as a mortgage
or an open end mortgage«TRUSTEE_INSERT»

W I T N E S S E T H :

     WHEREAS, Grantor has previously delivered to Mortgagee a certain Mortgage,
Open End Mortgage, Deed of Trust, Assignment of Leases and Rents, Security
Agreement and Financing Statement dated as of May 20, 2002 (the “Original
Mortgage”), as security, in part, for various loans made or to be made to
Grantor in the aggregate principal sum of up to THIRTY MILLION DOLLARS
($30,000,000.00), all in accordance with that that certain Credit and Security
Agreement dated as of May 20, 2002, between Grantor and Mortgagee, as lender
(the “Original Credit Agreement”).

     WHEREAS pursuant to that certain First Amendment and Waiver to Credit and
Security Agreement dated as of the date hereof (“First Amendment to Credit
Agreement”), Grantor and Mortgagee have now agreed to modify the Original
Credit Agreement to, among, other things, increase the aggregate principal
amount of the Revolving Credit Loans (as defined in the Original Credit
Agreement) from $10,000,000 to $20,000,000 (the Original Credit Agreement, as
modified by the First Amendment to Credit Agreement, as the same may be further
amended, modified or supplemented from time to time, the “Credit Agreement”).

     WHEREAS Grantor and Mortgagee now desire to amend the Original Mortgage in
order to, among other things, secure the Revolving Credit Loans, as increased
by the Credit Agreement, to the same extent, and with the same priority as if
same were advanced in connection with the Original Mortgage (the Original
Mortgage, as modified by this First Amendment, as the same may be further
amended, modified or supplemented from time to time, the “Mortgage”).

     NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties, Grantor and Mortgagee agree as follows:

     1. Definitions. Each reference in the Original Mortgage to (a) the
“Mortgage” shall henceforth refer to the Original Mortgage as modified hereby,
as may be further amended, modified or supplemented from time to time, and (b)
the “Credit Agreement” shall henceforth refer to the Original Credit Agreement
as modified by the First Amendment to Credit Agreement, as may be further
amended, modified or supplemented from time to time. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to such terms in the
Original Mortgage, as may be modified hereby, including but not limited to, the
“Land” as more particularly described on “Schedule A” attached hereto.

3

 

     2. Secured Indebtedness. The Revolving Loan Amount is hereby increased
from TEN MILLION DOLLARS ($10,000,000) to TWENTY MILLION DOLLARS
($20,000,000.00). The terms “Revolving Loan Amount”, “Mortgage Amount” and
“Secured Indebtedness” shall hereinafter be deemed to include such increased
amount, and the Mortgage, shall secure such increased amount, to the same
extent, and with the same priority as if same were advanced in connection with
the Original Mortgage, and without affecting the priority of the lien created
thereunder.

     3. Amendment to Notice Provision in Original Mortgage.

     Article IV, Section 2 of the Original Mortgage is hereby amended so that
the addresses of the Grantor are as follows:

if to Grantor, to it at 580 Kirts Blvd., Suite 300, Troy, Michigan 48084, Attn:
Mr. Alan Minker and Mr. Michael McBride, with a courtesy copy to: Honigman,
Miller, Schwartz & Cohn, 2290 First National Building, 660 Woodward Avenue,
Detroit, Michigan 48226, Attn: Donald Kunz, Esq., Facsimile No.: 313-465-7455;
e-mail: dkunz@honigman.com, or such other address as such party may from time
to time designate by giving written notice to the other parties hereunder.

     4. Miscellaneous. Except as specifically modified by this First
Amendment, all the provisions of the Original Mortgage are hereby ratified and
confirmed to be unmodified and in full force and effect. This First Amendment
may be executed in separate counterparts, each of which when executed and
delivered shall be an original. This First Amendment shall be governed by and
construed in accordance with the internal laws of the state in which the Real
Property is located.

     5. Additional Matters. Notwithstanding anything to the contrary herein
contained:

          a. Wherever herein contained, the phrase “Trustee and Mortgagee, as
applicable” or “Trustee” or any similar phrase

               1. shall be deemed to refer to “Trustee for the benefit of Mortgagee, as
beneficiary, to the extent Mortgaged Property is located in Maryland;

               2. shall be deemed to refer to “Mortgagee” to the extent the Mortgaged
Property is located in any of the following States: Florida, Illinois,
Indiana, Kentucky, Michigan, Minnesota, New Jersey, Pennsylvania, and Ohio and
in such states Trustee shall have no rights, powers or obligations and all
references herein to Trustee and Beneficiary shall be deemed deleted; and

               3. to the extent the Mortgaged Property is located in Missouri, shall be
deemed to refer (i) to Trustee for the benefit of Mortgagee in relation to the
grant of a lien on real property, to the habendum clause and to the provisions
relating to power of sale, (ii) to both Trustee and Mortgagee in relation to
the grant of a security interest in personal property and fixtures and rights
related thereto, and (iii) to Mortgagee in all other instances, provided that
nothing contained in the Mortgage shall be construed to give Trustee the
authority to exercise any rights or remedies granted in the Mortgage without
prior written authorization by Mortgagee

4

 

or the right or obligation to receive any payment of rents or other
amounts except in connection with the exercise of the power of sale.

          b. To the extent the Mortgaged Property is located in Maryland or
Missouri, references to Mortgagee shall, if the context so requires, be deemed
to be references to Mortgagee, as beneficiary.

          c. To the extent the Mortgaged Property is located in any of the
following States, the term “Mortgaged Property,” whenever used in the Mortgage,
shall be deemed to be references to “Trust Property”: Missouri.

          d. Notwithstanding anything to the contrary herein contained, to the
extent the Mortgaged Property is located in the State of Pennsylvania, the
Mortgage shall not be deemed to be a purchase money mortgage.

          e. Notwithstanding anything to the contrary herein contained, to the
extent the Mortgaged Property is located in the State of Illinois, for purposes
of Ill. Rev. Stat. ch. 110, paragraph 15-1302, all monies advanced to Grantor
pursuant to the terms of the Credit Agreement or other Fundamental Document (as
defined therein) subsequent to the recording date of this First Amendment shall
be deemed to be in furtherance of the terms of the Original Mortgage (as
modified herein) and the Credit Agreement secured by the Mortgage (as modified
herein).

[Signature page follows on the next page.]

5

 

     THE GRANTOR HEREBY DECLARES THAT THE GRANTOR HAS READ THIS FIRST
AMENDMENT, HAS SIGNED THIS FIRST AMENDMENT AS OF THE DATE AT THE TOP OF THE
FIRST PAGE AND THE GRANTOR ACKNOWLEDGES THAT IT HAS RECEIVED A TRUE AND
COMPLETE COPY OF THIS FIRST AMENDMENT.

     IN WITNESS WHEREOF, the Grantor and Mortgagee have duly caused this First
Amendment to be duly executed and delivered as of the day and year first above
written.

	 	 	 	 	 
	«ATTEST»	 	
FRANK’S NURSERY & CRAFTS, INC.	 	 
	 
	«CORPORATE_SEAL»	 	
By:

Michael D. McBride, Vice President

Legal and Real Estate
	 	[SEAL]
	 	 	 	 	 
	 
	 	 	
Address:  580 Kirts Blvd., Suite 300,

Troy, Michigan  48084
	 	 
	 
	 
	 
	«ATTEST»	 	
KIMCO CAPITAL CORP.	 	 
	 
	 	 	 	 	 
	 
	«CORPORATE_SEAL»	 	
By:

David Samber, Vice President
	 	[SEAL]
	 
	 
	 	 	 	 	 
	 	 	
Address: c/o Kimco Realty Corporation

3333 New Hyde Park Road

New Hyde Park, NY  11042-002
	 	 
	 
	 	 	 	 	 
	 
	 	 	
This instrument was prepared by

and recorded counterparts should

be returned to:	 	 
	 
	 	 	 	 	 
	 
	 	 	
Mario J. Suarez, Esq.

Morgan, Lewis & Bockius, LLP

101 Park Avenue

New York, NY 10178	 	 
	 
	 	 	 	 	 
	 
	 	 	
«MJS_SIGNATURE»	 	 

6

 

«NOTARY»

7

 

«STATE_RIDER»

8

 

SCHEDULE “A”

(See attached)

9

 

EXHIBIT D TO

FIRST AMENDMENT

[FORM OF ADDITIONAL WARRANT AGREEMENT]

 

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN

REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR

ANY STATE SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY

IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION

IS AVAILABLE.

STOCK PURCHASE WARRANT

	 	 	 	 	 	 	 
	Date of Issuance:   January 23, 2003
	 	 	 	 	Certificate No.  6

     For value received, FRANK’S NURSERY & CRAFTS, INC., a Delaware corporation
(the “Company”), hereby grants to KIMCO REALTY SERVICES, INC., a Delaware
corporation, or its permitted transferees and assigns, the right to purchase
from the Company a total of 5,000,000 Warrant Shares (as defined herein) at a
price per share of $2.00 (the “Initial Exercise Price”). The exercise price
and number of Warrant Shares (and the amount and kind of other securities) for
which this Warrant is exercisable shall be subject to adjustment as provided
herein. Certain capitalized terms used herein are defined in Section 4 hereof.

     This Warrant is subject to the following provisions:

     SECTION 1. Exercise of Warrant.

     1A. Exercise Period. The purchase rights represented by this Warrant may
be exercised, in whole or in part, at any time and from time to time after the
date hereof to and including 5:00 p.m., New York City time, on the later of (a)
May 20, 2005, (b) the date that the Obligations (as defined under the Credit
Agreement (as defined herein)) are irrevocably and indefeasibly paid in full
and (c) the Facility Termination Date (as defined under the Credit Agreement),
in the case of any of clauses (a), (b) or (c), if such day is not a business
day, on the next preceding business day (the “Exercise Period”).

     1B. Exercise Procedure.

               (i) This Warrant shall be deemed to have been exercised when all of the
following items have been delivered to the Company (the “Exercise Time”):

		
	 	     (a) a completed Exercise Agreement, as described in Section IC
below, executed by the Person exercising all or part of the purchase
rights represented by this Warrant (the “Purchaser”);
	 
	 	     (b) this Warrant;
	 
	 	     (c) if the Purchaser is not the Registered Holder, an Assignment or
Assignments in the form set forth in Exhibit II hereto evidencing the
assignment of this Warrant to the Purchaser; and

 

 

		
	 	     (d) any (including any combination) of the following: (x) a check
payable to the Company in an amount equal to the product of the Exercise
Price (as such term is defined in Section 2) multiplied by the number of
Warrant Shares being purchased upon such exercise (the “Aggregate
Exercise Price”) or (y) in the event the Purchaser is a Lender (as
defined under the Credit Agreement), an Affiliate of a Lender (as defined
in the Credit Agreement), a Participant (as defined under the Loan
Participation Agreement) or an Affiliate of a Participant (as defined
under the Loan Participation Agreement), in each case, by the application
of unpaid principal amount of the Loans (as defined in the Credit
Agreement) in the following order of priorities: (A) first, the Term Loan
(as defined in the Credit Agreement) of the Company and (B) second, any
Revolving Credit Loan (as defined in the Credit Agreement), in the case
of either (A) or (B), having a value equal to the Aggregate Exercise
Price of the Warrant Shares being purchased upon such exercise.

               (ii) Upon the exercise of this Warrant pursuant to Section 1B(i)(d)(x),
the Purchaser may require the Company to use all or a portion of the cash
proceeds received upon such exercise to repay in the following order of
priority: first, any and all amounts due under any Term Loan and, second, any
and all amounts due under any Revolving Credit Loan. Such repayment shall be
in accordance with the written instructions of the Purchaser and shall be made
within two business days of receipt by the Company of such instructions.

               (iii) Certificates for Warrant Shares purchased upon exercise of this
Warrant shall be delivered by the Company to the Purchaser within five (5) days
after the date of the Exercise Time together with any cash payable in lieu of a
fraction of a share pursuant to Section 13 hereof. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement (as
defined in Section 1C below).

               (iv) Upon any exercise of this Warrant pursuant to Section 1B(i)(d)(y) and
the instructions set forth in the Exercise Agreement, the Company will accept
the principal amount of indebtedness specified in such Exercise Agreement in
satisfaction of a like amount of such payment. Nothing in this section shall
affect the rights of any Lender (as defined in the Credit Agreement) to receive
interest payable on any Loan (as defined in the Credit Agreement) on the
related interest payment date in accordance with the terms of the Credit
Agreement, including interest accrued but unpaid on the principal amount of the
Term Loan (as defined under the Credit Agreement) and any Revolving Credit Loan
(as defined under the Credit Agreement) applied to the Aggregate Exercise Price
pursuant to Section 1B(i)(d) for the period prior to such application.

               (v) The Warrant Shares issuable upon the exercise of this Warrant shall be
deemed to have been issued to the Purchaser at the Exercise Time, the Purchaser
shall be deemed for all purposes to have become the Registered Holder of such
Warrant Shares at the Exercise Time and the prepayment of the portion of the
Loan (as defined under the Credit

3

 

Agreement) being prepaid as a result of such exercise shall be deemed for
all purposes to have occurred at the Exercise Time.

               (vi) The issuance of certificates for Warrant Shares upon exercise of this
Warrant shall be made without charge to the Registered Holder or the Purchaser
for any issuance tax in respect thereof or other cost incurred by the Company
in connection with such exercise and the related issuance of Warrant Shares.

               (vii) The Company shall not close its books against the transfer of this
Warrant or of any Warrant Shares issued or issuable upon the exercise of this
Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Shares
acquirable upon exercise of this Warrant is at all times equal to or less than
the Exercise Price then in effect.

               (viii) The Company shall assist and cooperate with any reasonable request
by the Registered Holder or any Purchaser which is required to make any
governmental filings or obtain any governmental approvals prior to or in
connection with any exercise of this Warrant.

               (ix) Notwithstanding any other provision hereof, if an exercise of any
portion of this Warrant is to be made in connection with a public offering or a
sale of the Company (pursuant to a merger, sale of stock or otherwise), such
exercise may at the election of the Registered Holder be conditioned upon the
consummation of such transaction, in which case such exercise shall not be
deemed to be effective until immediately prior to consummation of such
transaction.

               (x) The Company shall at all times reserve and keep available out of its
authorized but unissued Common Stock (or out of shares of Common Stock held in
its treasury) solely for the purpose of issuance upon the exercise of this
Warrant, the maximum number of Warrant Shares issuable upon the exercise of
this Warrant. All Warrant Shares which are so issuable shall, when issued and
upon the payment of the applicable Exercise Price, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens, charges and
preemptive rights. The Company shall take all such actions as may be necessary
to ensure that all such Warrant Shares may be so issued without violation by
the Company of any applicable law or governmental regulation or any
requirements of any domestic securities exchange or quotation system upon which
shares of Common Stock or other securities constituting Warrant Shares may be
listed or quoted (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company
will use its best efforts to cause the Warrant Shares, immediately upon such
exercise, to be listed on any domestic national securities exchange or
quotation system upon which shares of Common Stock or other securities
constituting Warrant Shares are listed or quoted at the time of such exercise.

               (xi) If the Warrant Shares issuable by reason of exercise of this Warrant
are convertible into or exchangeable for any other stock or securities of the
Company, the Company shall, at the Purchaser’s option and upon surrender of
this Warrant by such

4

 

Purchaser as provided above together with any notice, statement or payment
required to effect such conversion or exchange of Warrant Shares, deliver to
such Purchaser (or as otherwise specified by such Purchaser) a certificate or
certificates representing the stock or securities into which the Warrant Shares
issuable by reason of such conversion are convertible or exchangeable,
registered in such name or names and in such denomination or denominations as
such Purchaser has specified.

               (xii) The Company shall not, and shall not permit its subsidiaries to,
directly or indirectly, by any action (including, without limitation,
reincorporation in a jurisdiction other than Delaware, amending its Certificate
of Incorporation or through any Organic Change, issuance or sale of securities
or any other voluntary action) avoid or seek to avoid the observance or
performance of any terms of this Warrant or impair or diminish its value, but
shall at all times in good faith assist in the carrying out of all such terms
of Warrant. Without limiting the generality of the foregoing, the Company
shall (a) obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant and (b) not
undertake any reverse stock split, combination, reorganization or other
reclassification of its capital stock which would have the effect of making the
Warrant exercisable for less than one share of Common Stock.

               (xiii) The Company has all requisite corporate power and authority to
enter into and perform its obligations under this Warrant and to issue and
deliver the Warrant to the Purchaser. The execution, delivery, and performance
by the Company of its obligations under this Warrant, including the issuance
and delivery of the Warrant to the Purchaser, have been duly authorized by all
necessary corporate action on the part of the Company. This Warrant has been
duly executed and delivered by the Company and is a legal, valid, and binding
obligation of the Company and is enforceable against the Company in accordance
with its terms. The execution and delivery of this Warrant by the Company, the
performance by the Company of its terms and the issuance and delivery of the
Warrant to the Registered Holder will not conflict with or result in a
violation of (i) the Certificate of Incorporation, as amended, or the By-Laws
of the Company, or (ii) any agreement, instrument, law, rule, regulation,
order, writ, judgment or decree to which the Company is a party or is subject,
except for such conflicts and violations which will not, in the aggregate, have
a material adverse effect on the business, operations, assets or condition
(financial or otherwise) of the and will not deprive the Registered Holder of
any material benefit under this Warrant. The issuance of such the Warrant, and
upon exercise, the Warrant Shares are not and will not be subject to any
preemptive or similar rights.

     1C. Exercise Agreement. Upon any exercise of this Warrant, the Purchaser
shall deliver to the Company an Exercise Agreement in substantially the form
set forth in Exhibit I hereto (the “Exercise Agreement”), except that if the
Warrant Shares are not to be issued in the name of the Registered Holder, the
Exercise Agreement shall also state the name of the Person to whom the
certificates for the Warrant Shares are to be issued, and if the number of
Warrant Shares to be issued does not include all of the Warrant Shares
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be issued.

5

 

     SECTION 2. Adjustment of Exercise Price and Number of Shares. In order to
prevent dilution of the rights granted under this Warrant, the Initial Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 2 (as so adjusted, the “Exercise Price”), and the number of Warrant
Shares obtainable upon exercise of this Warrant shall be subject to adjustment
from time to time, each as provided in this Section 2.

     2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the date hereof, the Company issues
or sells, or in accordance with Section 2B is deemed to have issued or sold,
other than pursuant to a Permitted Issuance, as described in Section 2C or
pursuant to the Purchase Rights covered by Section 3, any shares of Common
Stock for a consideration per share less than the Fair Market Value per share
of the Common Stock determined as of the date of such issuance or sale, then
immediately upon such issuance or sale the Exercise Price shall be reduced to
equal the amount determined by multiplying the Exercise Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of
which will be the sum of (1) the number of shares of Common Stock Deemed
Outstanding immediately prior to such issuance or sale multiplied by the Fair
Market Value per share of the Common Stock determined as of the date of such
issuance or sale, plus (2) the consideration, if any, received by the Company
upon such issuance or sale, and the denominator of which will be the product
derived by multiplying such Fair Market Value per share of the Common Stock by
the number of shares of Common Stock Deemed Outstanding immediately after such
issuance or sale. Upon each such adjustment of the Exercise Price hereunder,
the number of Warrant Shares acquirable upon exercise of this Warrant shall be
adjusted to equal the number of shares determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. For the purposes of this Section 2, the calculation of
the number of shares of Common Stock Deemed Outstanding shall exclude the
Warrant Shares.

     2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall
be applicable:

               (i) Issuance of Rights or Options. If the Company in any manner grants
any rights or options (other than the Purchase Rights covered by Section 3
hereof or a Permitted Issuance) to subscribe for or to purchase Common Stock or
any stock or other securities convertible into or exchangeable for Common Stock
(including, without limitation, convertible common stock) (such rights or
options being herein called “Options” and such convertible or exchangeable
stock or securities being herein called “Convertible Securities”) and the price
per share for which Common Stock is issuable upon the exercise of such Options
or upon conversion or exchange of such Convertible Securities is less than the
Fair Market Value per share of the Common Stock then in effect, then the total
number of shares of Common Stock then issuable upon the exercise of such
Options or upon conversion or exchange of the total amount of such Convertible
Securities then issuable upon the exercise of such Options shall be deemed to
be outstanding and to have been issued and sold by the Company for such price
per share. For purposes of this paragraph, the “price per share for which
Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities” is determined by dividing (A) the
total amount, if any, received or receivable by the Company as

6

 

consideration for the granting of such Options, plus the aggregate amount
of additional consideration then payable to the Company upon the exercise of
all such Options, plus in the case of such Options which relate to Convertible
Securities, the aggregate amount of additional consideration, if any, then
payable to the Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total number of shares of
Common Stock then issuable upon exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options. No further adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible Securities upon
the exercise of such Options or upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities.

               (ii) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the price per share for which
Common Stock is issuable upon such conversion or exchange is less than the Fair
Market Value per share of the Common Stock then in effect, then the number of
shares of Common Stock then issuable upon conversion or exchange of such
Convertible Securities shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For the purposes of
this paragraph, the “price per share for which Common Stock is issuable upon
such conversion or exchange” is determined by dividing (A) the total amount
received or receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the aggregate amount of additional
consideration, if any, then payable to the Company upon the conversion or
exchange thereof, by (B) the total number of shares of Common Stock then
issuable upon the conversion or exchange of all such Convertible Securities.
No further adjustment of the Exercise Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustments of the Exercise Price
have been or are to be made pursuant to other provisions of this Section 2B, no
further adjustment of the Exercise Price shall be made by reason of such issue
or sale.

               (iii) Change in Option Price or Conversion Rate. If either the purchase
price provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion or exchange of any Convertible Securities,
or the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock shall change at any time, the Exercise Price in
effect at the time of such change shall be adjusted to the Exercise Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold and the number Warrant Shares shall be
correspondingly readjusted.

               (iv) Treatment of Expired Options and Unexercised Convertible Securities.
Upon the expiration of any Option or the termination of any right to convert or
exchange any Convertible Securities, in either case without the exercise of
such Option or right, the Exercise Price then in effect and the number of
Warrant Shares acquirable hereunder shall be adjusted to the Exercise Price and
the number of shares which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued.

7

 

               (v) Calculation of Consideration Received. If any Common Stock, Options
or Convertible Securities are issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to be the
net amount received by the Company therefor. In case any Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
shall be the fair value of such consideration, except where such consideration
consists of marketable securities, in which case the amount of consideration
received by the Company shall be the market price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection with any merger
or other business combination in which the Company is the surviving entity, the
amount of consideration therefor shall be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or marketable
securities shall be determined jointly by the Company and the Required Holders.
If such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Required Holders, whose determination shall be final and
binding on the Company and all Registered Holders of Warrants (as defined in
Section 4 below). The fees and expenses of such appraiser shall be paid by the
Company.

               (vi) Integrated Transactions. In case any Option or Convertible Security
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options or Convertible Securities by the
parties thereto, the Option or Convertible Security shall be deemed to have
been issued for no consideration; provided, if such other securities are debt
securities (such debt securities so issued are herein referred to as the
“Debt”) of the Company or any of its subsidiaries, the Option or Convertible
Security shall be deemed to have been issued for consideration equal to the
excess, if any, of (a) the aggregate face amount (the “Estimated Face Amount”)
of debt securities with terms identical to the terms of the Debt (other than
the increase to face value described in this proviso) which the Company or such
subsidiary would have had to issue had no Option or Convertible Security been
issued in connection therewith, given the prevailing market conditions at the
time of the issuance of the Debt, in order to receive the same aggregate net
proceeds as is actually received from the issuance of the Debt, over (b) the
aggregate face amount of the Debt. The Estimated Face Amount shall be as
mutually agreed between the Company and the Registered Holder or, if no such
mutual agreement is reached, as set forth in the written opinion, addressed to
the Registered Holder, of an investment bank of national recognition, retained
by the Company and reasonably acceptable to the Registered Holder; provided,
that if no such mutual agreement is reached or written opinion is received, the
Estimated Face Amount shall be deemed to be zero (0); and provided, further,
that the fees and expenses of such investment bank shall be borne by the
Company.

	 	 	 
	Example:	 	
If the Company issues $20 million aggregate principal amount of
10% subordinated debentures with a 10-year maturity (and receives
aggregate net proceeds of $20 million), and in connection therewith
issues warrants, and in accordance with the provisions of Section
2B(vi), the Company and the Registered Holder mutually

8

 

	 	 	 
	 	 	
agree or an investment bank determines that the Estimated
Face Amount of the subordinated debentures (with terms
otherwise identical to the securities issued) would have
been $21 million (i.e., to yield aggregate net proceeds of
$20 million to the Company), had the warrants not been
issued, then the warrants would be deemed to have been
issued for $1 million.

               (vii) Treasury Shares. The number of shares of Common Stock outstanding
at any given time does not include shares owned or held by or for the account
of the Company or any subsidiary of the Company and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.

               (viii) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue
or sale of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.

     2C. Subdivision or Combination of Common Stock. If the Company at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) the Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately increased.
If the Company at any time combines (by reverse stock split or otherwise) the
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased and
the number of Warrant Shares obtainable upon exercise of this Warrant shall be
proportionately decreased.

     2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of
the Company’s assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock (other than a transaction subject to Section 2C
hereof) is referred to herein as an “Organic Change”. Prior to the
consummation of any Organic Change, the Company shall make appropriate
provision to ensure that each Registered Holder of Warrants shall thereafter
have the right to acquire and receive upon exercise thereof, in lieu of or
addition to (as the case may be) the Warrant Shares immediately theretofore
acquirable and receivable upon exercise of such Registered Holder’s Warrants,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of such Registered Holder’s
Warrants had such Organic Change not taken place. In any such case, the
Company shall make appropriate provision with respect to such Registered
Holder’s rights and interests to insure that the provisions hereof (including
this Section 2) shall thereafter be applicable to the Warrants (including, in
the case of

9

 

any such Organic Change in which the successor entity or purchasing entity
is other than the Company, an immediate adjustment of the Exercise Price to the
value for the Common Stock reflected by the terms of such Organic Change and a
corresponding immediate adjustment in the number of Warrant Shares acquirable
and receivable upon exercise of the Warrants, if the value so reflected is less
than the Fair Market Value of the Common Stock in effect immediately prior to
such Organic Change). The Company shall not effect any such Organic Change
unless, prior to the consummation thereof, the successor entity (if other than
the Company) resulting from such Organic Change (including a purchaser of all
or substantially all the Company’s assets) assumes by written instrument the
obligation to deliver to each Registered Holder of Warrants such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Registered Holder may be entitled to acquire upon exercise of Warrants.

     2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company’s Board of Directors shall exercise their
reasonable judgment consistent with the fundamental intent of such provisions
in making an appropriate adjustment in the Exercise Price and the number of
Warrant Shares obtainable upon exercise of this Warrant so as to protect the
rights of the Registered Holder of this Warrant.

     2F. Notices.

               (i) Promptly following any event requiring adjustment of the Exercise
Price, the Company shall give written notice thereof to the Registered Holder,
setting forth in reasonable detail and certifying the calculation of such
adjustment.

               (ii) The Company shall give written notice to the Registered Holder at
least 30 days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock, or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.

               (iii) The Company shall give written notice to the Registered Holder at
least 30 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.

               (iv) Immediately upon the exercise of any of the Warrants, the Company
shall give written notice to the non-exercising Registered Holders of the
Warrants, setting forth in reasonable detail the exercising Registered Holder
and/or Purchaser, the number of Warrants being exercised, the method of payment
of such exercise and the date of such exercise.

     SECTION 3. Purchase Rights. If at any time the Company grants, issues or
sells any options, convertible securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of the
Common Stock (the “Purchase Rights”), then the Company shall grant, issue or
offer to sell (as the case may be) to the Registered Holder, on the

10

 

same term as to the record holders, the aggregate Purchase Rights which
such Registered Holder would have been granted, issued or sold if such
Registered Holder had held the maximum number of Warrant Shares then acquirable
upon complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights or, if
no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase
Rights.

     SECTION 4. Definitions. The following terms have the meanings set forth
below:

     “Affiliate” has the meaning set forth in 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.

     “Common Stock” means the Common Stock, $.001 par value per share, and any
securities into which such Common Stock is hereafter converted or exchanged.

     “Common Stock Deemed Outstanding” means, at any given time, the number of
shares of all classes of the Company’s common stock actually outstanding at
such time, plus the number of shares of the Company’s common stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.

     “Credit Agreement” means that certain Credit Agreement, dated as of May
20, 2002, between the Company and Kimco Capital Corp., as such agreement may be
amended or modified from time to time.

     “Diluted Basis” means with respect to the calculation of the number of
shares of Common Stock, (i) all shares of Common Stock outstanding at the time
of determination and (ii) all shares of Common Stock issuable upon the
exercise, conversion or exchange of any Option or Convertible Security.

     “Fair Market Value” means (i) the average of the closing sales prices of
the Common Stock on all domestic national securities exchanges on which the
Common Stock is listed, or (ii) if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day or, (iii) if on any day the Common
Stock is not so listed, the sales price for the Common Stock as of 4:00 P.M.,
New York time, as reported on the NASDAQ National Market or, (iv) if the Common
Stock is not reported on the NASDAQ National Market, the average of the
representative bid and asked quotations for the Common Stock as of 4:00 P.M.,
New York time, as reported on the NASDAQ interdealer quotation system, or any
similar successor organization, in each such case averaged over a period of 21
trading days consisting of the day as of which “Fair Market Value” is being
determined and the 20 consecutive trading days prior to such day.
Notwithstanding the foregoing, if at any time of determination either (x) the
Common Stock is not registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, and either listed on a national securities
exchange or authorized for quotation in the NASDAQ system, or (y) less than 25%
of the outstanding Common Stock is held by the public free of transfer
restrictions under the Securities Act of 1933, as amended, then Fair Market
Value shall mean the price that would be paid per share for the entire common
equity interest in the Company in an orderly sale

11

 

transaction between a willing buyer and a willing seller, taking into
account the appropriate lack of liquidity of the Company’s securities and any
appropriate discount for the minority position represented by the Warrants and
Warrant Shares, using valuation techniques then prevailing in the securities
industry and assuming full disclosure of all relevant information and a
reasonable period of time for effectuating such sale. Fair Market Value shall
be determined by the Company’s Board of Directors in its good faith judgment.
A majority of the Required Holders shall have the right to require that an
independent investment banking firm mutually acceptable to the Company and the
Required Holders determine Fair Market Value, which firm shall submit to the
Company and the Warrant holders a written report setting forth such
determination. The expenses of such firm will be borne by the Company, and the
determination of such firm will be final and binding upon all parties.

     “Investors’ Agreement” means the Investors’ Rights Agreement, dated as of
May 20, 2002, among the Company and the signatories thereto, as such agreement
may be amended or modified from time to time.

     “Loan Participation Agreement” means the Loan Participation Agreement,
dated as of May 20, 2002, between Kimco Capital Corp. and Third Avenue Trust,
on behalf of the Third Avenue Real Estate Value Fund Series, as such agreement
may be amended or modified from time to time.

     “Permitted Issuance” means any issuance by the Company of (a) Common Stock
on or prior to the date hereof; (b) Common Stock upon exercise of the Warrants;
(c) Common Stock or rights or options to purchase any such shares issued to
employees or consultants of the Company or any direct or indirect subsidiary or
pursuant to one or more stock bonus or similar plans adopted by the Board of
Directors of the Company in an aggregate amount not to exceed 15% of the
outstanding Common Stock on a Diluted Basis; (d) Common Stock pursuant to an
underwritten offering of Common Stock registered under the Securities Act of
1933, as amended; or (e) Common Stock or rights or options to purchase any such
shares issued under Company’s plan of reorganization filed with the United
States Bankruptcy Court for the District of Maryland (Baltimore Division) or
under any agreement entered into in accordance with such plan.

     “Person” means any individual, partnership, joint venture, corporation,
trust, unincorporated organization or government or department or agency
thereof.

     “Registered Holder” means the holder of this Warrant as reflected in the
records of the Company maintained pursuant to Section 12.

     “Required Holders” means the holders of a majority of the purchase rights
represented by the Warrants as originally issued which remain outstanding and
unexercised.

     “Warrants” means the Stock Purchase Warrants, dated as of January 23,
2003, issued by the Company to Kimco Realty Services, Inc. representing the
right to purchase from the Company up to a total of 5,000,000 shares of Common
Stock (as adjusted pursuant to the terms thereof) together with any stock
purchase warrants issued in substitution, exchange or replacement therefor.

12

 

     “Warrant Shares” means shares of the Common Stock issuable upon exercise
of the Warrants; provided, that if the securities issuable upon exercise of the
Warrants are issued by an entity other than the Company or there is a change in
the class of securities so issuable, then the term “Warrant Shares” shall mean
shares of the security issuable upon exercise of the Warrants if such security
is issuable in shares, or shall mean the equivalent units in which such
security is issuable if such security is not issuable in shares.

     SECTION 5. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the Registered Holder hereof to any voting rights or other rights
as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such Registered Holder for the Exercise Price of
Warrant Shares acquirable by exercise hereof or as a stockholder of the
Company.

     SECTION 6. Restrictions. This Warrant and all rights hereunder are
transferable only to (i) Affiliates of each of Kimco Realty Services, Inc. and
Third Avenue Trust, on behalf of the Third Avenue Real Estate Value Fund
Series, and (ii) any Lender (as defined in the Credit Agreement) (including any
of the Lender’s Affiliates), and any Participant (as defined in the Loan
Participation Agreement) (including any of the Participant’s Affiliates) in
whole or in part, without charge to the Registered Holder, upon surrender of
this Warrant with a properly executed Assignment (in the form of Exhibit II
hereto) at the principal office of the Company.

     SECTION 7. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. At the request of the Registered Holder
(pursuant to a transfer of Warrants or otherwise), this Warrant may be
exchanged for one or more Warrants to purchase Common Stock. The date the
Company initially issues this Warrant shall be deemed to be the date of
issuance hereof regardless of the number of times new certificates representing
the unexpired and unexercised rights formerly represented by this Warrant shall
be issued.

     SECTION 8. Exchange. In the event that it becomes unlawful or, in the
reasonable judgment of any Registered Holder of this Warrant, unduly burdensome
by reason of a change in legal or regulatory considerations or the
interpretation thereof affecting the ability of financial institutions, real
estate investment trusts or their affiliates to hold equity securities, to hold
any or all of the Warrants or Warrant Shares, the Registered Holder of this
Warrant shall have the right to require the Company to use its reasonable best
efforts to permit all or part of such Registered Holder’s Warrants or Warrant
Shares to be exchanged for nonvoting stock or similar interests that convey
equivalent economic benefits to such Warrants or Warrant Shares and include
equivalent anti-dilution protection. To the extent that the Company may
lawfully do so after the exercise of its reasonable best efforts, any such
exchange shall occur as soon as practicable (within 60 days) after written
notice by the Registered Holder of this Warrant to the Company (or such earlier
date if required to comply with applicable law).

13

 

     SECTION 9. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided, that if the Registered Holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the Company
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the same rights represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.

     SECTION 10. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall
be delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered
Holder, at such Registered Holder’s address as it appears in the records of the
Company (unless otherwise indicated by any such Registered Holder).

     SECTION 11. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the Registered Holder.

     SECTION 12. Warrant Register. The Company shall maintain at its principal
executive offices books for the registration and the registration of transfer
of Warrants. The Company may deem and treat the Registered Holder as the
absolute owner hereof (notwithstanding any notation of ownership or other
writing hereon made by anyone) for all purposes and shall not be affected by
any notice to the contrary.

     SECTION 13. Fractions of Shares. The Company may, but shall not be
required to, issue a fraction of a Warrant Share upon the exercise of this
Warrant in whole or in part. As to any fraction of a share which the Company
elects not to issue, the Company shall make a cash payment in respect of such
fraction in an amount equal to the same fraction of the Fair Market Value of a
Warrant Share on the date of such exercise.

     SECTION 14. Registration Rights. The Registered Holder (and assignees
thereof) is entitled to the benefit of the registration rights in respect of
the Warrant Shares as are set forth in the Investors’ Agreement.

     SECTION 15. Company to Reaffirm Obligations. The Company will, at the
time of each exercise of this Warrant, upon the request of the Registered
holder hereof, acknowledge in writing its continuing obligation to afford to
such Registered Holder all rights (including, without limitation, any rights to
registration, pursuant to the Investors’ Agreement, of the shares of Common
Stock issued upon such exercise) to which such Registered Holder shall continue
to

14

 

be entitled after such exercise in accordance with the terms of this
Warrant, provided, that if the Registered Holder of this Warrant shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford such rights to such Registered Holder.

     SECTION 16. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. THE
CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS WARRANT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.

* * * * *

15

 

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.

	 
	FRANK’S NURSERY & CRAFTS, INC
	 
	By:________________________________________
	Name:
	Title:

[Corporate Seal]

Attest:

___________________________________________

Treasurer

 

EXHIBIT 1

EXERCISE AGREEMENT

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

FRANK’S NURSERY & CRAFTS, INC.

     The undersigned holder hereby exercises the right to purchase
______________________________of the shares of Common Stock (“Warrant Shares”) of Frank’s
Nursery & Crafts, Inc., a Delaware corporation (the “Company”), evidenced by
the attached Warrant (the “Warrant”). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

     1.     Form of Warrant Exercise Price. The Holder intends that payment of the
Warrant Exercise Price shall be made as:

         ______    a “Cash Exercise” with respect to __________Warrant Shares; and/or

         ______    a “Loan Exercise” with respect to ____________Warrant Shares.

     2.     Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise, Loan Exercise or combination thereof with respect to
some or all of the Warrant Shares to be issued pursuant hereto, the holder
shall:

     (a)  pay the sum of $ ______________to the Company in accordance with the
terms of the Warrant; and/or

     (b)  apply $ _____________________of the principal amount of the Term Loan (as
defined in the Credit Agreement) in accordance with the terms of the Warrant
[and/or apply $ __________________ of the principal amount of that certain Revolving
Credit Loan (as defined in the Credit Agreement) made on __________________ _____, 200_].

     3.     Delivery of Warrant Shares. The Company shall deliver to the holder
______________________Warrant Shares in accordance with the terms of the Warrant.

Date: _________________, _______, ______________

_____________________________________

               Name of Registered Holder

By:____________________________

   Name:

   Title:

 

EXHIBIT II

ASSIGNMENT

     FOR VALUE RECEIVED, ______________________________hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. ______________) with respect to the number of the Warrant Shares covered thereby set forth below, unto:

	 	 	 	 	 
	Names of Assignee	 	
Address
	 	No. of Shares

	 	 	 
	Dated:	 	
Signature   _______________________________________
	 	 	
                    _______________________________________
	 	 	
Witness   _______________________________________

 

EXHIBIT E TO

FIRST AMENDMENT

[SEE OPINION ATTACHED]

 

    January 23, 2003

Kimco Capital Corp.

3333 New Hyde Park Drive

New Hyde Park, NY 11042

Ladies and Gentlemen:

I have acted as counsel to Frank’s Nursery & Crafts, Inc., a Delaware
corporation (the “Borrower”), in connection with the preparation, execution and
delivery of, and the consummation of the transactions contemplated by the First
Amendment and Waiver to Credit and Security Agreement dated as of January 23,
2003 (the “First Amendment”), between the Borrower and Kimco Capital Corp. (the
“Lender”). All terms that are defined in the First Amendment shall have the
same meanings herein.

In so acting, I have examined executed copies of the First Amendment and the
Fundamental Documents. Based on the foregoing, and, I am of the opinion that:

1.     The Borrower (i) has been duly incorporated and is a corporation validly
existing and in good standing under the laws of the State of Delaware and (ii)
has all requisite corporate power and authority to own and operate its
properties and to conduct its business as now being conducted.

2.     The Borrower has all requisite corporate power and authority to execute and
deliver the First Amendment and the Fundamental Documents to which it is a
party and to perform its obligations thereunder. The execution, delivery and
performance by the Borrower of the First Amendment and the Fundamental
Documents and the consummation by it of the transactions contemplated by the
First Amendment and the Fundamental Documents have been duly authorized by all
necessary corporate action on the part of the Borrower. The First Amendment
and the Fundamental Documents have been duly executed and delivered by the
Borrower.

3.     The additional Liens granted to Lender as a result of the First Amendment
and the existing Liens granted to Lender have been duly granted and, upon
filing of all requisite filings, shall be duly perfected, and that the
obligations owing to Lender under the Credit Agreement are valid, binding and
unavoidable obligations of Borrower. However, I

 

 

express no opinion or view as to the priority of any security interest nor the
creation, attachment, perfection or priority of any Lien under the First
Amendment and the Fundamental Documents.

4.     The execution and delivery by the Borrower of the First Amendment and the
Fundamental Documents, the consummation of the transactions contemplated
thereby and compliance by it with the provisions thereof will not (i) violate
(a) any federal statute or regulation (other than federal and state securities
or “blue sky” laws, as to which I express no opinion) or the General
Corporation Law of the State of Delaware of a type typically applicable to
transactions contemplated by the First Amendment and the Fundamental Documents
(b) any judgment, writ, injunction, decree, order or ruling of any court or
governmental authority binding on the Borrower of which we are aware, (ii)
violate or result in the creation of a Lien (other than Permitted Liens and
Liens in favor of the Lender) or cause a default under any mortgage, agreement
with respect to borrowed money or material agreement to which Borrower is a
signatory or by which it is bound, except, in the case of clauses (i) and (ii)
for such violations or breaches which would not have a material adverse effect
on the Borrower, or (iii) contravene any provision of the certificate of
incorporation or by-laws of the Borrower.

5.     Each of the First Amendment and the Fundamental Documents constitutes the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms.

6.     Upon execution of the Additional Warrant Agreement, the Lender will acquire
good and marketable title to the warrants, issued thereunder, free and clear of
all liens, claims, charges, encumbrances, security interests or other adverse
claims of any kind. Upon exercise of the warrants issued under the Additional
Warrant Agreement, in whole or, from time to time, in part, and upon payment of
the exercise price in accordance with the terms of such warrants, the Lender
will acquire good and marketable title to the shares of Common Stock, free and
clear of all liens, claims, charges, encumbrances, security interests or other
adverse claims of any kind, and such shares shall be validly issued, fully paid
and non-assessable.

7.     The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock, par value .001 per share
(the “Preferred Stock”). Without taking into effect the transactions
contemplated by the First Amendment, there are 20,000,000 shares of Common
Stock outstanding and no shares of Preferred Stock outstanding. The
outstanding shares of capital stock of the Company have been duly and validly
authorized, have been issued in compliance with all federal and state
securities laws and were not issued in violation of or subject to any
enforceable preemptive rights or similar rights. Of the 20,000,000 outstanding
shares, as of the date hereof, 13,346,642 have been issued pursuant to
Borrower’s Plan of Reorganization. Except for the securities issued pursuant
to the Borrower’s stock option program, there are no outstanding (i) securities
or obligations of the Borrower convertible into or exercisable or exchangeable
for any shares of capital stock of the Borrower, (ii) warrants, rights or
options to subscribe for or purchase from the Borrower any shares of capital

 

 

stock or any such convertible or exchangeable securities or obligations, or
(iii) other than the Additional Warrant Agreement, obligations of the Borrower
to issue any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights, or options.

	 	Very truly yours,

	 	Michael D. McBride

Vice President Legal and Secretary

 

 

EXHIBIT F

TO FIRST AMENDMENT

[FORM OF CLOSING CERTIFICATE]

 

 

CLOSING CERTIFICATE

TO FIRST AMENDMENT

     THE UNDERSIGNED, Michael D. McBride, Vice President Legal and Secretary of
Frank’s Nursery & Crafts, Inc., (the “Company”), pursuant to the First
Amendment and Waiver to Credit and Security Agreement dated as of January 23,
2003, (the “First Amendment”; capitalized terms used but not defined herein
shall have the meanings assigned to them in the First Amendment), by and among
the Company, as Borrower, and Kimco Capital Corp., as Lender, does hereby
certify on behalf of the Company as follows:

	1.	 	No litigation, inquiry, injunction or restraining order is pending,
entered or threatened which involves the Credit Agreement or any of the
other Fundamental Documents or which could reasonably be expected to have
a Material Adverse Effect;
	 
	2.	 	All required consents and approvals have been obtained with respect to
the transactions contemplated by the Credit Agreement from each
Governmental Authority with jurisdiction over the business and activities
of the Borrower and from any other entity whose consent, waiver or
approval is required pursuant to the terms of existing contracts to which
the Borrower is bound;
	 
	3.	 	The transactions contemplated under the Credit Agreement do not violate
any provision of Applicable Law, or any order of any court or other agency
of the United States or any state thereof applicable to the Borrower or
any of its properties or assets;
	 
	4.	 	Each of the representations and warranties set forth in Section 5 of the
First Amendment, Article 2 of the Credit Agreement and in any other
Fundamental Document in existence on the date hereof are true and correct
in all material respects;
	 
	5.	 	Attached hereto (i) is a true and complete copy of the Certificate of
Incorporation and By-Laws of the Borrower as in effect on the date of the
First Amendment, (ii) is a true and complete copy of resolutions, in form
and substance reasonably satisfactory to Lender, adopted by the Board of
Directors of the Borrower, covering the items listed in Exhibit I hereto
and authorizing the Borrower to execute, deliver and perform under the
First Amendment, the Fundamental Documents and any other documents
required or contemplated thereunder and the granting of the security
interest, Mortgage and other Liens contemplated thereby; and (iii) is a
certificate as to the incumbency and specimen signature of each officer of
the Borrower executing this Closing Certificate, the First Amendment and
any other document delivered by it in connection therewith (such
certificate to contain a certification by another officer of the Borrower
as to the incumbency and signature of the officer signing the certificate
referred to in this clause (iii)); and

 

 

	6.	 	The Certificate of Incorporation attached hereto has not been amended
since the date of the last amendment thereto indicated on the certificate
of the Secretary of State furnished pursuant to clause (5) above.

[SIGNATURE PAGE FOLLOWS]

 

 

     IN WITNESS WHEREOF, I have signed my name to this Closing Certificate to
First Amendment as of this 23rd day of January, 2003.

	 	FRANK’S NURSERY & CRAFTS, INC.

	 	By:________________________________

Name:

Title:

 

 

EXHIBIT I TO

CLOSING CERTIFICATE

[ITEMS TO BE COVERED IN RESOLUTIONS]

ISSUANCE OF WARRANTS AND INVESTORS RIGHTS AGREEMENT

     RESOLVED, that this Corporation hereby approves, adopts and ratifies the
issuance of the Additional Warrants; and it is further

     RESOLVED, that the number of shares of this Corporation’s Common Stock
which may from time to time be issued in connection with the exercise of the
Additional Warrants be, and hereby are, reserved for such purposes; and it is
further

     RESOLVED, that any of the President, the Chief Executive Officer, the
Chief Financial Officer, the Chief Operating Officer, any Vice President, any
Senior Vice President, the Secretary, any Assistant Secretary, the Treasurer
and any Assistant Treasurer (each a “Proper Officer”), and each of them, are
hereby authorized, directed and empowered to make, execute and deliver, either
jointly or severally, for and on behalf of and in the name of this Corporation,
such stock purchase warrants and other agreements and instruments as may be
required to issue the Additional Warrants, such stock purchase warrants being
in the form of the draft dated January      , 2003, with such changes as the
Proper Officers executing the same may deem necessary or desirable, the
execution thereof to be conclusive evidence that such Proper Officer deemed any
changes therein to be necessary or desirable; and it is further

     RESOLVED, that the Board of Directors of this Corporation hereby declares
that the 5,000,000 shares of Common Stock when issued and sold upon exercise of
the Additional Warrants shall be validly issued, fully paid and non-assessable.

THE FIRST AMENDMENT

     RESOLVED, that any Proper Officer, and each of them, are hereby
authorized, directed and empowered to make, execute and deliver, either jointly
or severally, for and on behalf of and in the name of this Corporation,
financing, security and other agreements with Lender relating to the terms and
conditions upon which the First Amendment may be obtained from Lender and to
the security to be furnished by this Corporation therefor (including, without
limitation, an amendment to the Credit Agreement), related Uniform Commercial
Code financing statements, and any and all amendments, supplements,
modifications, extensions, renewals, replacements and agreements, documents and
instruments relating to the foregoing or requested by Lender, such credit and
security agreement being in the form of the draft dated January      , 2003, with
such changes as the Proper Officers executing the same may deem necessary or
desirable, the execution thereof to be conclusive evidence that such Proper
Officer deemed any changes therein to be necessary or desirable; and it is
further

 

 

     RESOLVED, that all the transactions contemplated by the First Amendment
be, and they hereby are, approved, authorized and adopted in all respects on
the terms and conditions set forth thereunder by the Board of Directors of the
Corporation; and it is further

     RESOLVED, that any of the Proper Officers, and each of them, are hereby
authorized, directed and empowered, for and on behalf of and in the name of the
Corporation: (a) to borrow from Lender such amount or amounts of money or
obtain such other financial accommodations as may be made available to the
Corporation by Lender at this time or any other time; (b) to extend or renew
any loan or loans or any installment of principal or interest thereof, or any
indebtedness owing to Lender; and (c) to enter into such related agreements or
arrangements with Lender at this time or at any other time as they, or any of
them may deem necessary or advisable, the execution thereof to be conclusive
evidence that such Proper Officers deemed such action to be necessary or
advisable; and it is further

     RESOLVED, that the Proper Officers, and each of the, for and on behalf of
and in the name of the Corporation, are hereby authorized, directed and
empowered to make, execute and deliver, from time to time, the note or notes or
other agreements of the Corporation, evidencing said loan or loans, extensions
or renewals; and it is further

     RESOLVED, that the Proper Officers, and each of them, for and on behalf
and in the name of the Corporation are hereby authorized, directed and
empowered to sell, transfer, lease, assign, hypothecate, set over, otherwise
transfer, grant security interests in, mortgage or pledge any or all of the
property of the Corporation, real, personal, or mixed, tangible or intangible,
now owned or hereafter acquired as security or otherwise to Lender; and it is
further

     RESOLVED, that said Proper Officers, and each of them, are hereby
authorized, directed and empowered to execute and deliver any and all
instruments, papers and documents (including, without limitation, warrant
agreements, notes, mortgages, deeds of trust, borrower’s certificates and
closing certificate) and to do all other acts that they may deem necessary or
advisable to effectuate the purpose and intent hereof or to further secure
Lender from time to time or otherwise, the execution and delivery of such
instruments, papers or documents or the taking of such action to be conclusive
evidence that such Proper Officers deem such execution, delivery or action to
be necessary or advisable.

GENERAL

     RESOLVED, that the Proper Officers of this Corporation be, and each of
them severally hereby is, empowered, authorized and directed to take such
actions as they may deem necessary or convenient to carry out the intent of any
and all of the foregoing resolutions in accordance therewith; and it is further

     RESOLVED, that the execution by such Officers of any such

 

 

instrument or paper or the doing by them of any act in connection with the
foregoing matters shall conclusively establish their authority therefore from
this Corporation and the approval and ratification by this Corporation of the
papers and documents so executed and the action so taken; and it is further

     RESOLVED, that all action heretofore or hereafter taken and all
documentation heretofore or hereafter delivered by any of said Proper Officers,
or by any individual who currently holds or has held any of said offices, in
furtherance of the foregoing is hereby ratified, adopted, approved and
confirmed and declared to be binding and enforceable obligations of the
Corporation in accordance with the respective terms and provision thereof; and
it is further

     RESOLVED, that each of the foregoing actions is fair and reasonable under
the circumstances and, in the business judgment of the directors, is in the
best interests of the Corporation.

 

 

SCHEDULE A TO

FIRST AMENDMENT

[EXISTING DEFAULTS]

Section 6.1(n) of the Credit Agreement.

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