Document:

Exhibit
10.16

 

 

 

 

June 24, 2003

 

 

Mr. Timothy R. LaBeau

9705 Rocky Point

Clarence, NY 14031

 

Dear Tim:

 

This letter will confirm
an offer of employment to you by Duane Reade Inc.

 

Your initial assignment
will be as Senior Vice President/Merchandising, reporting directly to Mr. Tony
Cuti, Chairman/ C.E.O.  You will be
based at our headquarters office located at 440 9th Avenue, New
York, NY.  Your initial salary will be
$385,000.00 per/year, ($14,807.70 Bi-Weekly). 
Future salary increases will be based on demonstrated job
performance.  Your performance will be
reviewed each year.  Future salary
adjustments will be in accordance to Company policy and practice.

 

You will be eligible to
join the company’s executive benefit program upon beginning employment.  You will be eligible to join the Company’s
401K program on the first of the month of the quarter following your ninety
(90) day anniversary.  You will be
eligible for three (3) weeks vacation each calendar year.  Please be aware that Duane Reade’s vacation policy
does not allow carryover from year to year. 
Therefore, if the three weeks are not taken they are forfeited each
year.

 

It is committed that you
will join the company’s performance incentive plan at fifty percent (50 %) of
your annual salary.  The program is
based on the attainment of company performance towards Earnings per Share (EPS)
targets and can be increased to a maximum of one hundred percent (100%) or
decreased based on the actual company results. 
Actual incentive payments will be paid yearly, usually at the end of the
first quarter of each year, after Board approval.  The Company will guarantee a minimum of a Seventy-Five Thousand
payout with first year incentive, ($75,000.00).

 

It was also committed
that you will be eligible to receive seventy-five thousand (75,000) shares of
Duane Reade stock options at a price equivalent to the average trading price
for five (5) trading days prior to the first day of your employment.  Twenty percent (20%) of the shares will vest
at the end of each anniversary of your employment with Duane Reade Inc.

 

Your employment with the
Company will be “at will,” meaning that either you or the Company will be
entitled to terminate your employment at any time and for any reason, with or
without cause.  Except as set forth in
the following sentence, in the event of termination other than for “cause,” you
will be paid severance equal to one year salary at your then current
salary.  For purposes of this Agreement
“cause” shall mean termination for: (1) a repeated refusal to comply with a
lawful directive of the Chief Executive Officer, (2) serious misconduct,
dishonesty or disloyalty directly related to the performance of duties for the
Company, which results from a willful act or omission and which is materially
injurious to the operations, financial condition or business reputation of the
Company or any significant subsidiary thereof; (3) being convicted (or entering
into a plea bargain admitting criminal guilt) in any criminal proceeding that
may have an adverse impact on the Company’s reputation and standing in the
community; (4) willful and continued failure to substantially perform your
duties under this Agreement; or (5) any other material

 

 

breach of this
Agreement.  In the event of termination
for cause, you will be entitled to any unpaid salary through the date of
termination, plus any earned and accrued unused vacation pay or deferred
compensation payments.  You will not be
entitled to any other compensation from the Company, including, without
limitations, severance pay.

 

You will be reimbursed
for all normal business expenses in accordance to Company policy.  The Company will provide relocation
assistance of up to $125,000.00 net for expenses related to relocation (ie:
moving expense, closing costs etc.).  It
is committed that you and your family will endeavor to relocate to the New York
City metro vicinity within three (3) months of your start date.  The Company will provide temporary living
during relocation for a period of three (3) months.

 

I believe this covers
everything.  We all look forward to you
joining our Executive team on Monday, July 21, 2003.  Please do not hesitate to call Tony, Gary or me if you have any
questions.

 

 

Sincerely,

	
   

  
	
  /s/ Jim Rizzo

  
	
  Jim Rizzo

  
	
  Vice President

  
	
  Human Resources

  

 

 

	
  /s/ Timothy R. LaBeau

  	
   

  
	
  Timothy R. LaBeau/Date

  	
   

  
	
   

  
	
  CC:

  	
  Mr. Tony Cuti –
  Chairman/C.E.O.

  
	
   

  	
  Mr. Gary Charboneau –
  SVP/Sales and Marketing

  
			

 

2Exhibit 10.17

 

CREDIT AGREEMENT

 

dated as of 

July 21, 2003

 

among

 

DUANE READE

As Borrower

 

DUANE READE INC.

DRI I INC.

DUANE READE INTERNATIONAL, INC.

DUANE READE REALTY, INC.

As Facility Guarantors

 

The LENDERS Party Hereto,

 

FLEET NATIONAL BANK

as Administrative Agent and Issuing Bank

 

FLEET RETAIL FINANCE INC.

as Collateral Agent

 

CONGRESS FINANCIAL CORPORATION

as Documentation Agent

 

GENERAL ELECTRIC CAPITAL CORPORATION

as Syndication Agent

 

and

 

FLEET SECURITIES INC.

as Arranger

 

 

 

TABLE OF CONTENTS

 

	

  ARTICLE I

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Definitions

  
	

   

  	

   

  	

   

  
	

   

  	

  SECTION 1.01

  	

  Defined Terms

  
	

   

  	

  SECTION 1.02

  	

  Terms Generally

  
	

   

  	

  SECTION 1.03

  	

  Accounting Terms; GAAP

  
	

   

  	

   

  	

   

  
	

  ARTICLE II

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Amount and Terms of Credit

  
	

   

  	

   

  	

   

  
	

   

  	

  SECTION 2.01

  	

  Commitment of the Lenders

  
	

   

  	

  SECTION 2.02

  	

  Increase in Total Commitment

  
	

   

  	

  SECTION 2.03

  	

  Reserves; Changes to Reserves

  
	

   

  	

  SECTION 2.04

  	

  Making of Loans

  
	

   

  	

  SECTION 2.05

  	

  Overadvances

  
	

   

  	

  SECTION 2.06

  	

  Swingline Loans

  
	

   

  	

  SECTION 2.07

  	

  Letters of Credit

  
	

   

  	

  SECTION 2.08

  	

  Settlements Amongst Lenders

  
	

   

  	

  SECTION 2.09

  	

  Notes; Repayment of Loans

  
	

   

  	

  SECTION 2.10

  	

  Interest on Loans

  
	

   

  	

  SECTION 2.11

  	

  Default Interest

  
	

   

  	

  SECTION 2.12

  	

  Certain Fees

  
	

   

  	

  SECTION 2.13

  	

  Unused Commitment Fee

  
	

   

  	

  SECTION 2.14

  	

  Letter of Credit Fees

  
	

   

  	

  SECTION 2.15

  	

  Nature of Fees

  
	

   

  	

  SECTION 2.16

  	

  Termination or Reduction of Commitments

  
	

   

  	

  SECTION 2.17

  	

  Alternate Rate of Interest

  
	

   

  	

  SECTION 2.18

  	

  Conversion and Continuation of Loans

  
	

   

  	

  SECTION 2.19

  	

  Mandatory Prepayment; Commitment

  Termination; Cash Collateral

  
	

   

  	

  SECTION 2.20

  	

  Optional Prepayment of Loans; Reimbursement

  of Lenders

  
	

   

  	

  SECTION 2.21

  	

  Maintenance of Loan Account; Statements of

  Account

  
	

   

  	

  SECTION 2.22

  	

  Cash Receipts

  
	

   

  	

  SECTION 2.23

  	

  Application of Payments

  
	

   

  	

  SECTION 2.24

  	

  Increased Costs

  
	

   

  	

  SECTION 2.25

  	

  Change in Legality

  
	

   

  	

  SECTION 2.26

  	

  Payments; Sharing of Setoff

  
	

   

  	

  SECTION 2.27

  	

  Taxes

  
	

   

  	

  SECTION 2.28

  	

  Security Interests in Collateral

  
	

   

  	

  SECTION 2.29

  	

  Mitigation Obligations; Replacement of

  Lenders.

  

 

ii

 

	

  ARTICLE III

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Representations and Warranties

  
	

   

  	

   

  	

   

  
	

   

  	

  SECTION 3.01

  	

  Organization; Powers

  
	

   

  	

  SECTION 3.02

  	

  Authorization; Enforceability

  
	

   

  	

  SECTION 3.03

  	

  Governmental Approvals; No Conflicts

  
	

   

  	

  SECTION 3.04

  	

  Financial Condition

  
	

   

  	

  SECTION 3.05

  	

  Properties

  
	

   

  	

  SECTION 3.06

  	

  Litigation and Environmental Matters

  
	

   

  	

  SECTION 3.07

  	

  Compliance with Laws and Agreements

  
	

   

  	

  SECTION 3.08

  	

  Investment and Holding Company Status

  
	

   

  	

  SECTION 3.09

  	

  Taxes

  
	

   

  	

  SECTION 3.10

  	

  ERISA

  
	

   

  	

  SECTION 3.11

  	

  Disclosure

  
	

   

  	

  SECTION 3.12

  	

  Subsidiaries

  
	

   

  	

  SECTION 3.13

  	

  Insurance

  
	

   

  	

  SECTION 3.14

  	

  Labor Matters

  
	

   

  	

  SECTION 3.15

  	

  Security Documents

  
	

   

  	

  SECTION 3.16

  	

  Federal Reserve Regulations

  
	

   

  	

  SECTION 3.17

  	

  Solvency

  
	

   

  	

  SECTION 3.18

  	

  Pharmaceutical Laws

  
	

   

  	

   

  	

   

  
	

  ARTICLE IV

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Conditions

  
	

   

  	

   

  	

   

  
	

   

  	

  SECTION 4.01

  	

  Closing Date

  
	

   

  	

  SECTION 4.02

  	

  Conditions Precedent to Each Loan and Each

  Letter of Credit

  
	

   

  	

   

  	

   

  
	

  ARTICLE V

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Affirmative Covenants

  
	

   

  	

   

  	

   

  
	

   

  	

  SECTION 5.01

  	

  Financial Statements and Other Information

  
	

   

  	

  SECTION 5.02

  	

  Notices of Material Events

  
	

   

  	

  SECTION 5.03

  	

  Information Regarding Collateral

  
	

   

  	

  SECTION 5.04

  	

  Existence; Conduct of Business

  
	

   

  	

  SECTION 5.05

  	

  Payment of Obligations

  
	

   

  	

  SECTION 5.06

  	

  Maintenance of Properties

  
	

   

  	

  SECTION 5.07

  	

  Insurance

  
	

   

  	

  SECTION 5.08

  	

  Casualty and Condemnation

  
	

   

  	

  SECTION 5.09

  	

  Books and Records; Inspection and Audit

  Rights

  
	

   

  	

  SECTION 5.10

  	

  Physical Inventories

  
	

   

  	

  SECTION 5.11

  	

  Compliance with Laws

  
	

   

  	

  SECTION 5.12

  	

  Use of Proceeds and Letters of Credit

  
	

   

  	

  SECTION 5.13

  	

  Additional Subsidiaries

  
	

   

  	

  SECTION 5.14

  	

  Further Assurances

  

 

iii

 

	

  ARTICLE VI

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Negative Covenants

  
	

   

  	

   

  	

   

  
	

   

  	

  SECTION 6.01

  	

  Indebtedness and Other Obligations

  
	

   

  	

  SECTION 6.02

  	

  Liens

  
	

   

  	

  SECTION 6.03

  	

  Fundamental Changes

  
	

   

  	

  SECTION 6.04

  	

  Investments, Loans, Advances, Guarantees and

  Acquisitions

  
	

   

  	

  SECTION 6.05

  	

  Asset Sales

  
	

   

  	

  SECTION 6.06

  	

  Restricted Payments; Certain Payments of

  Indebtedness

  
	

   

  	

  SECTION 6.07

  	

  Transactions with Affiliates

  
	

   

  	

  SECTION 6.08

  	

  Restrictive Agreements

  
	

   

  	

  SECTION 6.09

  	

  Amendment of Material Documents

  
	

   

  	

  SECTION 6.10

  	

  Additional Subsidiaries

  
	

   

  	

  SECTION 6.11

  	

  Fixed Charge Coverage Ratio

  
	

   

  	

  SECTION 6.12

  	

  Fiscal Year

  
	

   

  	

  SECTION 6.13

  	

  Environmental Laws

  
	

   

  	

   

  	

   

  
	

  ARTICLE VII

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Events of Default

  
	

   

  	

   

  	

   

  
	

   

  	

  SECTION 7.02

  	

  When Continuing

  
	

   

  	

  SECTION 7.03

  	

  Remedies on Default

  
	

   

  	

  SECTION 7.04

  	

  Application of Proceeds

  
	

   

  	

   

  	

   

  
	

  ARTICLE VIII

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  The Agents

  
	

   

  	

   

  	

   

  
	

   

  	

  SECTION 8.01

  	

  Administration by Administrative Agent

  
	

   

  	

  SECTION 8.02

  	

  The Collateral Agent

  
	

   

  	

  SECTION 8.03

  	

  Sharing of Excess Payments

  
	

   

  	

  SECTION 8.04

  	

  Agreement of Required Lenders

  
	

   

  	

  SECTION 8.05

  	

  Liability of Agents

  
	

   

  	

  SECTION 8.06

  	

  Notice of Default

  
	

   

  	

  SECTION 8.07

  	

  Lenders’ Credit Decisions

  
	

   

  	

  SECTION 8.08

  	

  Reimbursement and Indemnification

  
	

   

  	

  SECTION 8.09

  	

  Rights of Agents

  
	

   

  	

  SECTION 8.10

  	

  Independent Lenders and Issuing Bank

  
	

   

  	

  SECTION 8.11

  	

  Notice of Transfer

  
	

   

  	

  SECTION 8.12

  	

  Successor Agent

  
	

   

  	

  SECTION 8.13

  	

  Reports and Financial Statements

  
	

   

  	

  SECTION 8.14

  	

  Delinquent Lender

  
	

   

  	

  SECTION 8.15

  	

  Documentation Agent and Arranger

  
	

   

  	

   

  	

   

  
	

  ARTICLE IX

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

  Miscellaneous

  

 

iv

 

	

   

  	

  SECTION 9.01

  	

  Notices

  
	

   

  	

  SECTION 9.02

  	

  Waivers; Amendments

  
	

   

  	

  SECTION 9.03

  	

  Expenses; Indemnity; Damage Waiver

  
	

   

  	

  SECTION 9.04

  	

  Successors and Assigns

  
	

   

  	

  SECTION 9.05

  	

  Survival

  
	

   

  	

  SECTION 9.06

  	

  Counterparts; Integration; Effectiveness

  
	

   

  	

  SECTION 9.07

  	

  Severability

  
	

   

  	

  SECTION 9.08

  	

  Right of Setoff

  
	

   

  	

  SECTION 9.09

  	

  Governing Law; Jurisdiction; Consent to

  Service of Process

  
	

   

  	

  SECTION 9.10

  	

  WAIVER OF JURY TRIAL

  
	

   

  	

  SECTION 9.11

  	

  Headings

  
	

   

  	

  SECTION 9.12

  	

  Interest Rate Limitation

  
	

   

  	

  SECTION 9.13

  	

  Additional Waivers

  
	

   

  	

  SECTION 9.14

  	

  Confidentiality

  

 

v

 

EXHIBITS

 

	

  A.

  	

  Assignment and Acceptance

  
	

  B-1.

  	

  Revolving Notes

  
	

  B-2

  	

  Swingline Note

  
	

  C

  	

  Opinion of Counsel to Loan Parties

  
	

  D.

  	

  Form of Compliance Certificate

  
	

  E.

  	

  Borrowing Base Certificate

  

 

vi

 

SCHEDULES

 

	

  1.1

  	

  Lenders and Commitments

  
	

  2.22(a)

  	

  DDAs

  
	

  2.22(b)

  	

  Credit Card Arrangements

  
	

  2.22(c)

  	

  Blocked Accounts

  
	

  2.22(f)

  	

  Disbursement Accounts

  
	

  3.05(c)(i)

  	

  Title to Properties; Real Estate Owned

  
	

  3.05(c)(ii)

  	

  Leased Properties

  
	

  3.06

  	

  Disclosed Matters

  
	

  3.09

  	

  Taxes

  
	

  3.12

  	

  Subsidiaries

  
	

  3.13

  	

  Insurance

  
	

  5.01(i)

  	

  Financial Reporting Requirements

  
	

  6.01

  	

  Indebtedness

  
	

  6.02

  	

  Liens

  
	

  6.04

  	

  Investments

  
	

  6.07

  	

  Transactions with Affiliates

  

 

vii

 

CREDIT AGREEMENT dated as

of   July 21, 2003 among

 

DUANE READE, a New York general partnership,

having its principal place of business at 440 Ninth Avenue, New York, New

York 10001; and

 

DUANE READE INC. a Delaware corporation,

having its principal place of business at 440 Ninth Avenue, New York, New York

10001; and

 

DRI I INC., a Delaware corporation, having its

principal place of business at 440 Ninth Avenue, New York, New York 10001; and

 

DUANE READE INTERNATIONAL, INC., a Delaware

corporation, having a mailing address at P.O. Box 32216, Newark, New Jersey

07102; and

 

DUANE READE REALTY, INC., a Delaware

corporation, having its principal place of business at 440 Ninth Avenue, New

York, New York 10001; and

 

the LENDERS party hereto; and

 

FLEET NATIONAL BANK, as Issuing Bank, a

national banking association having a place of business at 100 Federal Street,

Boston, Massachusetts 02110; and

 

FLEET NATIONAL BANK, as Administrative Agent

for the Lenders, a national banking association having a place of business at

100 Federal Street, Boston, Massachusetts 02110; and

 

FLEET RETAIL FINANCE INC., as Collateral Agent

for the Lenders, a Delaware corporation, having its principal place of business

at 40 Broad Street, Boston, Massachusetts 02109; and

 

CONGRESS FINANCIAL CORPORATION, as

Documentation Agent; and

 

GENERAL ELECTRIC CAPITAL CORPORATION, as

Syndication Agent

 

in consideration of the mutual covenants

herein contained and benefits to be derived herefrom.

 

ARTICLE I

 

Definitions

 

SECTION 1.01       Defined

Terms. As used in this Agreement, the following terms have the meanings

specified below:

 

“ACH” shall mean automated clearing

house transfers.

 

“Account” shall mean “accounts” as

defined in the UCC, and also all: 

accounts, accounts receivable, receivables, and rights to payment

(whether or not earned by performance) for: property that has been or is to be

sold, leased, licensed, assigned, or otherwise disposed of; services rendered

or to be rendered; a policy of insurance issued or to be issued; a secondary

 

1

 

obligation incurred or to be incurred; arising

out of the use of a credit or charge card or information contained on or used

with that card.

 

“Additional Commitment Lender” has the

meaning provided therefor in Section 2.02(a).

 

“Adjusted LIBO Rate” means, with

respect to any LIBO Borrowing for any Interest Period, an interest rate per

annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the

LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve

Rate.  The Adjusted LIBO Rate will be

adjusted automatically as to all LIBO Rate Loans then outstanding as of the

effective date of any change in the Statutory Reserve Rate.

 

“Administrative Agent” means Fleet, in

its capacity as administrative agent for the Lenders hereunder.

 

“Affiliate” means, with respect to a

specified Person, another Person that directly, or indirectly through one or

more intermediaries, Controls or is Controlled by or is under common Control

with the Person specified.

 

“Agents” shall mean collectively, the

Administrative Agent and the Collateral Agent.

 

“Agreement” means this Credit

Agreement, as modified, amended, supplemented or restated, and in effect from

time to time.

 

“Agreement Value” means, for each Hedge

Agreement, on any date of determination, an amount determined by the Administrative

Agent equal to:

 

(a)                                  in the case of a Hedge Agreement

documented pursuant to the Master Agreement (Multicurrency-Cross Border)

published by the International Swap and Derivatives Association, Inc. (the

“Master Agreement”), the amount, if any, that would be payable by any Loan

Party or any of its Subsidiaries to its counterparty to such Hedge Agreement,

as if (i) such Hedge Agreement was being terminated early on such date of

determination, (ii) such Loan Party or Subsidiary was the sole “Affected Party”,

and (iii) the Administrative Agent was the sole party determining such payment

amount (with the Administrative Agent making such determination pursuant to the

provisions of the form of Master Agreement); or

 

(b)                                 in the case of a Hedge Agreement

traded on an exchange, the mark-to-market value of such Hedge Agreement, which

will be the unrealized loss on such Hedge Agreement to the Loan Party or

Subsidiary of a Loan Party to such Hedge Agreement determined by the

Administrative Agent based on the settlement price of such Hedge Agreement on

such date of determination; or

 

(c)                                  in all other cases, the

mark-to-market value of such Hedge Agreement, which will be the unrealized loss

on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party party to

such Hedge Agreement determined by the Administrative Agent as the amount, if

any, by which (i) the present value of the future cash flows to be paid by such

Loan Party or Subsidiary exceeds (ii) the present value of the future cash

flows to be received by such Loan Party or Subsidiary pursuant to such Hedge

Agreement; capitalized terms used and not otherwise defined in this

 

2

 

definition shall have the respective meanings

set forth in the above described Master Agreement.

 

“Amerisource Bergen” means

AmerisourceBergen Drug Corporation, a Delaware corporation, and the successor

to Bergen Brunswig Drug Company.

 

“Amerisource Bergen Agreement” means

the Prime Vendor and Consignment Agreement dated November 12, 1999 between

Amerisource Bergen and the Borrower, as modified, amended, supplemented or

restated and in effect from time to time.

 

“Applicable Law” means as to any

Person: (i) all statutes, rules, regulations, orders, or other requirements

having the force of law and (ii) all court orders and injunctions, and/or

similar rulings, in each instance ((i) and (ii)) of or by any Governmental

Authority, or court, or tribunal which has jurisdiction over such Person, or

any property of such Person, or of any other Person for whose conduct such

Person would be responsible.

 

“Applicable Margin” means initially,

the rates for Prime Rate Loans and LIBO Loans, set forth in Level 2, below:

 

	

  Level

  	

   

  	

  Performance Criteria

  	

   

  	

  Prime Rate Loans

  	

   

  	

  LIBO Loans

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  1

  	

   

  	

  Average Excess Availability greater

  than $75,000,000

  	

   

  	

  0

  	

  %

  	

  1.50

  	

  %

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  2

  	

   

  	

  Average Excess Availability greater

  than $40,000,000 but less than or equal to $75,000,000

  	

   

  	

  0.25

  	

  %

  	

  1.75

  	

  %

  
	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  	

   

  
	

  3

  	

   

  	

  Average Excess Availability less than

  or equal to $40,000,000

  	

   

  	

  0.50

  	

  %

  	

  2.00

  	

  %

  

 

Except as provided in the following sentence,

the Applicable Margin shall be adjusted quarterly as of the first day of each

Fiscal Quarter, based upon the average Excess Availability for the immediately

preceding Fiscal Quarter. Notwithstanding the foregoing, the Applicable Margin

will be set at Level 2 on the Closing Date and will remain at Level 2 until the

first anniversary of the Closing Date. In no event shall the Applicable Margin

be set at Level 1 prior to the first anniversary of the Closing Date (even if

the Excess Availability requirements for Level 1 have been met). Upon the

occurrence of an Event of Default, at the option of the Administrative Agent or

at the direction of the Required Lenders, interest shall be determined in the

manner set forth in Section 2.11.

 

“ Appraisal Percentage” shall mean 85%.

 

3

 

“Appraised Value” means the net

appraised liquidation value of the Borrower’s Eligible Inventory as set forth

in the Borrower’s stock ledger and of the Borrower’s prescription lists as

determined from time to time by an independent appraiser satisfactory to the

Administrative Agent.

 

“Arranger” means FSI.

 

“Assignment and Acceptance” means an

assignment and acceptance entered into by a Lender and an assignee (with the

consent of any party whose consent is required by Section 9.04), and accepted

by the Administrative Agent, in the form of Exhibit A or any other form

approved by the Administrative Agent.

 

“Availability Reserves” means such

reserves as the Administrative Agent from time to time determines in the

Administrative Agent’s Permitted Discretion (after consultation with the

Borrower (whose consent to any Availability Reserve shall not be required)) as

being appropriate to reflect the impediments to the Agents’ ability to realize

upon the Collateral. Without limiting the generality of the foregoing,

Availability Reserves may include (but are not limited to) reserves based on

(i) rent; (ii) Gift Certificates and Merchandise Credit Liability; (iii)

customs, duties, and other costs to release Inventory which is being imported

into the United States; (iv) outstanding customer deposits, and (v) outstanding

Taxes and other governmental charges, including, ad valorem, real estate,

personal property, sales, and other Taxes which might have priority over the

interests of the Collateral Agent in the Collateral.

 

“Blocked Account Agreements” has the

meaning set forth in Section 2.22(c).

 

“Blocked Account Banks” shall mean the

banks with whom the Borrower has entered into Blocked Account Agreements.

 

“Blocked Accounts” shall have the

meaning set forth in Section 2.22(c).

 

“Board” means the Board of Governors of

the Federal Reserve System of the United States of America.

 

“Borrower” means Duane Reade, a New

York general partnership.

 

“Borrower Partnership Agreement” shall

mean the Second Amended and Restated Agreement of Partnership of Duane Reade,

dated as of September 25, 1992 between Daboco and DRI I, as in effect on the

Closing Date, and as amended or otherwise modified from time to time in

accordance with the terms hereof and thereof.

 

“Borrowing” shall mean (a) the

incurrence of Loans of a single Type, on a single date and having, in the case

of LIBO Loans, a single Interest Period, or (b) a Swingline Loan.

 

“Borrowing Base” means, at any time of

calculation, an amount equal to

 

(a)           the

Credit Card Advance Rate multiplied by the

face amount of Eligible Credit Card Receivables, plus

 

4

 

(b)           the

lesser of (i) the Appraisal Percentage of the Appraised Value of Eligible

Inventory, net of Inventory Reserves, or (ii) the Inventory Advance Rate multiplied by the Cost of Eligible

Inventory net of Inventory Reserves; plus

 

(c)           the

Receivables Advance Rate multiplied by the face amount of Eligible Third Party

Receivables; minus

 

(d)           the

then amount of all Availability Reserves.

 

“Borrowing Base Certificate” has the

meaning assigned to such term in Section 5.01(f).

 

“Borrowing Request” means a request by

the Borrower for a Borrowing in accordance with Section 2.04.

 

“Breakage Costs” shall have the meaning

set forth in Section 2.20(b).

 

“Business Day” means any day that is

not a Saturday, Sunday or other day on which commercial banks in Boston, Massachusetts

or New York, New York are authorized or required by law to remain closed, provided

that, when used in connection with a LIBO Loan, the term “Business Day” shall

also exclude any day on which banks are not open for dealings in dollar

deposits in the London interbank market. 

Except as otherwise provided herein, if any day on which a payment is

due is not a Business Day, then the payment shall be due on the next day

following which is a Business Day and such extension of time shall be included

in computing interest and fees in connection with such payment.

 

“Capital Expenditures” means, for any

period, (a) all expenditures made or costs incurred (whether made in the form

of cash or other property) for the acquisition, improvement or repair of fixed

or capital assets of the Parent and its Subsidiaries (including, without

limitation, prescription lists), in each case that are (or would be) set forth

in a Consolidated statement of cash flows of the Parent and its Subsidiaries

for such period prepared in accordance with GAAP as capital expenditures, and

(b) Capital Lease Obligations incurred by the Parent and its Subsidiaries

during such period.

 

“Capital Lease Obligations” of any

Person means the obligations of such Person to pay rent or other amounts under

any lease of (or other arrangement conveying the right to use) real or personal

property, or a combination thereof, which obligations are required to be

classified and accounted for as capital leases on a balance sheet of such

Person under GAAP, and the amount of such obligations shall be the capitalized

amount thereof determined in accordance with GAAP.

 

“Cash Collateral Account” shall mean an

interest-bearing account established by the Borrower with the Collateral Agent

at Fleet under the sole and exclusive dominion and control of the Collateral

Agent designated as the “Duane Reade Cash Collateral Account”.

 

“Cash Receipts” has the meaning

provided therefor in Section 2.22(c).

 

“CERCLA” means the Comprehensive

Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et

seq.

 

“Change in Control” means, at any time,

(a) during any period of twelve months, individuals who at the beginning of

such period constituted the board of directors of the Parent

 

5

 

(together with any new directors whose

election or appointment by such board of directors, or whose nomination for

election by shareholders of the Parent, as the case may be, was approved by a

vote of a majority of the directors still in office who were either directors

at the beginning of such period or whose election or nomination for election

was previously so approved) cease for any reason to constitute a majority of

the board of directors then in office; or (b) any person or group (within the

meaning of the Securities and Exchange Act of 1934, as amended) is or becomes

the beneficial owner (within the meaning of Rule 13d-3 and 13d-5 of the

Securities and Exchange Act of 1934, as amended, except that such person shall

be deemed to have “beneficial ownership” of all shares that such person has the

right to acquire, whether such right is exercisable immediately or only after

the passage of time) directly or indirectly of thirty-five percent (35%) or

more of the total then outstanding voting power of the Voting Stock of the

Parent on a fully diluted basis, whether as a result of the issuance of

securities of the Parent, any merger, consolidation, liquidation or dissolution

of the Parent, any direct or indirect transfers of securities or otherwise, or

has the right or ability to Control the Parent; or (c) (i) the failure of the

Parent or DRI I to be a general partner of the Borrower, or (ii) the failure of

the Parent or DRI I at any time to own, directly or indirectly, 100% of the

capital stock or other equity interests of the Borrower free and clear of all

Liens (other than the Liens in favor of the Collateral Agent for the benefit of

the Secured Parties under the Loan Documents and restrictions on transfer of

ownership set forth in the Partnership Agreement); or (d) the failure of the

Parent at any time to own, directly or indirectly, 100% of the capital stock or

other equity interests of DRI I free and clear of all Liens (other than the

Liens in favor of the Collateral Agent for the benefit of the Secured Parties

under the Loan Documents), or (e) any “Change in Control” as such term is

defined in the Convertible Indenture shall have occurred.

 

“Change in Law” means (a) the adoption

of any law, rule or regulation after the date of this Agreement, (b) any change

in any law, rule or regulation or in the interpretation or application thereof

by any Governmental Authority after the date of this Agreement or (c)

compliance by any Lender or the Issuing Bank (or, for purposes of Section

2.24(b), by any lending office of such Lender or by such Lender’s or the

Issuing Bank’s holding company, if any) with any request, guideline or

directive (whether or not having the force of law) of any Governmental

Authority made or issued after the date of this Agreement.

 

“Charges” has the meaning provided

therefor in Section 9.12.

 

“Closing Date” means the date on which

the conditions specified in Section 4.01 are satisfied (or waived in accordance

with Section 9.02).

 

“CMLTD” means current maturities of

long term Indebtedness of the Parent and its Subsidiaries, as determined in

accordance with GAAP.

 

“Code” means the Internal Revenue Code

of 1986 and the Treasury regulations promulgated thereunder, as amended from

time to time.

 

“Collateral” means any and all

“Collateral” as defined in any applicable Security Document.

 

“Collateral Agent” means FRF, in its

capacity as collateral agent under the Security Documents.

 

6

 

“Commercial Letter of Credit” means any

Letter of Credit issued for the purpose of providing the primary payment

mechanism in connection with the purchase of any materials, goods or services

by the Borrower in the ordinary course of business of the Borrower.

 

“Commitment” shall mean, with respect

to each Lender, the aggregate commitment of such Lender hereunder in the amount

set forth opposite its name on Schedule 1.1 hereto or as may subsequently be set forth in the Register

from time to time, as the same may be (i) reduced from time to time pursuant to

Section 2.16 or (ii) increased from time to time pursuant to Section 2.02

hereof.

 

“Commitment Fee” has the meaning

provided therefor in Section 2.13.

 

“Commitment Increase” has the meaning

provided therefor in Section 2.02(a).

 

“Commitment Percentage” shall mean, with

respect to each Lender, that percentage of the Commitments of all Lenders

hereunder in the amount set forth opposite its name on Schedule 1.1 hereto or as may subsequently

be set forth in the Register from time to time, as the same may be (i) reduced

from time to time pursuant to Section 2.16 or (ii) increased from time to time

pursuant to Section 2.02 hereof.

 

“Consent” means actual consent given by

a Lender from whom such consent is sought; or the passage of fifteen (15)

Business Days from receipt of written notice to a Lender from the

Administrative Agent of a proposed course of action to be followed by the

Administrative Agent without such Lender’s giving the Administrative Agent

written notice of that Lender’s objection to such course of action.

 

“Consolidated” means, when used to

modify a financial term, test, statement, or report of a Person, refers to the

application or preparation of such term, test, statement or report (as

applicable) based upon the consolidation, in accordance with GAAP, of the financial

condition or operating results of such Person and its Subsidiaries.

 

“Consolidated EBITDA” means for any

period, the result for such period of (i) Consolidated Net Income, plus

(ii) depreciation, amortization, and all other non-cash charges that were

deducted in arriving at Consolidated Net Income for such period plus

(iii) provisions for Taxes based on income that were deducted in arriving at

Consolidated Net Income for such period, plus (iv) Consolidated Interest

Expense, all as determined on a Consolidated basis in accordance with GAAP.

 

“Consolidated Interest Expense” means,

for any period for any Person, total interest expense (including that

attributable to Capital Lease Obligations in accordance with GAAP) of such

Person and its Subsidiaries on a Consolidated basis with respect to all

outstanding Indebtedness of such Person and its Subsidiaries, including,

without limitation, all commissions, discounts and other fees and charges owed

with respect to letters of credit and bankers’ acceptance financing and net

costs under Hedging Agreements, but excluding any non-cash or deferred interest

financing costs.

 

“Consolidated Net Income” means, for

any period with respect to any Person, the net income (or loss) of such Person

and its Subsidiaries on a Consolidated basis for such period taken as a single

accounting period determined in conformity with GAAP, provided that

there shall be excluded (i) the income (or loss) of any Person (other than

Subsidiaries of the Parent) in

 

7

 

which any other Person (other than the Parent

or any of its Subsidiaries) has a joint interest, except to the extent of the

amount of dividends or other distributions actually paid to the Parent or any

of its Subsidiaries by such Person during such period, (ii) the income (or

loss) of any Person accrued prior to the date it becomes a Subsidiary of the

Parent or any of its Subsidiaries or is merged into or consolidated with the

Parent or any of its Subsidiaries or that Person’s assets are acquired by the

Parent or any of its Subsidiaries, and (iii) the income of any direct or

indirect Subsidiary of the Parent to the extent that the declaration or payment

of dividends or similar distributions by that Subsidiary of that income is not at

the time permitted by operation of the terms of its charter or any agreement,

instrument, judgment, decree, order, statute, rule or governmental regulation

applicable to that Subsidiary.

 

“Control” means the possession, directly or

indirectly, of the power (a) to vote 10% or more of the securities having

ordinary voting power for the election of directors of a Person, or (b) to

direct or cause the direction of the management or policies of a Person,

whether through the ability to exercise voting power, by contract or otherwise.

The terms “Controlling” and “Controlled” have meanings

correlative thereto.

 

“Convertible Indenture” means the Indenture

dated as of April 16, 2002 among Duane Reade Inc., the Guarantors party thereto

and State Street Bank and Trust Company, as Trustee relating to the Senior

Convertible Notes Due 2022.

 

“Cost” means the cost of purchases, as

reported on the Borrower’s stock ledger, based upon the Borrower’s accounting

practices which are in effect on the date of this Agreement. “Cost” does not

include inventory capitalization costs or other non-purchase price charges

(other than in-bound freight) used in the Borrower’s calculation of cost of

goods sold.

 

“Credit Card Advance Rate” means 85%.

 

“Credit Card Notifications” has the meaning

provided therefor in Section 2.22(c).

 

“Credit Extensions” as of any day, shall be

equal to the sum of (a) the principal balance of all Loans then outstanding,

and (b) the then amount of the Letter of Credit Outstandings.

 

“Daboco” shall means Daboco Inc., a New

York corporation, a former Subsidiary of the Parent and general partner of the

Borrower, which merged with and into the Parent, with the Parent being the

surviving corporation.

 

“DDAs” means any checking or other demand

deposit account maintained by the Borrower.

 

“DDA Notification” has the meaning provided

therefor in Section 2.22(c).

 

“Default” means any event or condition that

constitutes an Event of Default or that upon notice, lapse of time or both

would, unless cured or waived, become an Event of Default.

 

“Delinquent Lender” has the meaning

therefor provided in Section 8.14.

 

“Delinquent Lender’s Future Commitment” has

the meaning therefor provided in Section 8.14.

 

8

 

“Documentation Agent” has the meaning

provided therefor in the Preamble.

 

“dollars” or “$” refers to lawful

money of the United States of America.

 

“DRI I” means DRI I, Inc., a Delaware

corporation.

 

“Eligible Assignee” means a bank, insurance

company, or company engaged in the business of making commercial loans having a

combined capital and surplus in excess of $300,000,000 or any Affiliate of any

Lender, or any Person to whom a Lender assigns its rights and obligations under

this Agreement as part of an assignment and transfer of such Lender’s rights in

and to a material portion of such Lender’s portfolio of asset based credit

facilities.

 

“Eligible Credit Card Receivables means

Accounts due to the Borrower on a non-recourse basis from (i) Visa, Mastercard,

American Express Co., Discover, and other major credit card processors or (ii)

NYCE, MAC and other major debit card processors, in each case reasonably

acceptable to the Administrative Agent as arise in the ordinary course of

business, which have been earned by performance and are deemed by the

Administrative Agent in its Permitted Discretion to be eligible for inclusion

in the calculation of the Borrowing Base. Without limiting the foregoing, none

of the following shall be deemed to be Eligible Credit Card Receivables:

 

(a)                                  Accounts that have been outstanding for more than

five (5) Business Days from the date of sale;

 

(b)                                 Accounts with respect to which the Borrower does

not have good, valid and marketable title thereto, free and clear of any Lien

(other than Liens granted to the Collateral Agent, for its benefit and the

ratable benefit of the Secured Parties, pursuant to the Security Documents);

 

(c)                                  Accounts that are not subject to a first priority

security interest in favor of the Collateral Agent, for the benefit of itself and

the Secured Parties (it being the intent that chargebacks in the ordinary

course by the credit card processors shall not be deemed violative of this

clause);

 

(d)                                 Accounts which are disputed, are with recourse, or

with respect to which a claim, counterclaim, offset or chargeback has been

asserted (to the extent of such claim, counterclaim, offset or chargeback);

 

(e)                                  Accounts which the Administrative Agent determines

in its Permitted Discretion to be uncertain of collection.

 

“Eligible In-Transit Inventory” shall mean,

as of the date of determination thereof, without duplication of other Eligible

Inventory, Inventory (a) which has been shipped from a foreign location for

receipt by the Borrower within ninety (90) days of the date of determination,

but which has not yet delivered to the Borrower, (b) for which payment has been

made by the Borrower and title has passed to the Borrower, (c) for which the

document of title reflects the Borrower as consignee (along with delivery to

the Borrower of the documents of title with respect thereto), (d) as to which

the Collateral Agent has control over the documents of title which evidence

ownership of the subject Inventory (such as, if requested by the Collateral

Agent,

 

9

 

by

the delivery of a customs broker agency agreement, satisfactory to the

Collateral Agent), and (e) which otherwise would constitute Eligible Inventory.

 

“Eligible Inventory” shall mean, as of the

date of determination thereof, (a) Eligible In-Transit Inventory, (b) Eligible

L/C Inventory, and (c) items of Inventory of the Borrower that are finished

goods, merchantable and readily saleable to the public in the ordinary course

deemed by the Administrative Agent in its Permitted Discretion to be eligible

for inclusion in the calculation of the Borrowing Base. Without limiting the

foregoing, unless otherwise approved in writing by the Administrative Agent,

none of the following shall be deemed to be Eligible Inventory:

 

(a)           Inventory that is not owned solely by

the Borrower, or is leased or on consignment or the Borrower does not have good

and valid title thereto;

 

(b)           Inventory (other than Eligible

In-Transit Inventory and Eligible L/C Inventory) that is not located at a

distribution center used by the Borrower in the ordinary course or at a

property that is owned or leased by the Borrower;

 

(c)           Inventory that represents (i) goods

damaged, defective or otherwise unmerchantable, (ii) goods that do not conform

in all material respects to the representations and warranties contained in

this Agreement or any of the Security Documents, or (iii) goods to be returned

to the vendor, including, without limitation, Inventory at locations

222, 300, and 441 (clearance stores), location 923 (Genco Damages), location

925 (Genco Recall), 973 (Reclamation Center), location 500 (Van Arsdale School)

and any other goods at any other location that constitute a damage center,

clearance store, recall center, reclamation center or similar location;

 

(d)           Inventory that is not located in the

United States of America (excluding territories and possessions thereof) other

than Eligible In-Transit Inventory and Eligible L/C Inventory;

 

(e)           Inventory that is not subject to a

perfected first-priority security interest in favor of the Collateral Agent for

the benefit of the Secured Parties (subject to Permitted Encumbrances of the

type described in clauses (a) and (b) of such definition), including without

limitation any “consigned inventory” as defined in the Amerisource Bergen

Agreement;

 

(f)            Inventory which consists of samples,

labels, bags, packaging, and other similar non-merchandise categories;

 

(g)           Inventory as to which insurance in

compliance with the provisions of Section 5.07 hereof is not in effect;

 

(h)           Inventory which has been sold but not

yet delivered or as to which the Borrower has accepted a deposit; or

 

(i)            Inventory which is acquired in a

Permitted Acquisition having an aggregate Cost in excess of $3,000,000 unless

and until the Collateral Agent has completed an appraisal of such Inventory,

establishes an Inventory Advance Rate and Inventory Reserves (if applicable)

therefor, and otherwise agrees that such Inventory shall be deemed Eligible

Inventory.  The Collateral Agent will

endeavor to complete such

 

10

 

appraisal and any other evaluations and due

diligence with respect to such Inventory expeditiously in order to determine

whether such Inventory constitutes Eligible Inventory.

 

“Eligible L/C Inventory” shall mean, as of the

date of determination thereof, without duplication of other Eligible Inventory,

Inventory (a) not yet delivered to the Borrower, (b) the purchase of which is

supported by a Commercial Letter of Credit having an expiry within ninety (90)

days of such date of determination, (c) for which the document of title

reflects the Borrower as consignee (along with delivery to the Borrower of the

documents of title with respect thereto), (d) as to which the Collateral Agent

has control over the documents of title which evidence ownership of the subject

Inventory (such as, if requested by the Collateral Agent, by the delivery of a

customs broker agency agreement, satisfactory to the Collateral Agent), and (e)

which otherwise would constitute Eligible Inventory.

 

“Eligible Third Party Receivables” means

Accounts due to the Borrower on a non-recourse basis from insurance companies

and other Persons reasonably acceptable to the Administrative Agent as arise in

the ordinary course of business, which have been earned by performance, have

been adjudicated and are deemed by the Administrative Agent in its Permitted

Discretion to be eligible for inclusion in the calculation of the Borrowing

Base. Without limiting the foregoing, unless otherwise approved in writing by

the Administrative Agent, none of the following shall be deemed to be Eligible

Third Party Receivables:

 

(a)                                  Accounts that have been outstanding for more than

ninety (90) days past the invoice date or that are more than sixty (60) days

past due;

 

(b)                                 Accounts due from any insurance company to the

extent that twenty-five percent (25%) or more of all Accounts from such

insurance company are not Eligible Third Party Receivables under clause (a),

above;

 

(b)                                 Accounts with respect to which the Borrower does

not have good, valid and marketable title thereto, free and clear of any

Encumbrance (other than (i) Encumbrances granted to the Collateral Agent, for

its benefit and the ratable benefit of the Secured Parties, pursuant to the

Security Documents, and (ii) Permitted Encumbrances of the type described in

clause (a) of such definition);

 

(c)                                  Accounts that are not subject to a first priority

security interest in favor of the Collateral Agent, for the benefit of itself

and the Secured Parties;

 

(d)                                 Accounts which are disputed, are with recourse, or

with respect to which a claim, counterclaim, offset or chargeback has been

asserted (to the extent of such claim, counterclaim, offset or chargeback); or

 

(e)                                  Accounts which the Administrative Agent determines

in its Permitted Discretion to be uncertain of collection.

 

“Environmental Laws” means all laws, rules,

regulations, codes, ordinances, orders, decrees, judgments, injunctions,

notices or binding agreements issued, promulgated or entered into by or with

any Governmental Authority, relating in any way to the environment,

preservation or reclamation of natural resources, handling, treatment, storage,

disposal, Release or threatened Release of any Hazardous Material or to health

and safety matters.

 

11

 

“Environmental Liability” means any

liability, contingent or otherwise (including any liability for damages,

natural resource damage, costs of environmental remediation, administrative

oversight costs, fines, penalties or indemnities), of any Person directly or

indirectly resulting from or based upon (a) violation of any Environmental Law,

(b) the generation, use, handling, transportation, storage, treatment or

disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,

(d) the Release or threatened Release of any Hazardous Materials into the

environment or (e) any contract, agreement or other consensual arrangement

pursuant to which liability is assumed or imposed with respect to any of the

foregoing.

 

“ERISA” means the Employee Retirement

Income Security Act of 1974, as amended from time to time and the regulations

promulgated and rulings issued thereunder.

 

“ERISA Affiliate” means any trade or

business (whether or not incorporated) that, together with the Parent, is treated

as a single employer under Section 414(b) or (c) of the Code or, solely for

purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a

single employer under Section 414 of the Code.

 

“ERISA Event” means (a) any “reportable

event”, as defined in Section 4043 of ERISA or the regulations issued

thereunder with respect to a Plan (other than an event for which the 30-day

notice period is waived); (b) the existence with respect to any Plan of an

“accumulated funding deficiency” (as defined in Section 412 of the Code or

Section 302 of ERISA), whether or not waived; (c) the filing pursuant to

Section 412(d) of the Code or Section 303(d) of ERISA of an application for a

waiver of the minimum funding standard with respect to any Plan; (d) the

incurrence by the Parent or any of its ERISA Affiliates of any liability under

Title IV of ERISA with respect to the termination of any Plan; (e) the receipt

by the Parent or any ERISA Affiliate from the PBGC or a plan administrator of

any notice relating to an intention to terminate any Plan or Plans or to

appoint a trustee to administer any Plan; (f) the incurrence by the Parent or

any of its ERISA Affiliates of any liability with respect to the withdrawal or

partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by

the Parent or any ERISA Affiliate of any notice, or the receipt by any

Multiemployer Plan from the Parent or any ERISA Affiliate of any notice,

concerning the imposition of Withdrawal Liability or a determination that a Multiemployer

Plan is, or is expected to be, insolvent or in reorganization, within the

meaning of Title IV of ERISA.

 

“Event of Default” has the meaning assigned

to such term in Section 7.01. An “Event of Default” shall be deemed to have

occurred and to be continuing unless and until that Event of Default has been

duly waived by the Administrative Agent in writing or cured to the reasonable

satisfaction of the Administrative Agent.

 

“Excess Availability” means, as of any date

of determination, the excess, if any, of (a) the lesser of the Borrowing Base

or the aggregate Commitments, over (b) the outstanding Credit Extensions.

 

“Excluded Taxes” means, with respect to the

Agents, any Lender, the Issuing Bank or any other recipient of any payment to

be made by or on account of any obligation of the Borrower hereunder, (a)

income or franchise Taxes imposed on (or measured by) its gross or net income

by the United States of America, or by the jurisdiction under the laws of which

such recipient is organized or in which its principal office is located or, in

the case of any Lender, in which its applicable lending office is located, (b)

any branch profits Taxes imposed by the United States of

 

12

 

America or any similar Tax imposed by any other

jurisdiction in which the Borrower is located and (c) in the case of a Foreign

Lender (other than an assignee pursuant to a request by the Borrower under

Section 2.29(b)), any withholding Tax that (i) is imposed on amounts payable to

such Foreign Lender at the time such Foreign Lender becomes a party to this

Agreement (or designates a new lending office), except to the extent that such

Foreign Lender (or its assignor, if any) was entitled, at the time of

designation of a new lending office (or assignment), to receive additional

amounts from the Borrower with respect to such withholding Tax pursuant to

Section 2.27(a), or (ii) is attributable to such Foreign Lender’s failure to

comply with Sections 2.27(e) or (f).

 

“Existing Financing Agreement” means the

Fourth Amended and Restated Credit Agreement dated as of July 10, 2001 between,

among others, Duane Reade, as Borrower, Duane Reade Inc., DRI I Inc., Duane

Reade International, Inc. and Duane Reade Realty, Inc., as Designated Guarantors,

various financial institutions as lenders party thereto and Fleet National

Bank, as Administrative Agent for the Lenders, as amended and in effect.

 

“FRF” means Fleet Retail Finance Inc., a

Delaware corporation.

 

“FRF Concentration Account” shall have the

meaning set forth in Section 2.22(c).

 

“FSI” means Fleet Securities, Inc., a

Massachusetts corporation.

 

“Facility Guarantee” means the Guarantee

executed by the Facility Guarantors in favor of the Agents, the Issuing Bank

and the Lenders.

 

“Facility Guarantors” means the Parent and

each of its Subsidiaries, now existing or hereafter created, other than Foreign

Subsidiaries and the Borrower.

 

“Facility Guarantors Collateral Documents”

means all security agreements, mortgages, pledge agreements, deeds of trust,

and other instruments, documents or agreements executed and delivered by any

Facility Guarantor to secure the Facility Guarantee.

 

“Federal Funds Effective Rate” means, for

any day, the weighted average (rounded upwards, if necessary, to the next 1/100

of 1%) of the rates on overnight Federal funds transactions with members of the

Federal Reserve System arranged by Federal funds brokers, as published on the

next succeeding Business Day by the Federal Reserve Bank of New York, or, if

such rate is not so published for any day that is a Business Day, the average

(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for

such day for such transactions received by the Administrative Agent from three

Federal funds brokers of recognized standing selected by it.

 

“Fee Letter” means the letter entitled “Fee

Letter” between the Borrower and the Administrative Agent dated June 10, 2003,

as such letter may from time to time be amended.

 

“Financial Officer” means, with respect to

the Borrower, the chief financial officer, treasurer, controller or assistant

controller of the Borrower.

 

“Fiscal Quarter” means any fiscal quarter

of any Fiscal Year, which quarters shall generally end on the last Saturday of

each March, June, September or December of such Fiscal Year in accordance with

the fiscal accounting calendar of the Borrower.

 

13

 

“Fiscal Year” means any period of twelve

consecutive months ending on the last Saturday of December of any calendar year.

 

“Fixed Charge Coverage Ratio” means, as to

the Parent and its Subsidiaries, for any period, the ratio of (a) (i)

Consolidated EBITDA minus (ii) the sum of (A) Capital Expenditures incurred

during such period plus (B)

federal, state and foreign income Taxes paid in cash during such period, to (b)

the sum of (i) Consolidated Interest Expense for such period, plus (ii) CMLTD during such period, plus (iii) Restricted Payments made in

cash during such period, all as determined in accordance with GAAP.  The Fixed Charge Ratio shall be calculated

on a trailing twelve fiscal months basis.

 

“Fleet” means Fleet National Bank, a

national banking association.

 

“Fleet Disbursement Accounts” has the

meaning provided therefor in Section 2.22(f).

 

“Foreign Lender” means any Lender that is

organized under the laws of a jurisdiction other than the United States of

America or any State thereof or the District of Columbia.

 

“Foreign Subsidiary” means any Subsidiary

that is organized under the laws of a jurisdiction other than the United States

of America or any State thereof or the District of Columbia.

 

“Fronting Fee” has the meaning assigned to

such term in Section 2.14(b).

 

“GAAP” means principles which are (a)

consistent with those promulgated or adopted by the Financial Accounting

Standards Board and its predecessors (or successors) in effect and applicable

to that accounting period in respect of which reference to GAAP is being made,

and (b) consistently applied with past financial statements of the Parent and

its Subsidiaries adopting the same principles.

 

“Gift Certificate and Merchandise Credit

Liability” means, at any time, the aggregate face value at such time of (a)

outstanding gift certificates and gift cards of the Borrower entitling the

holder thereof to use all or a portion of the certificate to pay all or a

portion of the purchase price for any Inventory, and (b) outstanding

merchandise credits of the Borrower.

 

“Governmental Authority” means the

government of the United States of America, any other nation or any political

subdivision thereof, whether state or local, and any agency, authority,

instrumentality, regulatory body, court, central bank or other entity

exercising executive, legislative, judicial, taxing, regulatory or

administrative powers or functions of or pertaining to government.

 

“Guarantee” of or by any Person (the “guarantor”)

means any obligation, contingent or otherwise, of the guarantor guaranteeing or

having the economic effect of guaranteeing any Indebtedness or other obligation

of any other Person (the “primary obligor”) in any manner, whether

directly or indirectly, and including any obligation of the guarantor, direct

or indirect, (a) to purchase or pay (or advance or supply funds for the

purchase or payment of) such Indebtedness or other obligation or to purchase

(or to advance or supply funds for the purchase of) any security for the

payment thereof, (b) to purchase or lease property, securities or services for

the purpose of assuring the owner of such Indebtedness or other obligation of the

payment

 

14

 

thereof,

(c) to maintain working capital, equity capital or any other financial

statement condition or liquidity of the primary obligor so as to enable the

primary obligor to pay such Indebtedness or other obligation or (d) as an

account party in respect of any letter of credit or letter of guaranty issued

to support such Indebtedness or obligation, provided that the term

“Guarantee” shall not include endorsements for collection or deposit in the

ordinary course of business.

 

“Hazardous Materials” means all explosive

or radioactive substances or wastes and all hazardous or toxic substances,

wastes or other pollutants, including petroleum or petroleum distillates,

asbestos or asbestos containing materials, polychlorinated biphenyls, radon

gas, infectious or medical wastes, mold, fungi or similar bacteria, and all

other substances or wastes of any nature regulated pursuant to any

Environmental Law, including any material listed as a hazardous substance under

Section 101(14) of CERCLA.

 

“Hedging Agreement” means any interest rate

protection agreement, interest rate swap agreement, interest rate cap

agreement, interest rate collar agreement, foreign currency exchange agreement,

commodity price protection agreement, or other interest or currency exchange

rate or commodity price hedging arrangement designed to hedge against

fluctuations in interest rates or foreign exchange rates.

 

“Immaterial Foreign Subsidiary” means a

Foreign Subsidiary which has tangible net assets (as determined in accordance

with GAAP) of less than $2,500,000.

 

“Incremental Loan Commitment Requirements”

means, with respect to any request for a Commitment Increase made pursuant to

Section 2.02 or any provision of a Commitment Increase on a given Commitment

Increase Date, the satisfaction of each of the following conditions:  (i) no Default or Event of Default then

exists, and (ii) the Borrower has not theretofore reduced the Commitments pursuant

to Section 2.16 hereof.

 

“Indebtedness” of any Person means, without

duplication, (a) all obligations of such Person for borrowed money (including

any obligations which are without recourse to the credit of such Person) or

with respect to deposits or advances of any kind, (b) all obligations of such

Person evidenced by bonds, debentures, notes or similar instruments, (c) all

obligations of such Person upon which interest charges are customarily paid,

(d) all obligations of such Person under conditional sale or other title

retention agreements relating to property acquired by such Person, (e) all

obligations of such Person in respect of the deferred purchase price of

property or services (excluding current accounts payable incurred in the

ordinary course of business), (f) all Indebtedness of others secured by (or for

which the holder of such Indebtedness has an existing right, contingent or

otherwise, to be secured by) any Lien on property owned or acquired by such

Person, whether or not the Indebtedness secured thereby has been assumed, (g)

all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease

Obligations of such Person, (i) all obligations, contingent or otherwise, of

such Person as an account party in respect of letters of credit and letters of

guaranty (j) all obligations, contingent or otherwise, of such Person in

respect of bankers’ acceptances, (k) all Hedging Agreements, and (l) the

principal and interest portions of all rental obligations of such Person under

any Synthetic Lease, Tax retention operating lease, off-balance sheet loan or

similar off-balance sheet financing where such transaction is considered

borrowed money indebtedness for Tax purposes but is classified as an operating

lease in accordance with GAAP. The Indebtedness of any Person shall include the

Indebtedness of any other entity (including any partnership in which such

Person is a general partner) to the extent such Person is liable therefor as a

result of such Person’s ownership interest in or other

 

15

 

relationship with such entity, except to the

extent the terms of such Indebtedness provide that such Person is not liable

therefor.

 

“Indemnified Taxes” means Taxes other than

Excluded Taxes.

 

“Indemnitee” has the meaning provided

therefor in Section 9.03(b).

 

“Interest Payment Date” means (a) with

respect to any Prime Rate Loan (including a Swingline Loan), the first day of

each calendar month, and (b) with respect to any LIBO Loan, on the last day of

the Interest Period applicable to the Borrowing of which such Loan is a part,

and, in addition, if such LIBO Loan has an Interest Period of greater than 90

days, on the last day of the third month of such Interest Period.

 

“Interest Period” means, with respect to

any LIBO Borrowing, the period commencing on the date of such Borrowing and

ending on the numerically corresponding day in the calendar month that is one,

two, three or six months thereafter, as the Borrower may elect by notice to the

Administrative Agent in accordance with the provisions of this Agreement, provided

that (a) if any Interest Period would end on a day other than a Business Day,

such Interest Period shall be extended to the next succeeding Business Day

unless such next succeeding Business Day would fall in the next calendar month,

in which case such Interest Period shall end on the next preceding Business

Day, and (b) any Interest Period that commences on the last Business Day of a

calendar month (or on a day for which there is no numerically corresponding day

in the last calendar month during which such Interest Period ends) shall end on

the last Business Day of the calendar month of such Interest Period, (c) any

Interest Period which would otherwise end after the Termination Date shall end

on the Termination Date, and (d) notwithstanding the provisions of clause (c),

no Interest Period shall, unless approved by the Administrative Agent and all

of the Lenders, have a duration of less than one month, and if any Interest

Period applicable to a LIBO Borrowing would be for a shorter period, such

Interest Period shall not be available hereunder. For purposes hereof, the date

of a Borrowing initially shall be the date on which such Borrowing is made and

thereafter shall be the effective date of the most recent conversion or

continuation of such Borrowing.

 

“Inventory” has the meaning assigned to

such term in the Security Agreement.

 

“Inventory Advance Rate” means 74%.

 

“Inventory Reserves” means such reserves as

may be established from time to time by the Administrative Agent in the

Administrative Agent’s Permitted Discretion (after consultation with the

Borrower (whose consent to any Inventory Reserve shall not be required)) with

respect to the determination of the saleability, at retail, of the Eligible

Inventory or which reflect such other factors as affect the market value of the

Eligible Inventory. Without limiting the generality of the foregoing, Inventory

Reserves may include (but are not limited to) reserves based on (i)

obsolescence; (ii) seasonality; (iii) Shrink; (iv) imbalance; (v) change in

Inventory character; (vi) change in Inventory composition; (vii) change in

Inventory mix; (viii) markdowns (both permanent and point of sale); (ix) retail

markons and markups inconsistent with prior period practice and performance;

industry standards; current business plans; or advertising calendar and planned

advertising events, and (x) out-of-date and/or expired Inventory.

 

“Investment” means (a) any stock, evidence

of Indebtedness or other security of another Person, (b) any loan, advance,

contribution to capital, extension of credit (except for current trade

 

16

 

and customer accounts receivable for inventory

sold or services rendered in the ordinary course of business and payable in

accordance with customary trade terms) to another Person, (c) any purchase of

(i) stock or other securities of another Person, or (ii) the assets comprising

a division or business unit or a substantial part of the business of any Person

(whether by purchase of assets or securities), (d) any commitment or option to

make any such purchase, or (e) any other investment, in all cases whether now

existing or hereafter made.

 

“Issuing Bank” means Fleet, in its capacity

as the issuer of Letters of Credit hereunder, and any successor to Fleet in

such capacity (which may only be a Lender selected by the Administrative Agent

in its discretion). The Issuing Bank may, in its discretion, arrange for one or

more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which

case the term “Issuing Bank” shall include any such Affiliate with respect to

Letters of Credit issued by such Affiliate.

 

“L/C Disbursement” means a payment made by

the Issuing Bank pursuant to a Letter of Credit.

 

“Lease” means any agreement, whether written

or oral, no matter how styled or structured, pursuant to which the Borrower is

entitled to the use or occupancy of any space in a structure, land,

improvements or premises for any period of time.

 

“Lenders” shall mean the Persons identified

on Schedule 1.1 hereto and each assignee that becomes a party to

this Agreement as set forth in Section 9.04(b).

 

“Letter of Credit” shall mean a letter of

credit that is (i) issued pursuant to this Agreement for the account of the

Borrower, (ii) a Standby Letter of Credit or Commercial Letter of Credit, (iii)

issued in connection with the purchase of Inventory by the Borrower and for

other purposes for which the Borrower has historically obtained letters of

credit, or for any other purpose that is reasonably acceptable to the

Administrative Agent, and (iv) in form reasonably satisfactory to the Issuing

Bank.  All letters of credit issued

under the Existing Financing Agreement and outstanding on the Closing Date

shall be deemed to have been issued hereunder and shall for all purposes be

deemed to be “Letters of Credit” hereunder.

 

“Letter of Credit Fees” shall mean the fees

payable in respect of Letters of Credit pursuant to Section 2.14.

 

“Letter of Credit Outstandings” shall mean,

at any time, the sum of (a) with respect to Letters of Credit outstanding at

such time, the aggregate maximum amount that then is or at any time thereafter

may become available for drawing or payment thereunder plus (b) all

amounts theretofore drawn or paid under Letters of Credit for which the Issuing

Bank has not then been reimbursed.

 

“LIBO Borrowing” shall mean a Borrowing

comprised of LIBO Loans.

 

“LIBO Loan” shall mean any Loan bearing

interest at a rate determined by reference to the Adjusted LIBO Rate in

accordance with the provisions of Article II.

 

“LIBO Rate” means, with respect to any LIBO

Borrowing for any Interest Period, the rate per annum as determined on the

basis of the offered rates for deposits in dollars, for a period of time

comparable to such Interest Period which appears on the “Telerate Page 3750” as

of 11:00 a.m.

 

17

 

London time on the day that is two (2) Business

Days preceding the first day of such Interest Period; provided, however, if the

rate described above does not appear on the Telerate System on any applicable

interest determination date, the LIBO Rate shall be the rate (rounded upward,

if necessary, to the nearest 1/16 of 1%), determined on the basis of the

offered rates for deposits in dollars for a period of time comparable to such

Interest Period which are offered by four major banks in the London interbank

market at approximately 11:00 a.m. London time, on the day that is two (2)

Business Days preceding the first day of such Interest Period as selected by Administrative

Agent. In the event that the Administrative Agent is unable to obtain any such

quotation as provided above, it will be deemed that a LIBO Rate pursuant to a

LIBO Borrowing cannot be obtained.

 

“Lien” means, with respect to any asset,

(a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance,

charge or security interest in, on or of such asset, (b) the interest of a

vendor or a lessor under any conditional sale agreement, capital lease or title

retention agreement (or any financing lease having substantially the same

economic effect as any of the foregoing) relating to such asset and (c) in the

case of securities, any purchase option, call or similar right of a third party

with respect to such securities.

 

“Line Fee” means a fee equal to 0.375% per

annum (on the basis of actual days elapsed in a year of 360 days) of the

average daily balance of the difference between (x) each Lender’s Commitment

and (y) the sum of (i) such Lender’s Commitment Percentage multiplied by the

principal amount of Revolving Loans then outstanding, and (ii) such Lender’s

Commitment Percentage multiplied by the then Letter of Credit Outstandings for

each day commencing on the date hereof and ending on but excluding the

Termination Date.

 

“Loan Documents” means this Agreement, the

Notes, the Letters of Credit, the Fee Letter, all Borrowing Base Certificates,

the Blocked Account Agreements, the DDA Notifications, the Credit Card

Notifications, the Security Documents, the Facility Guarantee, the Facility

Guarantors Collateral Documents, and any other instrument or agreement now or

hereafter executed and delivered in connection herewith, or in connection with

any transaction arising out of any cash management, depository, investment,

letter of credit, Hedging Agreement, or other banking or financial services

provided by the Administrative Agent, the Collateral Agent or any of their

respective Affiliates, each as amended and in effect from time to time.

 

“Loan Party” or “Loan Parties” means

the Borrower and the Facility Guarantors.

 

“Loans” shall mean all loans at any time

made to the Borrower or for account of the Borrower pursuant to this Agreement.

 

“Margin Stock” has the meaning assigned to

such term in Regulation U.

 

“Material Adverse Effect” means a material

adverse effect on (a) the business, operations, property, assets, or condition,

financial or otherwise, of the Parent and its Subsidiaries taken as a whole,

(b) the ability of the Loan Parties to perform any material obligation or to

pay any Obligations under this Agreement or any of the other Loan Documents, or

(c) the validity or enforceability of this Agreement or any of the other Loan

Documents or any of the material rights or remedies of the Administrative

Agent, the Collateral Agent or the Lenders hereunder or thereunder.

 

18

 

“Material Indebtedness” means Indebtedness

(other than the Loans and Letters of Credit) of the Borrower in an aggregate

principal amount exceeding $10,000,000. 

For purposes of determining the amount of Material Indebtedness at any

time, the amount of the obligations in respect of any Hedging Agreement at such

time shall be calculated at the Agreement Value thereof.  In all events, “Material Indebtedness” shall

include Indebtedness under the Convertible Indenture irrespective of the

amounts due thereunder.

 

“Maturity Date” means July 21, 2008.

 

“Maximum Rate” has the meaning provided

therefor in Section 9.12.

 

“Minority Lenders” has the meaning provided

therefor in Section 9.02(d).

 

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

Inc.

 

“Multiemployer Plan” means a multiemployer

plan as defined in Section 4001(a)(3) of ERISA to which the Parent or any ERISA

Affiliate is making or accruing an obligation to make contributions, or has

within the preceding five plan years made or accrued an obligation to make

contributions.

 

“Multiple Employer Plan” means a single

employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is

maintained for employees of the Parent or any of its Subsidiaries or any ERISA

Affiliate and at least one Person other than the Parent, any Subsidiary or the

ERISA Affiliate or (b) was so maintained and in respect of which the Parent,

any Subsidiary or any ERISA Affiliate could have liability under Section 4064

or 4069 of ERISA in the event such plan has been or were to be terminated.

 

“Net Proceeds” means, with respect to any

event, (a) the cash proceeds received in respect of such event, including (i)

any cash received in respect of any non-cash proceeds, but only as and when

received, (ii) in the case of a casualty, insurance proceeds, and (iii) in the

case of a condemnation or similar event, condemnation awards and similar

payments, in each case net of (b) the sum of (i) all reasonable fees and

out-of-pocket expenses (including appraisals, and brokerage, legal, title and

recording Tax expenses and commissions) paid by any Loan Party to third parties

(other than Affiliates) in connection with such event, and (ii) in the case of

a sale or other disposition of an asset (including pursuant to a casualty or

condemnation), the amount of all payments required to be made by any Loan Party

as a result of such event to repay (or to establish an escrow for the repayment

of) Indebtedness (other than Loans) which is secured by such asset and

constitutes a Permitted Encumbrance that is senior to the Lien of the

Collateral Agent.

 

“Notes” shall mean (i) the promissory notes

of the Borrower substantially in the form of Exhibit B-1, each payable to the

order of a Lender, evidencing the Revolving Loans, and (ii) the promissory note

of the Borrower substantially in the form of Exhibit B-2, payable to the

Swingline Lender, evidencing the Swingline Loans.

 

“Obligations” means (a) the due and

punctual payment by the Loan Parties of (i) the principal of, and interest

(including all interest that accrues after the commencement of any case or

proceeding by or against any Loan Party under any federal or state bankruptcy,

insolvency, receivership or similar law, whether or not allowed in such case or

proceeding) on the Loans, as and when due, whether at maturity, by

acceleration, upon one or more dates set for prepayment

 

19

 

or otherwise, (ii) each payment required to be

made by the Loan Parties under the Credit Agreement in respect of any Letter of

Credit, when and as due, including payments in respect of reimbursement of

disbursements, interest thereon and obligations to provide cash collateral and

(iii) all other monetary obligations, including fees, costs, expenses and

indemnities, whether primary, secondary, direct, contingent, fixed or

otherwise, of the Loan Parties to the Secured Parties under the Credit

Agreement and the other Loan Documents, and (b) the due and punctual payment

and performance of all the covenants, agreements, obligations and liabilities

of each Loan Party under or pursuant to this Agreement, and the other Loan

Documents, and (c) any transaction with FRF or Fleet, or any of their

respective Affiliates, which arises out of any cash management, depository,

investment, letter of credit, Hedging Agreement, or other banking or financial

services provided by any such Person.

 

“Organic Document” means, relative to any

Loan Party, its partnership agreement, its certificate of incorporation, its

by-laws and all shareholder or equity holder agreements, voting trusts and

similar arrangements to which such Loan Party is a party or which is applicable

to its capital stock, its partnership agreement and all other arrangements

relating to the control or management of such entity.

 

“Other Taxes” means any and all current or

future stamp or documentary Taxes or any other excise or property Taxes,

charges or similar levies arising from any payment made under any Loan Document

or from the execution, delivery or enforcement of, or otherwise with respect

to, any Loan Document.

 

“Overadvance” means, at any time of

calculation, a circumstance in which the Credit Extensions exceed the lesser of

(a) the Commitments or (b) the Borrowing Base.

 

“PBGC” means the Pension Benefit Guaranty

Corporation referred to and defined in ERISA and any successor entity

performing similar functions.

 

“Parent” means Duane Reade Inc., a Delaware

corporation.

 

“Participation Register” has the meaning

provided therefor in Section 9.04(e).

 

“Payment Conditions” means, at the time of

determination, that (a) no Default or Event of Default then exists or would

arise as a result of the making of the subject payment, and (b) prior to, as

of, and, on a pro forma four Fiscal Quarters basis after giving effect to, the

subject payment, Excess Availability (or with respect to pro forma

calculations, average Excess Availability projected for such period) shall be

equal to or greater than thirty percent (30%) of the then (or projected, as applicable)

Borrowing Base.

 

“Perfection Certificate” means a

certificate in the form of Annex 1 to the Security Agreement or any other form

approved by the Collateral Agent.

 

“Permitted Acquisition” means an Investment

in, a purchase of stock in, a purchase of all or a substantial part of the

assets or properties of any Person, any exchange of securities with any Person,

any transaction, merger or consolidation or acquisition of all or a substantial

portion of the assets of any Person, or any acquisition of any retail store

locations of any Person (each of the foregoing an “Acquisition”) which

satisfies each of the following conditions:

 

20

 

(i)  The

Acquisition is of a business permitted to be conducted by the Borrower pursuant

to Section 6.03(b) hereof and the Person to be acquired, or whose assets are to

be acquired, shall be a United States company; and

 

(ii)  Prior

to and after giving effect to the Acquisition, no Default or Event of Default

will exist or will arise therefrom; and

 

(iii)  The

Person making the Acquisition must be a Loan Party or a Subsidiary which will

become a Loan Party in accordance with Section 5.13 hereof; and

 

(iv)  If

the Parent or its Subsidiary shall merge with such other Person, such Parent or

Subsidiary shall be the surviving party of such merger; and

 

(v)  If

such Person becomes a Subsidiary of a Loan Party, such Person shall become a

Loan Party in accordance with Section 5.13 hereof and the Loan Parties

(including such Person) shall take such steps as are necessary to grant to the

Collateral Agent, for the benefit of the Secured Parties, a legal, valid and

enforceable first priority security interest in all of the assets (including

capital stock) acquired in connection with such acquisition; and

 

(vi)  Prior

to, as of, and, on a pro forma four Fiscal Quarters basis after giving effect

to, the subject acquisition, Excess Availability (or with respect to pro forma

calculations, average Excess Availability projected for such period) shall be

equal to or greater than thirty percent (30%) of the then Borrowing Base, and

the Borrower shall have delivered a certificate, together with supporting

documentation, reflecting compliance with the foregoing to the Administrative

Agent; and

 

(vii)  If,

after giving effect to such acquisition, the aggregate consideration paid

(whether in cash, capital stock, assumption of indebtedness or otherwise) for

an Acquisition shall exceed $20,000,000, such Acquisition shall have been

approved by a majority of the Board of Directors (or the equivalent governing

body or a committee of the Board of Directors or such other body given

responsibility therefor) of the Person which is the subject of such Acquisition

and such Person shall not have announced that it will oppose such Acquisition

or shall not have commenced any action which alleges that such Acquisition will

violate Applicable Law.

 

“Permitted Discretion” means the

Administrative Agent’s good faith judgment based upon any factor or

circumstance which it believes in good faith: (i) will or could reasonably be

expected to adversely affect the value of the Collateral, the enforceability or

priority of the Collateral Agent’s Liens thereon in favor of the Secured

Parties or the amount which the Collateral Agent and the Secured Parties would

likely receive (after giving consideration to delays in payment and costs of

enforcement) in the liquidation of such Collateral; (ii) suggests that any

collateral report or financial information delivered to the Administrative Agent

by or on behalf of any of the Loan Parties is incomplete, inaccurate or

misleading in any material respect; (iii) could reasonably be expected to

materially increase the likelihood of a bankruptcy, reorganization or other

insolvency proceeding involving any of the Loan Parties; or (iv) creates or

reasonably could be expected to create a Default or Event of Default.  In exercising such judgment, the

Administrative Agent may consider such factors or circumstances already

included

 

21

 

in or tested by the definition of Eligible Credit

Card Receivables, Eligible in-Transit Inventory, Eligible Inventory, Eligible

L/C Inventory or Eligible Third Party Receivables, as well as any of the

following: (A) the financial and business climate and prospects of any of the

Loan Parties’ industry and general macroeconomic conditions; (B) changes in

collection history and dilution with respect to the Accounts; (C) changes in

demand for and pricing of Inventory; (D) changes in any concentration of risk

with respect to Accounts or Inventory; (E) any other factors or circumstances

that will or could reasonably be expected to have a Material Adverse Effect;

(F) audits of books and records by third parties, history of chargebacks or

other credit adjustments, and (G) any other factors that change or could

reasonably be expected to change the credit risk of lending to the Borrower on

the security of the Accounts or Inventory.

 

“Permitted Encumbrances” means:

 

(a)           Liens imposed by law for Taxes that

are not yet due or are being contested in compliance with Section 5.05;

 

(b)           carriers’, warehousemen’s,

mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law,

arising in the ordinary course of business and securing obligations that are

not overdue by more than 60 days or are being contested in compliance with

Section 5.05;

 

(c)           pledges and deposits made in the

ordinary course of business in compliance with workers’ compensation,

unemployment insurance and other social security laws or regulations;

 

(d)           deposits to secure the performance of

bids, trade contracts, leases, statutory obligations, surety and appeal bonds,

performance bonds and other obligations of a like nature, in each case in the

ordinary course of business;

 

(e)           judgment liens in respect of

judgments that do not constitute an Event of Default under

Section 7.01(k);

 

(f)            easements, zoning restrictions,

rights-of-way and similar encumbrances on real property imposed by law or

arising in the ordinary course of business that do not secure any monetary

obligations and do not materially detract from the value of the affected

property or interfere with the ordinary conduct of business of the Borrower or

any Subsidiary; and

 

(g)           Liens evidencing the consignment of

pharmaceutical inventory to the Borrower by Amerisource Bergen pursuant to the

Amerisource Bergen Agreement.

 

provided

that, except as provided in any one or more of clauses (a) through (g) above,

the term “Permitted Encumbrances” shall not include any Lien securing

Indebtedness.

 

“Permitted Investments” means each of the

following:

 

(a)           direct obligations of, or obligations

the principal of and interest on which are unconditionally guaranteed by, the

United States of America (or by any agency thereof to the extent such

obligations are backed by the full faith and credit of the United

 

22

 

States of America), in each case maturing within

one year from the date of acquisition thereof;

 

(b)           Investments in commercial paper (i)

issued by a corporation (other than a Loan Party or an Affiliate of a Loan

Party) organized under the laws of any state of the United States or the

District of Columbia maturing within 270 days from the date of acquisition

thereof and having, at such date of acquisition, the highest credit rating

obtainable from S&P or from Moody’s, or (ii) issued by a Lender maturing

within 270 days from the date of acquisition thereof;

 

(c)           Investments in certificates of

deposit, banker’s acceptances and time deposits maturing within 180 days from

the date of acquisition thereof issued or guaranteed by or placed with, and

demand deposit and money market deposit accounts issued or offered by, (i) any

domestic office of any commercial bank organized under the laws of the United

States of America or any State thereof that has a combined capital and surplus

and undivided profits of not less than $500,000,000, or (ii) any Lender;

 

(d)           fully collateralized repurchase

agreements with a term of not more than 30 days for securities described in

clause (a) above (without regard to the limitation on maturity contained in

such clause) and entered into with a financial institution satisfying the

criteria described in clause (c) above or with any primary dealer and having a market

value at the time that such repurchase agreement is entered into of not less

than 100% of the repurchase obligation of such counterparty entity with whom

such repurchase agreement has been entered into;

 

(e)           short-term Tax exempt securities

rated not lower than MIG-1/1+ by either Moody’s or S&P with provisions for

liquidity or maturity accommodations of 183 days or less; and

 

(f)            Shares of investment companies that

are registered under the Investment Company Act of 1940, as amended, and invest

solely in one or more of the types of securities described in clauses (a)

through (e) above.

 

provided that, notwithstanding the foregoing, no such

Investments shall be permitted unless (i) no Loans are then outstanding, and

(ii) such Investments are pledged to the Administrative Agent as additional

collateral for the Obligations pursuant to such agreements as may be reasonably

required by the Administrative Agent.

 

“Permitted Overadvance” means an

Overadvance determined by the Administrative Agent, in its Permitted

Discretion, (a) which is made to maintain, protect or preserve the Collateral

and/or the Lenders’ rights under the Loan Documents, or (b) which is otherwise

in the Lenders’ interests; provided that Permitted Overadvances shall

not (i) exceed five percent (5%) of the then Borrowing Base in the aggregate

outstanding at any time or (ii) remain outstanding for more than forty-five

(45) consecutive Business Days, unless in case of clause (ii), the Required

Supermajority Lenders otherwise agree; and provided further that the

foregoing shall not (1) modify or abrogate any of the provisions of Section

2.07(f) hereof regarding the Lender’s obligations with respect to L/C

Disbursements, or (2) result in any claim or liability against the

Administrative Agent (regardless of the amount of any Overadvance) for

“inadvertent Overadvances” (i.e. where an Overadvance results from changed

circumstances beyond the control of the Administrative Agent (such as a

reduction in the collateral value)), and further

 

23

 

provided that in no event shall the Administrative Agent make

an Overadvance, if after giving effect thereto, the principal amount of the

Credit Extensions (including any Overadvance or proposed Overadvance) would

exceed the Commitments.

 

“Person” means any natural person,

corporation, limited liability company, trust, joint venture, association,

company, partnership, Governmental Authority or other entity.

 

“Pharmaceutical Laws” means federal, state

and local laws, rules or regulations, codes, orders, decrees, judgments or

injunctions issued, promulgated, approved or entered, relating to dispensing,

storing or distributing prescription medicines or products, including laws,

rules or regulations relating to the qualifications of Persons employed to do

the same.

 

“Plan” means a Single Employer Plan or a

Multiple Employer Plan.

 

“Pledge Agreement” means the Pledge

Agreement dated as of July 21, 2003 among the Loan Parties and the Collateral

Agent for the benefit of the Secured Parties, as amended and in effect from

time to time.

 

“Prime Rate” shall mean, for any day, the

higher of (a) the variable annual rate of interest then most recently announced

by Fleet at its head office in Boston, Massachusetts as its “Prime Rate” and (b)

the Federal Funds Effective Rate in effect on such day plus 1⁄2 of 1% (0.50%) per

annum. The Prime Rate is a reference rate and does not necessarily represent

the lowest or best rate being charged to any customer.  If for any reason the Administrative Agent

shall have determined (which determination shall be conclusive absent manifest

error) that it is unable to ascertain the Federal Funds Effective Rate for any

reason, including the inability or failure of the Administrative Agent to

obtain sufficient quotations thereof in accordance with the terms hereof, the

Prime Rate shall be determined without regard to clause (b) of the first

sentence of this definition, until the circumstances giving rise to such

inability no longer exist. Any change in the Prime Rate due to a change in

Fleet’s Prime Rate or the Federal Funds Effective Rate shall be effective on

the effective date of such change in Fleet’s Prime Rate or the Federal Funds

Effective Rate, respectively.

 

“Prime Rate Loan” shall mean any Loan

bearing interest at a rate determined by reference to the Prime Rate in

accordance with the provisions of Article II.

 

“Real Estate” means all land, together with

the buildings, structures, parking areas, and other improvements thereon, now

or hereafter owned by any Loan Party, including all easements, rights-of-way,

and similar rights relating thereto and all leases, tenancies, and occupancies

thereof.

 

“Receivables Advance Rate” means 85%.

 

“Register” has the meaning set forth in

Section 9.04(c).

 

“Regulation U” means Regulation U of the

Board as from time to time in effect and all official rulings and

interpretations thereunder or thereof.

 

“Regulation X” means Regulation X of the

Board as from time to time in effect and all official rulings and

interpretations thereunder or thereof.

 

24

 

“Related Parties” means, with respect to

any specified Person, such Person’s Affiliates and the respective directors,

officers, employees, agents and advisors of such Person and such Person’s

Affiliates.

 

“Release” has the meaning set forth in

Section 101(22) of CERCLA.

 

“Required Lenders” shall mean, subject to

the provisions of Section 8.14, at any time, Lenders having Commitments greater

than 50% of the Total Commitments, or if the Commitments have been terminated,

Lenders whose percentage of the outstanding Obligations (after settlement and

repayment of all Swingline Loans by the Lenders) aggregate greater than 50% of

all such Obligations, it being understood, for avoidance of doubt, that any

provision hereof that requires the vote of the Required Lenders shall not

require the consent of the holders of the Obligations described in clause (c)

of such definition (as such definition is in effect on the Closing Date).

 

“Required Supermajority Lenders” shall

mean, subject to the provisions of Section 8.14, at any time, Lenders having

Commitments outstanding representing at least 66 2/3% of the Total Commitments

outstanding or if the Commitments have been terminated, Lenders whose percentage

of the outstanding Obligations (after settlement and repayment of all Swingline

Loans by the Lenders) aggregate not less than 66 2/3% of all such Obligations,

it being understood, for the avoidance of doubt, that any provision hereof that

requires the vote of the Required Supermajority Lenders shall not require the

consent of the holders of the Obligations described in clause (c) of such

definition (as such definition is in effect on the Closing Date).

 

“Reserves” means all (if any) Inventory

Reserves and Availability Reserves.

 

“Restricted Payment” means any dividend or

other distribution (whether in cash, securities or other property) with respect

to any shares of any class of capital stock of any Loan Party or any

Subsidiary, or any payment (whether in cash, securities or other property),

including any sinking fund or similar deposit, on account of the purchase,

redemption, retirement, acquisition, cancellation or termination of any such

shares of capital stock of any Loan Party or any Subsidiary or any option,

warrant or other right to acquire any such shares of capital stock of any Loan

Party or any Subsidiary. Without limiting the foregoing, “Restricted Payments”

with respect to any Person shall also include all payments made by such Person

with any proceeds of a dissolution or liquidation of such Person, but shall not

include payments (whether in cash, securities or other property) made by such

Person in respect of stock appreciation rights plans, equity incentive,

achievement or similar plans in effect on or after the Closing Date.

 

“Revolving Loans” means all Loans at any

time made by a Lender pursuant to Section 2.01.

 

“S&P” means Standard & Poor’s.

 

“SEC” means the Securities and Exchange

Commission.

 

“Secured Parties” has the meaning assigned

to such term in the Security Agreement.

 

“Security Agreement” means the Security

Agreement dated as of July 21, 2003 among the Loan Parties and the Collateral

Agent for the benefit of the Secured Parties, as amended and in effect from

time to time.

 

25

 

“Security Documents” means the Security

Agreement, the Pledge Agreement, the Facility Guarantors Collateral Documents,

and each other security agreement or other instrument or document executed and

delivered pursuant to Sections 5.13 or 5.14 to secure any of the Obligations.

 

“Settlement Date” has the meaning

provided in Section 2.08(b) hereof.

 

“Shrink” means Inventory which has been

lost, misplaced, stolen, or is otherwise unaccounted for.

 

“Single Employer Plan” means a single

employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is

maintained for employees of the Parent or any of its Subsidiaries or any ERISA

Affiliate and no Person other than the Parent, its Subsidiaries or the ERISA

Affiliate or (b) was so maintained and in respect of which the Parent, any

Subsidiary or any ERISA Affiliate could have liability under Section 4069 of

ERISA in the event such plan has been or were to be terminated.

 

“Solvent” means, with respect to any

Person on a particular date, that on such date (a) at fair valuations, all of

the properties and assets of such Person are greater than the sum of the debts,

including contingent liabilities, of such Person, (b) the present fair saleable

value of the properties and assets of such Person is not less than the amount

that would be required to pay the probable liability of such Person on its

debts as they become absolute and matured, (c) such Person is able to realize

upon its properties and assets and pay its debts and other liabilities,

contingent obligations and other commitments as they mature in the normal

course of business, (d) such Person does not intend to, and does not believe

that it will, incur debts beyond such Person’s ability to pay as such debts

mature, and (e) such Person is not engaged in a business or a transaction, and

is not about to engage in a business or transaction, for which such Person’s

properties and assets would constitute unreasonably small capital after giving

due consideration to the prevailing practices in the industry in which such

Person is engaged.  The amount of all

Guarantees at any time shall be computed as the amount that, in light of all

the facts and circumstances existing at the time, can reasonably be expected to

become an actual or matured liability.

 

“Standby Letter of Credit” means any

Letter of Credit other than a Commercial Letter of Credit.

 

“Statutory Reserve Rate” means a

fraction (expressed as a decimal), the numerator of which is the number one and

the denominator of which is the number one minus the aggregate of the maximum

reserve percentages (including any marginal, special, emergency or supplemental

reserves) expressed as a decimal established by the Board to which the

Administrative Agent is subject with respect to the Adjusted LIBO Rate, for

eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in

Regulation D of the Board). Such reserve percentages shall include those

imposed pursuant to such Regulation D. LIBO Loans shall be deemed to constitute

eurocurrency funding and to be subject to such reserve requirements without

benefit of or credit for proration, exemptions or offsets that may be available

from time to time to any Lender under such Regulation D or any comparable

regulation. The Statutory Reserve Rate shall be adjusted automatically on and

as of the effective date of any change in any reserve percentage.

 

26

 

“Subordinated Indebtedness” means

Indebtedness which is expressly subordinated in right of payment, in form and

on terms approved by the Agent in writing, to the prior payment in full of the

Obligations.

 

“Subsidiary” means, with respect to any

Person (the “parent”) at any date, any corporation, limited liability

company, partnership, association or other entity the accounts of which would

be consolidated with those of the parent in the parent’s Consolidated financial

statements if such financial statements were prepared in accordance with GAAP

as of such date, as well as any other corporation, limited liability company,

partnership, association or other entity (a) of which securities or other

ownership interests representing more than 50% of the equity or more than 50%

of the ordinary voting power or, in the case of a partnership, more than 50% of

the general partnership interests are, as of such date, owned, controlled or

held, or (b) that is, as of such date, otherwise Controlled, by the parent or

one or more subsidiaries of the parent or by the parent and one or more

subsidiaries of the parent.

 

“Swingline Lender” means FRF, in its

capacity as lender of Swingline Loans hereunder.

 

“Swingline Loan” shall mean a Loan made

by the Swingline Lender to the Borrower pursuant to Section 2.06 hereof.

 

“Synthetic Lease” means any lease or

other agreement for the use or possession of property creating obligations

which do not appear as Indebtedness on the balance sheet of the lessee

thereunder but which, upon the insolvency or bankruptcy of such Person, may be

characterized as Indebtedness of such lessee without regard to the accounting

treatment.

 

“Taxes” means any and all current or

future taxes, levies, imposts, duties, deductions, charges or withholdings

imposed by any Governmental Authority.

 

“Termination Date” shall mean the

earliest to occur of (i) the Maturity Date, or (ii) the date on which the

maturity of the Loans are accelerated and the Commitments are terminated, or

(iii) the date of the occurrence of any Event of Default pursuant to Section

7.01(h) or 7.01(i) hereof.

 

“Total Commitment” shall mean, at any

time, the sum of the Commitments at such time. As of the Closing Date, the

Total Commitments aggregate $200,000,000.

 

“Type”, when used in reference to any

Loan or Borrowing, refers to whether the rate of interest on such Loan, or on

the Loans comprising such Borrowing, is determined by reference to the Adjusted

LIBO Rate or the Prime Rate.

 

“UCC” shall mean the Uniform Commercial

Code as in effect from time to time in the State of New York.

 

“Unused Commitment” shall mean, on any

day, (a) the then Total Commitments minus (b) the sum of (i) the

principal amount of Loans then outstanding (including the principal amount of

Swingline Loans then outstanding) and (ii) the then Letter of Credit

Outstandings.

 

“Voting Stock” means, with respect to

any corporation, the outstanding stock of all classes (or equivalent interests)

which ordinarily, in the absence of contingencies, entitles holders thereof to

vote for the election of directors (or Persons performing similar functions) of

such

 

27

 

corporation, even

though the right so to vote has been suspended by the happening of such

contingency.

 

“Withdrawal Liability” means liability

to a Multiemployer Plan as a result of a complete or partial withdrawal from

such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of

Title IV of ERISA.

 

SECTION 1.02       Terms

Generally. The definitions of terms herein shall apply equally to the

singular and plural forms of the terms defined. Whenever the context may

require, any pronoun shall include the corresponding masculine, feminine and

neuter forms. The words “include”, “includes” and “including” shall be deemed

to be followed by the phrase “without limitation”. The word “will” shall be

construed to have the same meaning and effect as the word “shall”. Unless the

context requires otherwise (a) any definition of or reference to any agreement,

instrument or other document herein shall be construed as referring to such

agreement, instrument or other document as from time to time amended,

supplemented or otherwise modified (subject to any restrictions on such

amendments, supplements or modifications set forth herein), (b) any reference

herein to any Person shall be construed to include such Person’s successors and

assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar

import, shall be construed to refer to this Agreement in its entirety and not

to any particular provision hereof, (d) all references herein to Articles,

Sections, Exhibits and Schedules shall be construed to refer to Articles and

Sections of, and Exhibits and Schedules to, this Agreement and (e) the words

“asset” and “property” shall be construed to have the same meaning and effect

and to refer to any and all tangible and intangible assets and properties,

including cash, securities, accounts and contract rights.

 

SECTION 1.03       Accounting

Terms; GAAP. Except as otherwise expressly provided herein, all terms of an

accounting or financial nature shall be construed in accordance with GAAP, as

in effect on the Closing Date, provided that, if the Borrower notifies

the Administrative Agent that the Borrower requests an amendment to any

provision hereof to reflect the effect of any change occurring after the date

hereof in GAAP or in the application thereof on the operation of such provision

(or if the Administrative Agent notifies the Borrower that the Required Lenders

request an amendment to any provision hereof for such purpose), regardless of

whether any such notice is given before or after such change in GAAP or in the

application thereof, then such provision shall be interpreted on the basis of

GAAP as in effect and applied immediately before such change shall have become

effective until such provision shall have been amended in accordance herewith.

 

ARTICLE II

 

Amount and Terms of Credit

 

SECTION 2.01       Commitment

of the Lenders.

 

(a)           Each

Lender severally and not jointly with any other Lender, agrees, upon the terms

and subject to the conditions herein set forth, to extend credit to the

Borrower on a revolving basis, in the form of Revolving Loans and Letters of

Credit and in an amount not to exceed the lesser of such Lender’s Commitment or

such Lender’s Commitment Percentage of the Borrowing Base, subject to the

following limitations:

 

28

 

(i)            The

aggregate outstanding amount of the Credit Extensions shall not at any time

exceed the lower of (i) $200,000,000 or, in each case, any other amount to

which the Commitments have then been increased or reduced by the Borrower

pursuant to Sections 2.02 or 2.16, and (ii) the then amount of the Borrowing

Base.

 

(ii)           No

Lender shall be obligated to issue any Letter of Credit, and Letters of Credit

shall be available from the Issuing Bank, subject to the ratable participation

of all Lenders, as set forth in Section 2.07. The Borrower will not at any time

permit the aggregate Letter of Credit Outstandings to exceed $15,000,000.

 

(iii)          Subject

to all of the other provisions of this Agreement, Revolving Loans that are

repaid may be reborrowed prior to the Termination Date. No new Credit

Extension, however, shall be made to the Borrower after the Termination Date.

 

(b)           Each

Borrowing of Revolving Loans (other than Swingline Loans) shall be made by the

Lenders pro  rata in accordance with their respective

Commitments.  The failure of any Lender

to make any Loan shall neither relieve any other Lender of its obligation to

fund its Loan in accordance with the provisions of this Agreement nor increase

the obligation of any such other Lender.

 

SECTION 2.02       Increase

in Total Commitment.

 

(a)           So

long as the Incremental Loan Commitment Requirements are satisfied, the

Borrower shall have the right at any time, and from time to time, to request an

increase of the Total Commitments to an amount not to exceed $225,000,000.  Any such requested increase shall be first

made to all existing Lenders on a pro rata basis. To the extent that the

existing Lenders decline to increase their Commitments, or decline to increase

their Commitments to the amount requested by the Borrower, the Arranger may

arrange for other Persons to become a Lender hereunder and to issue commitments

in an amount equal to the amount of the increase in the Total Commitments

requested by the Borrower and not accepted by the existing Lenders (each such

increase by either means, a “Commitment Increase,” and each such Person

issuing, or Lender increasing, its Commitment, an “Additional Commitment

Lender”); provided, however, that

(i) no Lender shall be obligated to provide a Commitment Increase as a result

of any such request by the Borrower, and (ii) any Additional Commitment Lender

which is not an existing Lender shall be subject to the approval of the

Administrative Agent, the Issuing Bank, the Swingline Lender and the Borrower

(which approval shall not be unreasonably withheld).  Each Commitment Increase shall be in a minimum aggregate amount

of at least $5,000,000 and in integral multiples of $5,000,000 in excess thereof.

 

(b)           No

Commitment Increase shall become effective unless and until each of the

following conditions have been satisfied:

 

(i)            the

Borrower, the Administrative Agent, and any Additional Commitment Lender shall

have executed and delivered a joinder to the Loan Documents in such form as the

Administrative Agent may reasonably require;

 

29

 

(ii)           the

Incremental Loan Commitment Requirements shall have been satisfied;

 

(iii)          the

Borrower shall have paid such fees and other compensation to the Additional

Commitment Lenders as the Borrower and each such Additional Commitment Lenders

may agree;

 

(iv)          the

Borrower shall have paid such arrangement fees to the Administrative Agent

and/or the Arranger as the Borrower and such Persons may agree;

 

(v)           the

Borrower shall deliver to the Administrative Agent and the Lenders an opinion

or opinions, in form and substance reasonably satisfactory to the

Administrative Agent, from counsel to the Borrower reasonably satisfactory to

the Administrative Agent (it being agreed that the counsel that delivers the

legal opinions on the Closing Date shall be satisfactory to the Administrative

Agent) and dated such date;

 

(vi)          to

the extent requested by any Additional Commitment Lender, a Note will be issued

at the Borrower’s expense, to each such Additional Commitment Lender, to be in

conformity with requirements of Section 2.09 hereof (with appropriate

modification) to the extent necessary to reflect the new Commitment of such

Additional Commitment Lender; and

 

(vii)         the

Borrower and the Additional Commitment Lenders shall have delivered such other

instruments, documents and agreements as the Administrative Agent may

reasonably have requested.

 

(c)           The

Administrative Agent shall promptly notify each Lender as to the effectiveness

of each Commitment Increase (with each date of such effectiveness being

referred to herein as a “Commitment Increase Date”), and at such time (i) the

Total Commitments under, and for all purposes of, this Agreement shall be

increased by the aggregate amount of such Commitment Increases, (ii) Schedule

1.1 shall be deemed modified, without further action, to reflect the

revised Commitments and Commitment Percentages of the Lenders, and (iii) this

Agreement shall be deemed amended, without further action, to the extent

necessary to reflect such increased Total Commitments (including, without

limitation, Section 2.01(a)(i)).

 

(d)           In

connection with Commitment Increases hereunder, the Lenders and the Borrower

agree that, notwithstanding anything to the contrary in this Agreement, (i) the

Borrower shall, in coordination with the Administrative Agent, (x) repay

outstanding Loans of certain Lenders, and obtain Loans from certain other

Lenders (including the Additional Commitment Lenders), or (y) take such other

actions as reasonably may be required by the Administrative Agent, in each case

to the extent necessary so that all of the Lenders effectively participate in

each of the outstanding Loans pro rata on the basis of their Commitment

Percentages (determined after giving effect to any increase in the Total

Commitment pursuant to this Section 2.02), and (ii) the Borrower shall pay to

the Lenders any costs of the type referred to in Section 2.20 in connection

with any repayment and/or Loans required pursuant to preceding clause (i).  Without limiting the Obligations of the

Borrower provided for in this Section 2.02, the Administrative Agent and the

Lenders agree that they will use their best efforts to attempt to

 

30

 

minimize the costs of

the type referred to in Section 2.20 which the Borrower would otherwise occur

in connection with the implementation of an increase in the Total Commitments.

 

SECTION 2.03       Reserves;

Changes to Reserves.

 

(a)           The

initial Inventory Reserves and Availability Reserves as of the date of this

Agreement are the following:

 

(i)          Shrink

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

 

(b)           The

Administrative Agent may hereafter, on three Business Days notice to the

Borrower, establish additional Reserves or change any of the foregoing

Reserves, in the exercise of the Permitted Discretion of the Administrative

Agent.

 

SECTION 2.04       Making

of Loans.

 

(a)           Except

as set forth in Sections 2.17 and 2.25, Loans (other than Swingline Loans) by

the Lenders shall be either Prime Rate Loans or LIBO Loans as the Borrower may

request subject to and in accordance with this Section 2.04, provided that

all Swingline Loans shall be only Prime Rate Loans. All Loans made pursuant to

the same Borrowing shall, unless otherwise specifically provided herein, be

Loans of the same Type. Each Lender may fulfill its Commitment with respect to

any Loan by causing any lending office of such Lender to make such Loan; but

any such use of a lending office shall not affect the obligation of the

Borrower to repay such Loan in accordance with the terms of the applicable

Note. Each Lender shall, subject to its overall policy considerations, use

reasonable efforts (but shall not be obligated) to select a lending office

which will not result in the payment of increased costs by the Borrower

pursuant to Section 2.24. Subject to the other provisions of this Section 2.04

and the provisions of Section 2.25, Borrowings of Loans of more than one Type

may be incurred at the same time, but no more than five (5) Borrowings of LIBO

Loans may be outstanding at any time.

 

(b)           The

Borrower shall give the Administrative Agent three Business Days’ prior

telephonic notice (thereafter confirmed in writing) of each Borrowing of LIBO

Loans and notice of each Borrowing of Prime Rate Loans on the proposed day of

each Borrowing. Any such notice, to be effective, must be received by the

Administrative Agent not later than 11:00 a.m., Boston time, on the third

Business Day in the case of LIBO Loans prior to the date on which, and on the

Business Day in the case of Prime Rate Loans that, such Borrowing is to be

made. Such notice shall be irrevocable and shall specify the amount of the

proposed Borrowing (which shall be in an integral multiple of $500,000, but not

less than $1,000,000 in the case of LIBO Loans and not less than $100,000 in

the case of Prime Rate Loans) and the date thereof (which shall be a Business

Day) and shall contain disbursement instructions.  Such notice shall specify whether the Borrowing then being

requested is to be a Borrowing of Prime Rate Loans or LIBO Loans and, if LIBO

Loans, the Interest Period with respect thereto. If no election of Interest

Period is specified in any such notice for a Borrowing of LIBO Loans, such

notice shall be deemed a request for an Interest Period of one month. If no

election is made as to the Type of Loan, such notice shall be deemed a request

for Borrowing of Prime Rate Loans. The Administrative Agent shall promptly

notify each Lender of its proportionate share of such Borrowing, the date of

such Borrowing, the Type of Borrowing being requested and the Interest Period

or Interest Periods applicable thereto, as appropriate. On the borrowing date

specified in such notice, each Lender shall make its share of the Borrowing

available at the office of the Administrative Agent at 100

 

31

 

Federal Street,

Boston, Massachusetts 02110, no later than 1:00 p.m., Boston time, in

immediately available funds. Unless the Administrative Agent shall have

received notice from a Lender prior to the proposed date of any Borrowing that

such Lender will not make available to the Administrative Agent such Lender’s

share of such Borrowing, the Administrative Agent may assume that such Lender

has made such share available on such date in accordance with this Section and

may, in reliance upon such assumption, make available to the Borrower a

corresponding amount. In such event, if a Lender has not in fact made its share

of the applicable Borrowing available to the Administrative Agent, then the

applicable Lender and the Borrower severally agree to pay to the Administrative

Agent forthwith on demand such corresponding amount with interest thereon, for

each day from and including the date such amount is made available to the

Borrower to but excluding the date of payment to the Administrative Agent, at

(i) in the case of such Lender, the greater of the Federal Funds Effective Rate

and a rate determined by the Administrative Agent in accordance with banking

industry rules on interbank compensation or (ii) in the case of the Borrower,

the interest rate applicable to Prime Rate Loans. If such Lender pays such

amount to the Administrative Agent, then such amount shall constitute such

Lender’s Loan included in such Borrowing. Upon receipt of the funds made

available by the Lenders to fund any Borrowing hereunder, the Administrative

Agent shall disburse such funds into a Fleet Disbursement Account or otherwise

in the manner specified in the notice of borrowing delivered by the Borrower

and shall use reasonable efforts to make the funds so received from the Lenders

available to the Borrower no later than 4:00 p.m., Boston time.

 

(c)           The

Agent, without the request of the Borrower, may advance any interest, fee,

service charge, or other payment to which any Agent or their Affiliates or any

Lender is entitled from the Borrower pursuant hereto or any other Loan Document

and may charge the same to the Loan Account notwithstanding that an Overadvance

may result thereby.  The Administrative

Agent shall advise the Borrower of any such advance or charge promptly after

the making thereof. Such action on the part of the Administrative Agent shall

not constitute a waiver of the Administrative Agent’s rights and the Borrower’s

obligations under Section 2.19(a). Any amount which is added to the principal

balance of the Loan Account as provided in this Section 2.04(c) shall bear

interest at the interest rate then and thereafter applicable to Prime Rate

Loans.

 

SECTION 2.05       Overadvances.

The Agents and the Lenders have no obligation to make any Loan or to provide

any Letter of Credit if an Overadvance would result. The Administrative Agent

may, in its discretion, make Permitted Overadvances without the Consent of the

Lenders and each Lender shall be bound thereby. Any Permitted Overadvances may

constitute Swingline Loans. The making of any Permitted Overadvance is for the

benefit of the Borrower; such Permitted Overadvances constitute Revolving Loans

and Obligations. The making of any such Permitted Overadvances on any one

occasion shall not obligate the Administrative Agent or any Lender to make or

permit any Permitted Overadvances on any other occasion or to permit such

Permitted Overadvances to remain outstanding.

 

SECTION 2.06       Swingline

Loans

 

(a)           The

Swingline Lender is authorized by the Lenders, but is not obligated, to make

Swingline Loans up to (i) $25,000,000 plus (ii) the Permitted Overadvance, in

the aggregate outstanding at any time, consisting only of Prime Rate Loans,

upon a notice of Borrowing received by the Administrative Agent and the

Swingline Lender (which notice, at the Swingline Lender’s discretion, may be

submitted prior to 1:00 p.m., Boston time, on the Business Day on which such

Swingline Loan is requested). Swingline Loans shall be subject to periodic

settlement with the Lenders under Section 2.08 below.

 

32

 

(b)           Swingline

Loans may be made only in the following circumstances: (A) for administrative

convenience, the Swingline Lender may, but is not obligated to, make Swingline

Loans in reliance upon the Borrower’s actual or deemed representations under

Section 4.02, that the applicable conditions for borrowing are satisfied or (B)

for Permitted Overadvances. If the conditions for borrowing under Section 4.02

cannot be fulfilled, the Required Lenders may direct the Swingline Lender to,

and the Swingline Lender thereupon shall, cease making Swingline Loans (other

than Permitted Overadvances) until such conditions can be satisfied or are

waived in accordance with Section 9.02 hereof. Unless the Required Lenders so

direct the Swingline Lender, the Swingline Lender may, but is not obligated to,

continue to make Swingline Loans notwithstanding that the conditions for

borrowing under Section 4.02 cannot be fulfilled. No Swingline Loans shall be

made pursuant to this subsection (b) if the aggregate outstanding amount of the

Credit Extensions and Swingline Loans would exceed the lower of (i)

$200,000,000 or any other amount to which the Commitments have then been

increased or reduced by the Borrower pursuant to Sections 2.02 and 2.16, and

(ii) (other than with respect to Permitted Overadvances) the then amount of the

Borrowing Base.

 

SECTION 2.07       Letters

of Credit.

 

(a)           Upon

the terms and subject to the conditions herein set forth, the Borrower may

request the Issuing Bank, at any time and from time to time after the date

hereof and prior to the Termination Date, to issue, and subject to the terms

and conditions contained herein, the Issuing Bank shall issue, for the account

of the Borrower one or more Letters of Credit; provided that no Letter

of Credit shall be issued if after giving effect to such issuance (i) the

aggregate Letter of Credit Outstandings shall exceed $15,000,000, or (ii) the

aggregate Credit Extensions would exceed the limitation set forth in Section

2.01(a)(i); and provided, further, that no Letter of Credit shall

be issued if the Issuing Bank shall have received notice from the

Administrative Agent or the Required Lenders that the conditions to such

issuance have not been met.

 

(b)           Each

Standby Letter of Credit shall expire at or prior to the close of business on

the earlier of (i) the date one year after the date of the issuance of such

Letter of Credit (or, in the case of any renewal or extension thereof, one year

after such renewal or extension) and (ii) the date that is five Business Days

prior to the Maturity Date, provided that each Standby Letter of Credit

may, upon the request of the Borrower, include a provision whereby such Letter

of Credit shall be renewed automatically for additional consecutive periods of

12 months or less (but not beyond the date that is five Business Days prior to

the Maturity Date) unless the Issuing Bank notifies the beneficiary thereof at

least 30 days prior to the then-applicable expiration date that such Letter of

Credit will not be renewed.

 

(c)           Each

Commercial Letter of Credit shall expire at or prior to the close of business

on the earlier of (i) the date 120 days after the date of the issuance of such

Commercial Letter of Credit and (ii) the date that is five Business Days prior

to the Maturity Date.

 

(d)           Drafts

drawn under each Letter of Credit shall be reimbursed by the Borrower in

dollars on the same Business Day of any such drawing by paying to the

Administrative Agent an amount equal to such drawing not later than 12:00 noon,

Boston time, on (i) the date that the Borrower shall have received notice of

such drawing, if such notice is received prior to 10:00 a.m., Boston time,

on such date, or (ii) the Business Day immediately following the day that the

Borrower receive such notice, if such notice is received after 10:00 a.m.,

Boston time on the day of drawing, provided that the Borrower may,

subject to the conditions to borrowing set

 

33

 

forth herein, request

in accordance with Section 2.04 that such payment be financed with a Revolving

Loan consisting of a Prime Rate Loan or Swingline Loan in an equivalent amount

and, to the extent so financed, the Borrower’s obligation to make such payment

shall be discharged and replaced by the resulting Prime Rate Loan or Swingline

Loan. The Issuing Bank shall, promptly following its receipt thereof, examine

all documents purporting to represent a demand for payment under a Letter of

Credit. The Issuing Bank shall promptly notify the Administrative Agent and the

Borrower by telephone (confirmed by telecopy) of such demand for payment and

whether the Issuing Bank has made or will make payment thereunder, provided

that any failure to give or delay in giving such notice shall not relieve the

Borrower of its obligation to reimburse the Issuing Bank and the Lenders with

respect to any such payment.

 

(e)           If

the Issuing Bank shall make any L/C Disbursement, then, unless the Borrower

shall reimburse the Issuing Bank in full on the date such payment is made, the

unpaid amount thereof shall bear interest, for each day from and including the

date such payment is made to but excluding the date that the Borrower

reimburses the Issuing Bank therefor, at the rate per annum then applicable to

Prime Rate Loans, provided that, if the Borrower fails to reimburse such

Issuing Bank when due pursuant to paragraph (d) of this Section, then Section

2.11 shall apply. Interest accrued pursuant to this paragraph shall be for the

account of the Issuing Bank, except that interest accrued on and after the date

of payment by any Lender pursuant to paragraph (g) of this Section to reimburse

the Issuing Bank shall be for the account of such Lender to the extent of such

payment.

 

(f)            Immediately

upon the issuance of any Letter of Credit by the Issuing Bank (or the amendment

of a Letter of Credit increasing the amount thereof), and without any further

action on the part of the Issuing Bank, the Issuing Bank shall be deemed to

have sold to each Lender, and each such Lender shall be deemed unconditionally

and irrevocably to have purchased from the Issuing Bank, without recourse or

warranty, an undivided interest and participation, to the extent of such

Lender’s Commitment Percentage, in such Letter of Credit, each drawing

thereunder and the obligations of the Borrower under this Agreement and the

other Loan Documents with respect thereto. Upon any change in the Commitments pursuant

to Sections 2.02 or 9.04, it is hereby agreed that with respect to all Letter

of Credit Outstandings, there shall be an automatic adjustment to the

participations hereby created to reflect the new Commitment Percentages of the

assigning and assignee Lenders. Any action taken or omitted by the Issuing Bank

under or in connection with a Letter of Credit, if taken or omitted in the

absence of gross negligence or willful misconduct, shall not create for the

Issuing Bank any resulting liability to any Lender.

 

(g)           In

the event that the Issuing Bank makes any L/C Disbursement and the Borrower

shall not have reimbursed such amount in full to the Issuing Bank pursuant to

this Section 2.07, the Issuing Bank shall promptly notify the Administrative

Agent, which shall promptly notify each Lender of such failure, and each Lender

shall promptly and unconditionally pay to the Administrative Agent for the

account of the Issuing Bank the amount of such Lender’s Commitment Percentage

of such unreimbursed payment in dollars and in same day funds. If the Issuing

Bank so notifies the Administrative Agent, and the Administrative Agent so

notifies the Lenders prior to 11:00 a.m., Boston time, on any Business Day,

each such Lender shall make available to the Issuing Bank such Lender’s

Commitment Percentage of the amount of such payment on such Business Day in

same day funds (or if such notice is received by the Lenders after 11:00 a.m.,

Boston time on the day of receipt, payment shall be made on the immediately

following Business Day). If and to the extent such Lender shall not have so

made its Commitment Percentage of the amount of such payment available to the

Issuing Bank, such

 

34

 

Lender agrees to pay

to the Issuing Bank, forthwith on demand such amount, together with interest

thereon, for each day from such date until the date such amount is paid to the

Administrative Agent for the account of the Issuing Bank at the greater of the

Federal Funds Effective Rate and a rate determined by the Administrative Agent

in accordance with banking industry rules on interbank compensation. Each

Lender agrees to fund its Commitment Percentage of such unreimbursed payment

notwithstanding a failure to satisfy any applicable lending conditions or the

provisions of Sections 2.01 or 2.07, or the occurrence of the Termination Date.

The failure of any Lender to make available to the Issuing Bank its Commitment

Percentage of any payment under any Letter of Credit shall neither relieve any

Lender of its obligation hereunder to make available to the Issuing Bank its

Commitment Percentage of any payment under any Letter of Credit on the date

required, as specified above, nor increase the obligation of such other Lender.

Whenever any Lender has made payments to the Issuing Bank in respect of any

reimbursement obligation for any Letter of Credit, such Lender shall be

entitled to share ratably, based on its Commitment Percentage, in all payments

and collections thereafter received on account of such reimbursement

obligation.

 

(h)           Whenever

the Borrower desires that the Issuing Bank issue a Letter of Credit (or the

amendment, renewal or extension of an outstanding Letter of Credit), the

Borrower shall give to the Issuing Bank and the Administrative Agent at least

two Business Days’ prior written (including telegraphic, telex, facsimile or

cable communication) notice (or such shorter period as may be agreed upon in

writing by the Issuing Bank and the Borrower) specifying the date on which the

proposed Letter of Credit is to be issued, amended, renewed or extended (which

shall be a Business Day), the stated amount of the Letter of Credit so

requested, the expiration date of such Letter of Credit, the name and address

of the beneficiary thereof, and the provisions thereof. If requested by the

Issuing Bank, the Borrower shall also submit a letter of credit application on

the Issuing Bank’s standard form in connection with any request for the

issuance, amendment, renewal or extension of a Letter of Credit.

 

(i)            The

obligations of the Borrower to reimburse the Issuing Bank for any L/C

Disbursement shall be unconditional and irrevocable and shall be paid strictly

in accordance with the terms of this Agreement under all circumstances,

including, without limitation: (i) any lack of validity or enforceability of

any Letter of Credit; (ii) the existence of any claim, setoff, defense or other

right which the Borrower may have at any time against a beneficiary of any

Letter of Credit or against the Issuing Bank or any of the Lenders, whether in

connection with this Agreement, the transactions contemplated herein or any

unrelated transaction; (iii) any draft, demand, certificate or other document

presented under any Letter of Credit proving to be forged, fraudulent, invalid

or insufficient in any respect or any statement therein being untrue or

inaccurate in any respect; (iv) payment by the Issuing Bank of any Letter of

Credit against presentation of a demand, draft or certificate or other document

which does not comply with the terms of such Letter of Credit; (v) any other

circumstance or happening whatsoever, whether or not similar to any of the

foregoing, that might, but for the provisions of this Section, constitute a

legal or equitable discharge of, or provide a right of setoff against, the

Borrower’s obligations hereunder; or (vi) the fact that any Event of Default

shall have occurred and be continuing. None of the Administrative Agent, the

Lenders, the Issuing Bank or any of their Affiliates shall have any liability

or responsibility by reason of or in connection with the issuance or transfer

of any Letter of Credit or any payment or failure to make any payment

thereunder (irrespective of any of the circumstances referred to in the

preceding sentence), or any error, omission, interruption, loss or delay in

transmission or delivery of any draft, notice or other communication under or

relating to any Letter of Credit (including any document required to make a

drawing thereunder), any error in interpretation of technical terms or any

consequence arising from causes beyond the

 

35

 

control of the

Issuing Bank, provided that the foregoing provisions of this

subparagraph (i) shall not be construed to excuse the Issuing Bank from liability

to the Borrower to the extent of any direct damages (as opposed to

consequential damages, claims in respect of which are hereby waived by the

Borrower to the extent permitted by Applicable Law) suffered by the Borrower

that are caused by the Issuing Bank’s failure to exercise care when determining

whether drafts and other documents presented under a Letter of Credit comply

with the terms thereof. The parties hereto expressly agree that, in the absence

of gross negligence or willful misconduct on the part of the Issuing Bank (as

finally determined by a court of competent jurisdiction), the Issuing Bank

shall be deemed to have exercised care in each such determination. In

furtherance of the foregoing and without limiting the generality thereof, the

parties agree that, with respect to documents presented that appear on their

face to be in compliance with the terms of a Letter of Credit, the Issuing Bank

may, in its sole discretion, either accept and make payment upon such documents

without responsibility for further investigation, regardless of any notice or

information to the contrary, or refuse to accept and make payment upon such

documents if such documents are not in strict compliance with the terms of such

Letter of Credit.

 

(j)            If

any Event of Default shall occur and be continuing, on the Business Day that

the Borrower receives notice from the Administrative Agent or the Required

Lenders demanding the deposit of cash collateral pursuant to this paragraph,

the Borrower shall deposit in the Cash Collateral Account an amount in cash

equal to 103% of the Letter of Credit Outstandings as of such date plus any

accrued and unpaid interest thereon. Each such deposit shall be held by the

Collateral Agent as collateral for the payment and performance of the Obligations

of the Borrower under this Agreement. The Collateral Agent shall have exclusive

dominion and control, including the exclusive right of withdrawal, over such

Cash Collateral Account. Other than any interest earned on the investment of

such deposits, which investments shall be made at the option and sole

discretion of the Collateral Agent at the request of the Borrower and at the

Borrower’s risk and expense, such deposits shall not bear interest. Interest or

profits, if any, on such investments shall accumulate in such account. Moneys

in such Cash Collateral Account shall be applied by the Collateral Agent to

reimburse the Issuing Bank for payments on account of drawings under Letters of

Credit for which it has not been reimbursed and, to the extent not so applied,

shall be held first for the satisfaction of the reimbursement obligations of

the Borrower for the Letter of Credit Outstandings at such time and thereafter

be applied to satisfy other Obligations of the Borrower under this Agreement.

 

SECTION 2.08       Settlements

Amongst Lenders

 

(a)           The

Swingline Lender may (but shall not be obligated to), at any time, on behalf of

the Borrower (which hereby authorizes the Swingline Lender to act on its behalf

in that regard) request the Administrative Agent to cause the Lenders to make a

Revolving Loan (which shall be a Prime Rate Loan) in an amount equal to such

Lender’s Commitment Percentage of the outstanding amount of Swingline Loans

made in accordance with Section 2.06, which request may be made regardless of whether

the conditions set forth in Article IV have been satisfied. Upon such request,

each Lender shall make available to the Administrative Agent the proceeds of

such Revolving Loan for the account of the Swingline Lender. If the Swingline

Lender requires a Revolving Loan to be made by the Lenders and the request

therefor is received prior to 12:00 Noon, Boston time, on a Business Day, such

transfers shall be made in immediately available funds no later than 3:00 p.m.,

Boston time, that day; and, if the request therefor is received after 12:00

Noon, Boston time, then no later than 3:00 p.m., Boston time, on the next

Business Day. The obligation of each Lender to transfer such funds is

irrevocable, unconditional and without recourse to or warranty by the Administrative

Agent or the Swingline Lender. If and to the extent

 

36

 

any Lender shall not

have so made its transfer to the Administrative Agent, such Lender agrees to

pay to the Administrative Agent, forthwith on demand such amount, together with

interest thereon, for each day from such date until the date such amount is

paid to the Administrative Agent at the greater of the Federal Funds Effective

Rate and a rate determined by the Administrative Agent in accordance with

banking industry rules on interbank compensation.

 

(b)           The

amount of each Lender’s Commitment Percentage of outstanding Revolving Loans

(excluding Swingline Loans) shall be computed weekly (or more frequently in the

Administrative Agent’s discretion) and shall be adjusted upward or downward

based on all Revolving Loans (excluding Swingline Loans) and repayments of

Revolving Loans (excluding Swingline Loans) received by the Administrative

Agent as of 3:00 p.m., Boston time, on the first Business Day following the end

of the period specified by the Administrative Agent (such date, the “Settlement

Date”).

 

(c)           The

Administrative Agent shall deliver to each of the Lenders promptly after the

Settlement Date a summary statement of the amount of outstanding Revolving

Loans (excluding Swingline Loans) for the period and the amount of repayments

received for the period. As reflected on the summary statement, each Lender

shall transfer to the Administrative Agent (as provided below), or the

Administrative Agent shall transfer to each Lender, such amounts as are

necessary to insure that, after giving effect to all such transfers, the amount

of Revolving Loans made by each Lender with respect to Revolving Loans

(excluding Swingline Loans) shall be equal to such Lender’s applicable

Commitment Percentage of Revolving Loans (excluding Swingline Loans)

outstanding as of such Settlement Date. If the summary statement requires

transfers to be made to the Administrative Agent by the Lenders and is received

prior to 12:00 Noon, Boston time, on a Business Day, such transfers shall be

made in immediately available funds no later than 3:00 p.m., Boston time, that

day; and, if received after 12:00 Noon, Boston time, then no later than 3:00

p.m., Boston time, on the next Business Day. The obligation of each Lender to

transfer such funds is irrevocable, unconditional and without recourse to or

warranty by the Administrative Agent. If and to the extent any Lender shall not

have so made its transfer to the Administrative Agent, such Lender agrees to

pay to the Administrative Agent, forthwith on demand such amount, together with

interest thereon, for each day from such date until the date such amount is

paid to the Administrative Agent at the greater of the Federal Funds Effective

Rate and a rate determined by the Administrative Agent in accordance with

banking industry rules on interbank compensation.

 

SECTION 2.09       Notes;

Repayment of Loans.

 

(a)           The

Loans made by each Lender (and to the Swingline Lender, with respect to

Swingline Loans) shall be evidenced by a Note duly executed on behalf of the

Borrower, dated the Closing Date, in substantially the form attached hereto as

Exhibit B-1 or B-2, as applicable, payable to the order of each such Lender (or

the Swingline Lender, as applicable) in an aggregate principal amount equal to

such Lender’s Commitment (or, in the case of the Note evidencing the Swingline

Loans, $25,000,000).

 

(b)           The

outstanding principal balance of all Swingline Loans shall be repaid on the

earlier of the Termination Date or on the date otherwise requested by the

Swingline Lender in accordance with the provisions of Section 2.08(a). The

outstanding principal balance of all other Obligations shall be payable on the

Termination Date (subject to earlier repayment as provided below). Each Note

shall bear interest from the date thereof on the outstanding principal balance

thereof as set forth in this Article II. Each Lender is hereby authorized by

the Borrower to

 

37

 

endorse on a schedule

attached to each Note delivered to such Lender (or on a continuation of such

schedule attached to such Note and made a part thereof), or otherwise to record

in such Lender’s internal records, an appropriate notation evidencing the date and

amount of each Loan from such Lender, each payment and prepayment of principal

of any such Loan, each payment of interest on any such Loan and the other

information provided for on such schedule; provided, however,

that the failure of any Lender to make such a notation or any error therein

shall not affect the obligation of the Borrower to repay the Loans made by such

Lender in accordance with the terms of this Agreement and the applicable Notes.

 

(c)           Upon

receipt of an affidavit of a Lender as to the loss, theft, destruction or

mutilation of such Lender’s Note and upon cancellation of such Note, the

Borrower will issue, in lieu thereof, a replacement Note in favor of such

Lender, in the same principal amount thereof and otherwise of like tenor.

 

SECTION 2.10       Interest

on Loans.

 

(a)           Subject

to Section 2.11, each Prime Rate Loan shall bear interest (computed on the

basis of the actual number of days elapsed over a year of 365 or 366 days, as

applicable) at a rate per annum that shall be equal to the then Prime Rate, plus

the Applicable Margin for Prime Rate Loans.

 

(b)           Subject

to Section 2.11, each LIBO Loan shall bear interest (computed on the basis of

the actual number of days elapsed over a year of 360 days) at a rate per annum

equal, during each Interest Period applicable thereto, to the Adjusted LIBO

Rate for such Interest Period, plus the Applicable Margin for LIBO

Loans.

 

(c)           Accrued

interest on all Loans shall be payable in arrears on each Interest Payment Date

applicable thereto, at maturity (whether by acceleration or otherwise), after

such maturity on demand and (with respect to LIBO Loans) upon any repayment or

prepayment thereof (on the amount prepaid).

 

SECTION 2.11       Default

Interest.

 

Effective upon the occurrence of any Event of

Default and at all times thereafter while such Event of Default is continuing,

at the option of the Administrative Agent or upon the direction of the Required

Lenders, interest shall accrue on all outstanding Loans (including Swingline

Loans) (after as well as before judgment, as and to the extent permitted by

law) at a rate per annum (computed on the basis of the actual number of days

elapsed over a year of 360 days) equal to the rate (including the Applicable

Margin for Loans) in effect from time to time plus 2.00% per annum, and

such interest shall be payable on demand.

 

SECTION 2.12       Certain

Fees.

 

The Borrower shall pay to the Administrative

Agent, for the account of the Administrative Agent, the fees set forth in the

Fee Letter as and when payment of such fees is due as therein set forth.

 

38

 

SECTION 2.13       Unused

Commitment Fee.

 

Each Lender shall be paid the Line Fee at the

times and in the manner set forth below. 

The Borrower shall pay to the Administrative Agent for the account of

the Lenders, a commitment fee (the “Commitment Fee”) equal to 0.375% per

annum (on the basis of actual days elapsed in a year of 360 days) of the

average daily balance of the Unused Commitment for each day commencing on and

including the Closing Date and ending on but excluding the Termination Date.

The Commitment Fee so accrued in any calendar month shall be payable on the

first Business Day of the immediately succeeding calendar month, except that

all Commitment Fees so accrued as of the Termination Date shall be payable on

the Termination Date.  If the Commitment

Fee actually paid by the Borrower is insufficient to pay the Line Fee due the

Lenders, the deficiency shall be paid to the Lenders by the Swingline Lender

from its own funds (and the Borrower shall have no liability with respect

thereto).  The Administrative Agent

shall pay the Commitment Fee (and any amounts payable by the Swingline Lender

hereunder) to the Lenders based upon their Commitment Percentages of the

aggregate Line Fee due to all Lenders; provided that for purposes of

calculating the share of any Person which is both the Swingline Lender and a

Lender, such Person’s share shall be equal to the difference between (i) such

Person’s Commitment, and (ii) the sum of (A) such Person’s Commitment

Percentage of the principal amount of Revolving Loans then outstanding

(including the principal amount of Swingline Loans then outstanding), and (B)

such Person’s Commitment Percentage of the then Letter of Credit Outstandings.

 

SECTION 2.14       Letter

of Credit Fees.

 

(a)                                  The Borrower shall pay the

Administrative Agent, for the account of the Lenders, on the first day of each

calendar quarter, in arrears, a fee (each, a “Letter of Credit Fee”) equal to

the following per annum percentages of the average face amount of the following

categories of Letters of Credit outstanding during the subject quarter:

 

(i)            Standby

Letters of Credit:  At a per annum rate

equal to the then Applicable Margin for LIBO Loans.

 

(ii)           Commercial

Letters of Credit:  At a per annum rate

equal to the then Applicable Margin for LIBO Loans minus 0.50%.

 

(iii)          After

the occurrence and during the continuance of an Event of Default, at the option

of the Administrative Agent or upon the direction of the Required Lenders, the

Letter of Credit Fee shall be increased by an amount equal to two percent (2%)

per annum.

 

(b)           The

Borrower shall pay to the Administrative Agent, for the account of the Issuing

Bank, and in addition to all Letter of Credit Fees otherwise provided for

hereunder, such fronting fees (each, a “Fronting Fee”) and such other fees and

charges in connection with the issuance, negotiation, settlement, amendment and

processing of each Letter of Credit issued by the Issuing Bank as are

customarily imposed by the Issuing Bank from time to time in connection with

letter of credit transactions.

 

(c)           All

Letter of Credit Fees shall be calculated on the basis of a 360-day year and

actual days elapsed.

 

39

 

SECTION 2.15       Nature

of Fees.

 

All fees shall be paid on the dates due, in

immediately available funds, to the Administrative Agent, for the respective

accounts of the Administrative Agent, the Issuing Bank, and the Lenders, as

provided herein. All fees shall be fully earned on the date when due and shall

not be refundable under any circumstances.

 

SECTION 2.16       Termination

or Reduction of Commitments.

 

(a)           Upon

at least three (3) Business Days’ prior written notice to the Administrative

Agent, the Borrower may, at any time, in whole permanently terminate, or from

time to time in part permanently reduce, the Commitments. Each such reduction

shall be in the principal amount of $5,000,000 or any integral multiple of

$1,000,000 in excess thereof. Each such reduction or termination shall (i) be

applied ratably to the Commitments of each Lender and (ii) be irrevocable when

given. At the effective time of each such reduction or termination, the

Borrower shall pay to the Administrative Agent for application as provided

herein (i) all Commitment Fees accrued on the amount of the Commitments so

terminated or reduced through the date thereof, and (ii) any amount by which

the Credit Extensions outstanding on such date exceed the amount to which the

Commitments are to be reduced effective on such date, in each case pro  rata

based on the amount prepaid.

 

(b)           The

Commitments shall immediately terminate, without any notice or further action,

upon any Change in Control unless all of the Required Lenders otherwise agree.

 

SECTION 2.17       Alternate

Rate of Interest.

 

If prior to the commencement of any Interest

Period for a LIBO Borrowing:

 

(a)           the

Administrative Agent determines (which determination shall be conclusive absent

manifest error) that adequate and reasonable means do not exist for ascertaining

the Adjusted LIBO Rate for such Interest Period; or

 

(b)           the

Administrative Agent is advised by the Required Lenders that, as a result of a

Change in Law after the Closing Date, the Adjusted LIBO Rate for such Interest

Period will not adequately and fairly reflect the cost to such Lenders of

making or maintaining their Loans included in such Borrowing for such Interest

Period;

 

then the

Administrative Agent shall give notice thereof to the Borrower and the Lenders

by telephone or telecopy as promptly as practicable thereafter and, until the

Administrative Agent notifies the Borrower and the Lenders that the

circumstances giving rise to such notice no longer exist, (i) any Borrowing

Request that requests the conversion of any Borrowing to, or continuation of

any Borrowing as, a LIBO Borrowing shall be ineffective and (ii) if any

Borrowing Request requests a LIBO Borrowing, such Borrowing shall be made as a

Borrowing of Prime Rate Loans.

 

SECTION 2.18       Conversion

and Continuation of Loans.

 

The Borrower shall have the right at any time,

on three Business Days’ prior irrevocable notice to the Administrative Agent

(which notice, to be effective, must be received by the Administrative Agent

not later than 11:00 a.m., Boston time, on the third Business Day

 

40

 

preceding the date of

any conversion), (x) to convert any outstanding Borrowings of Loans (but in no

event Swingline Loans) of one Type (or a portion thereof) to a Borrowing of

Loans of the other Type or (y) to continue an outstanding Borrowing of LIBO

Loans for an additional Interest Period, subject to the following:

 

(a)           no

Borrowing of Loans may be converted into, or continued as, LIBO Loans at any

time when an Event of Default has occurred and is continuing;

 

(b)           if

less than a full Borrowing of Loans is converted, such conversion shall be made

pro  rata among the Lenders based upon their Commitment

Perecentages in accordance with the respective principal amounts of the Loans

comprising such Borrowing held by such Lenders immediately prior to such

conversion;

 

(c)           the

aggregate principal amount of Loans being converted into or continued as LIBO

Loans shall be in an integral of $500,000 and at least $1,000,000;

 

(d)           each

Lender shall effect each conversion by applying the proceeds of its new LIBO

Loan or Prime Rate Loan, as the case may be, to its Loan being so converted;

 

(e)           the

Interest Period with respect to a Borrowing of LIBO Loans effected by a

conversion or in respect to the Borrowing of LIBO Loans being continued as LIBO

Loans shall commence on the date of conversion or the expiration of the current

Interest Period applicable to such continuing Borrowing, as the case may be;

 

(f)            a

Borrowing of LIBO Loans may be converted only on the last day of an Interest

Period applicable thereto;

 

(g)           each

request for a conversion or continuation of a Borrowing of LIBO Loans which

fails to state an applicable Interest Period shall be deemed to be a request

for an Interest Period of one month; and

 

(h)           no

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

 

If the Borrower does

not give notice to convert any Borrowing of LIBO Loans, or does not give notice

to continue, or does not have the right to continue, any Borrowing as LIBO

Loans, in each case as provided above, such Borrowing shall automatically be

converted to a Borrowing of Prime Rate Loans at the expiration of the

then-current Interest Period. The Administrative Agent shall, after it receives

notice from the Borrower, promptly give each Lender notice of any conversion,

in whole or part, of any Loan made by such Lender.

 

SECTION 2.19       Mandatory

Prepayment; Commitment Termination; Cash Collateral.

 

The outstanding Obligations shall be subject

to mandatory prepayment as follows:

 

(a)           If

at any time the amount of the Credit Extensions exceeds the lower of (i) the

then amount of the Commitments and (ii) the then amount of the Borrowing Base,

the Borrower will immediately upon notice from the Administrative Agent (A)

prepay the Loans in an amount necessary to eliminate such excess, and (B) if,

after giving effect to the prepayment in full of all outstanding Loans such

excess has not been eliminated, deposit cash into the Cash Collateral Account

in an amount equal to 103% of the Letters of Credit Outstanding.

 

41

 

(b)           The

Revolving Loans shall be repaid daily in accordance with the provisions of

Section 2.23 hereof.

 

(c)           All

Obligations shall be immediately repaid in full upon any Change in Control unless

all of the Required Lenders otherwise agree.

 

(d)           Subject

to the provisions of Sections 2.19(a) and (b), outstanding Prime Rate Loans

shall be prepaid before outstanding LIBO Loans are prepaid. Each partial

prepayment of LIBO Loans shall be in an integral multiple of $500,000. No

prepayment of LIBO Loans shall be permitted pursuant to this Section 2.19 other

than on the last day of an Interest Period applicable thereto, unless the

Borrower simultaneously reimburses the Lenders for all “Breakage Costs” (as

defined in Section 2.20(b) below) associated therewith. In order to avoid such

Breakage Costs, as long as no Event of Default has occurred and is continuing,

at the request of the Borrower, the Administrative Agent shall hold all amounts

required to be applied to LIBO Loans in the Cash Collateral Account and will

apply such funds to the applicable LIBO Loans at the end of the then pending

Interest Period therefor and such LIBO Loans shall continue to bear interest at

the rate set forth in Section 2.10 until the amounts in the Cash Collateral

Account have been so applied (provided that the foregoing shall in no way limit

or restrict the Agents’ rights upon the subsequent occurrence of an Event of

Default). No partial prepayment of a Borrowing of LIBO Loans shall result in

the aggregate principal amount of the LIBO Loans remaining outstanding pursuant

to such Borrowing being less than $1,000,000. Except as provided in Section

2.16 and Section 2.19(c), any prepayment of the Revolving Loans shall not

permanently reduce the Commitments.

 

(e)           All

amounts required to be applied to all Loans hereunder (other than Swingline

Loans) shall be applied ratably in accordance with each Lender’s Commitment

Percentage.

 

(f)            Upon

the Termination Date, the Commitments and the credit facility provided

hereunder shall be terminated in full and the Borrower shall pay, in full and

in cash, all outstanding Loans and all other outstanding Obligations.

 

SECTION 2.20       Optional

Prepayment of Loans; Reimbursement of Lenders.

 

(a)           The

Borrower shall have the right at any time and from time to time to prepay

outstanding Loans in whole or in part, (x) with respect to LIBO Loans, upon at

least two (2) Business Days’ prior written, telex or facsimile notice to the

Administrative Agent prior to 11:00 a.m., Boston time, and (y) with respect to

Prime Rate Loans, on the same Business Day if written, telex or facsimile

notice is received by the Administrative Agent prior to 1:00 p.m., Boston time,

subject to the following limitations:

 

(i)            Subject

to Section 2.19, all prepayments shall be paid to the Administrative Agent for

application, first, to the prepayment of outstanding Swingline Loans, second,

to the prepayment of other outstanding Loans ratably in accordance with each

Lender’s Commitment Percentage, and third, to the funding of a cash

collateral deposit in the Cash Collateral Account in an amount equal to 103% of

all Letter of Credit Outstandings.

 

(ii)           Subject

to the foregoing, outstanding Prime Rate Loans shall be prepaid before

outstanding LIBO Loans are prepaid. Each partial prepayment of

 

42

 

LIBO Loans shall be in an integral multiple of

$500,000. No prepayment of LIBO Loans shall be permitted pursuant to this

Section 2.20 other than on the last day of an Interest Period applicable

thereto, unless the Borrower simultaneously reimburses the Lenders for all

“Breakage Costs” (as defined in Section 2.20(b) below) associated therewith. No

partial prepayment of a Borrowing of LIBO Loans shall result in the aggregate

principal amount of the LIBO Loans remaining outstanding pursuant to such

Borrowing being less than $1,000,000.

 

(iii)          Each

notice of prepayment shall specify the prepayment date, the principal amount

and Type of the Loans to be prepaid and, in the case of LIBO Loans, the

Borrowing or Borrowings pursuant to which such Loans were made. Each notice of

prepayment shall be irrevocable and shall commit the Borrower to prepay such

Loan by the amount and on the date stated therein. The Administrative Agent

shall, promptly after receiving notice from the Borrower hereunder, notify each

Lender of the principal amount and Type of the Loans held by such Lender which

are to be prepaid, the prepayment date and the manner of application of the prepayment.

 

(b)          The

Borrower shall reimburse each Lender on demand for any loss incurred or to be

incurred by it in the reemployment of the funds released (i) resulting from any

prepayment (for any reason whatsoever, including, without limitation,

conversion to Prime Rate Loans or acceleration by virtue of, and after, the

occurrence of an Event of Default) of any LIBO Loan required or permitted under

this Agreement, if such Loan is prepaid other than on the last day of the

Interest Period for such Loan or (ii) in the event that after the Borrower

delivers a notice of borrowing under Section 2.04 in respect of LIBO Loans,

such Loans are not made on the first day of the Interest Period specified in

such notice of borrowing for any reason other than a breach by such Lender of

its obligations hereunder or the delivery of any notice pursuant to Section

2.17. Such loss shall be the amount as reasonably determined by such Lender as

the excess, if any, of (A) the amount of interest which would have accrued to

such Lender on the amount so paid or not borrowed at a rate of interest equal

to the Adjusted LIBO Rate for such Loan, for the period from the date of such

payment or failure to borrow to the last day (x) in the case of a payment or

refinancing with Prime Rate Loans other than on the last day of the Interest

Period for such Loan, of the then current Interest Period for such Loan or (y)

in the case of such failure to borrow, of the Interest Period for such Loan

which would have commenced on the date of such failure to borrow, over (B) the

amount of interest which would have accrued to such Lender on such amount by

investing such amount in United States Treasury securities (bills on a

discounted basis shall be converted to a bond equivalent) with a maturity date

closest to the last day of the applicable Interest Period (collectively, “Breakage

Costs”). Any Lender demanding reimbursement for such loss shall deliver to

the Borrower from time to time one or more certificates setting forth the

amount of such loss as determined by such Lender and setting forth in

reasonable detail the manner in which such amount was determined.

 

(c)           In

the event the Borrower fails to prepay any Loan on the date specified in any

prepayment notice delivered pursuant to Section 2.20(a), the Borrower on demand

by any Lender shall pay to the Administrative Agent for the account of such

Lender any amounts required to compensate such Lender for any loss incurred by

such Lender as a result of such failure to prepay, including, without

limitation, any loss, cost or expenses incurred by reason of the acquisition of

deposits or other funds by such Lender to fulfill deposit obligations incurred

in anticipation of such prepayment. Any Lender demanding such payment shall

deliver to the Borrower from time to time one or more certificates setting

forth the amount of such loss as

 

43

 

 

determined by such

Lender and setting forth in reasonable detail the manner in which such amount

was determined.

 

(d)           Whenever

any partial prepayment of Loans are to be applied to LIBO Loans, such LIBO

Loans shall be prepaid in the chronological order of their Interest Payment

Dates.

 

SECTION 2.21       Maintenance

of Loan Account; Statements of Account.

 

(a)           The

Administrative Agent shall maintain an account on its books in the name of the

Borrower (the “Loan Account”) which will reflect (i) all Swingline

Loans, all Revolving Loans and other advances made by the Lenders to the

Borrower or for the Borrower’s account, (ii) all L/C Disbursements, fees and

interest that have become payable as herein set forth, and (iii) any and all

other Obligations that have become payable.

 

(b)           The

Loan Account will be credited with all amounts received by the Administrative

Agent from the Borrower or otherwise for the Borrower’s account, including all

amounts received in the FRF Concentration Account from the Blocked Account

Banks, and the amounts so credited shall be applied as set forth

in Section 2.23(a). After the end of each month, the Administrative

Agent shall send to the Borrower a statement accounting for the charges, loans,

advances and other transactions occurring among and between the Administrative

Agent, the Lenders and the Borrower during that month. The monthly statements

shall, absent manifest error, be final, conclusive and binding on the Borrower.

 

SECTION 2.22       Cash

Receipts.

 

(a)           Annexed

hereto as Schedule 2.22(a) is a list of all present DDAs, which Schedule

includes, with respect to each depository (i) the name and address of that

depository; (ii) the account number(s) maintained with such depository; and

(iii) to the extent known, a contact person at such depository.

 

(b)           Annexed

hereto as Schedule 2.22(b) is a list describing all arrangements to

which the Borrower is a party with respect to the payment to the Borrower of

the proceeds of all credit card charges for sales by the Borrower.

 

(c)           On

or prior to the Closing Date, the Borrower shall (i) deliver to the

Administrative Agent notifications executed on behalf of the Borrower to each depository

institution with which any DDA is maintained in form satisfactory to the

Administrative Agent, of the Administrative Agent’s interest in such DDA (each,

a “DDA Notification”), and (ii) deliver to the Administrative Agent

notifications to each of the Borrower’s credit card clearinghouses and

processors of notice in form satisfactory to the Administrative Agent, (each, a

“Credit Card Notification”), and (iii) enter into agency agreements with

the banks maintaining the deposit accounts identified on Schedule 2.22(c)

(collectively, the “Blocked Accounts”), which agreements (the “Blocked

Account Agreements”) shall be in form and substance satisfactory to the

Administrative Agent. The DDA Notifications, Credit Card Notifications and

Blocked Account Agreements shall require the sweep on each Business Day of all

available cash receipts from the sale of Inventory and other assets, all

collections of Accounts, all Net Proceeds, and all other cash payments (but

excluding any and all cash proceeds received by the Borrower or any of its

Subsidiaries in respect of key-man life insurance policies, split-level

insurance policies or similar policies maintained for the benefit of, and

providing retirement or casualty benefits for, directors and officers of the

Borrower, and the spouses, heirs and direct descendants of such

 

44

 

Persons) received by

the Borrower from any Person or from any source or on account of any sale or

other transaction or event (all such cash receipts and collections, “Cash

Receipts”), to a concentration account maintained by the Collateral Agent

at Fleet (the “FRF Concentration Account”). In that regard, the Borrower

shall cause the ACH or wire transfer to a Blocked Account or to the FRF

Concentration Account, no less frequently than daily (and whether or not there

is then an outstanding balance in the Loan Account) of (A) the then contents of

each DDA, each such transfer to be net of any minimum balance, not to exceed

$2,500, as may be required to be maintained in the subject DDA by the bank at

which such DDA is maintained; and (B) the proceeds of all credit card charges

not otherwise provided for pursuant hereto. 

Further, whether or not any Obligations are then outstanding, the

Borrower shall cause the ACH or wire transfer to the FRF Concentration Account,

no less frequently than daily, of the then entire ledger balance of each

Blocked Account, net of such minimum balance, not to exceed $2,500, as may be

required to be maintained in the subject Blocked Account by the bank at which

such Blocked Account is maintained. In the event that, notwithstanding the

provisions of this Section 2.22, the Borrower receives or otherwise has

dominion and control of any such proceeds or collections, such proceeds and

collections shall be held in trust by the Borrower for the Administrative Agent

and shall not be commingled with any of the Borrower’s other funds or deposited

in any account of the Borrower and shall, within two Business Days after

receipt, either be deposited into a Blocked Account or the FRF Concentration

Account, or dealt with in such other fashion as the Borrower may be instructed

by the Administrative Agent.

 

(d)           The

Borrower shall accurately report to the Administrative Agent all amounts

deposited in the Blocked Accounts (other than any such amounts deposited with

Fleet) to ensure the proper transfer of funds as set forth above. If at any

time other than the times set forth above any cash or cash equivalents owned by

the Borrower are deposited to any account, or held or invested in any manner,

otherwise than in a Blocked Account that is subject to a Blocked Account

Agreement, the Administrative Agent shall require the Borrower to close such

account and have all funds therein transferred to an account maintained by the

Administrative Agent at Fleet and all future deposits made to a Blocked Account

which is subject to a Blocked Account Agreement.

 

(e)           The

Borrower may close DDAs or Blocked Accounts and/or open new DDAs or Blocked

Accounts, subject to the execution and delivery to the Administrative Agent of

appropriate DDA Notifications or Blocked Account Agreements (unless expressly

waived by the Administrative Agent) consistent with the provisions of this

Section 2.22 and otherwise satisfactory to the Administrative Agent. Unless

consented to in writing by the Administrative Agent, the Borrower may not

maintain any bank accounts (other than accounts that in the aggregate have

balances of $2,500 or less) or enter into any agreements with credit card processors

other than the ones expressly contemplated herein.

 

(f)            The

Borrower may also maintain with the Administrative Agent at Fleet one or more

disbursement accounts (the “Fleet Disbursement Accounts”) to be used by

the Borrower for disbursements and payments (including payroll) in the ordinary

course of business or as otherwise permitted hereunder. The only Disbursement

Accounts as of the Closing Date are those described in Schedule 2.22(f).

 

(g)           The

FRF Concentration Account is, and shall remain, under the sole dominion and

control of the Collateral Agent. The Borrower acknowledges and agrees that (i)

the Borrower has no right of withdrawal from the FRF Concentration Account,

(ii) the funds on deposit in the FRF Concentration Account shall continue to be

collateral security for all of the Obligations and

 

45

 

(iii) the funds on

deposit in the FRF Concentration Account shall be applied as provided in

Section 2.23(a).

 

SECTION 2.23       Application

of Payments.

 

(a)           As

long as the Obligations have not been accelerated, all amounts received in the

FRF Concentration Account from any source, including the Blocked Account Banks,

shall be applied in the following order: first, to pay interest due and

payable on Credit Extensions and to pay fees and expense reimbursements and

indemnification then due and payable to the Administrative Agent, FSI, the

Issuing Bank, the Collateral Agent, and the Lenders (other than fees, expenses

and indemnifications relating to Obligations described in clause SIXTH of this

Section 2.23(a)); second to repay outstanding Swingline Loans; third,

to repay other outstanding Revolving Loans that are Prime Rate Loans and all

outstanding reimbursement obligations under Letters of Credit; fourth,

to repay outstanding Revolving Loans that are LIBO Loans and all Breakage Costs

due in respect of such repayment pursuant to Section 2.20(b) or, at the

Borrower’s option (if no Event of Default has occurred and is then continuing),

to fund a cash collateral deposit to the Cash Collateral Account sufficient to

pay, and with direction to pay, all such outstanding LIBO Loans on the last day

of the then-pending Interest Period therefor; fifth if an Event of

Default then exists, to fund a cash collateral deposit in the Cash Collateral

Account in an amount equal to 103% of all Letter of Credit Outstandings; sixth,

to pay all other Obligations that are then outstanding and then due and

payable, including without limitation, all Obligations arising out of any cash

management, depository, investment, letter of credit, Hedging Agreement, or

other banking or financial services provided by FRF or Fleet. If all

Obligations are paid, any excess amounts shall be deposited in a separate cash

collateral account, and as long as no Event of Default then exists, shall be

released to the Borrower upon the request of the Borrower and utilized by the

Borrower prior to any further Revolving Loans being made. Any other amounts

received by the Administrative Agent, the Issuing Bank, the Collateral Agent,

or any Lender as contemplated by Section 2.22 shall also be applied in the

order set forth above in this Section 2.23.

 

(b)           All

credits against the Obligations shall be conditioned upon final payment to the

Administrative Agent of the items giving rise to such credits. If any item

deposited to the FRF Concentration Account and credited to the Loan Account is

dishonored or returned unpaid for any reason, whether or not such return is

rightful or timely, the Administrative Agent shall have the right to reverse

such credit and charge the amount of such item to the Loan Account and the

Borrower shall indemnify the Administrative Agent, the Collateral Agent, the

Issuing Bank and the Lenders against all claims and losses resulting from such

dishonor or return.

 

SECTION 2.24       Increased

Costs.

 

(a)                               If any Change in Law shall:

 

(i)            impose,

modify or deem applicable any reserve, special deposit or similar requirement

against assets of, deposits with or for the account of, or credit extended by,

any Lender or any holding company of any Lender (except any such reserve

requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or

 

(ii)           impose

on any Lender or the Issuing Bank or the London interbank market any other

condition (not including, for the avoidance of doubt, any condition with

respect to Taxes, which shall only give rise to additional payments to the

extent provided

 

46

 

by Section 2.27) affecting this Agreement or

LIBO Loans made by such Lender or any Letter of Credit or participation

therein;

 

and the result of any

of the foregoing shall be to increase the cost to such Lender of making or

maintaining any LIBO Loan (or of maintaining its obligation to make any such

Loan) or to increase the cost to such Lender or the Issuing Bank of

participating in, issuing or maintaining any Letter of Credit or to reduce the

amount of any sum received or receivable by such Lender or the Issuing Bank

hereunder (whether of principal, interest or otherwise), then the Borrower will

pay to such Lender or the Issuing Bank, as the case may be, such additional

amount or amounts as will compensate such Lender or the Issuing Bank, as the

case may be, for such additional costs incurred or reduction suffered.

 

(b)           If

any Lender or the Issuing Bank determines that any Change in Law regarding

capital requirements has or would have the effect of reducing the rate of

return on such Lender’s or the Issuing Bank’s capital or on the capital of such

Lender’s or the Issuing Bank’s holding company, if any, as a consequence of

this Agreement or the Loans made by, or participations in Letters of Credit

held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a

level below that which such Lender or the Issuing Bank or such Lender’s or the

Issuing Bank’s holding company could have achieved but for such Change in Law

(taking into consideration such Lender’s or the Issuing Bank’s policies and the

policies of such Lender’s or the Issuing Bank’s holding company with respect to

capital adequacy), then from time to time the Borrower will pay to such Lender

or the Issuing Bank, as the case may be, such additional amount or amounts as

will compensate such Lender or the Issuing Bank or such Lender’s or the Issuing

Bank’s holding company for any such reduction suffered.

 

(c)           A

certificate of a Lender or the Issuing Bank setting forth the amount or amounts

necessary to compensate such Lender or the Issuing Bank or its holding company,

as the case may be, as specified in paragraph (a) or (b) of this Section and

setting forth in reasonable detail the manner in which such amount or amounts

were determined shall be delivered to the Borrower and shall be conclusive

absent manifest error. The Borrower shall pay such Lender or the Issuing Bank,

as the case may be, the amount shown as due on any such certificate within

thirty (30) days after receipt thereof.

 

(d)           Failure

or delay on the part of any Lender or the Issuing Bank to demand compensation

pursuant to this Section shall not constitute a waiver of such Lender’s or the

Issuing Bank’s right to demand such compensation.

 

SECTION 2.25       Change

in Legality.

 

(a)           Notwithstanding

anything to the contrary contained elsewhere in this Agreement, if (x) any

Change in Law shall make it unlawful for a Lender to make or maintain a LIBO

Loan or to give effect to its obligations as contemplated hereby with respect

to a LIBO Loan or (y) at any time any Lender determines that the making or

continuance of any of its LIBO Loans has become impracticable as a result of a

contingency occurring after the date hereof which adversely affects the London

interbank market or the position of such Lender in the London interbank market,

then, by written notice to the Borrower, such Lender may (i) declare that LIBO

Loans will not thereafter be made by such Lender hereunder, whereupon any

request by the Borrower for a LIBO Borrowing shall, as to such Lender only, be

deemed a request for a Prime Rate Loan unless such declaration shall be

subsequently withdrawn; and (ii) require that all outstanding LIBO Loans made

by it be converted to Prime Rate Loans, in which event all

 

47

 

such LIBO Loans shall

be automatically converted to Prime Rate Loans as of the effective date of such

notice as provided in paragraph (b) below. In the event any Lender shall

exercise its rights under clause (i) or (ii) of this paragraph (a), all

payments and prepayments of principal which would otherwise have been applied

to repay the LIBO Loans that would have been made by such Lender or the

converted LIBO Loans of such Lender shall instead be applied to repay the Prime

Rate Loans made by such Lender in lieu of, or resulting from the conversion of,

such LIBO Loans.

 

(b)           For

purposes of this Section 2.25, a notice to the Borrower by any Lender pursuant

to paragraph (a) above shall be effective, if any LIBO Loans shall then be

outstanding, on the last day of the then-current Interest Period; and otherwise

such notice shall be effective on the date of receipt by the Borrower.

 

SECTION 2.26       Payments;

Sharing of Setoff.

 

(a)           The

Borrower shall make each payment required to be made by it hereunder or under

any other Loan Document (whether of principal, interest, fees or reimbursement

of drawings under Letters of Credit, or of amounts payable under Sections

2.20(b), 2.24 or 2.27, or otherwise) prior to 12:00 noon, Boston time, on the

date when due, in immediately available funds, without setoff or counterclaim.

Any amounts received after such time on any date may, in the discretion of the

Administrative Agent, be deemed to have been received on the next succeeding

Business Day for purposes of calculating interest thereon. All such payments

shall be made to the Administrative Agent at its offices at 100 Federal Street,

Boston, Massachusetts, except payments to be made directly to the Issuing Bank

or Swingline Lender as expressly provided herein and except that payments

pursuant to Sections 2.20(b), 2.24, 2.27 and 9.03 shall be made directly to the

Persons entitled thereto and payments pursuant to other Loan Documents shall be

made to the Persons specified therein. The Administrative Agent shall

distribute any such payments received by it for the account of any other Person

to the appropriate recipient promptly following receipt thereof. If any payment

under any Loan Document shall be due on a day that is not a Business Day,

except with respect to LIBO Borrowings, the date for payment shall be extended

to the next succeeding Business Day, and, in the case of any payment accruing

interest, interest thereon shall be payable for the period of such extension.

All payments under each Loan Document shall be made in dollars.

 

(b)           All

funds received by and available to the Administrative Agent to pay principal,

unreimbursed drawings under Letters of Credit, interest and fees then due

hereunder, shall be applied in accordance with the provisions of Section

2.23(a) hereof or Section 6.02 of the Security Agreement, as applicable,

ratably among the parties entitled thereto in accordance with the amounts of

principal, unreimbursed drawings under Letters of Credit, interest, and fees

then due to such respective parties.

 

(c)           If

any Lender shall, by exercising any right of setoff or counterclaim or

otherwise, obtain payment in respect of any principal of or interest on any of

its Loans or participations in drawings under Letters of Credit or Swingline

Loans resulting in such Lender’s receiving payment of a greater proportion of

the aggregate amount of its Loans and participations in drawings under Letters

of Credit and Swingline Loans and accrued interest thereon than the proportion

received by any other Lender, then the Lender receiving such greater proportion

shall purchase (for cash at face value) participations in the Loans and participations

in drawings under Letters of Credit and Swingline Loans of other Lenders to the

extent necessary so that the benefit of all such payments shall be shared by

the Lenders ratably in accordance with the aggregate

 

48

 

amount of principal

of and accrued interest on their respective Loans and participations in

drawings under Letters of Credit and Swingline Loans, provided that (i)

if any such participations are purchased and all or any portion of the payment

giving rise thereto is recovered, such participations shall be rescinded and

the purchase price restored to the extent of such recovery, without interest,

and (ii) the provisions of this paragraph shall not be construed to apply to

any payment made by the Borrower pursuant to and in accordance with the express

terms of this Agreement or any payment obtained by a Lender as consideration

for the assignment of or sale of a participation in any of its Loans or

participations in drawings under Letters of Credit to any assignee or

participant, other than to the Borrower or any Affiliate thereof (as to which

the provisions of this paragraph shall apply). The Borrower consents to the

foregoing and agrees, to the extent it may effectively do so under Applicable Law,

that any Lender acquiring a participation pursuant to the foregoing

arrangements may exercise against the Borrower rights of setoff and

counterclaim with respect to such participation as fully as if such Lender were

a direct creditor of the Borrower in the amount of such participation.

 

(d)           Unless

the Administrative Agent shall have received notice from the Borrower prior to

the date on which any payment is due to the Administrative Agent for the

account of the Lenders or the Issuing Bank hereunder that the Borrower will not

make such payment, the Administrative Agent may assume that the Borrower has

made such payment on such date in accordance herewith and may, in reliance upon

such assumption, distribute to the Lenders or the Issuing Bank, as the case may

be, the amount due. In such event, if the Borrower has not in fact made such

payment, then each of the Lenders or the Issuing Bank, as the case may be,

severally agrees to repay to the Administrative Agent forthwith on demand the

amount so distributed to such Lender or Issuing Bank with interest thereon, for

each day from and including the date such amount is distributed to it to but

excluding the date of payment to the Administrative Agent, at the greater of

the Federal Funds Effective Rate and a rate determined by the Administrative

Agent in accordance with banking industry rules on interbank compensation.

 

(e)           If

any Lender shall fail to make any payment required to be made by it pursuant to

this Agreement, then the Administrative Agent may, in its discretion

(notwithstanding any contrary provision hereof), apply any amounts thereafter

received by the Administrative Agent for the account of such Lender to satisfy

such Lender’s obligations under such Sections until all such unsatisfied

obligations are fully paid.

 

SECTION 2.27       Taxes.

 

(a)           Any

and all payments by or on account of any obligation of the Borrower hereunder

or under any other Loan Document shall be made free and clear of and without

deduction for any Indemnified Taxes, provided that if the Borrower shall

be required to deduct any Indemnified Taxes from such payments, then (i) the

sum payable shall be increased as necessary so that after making all required

deductions for Indemnified Taxes (including deductions for Indemnified Taxes

applicable to additional sums payable under this Section) the Agents, such

Lender or the Issuing Bank (as the case may be) receives an amount equal to the

sum it would have received had no such deductions been made, (ii) the Borrower

shall make such deductions, and (iii) the Borrower shall pay the full amount

deducted to the relevant Governmental Authority in accordance with Applicable

Law.

 

(b)           In

addition, the Borrower shall pay any Other Taxes to the relevant Governmental

Authority in accordance with Applicable Law.

 

49

 

(c)           The

Borrower shall indemnify the Agents, each Lender and the Issuing Bank, within

thirty (30) days after written demand therefor, for the full amount of any

Indemnified Taxes or Other Taxes paid by the Agents, such Lender or the Issuing

Bank, as the case may be, on or with respect to any payment by or on account of

any obligation of the Borrower hereunder or under any other Loan Document

(including Indemnified Taxes or Other Taxes imposed or asserted on or

attributable to amounts payable under this Section) and any penalties, interest

and reasonable expenses arising therefrom or with respect thereto. A

certificate as to the amount of such payment or liability delivered to the

Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its

own behalf or on behalf of an Agent, a Lender or the Issuing Bank setting forth

in reasonable detail the manner in which such amount was determined, shall be

presumed correct absent manifest error.

 

(d)           As

soon as practicable after any payment of Indemnified Taxes or Other Taxes by

the Borrower to a Governmental Authority, the Borrower shall deliver to the

Administrative Agent the original or a certified copy of a receipt issued by

such Governmental Authority evidencing such payment, a copy of the return

reporting such payment or other evidence of such payment reasonably

satisfactory to the Administrative Agent.

 

(e)           Any

Foreign Lender that is entitled to an exemption from or reduction in U.S.

Federal withholding tax shall deliver to the Borrower and the Administrative

Agent two copies of either United States Internal Revenue Service

Form W-8BEN or Form W-8ECI, or any subsequent versions thereof or

successors thereto, or, in the case of a Foreign Lender claiming exemption from

in U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with

respect to payments of “portfolio interest”, a (i) Form W-8BEN, or any

subsequent versions thereof or successors thereto and (ii) a certificate representing

that such Foreign Lender is not (A) a bank for purposes of Section 881(c) of

the Code, (B) is not a 10-percent shareholder (within the meaning of Section

871(h)(3)(B) of the Code) of the Borrower and (C) is not a controlled foreign

corporation related to the Borrower (within the meaning of Section 864(d)(4) of

the Code)), properly completed and duly executed by such Foreign Lender

claiming, as applicable, complete exemption from or reduced rate of, U.S.

Federal withholding Tax on payments by the Borrower under this Agreement and

the other Loan Documents, or in the case of a Foreign Lender claiming exemption

for “portfolio interest” certifying that it is not a foreign corporation,

partnership, estate or trust. Such forms shall be delivered by each Foreign

Lender on or before the date it becomes a party to this Agreement (or, in the

case of a transferee that is a participation holder, on or before the date such

participation holder becomes a transferee hereunder) and on or before the date,

if any, such Foreign Lender changes its applicable lending office by

designating a different lending office (a “New Lending Office”). In addition,

each Foreign Lender shall deliver such forms promptly upon the obsolescence or

invalidity of any form previously delivered by such Foreign Lender.

Notwithstanding any other provision of this Section 2.27(e), a Foreign Lender

shall not be required to deliver any form pursuant to this Section 2.27(e) that

such Foreign Lender is not legally able to deliver.

 

(f)            Upon

the request of the Borrower, any Lender that is not a Foreign Lender shall

deliver to the Borrower two copies of United States Internal Revenue Service

Form W-9  or any subsequent versions

thereof or successors thereto, properly completed and duly executed.  If any Lender fails to deliver Form W-9  or any subsequent versions thereof or

successors thereto as required herein, then the Borrower may withhold from any

payment to such party an amount equivalent to the applicable backup withholding

Tax imposed by the Code, without reduction.

 

50

 

(g)           The

Borrower shall not be required to indemnify any Lender or to pay any additional

amounts to any Lender in respect of U.S. Federal withholding tax pursuant to

paragraph (a) or (c) above to the extent that the obligation to pay such

additional amounts would not have arisen but for a failure by such Lender to

comply with the provisions of paragraphs (e) or (f) above. Should a Lender

become subject to Taxes because of its failure to deliver a form required

hereunder, the Borrower shall, at such Lender’s expense, take such steps as

such Lender shall reasonably request to assist such Lender to recover such

Taxes.

 

(h)           Each

of the Lenders agrees that upon the occurrence of any circumstances entitling

such party to indemnification or additional amounts pursuant to Section 2.27(a)

or (c), such party shall use reasonable efforts to take any action (including

designating a new lending office and signing any prescribed forms or other

documentation appropriate in the circumstances) if such action would reduce or

eliminate any Tax (including penalties or interest, as applicable) with respect

to which such indemnification or additional amounts may thereafter accrue.

 

(i)            If

any Lender reasonably determines that it has actually and finally realized, by

reason of a refund, deduction or credit of any Taxes paid or reimbursed by the

Borrower pursuant to subsection (a) or (c) above in respect of payments under

the Loan Documents, a current monetary benefit that it would otherwise not have

obtained and that would result in the total payments under this Section 2.27

exceeding the amount needed to make such Lender whole, such Lender shall pay to

the Borrower, with reasonable promptness following the date upon which it

actually realizes such benefit, an amount equal to the lesser of the amount of

such benefit or the amount of such excess, in each case net of all

out-of-pocket expenses incurred in securing such refund, deduction or credit.

 

SECTION 2.28       Security

Interests in Collateral.

 

To secure their Obligations under this

Agreement and the other Loan Documents, the Loan Parties shall grant to the

Collateral Agent, for its benefit and the ratable benefit of the other Secured

Parties, a first-priority security interest in all of the Collateral pursuant

to the Security Documents.

 

SECTION 2.29       Mitigation

Obligations; Replacement of Lenders.

 

(a)           If

any Lender requests compensation under Section 2.24, or if the Borrower is

required to pay any additional amount to any Lender or any Governmental

Authority for the account of any Lender pursuant to Section 2.27, then such

Lender shall use reasonable efforts to designate a different lending office for

funding or booking its Loans hereunder or to assign its rights and obligations

hereunder to another of its offices, branches or affiliates, if, in the

judgment of such Lender, such designation or assignment (i) would eliminate or

reduce amounts payable pursuant to Section 2.24 or 2.27, as the case may be, in

the future and (ii) would not subject such Lender to any unreimbursed cost or

expense and would not otherwise be disadvantageous to such Lender. The Borrower

hereby agrees to pay all reasonable costs and expenses incurred by any Lender

in connection with any such designation or assignment; provided, however,

that the Borrower shall not be liable for such costs and expenses of a Lender

requesting compensation if (i) such Lender becomes a party to this Agreement on

a date after the Closing Date and (ii) the relevant Change in Law occurs on a

date prior to the date such Lender becomes a party hereto.

 

51

 

(b)           If

any Lender requests compensation under Section 2.24, or if the Borrower is

required to pay any additional amount to any Lender or any Governmental

Authority for the account of any Lender pursuant to Section 2.27, or if any

Lender defaults in its obligation to fund Loans hereunder, then the Borrower

may, at its sole expense and effort, upon notice to such Lender and the Administrative

Agent, require such Lender to assign and delegate, without recourse (in

accordance with and subject to the restrictions contained in Section 9.04), all

its interests, rights and obligations under this Agreement to an assignee that

shall assume such obligations (which assignee may be another Lender, if a

Lender accepts such assignment), provided that (i) the Borrower shall

have received the prior written consent of the Administrative Agent, the

Issuing Bank and Swingline Lender, which consent shall not unreasonably be

withheld, (ii) such Lender shall have received payment of an amount equal to

the outstanding principal of its Loans and participations in unreimbursed

drawings under Letters of Credit and Swingline Loans, accrued interest thereon,

accrued fees and all other amounts payable to it hereunder from the assignee

(to the extent of such outstanding principal and accrued interest and fees) or

the Borrower (in the case of all other amounts) and (iii) in the case of any

such assignment resulting from a claim for compensation

under Section 2.24 or payments required to be made pursuant

to Section 2.27, such assignment will result in a reduction in such

compensation or payments. A Lender shall not be required to make any such

assignment and delegation if, prior thereto, as a result of a waiver by such

Lender or otherwise, the circumstances entitling the Borrower to require such

assignment and delegation cease to apply.

 

ARTICLE III

 

Representations

and Warranties

 

Each Loan Party represents and warrants to the

Agents and the Lenders that:

 

SECTION 3.01       Organization;

Powers. Each Loan Party is duly organized, validly existing and in good

standing under the laws of the jurisdiction of its organization, has all

requisite power and authority to carry on its business as now conducted and,

except where the failure to do so, individually or in the aggregate, could not

reasonably be expected to result in a Material Adverse Effect, is qualified to

do business in, and is in good standing in, every jurisdiction where such

qualification is required.

 

SECTION 3.02       Authorization;

Enforceability. The transactions contemplated hereby and by the other Loan

Documents to be entered into by each Loan Party are within such Loan Party’s

corporate or partnership and other powers and have been duly authorized by all

necessary corporate and, if required, stockholder action. This Agreement has

been duly executed and delivered by each Loan Party that is a party hereto and

constitutes, and each other Loan Document to which any Loan Party is a party,

when executed and delivered by such Loan Party will constitute, a legal, valid

and binding obligation of such Loan Party (as the case may be), enforceable in

accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization,

moratorium or other laws affecting creditors’ rights generally and subject to

general principles of equity, regardless of whether considered in a proceeding

in equity or at law.

 

SECTION 3.03       Governmental

Approvals; No Conflicts. The transactions to be entered into contemplated

by the Loan Documents (a) do not require any consent or approval of,

registration or filing with, or any other action by, any Governmental

Authority, except for such as have been obtained or made and are in full force

and effect and except filings and recordings necessary to perfect Liens created

under the Loan Documents, (b) will not violate any Applicable

 

52

 

Law or the Organic

Documents of any Loan Party or any order of any Governmental Authority, (c)

will not violate or result in a default under any indenture, material agreement

or other material instrument binding upon any Loan Party or its assets

(including, without limitation, the Convertible Indenture), or give rise to a

right thereunder to require any payment to be made by any Loan Party, and (d)

will not result in the creation or imposition of any Lien on any asset of any

Loan Party, except Liens created under the Loan Documents.

 

SECTION 3.04       Financial

Condition.  The Parent has

heretofore furnished to the Lenders the Consolidated balance sheet, and

statements of income, stockholders’ equity, and cash flows for the Parent and

its Subsidiaries as of and for the Fiscal Year ending December 28, 2002 and as

of and for the Fiscal Quarter ending March 29, 2003, certified by a Financial

Officer of the Borrower. Such financial statements present fairly, in all

material respects, the financial position, results of operations and cash flows

of the Parent and its Subsidiaries as of such dates and for such periods in

accordance with GAAP, subject to year end audit adjustments and the absence of

footnotes. Since March 29, 2003, there have been no changes in the assets,

liabilities, financial condition, or business of the Parent and its

Subsidiaries other than changes in the ordinary course of business, the effect

of which has had a Material Adverse Effect.

 

SECTION 3.05       Properties.

(a)  Except as disclosed in Schedules

3.05(c)(i) and 3.05(c)(ii), each Loan Party has good title to, or valid

leasehold interests in, all its real and personal property material to its

business, except for defects which could not reasonably be expected to have a

Material Adverse Effect.

 

(b)           Each

Loan Party owns, or is licensed to use, all trademarks, trade names,

copyrights, patents and other intellectual property material to its business,

and the use thereof by the Loan Parties does not infringe upon the rights of

any other Person, except for any such infringements that, individually or in

the aggregate, could not reasonably be expected to result in a Material Adverse

Effect.

 

(c)           Schedule

3.05(c)(i) sets forth the address (including county) of all Real Estate that is

owned by the Loan Parties, together with a list of the holders of any mortgage

or other Lien thereon as of the Closing Date. Schedule 3.05(c)(ii) sets forth

the address (including county) of all Leases of the Loan Parties, together with

a list of the holders of any mortgage or other Lien on the Borrower’s interest

in such Lease as of the Closing Date. 

Each of such Leases is in full force and effect and the Loan Parties are

not in default of the terms thereof.

 

SECTION 3.06       Litigation

and Environmental Matters. (a) There are no actions, suits or proceedings

(including, without limitation, any relating to any Pharmaceutical Law) by or

before any arbitrator or Governmental Authority pending against or, to the

knowledge of the Borrower, threatened in writing against or affecting any Loan

Party (i)  as to which there is a

reasonable probability of an adverse determination and that, if adversely

determined, could reasonably be expected, individually or in the aggregate, to

result in a Material Adverse Effect (other than those set forth on Schedule

3.06) or (ii) that involve any of the Loan Documents.

 

(b)           Except

for the matters set forth on Schedule 3.06 and except with respect to any other

matters that, individually or in the aggregate, could not reasonably be

expected to result in a Material Adverse Effect, no Loan Party (i) has failed

to comply with any Environmental Law or to obtain, maintain or comply with any

permit, license or other approval required under any Environmental Law, (ii)

has become subject to any Environmental Liability,

 

53

 

(iii) has received

notice of any claim with respect to any Environmental Liability or (iv) knows

of any basis for any Environmental Liability.

 

(c)           Since

the date of this Agreement, there has been no change in the status of the

matters set forth on Schedule 3.06 that, individually or in the aggregate, has

resulted in, or could reasonably be expected to result in, a Material Adverse

Effect.

 

SECTION 3.07       Compliance

with Laws and Agreements. Each Loan Party is in compliance with all

Applicable Law and all indentures, material agreements and other instruments

binding upon it or its property (including, without limitation, the Convertible

Indenture), except where the failure to do so, individually or in the

aggregate, could not reasonably be expected to result in a Material Adverse

Effect. No Default has occurred and is continuing.

 

SECTION 3.08       Investment

and Holding Company Status. No Loan Party is (a) an “investment company” as

defined in, or subject to regulation under, the Investment Company Act of 1940

or (b) a “holding company” as defined in, or subject to regulation under, the

Public Utility Holding Company Act of 1935.

 

SECTION 3.09       Taxes.

Except as set forth on Schedule 3.09 hereto, each Loan Party has timely filed

or caused to be filed all federal and state Tax returns and reports required to

have been filed and has paid or caused to be paid all Taxes required to have

been paid by it, except (a) Taxes that are being contested in good faith by

appropriate proceedings, for which such Loan Party has set aside on its books

adequate reserves, and as to which no Lien has been filed, or (b) to the extent

that the failure to do so could not reasonably be expected to result in a

Material Adverse Effect.  The Loan

Parties do not intend to treat any of the transactions contemplated by the Loan

Documents as being a “reportable transaction” within the meaning of 26 CFR

1.6011-4.

 

SECTION 3.10       ERISA.

No ERISA Event has occurred or is reasonably expected to occur that, when taken

together with all other such ERISA Events for which liability is reasonably

expected to occur, could reasonably be expected to result in a Material Adverse

Effect. The present value of all accumulated benefit obligations under each

Plan (based on the assumptions used for purposes of Statement of Financial

Accounting Standards No. 87) did not, as of the date of the most recent

financial statements reflecting such amounts, exceed the fair market value of

the assets of such Plan, and the present value of all accumulated benefit

obligations of all underfunded Plans (based on the assumptions used for

purposes of Statement of Financial Accounting Standards No. 87) did not, as of

the date of the most recent financial statements reflecting such amounts,

exceed the fair market value of the assets of all such underfunded Plans.

 

SECTION 3.11       Disclosure.

The Borrower has disclosed to the Lenders all agreements, instruments and

corporate or other restrictions to which any Loan Party is subject, and all

other matters known to any of them, that, individually or in the aggregate,

could reasonably be expected to result in a Material Adverse Effect. None of

any of the reports, financial statements, certificates or other written

information furnished by or on behalf of any Loan Party to the Administrative

Agent or any Lender in connection with the negotiation of this Agreement or any

other Loan Document or delivered hereunder or thereunder (as modified or

supplemented by other information so furnished) contains any material

misstatement of fact or omits to state any material fact necessary to make the

statements therein, in the light of the circumstances under which they were

made, not misleading.

 

54

 

SECTION 3.12       Subsidiaries.

 

(a)           Schedule

3.12 sets forth the name of, and the ownership interest of each Loan Party in

each Subsidiary as of the Closing Date. There is no other capital stock or

ownership interest of any class outstanding as of the Closing Date. The Loan

Parties are not party to any joint venture, general or limited partnership, or

limited liability company, agreements or any other business ventures or

entities as of the Closing Date.

 

(b)           The

Parent and its Subsidiaries have received the consideration for which the

capital stock and other ownership interests was authorized to be issued and

have otherwise complied with all legal requirements relating to the

authorization and issuance of shares of stock and other ownership interests,

and all such shares and ownership interests are validly issued, fully paid, and

non-assessable.

 

SECTION 3.13       Insurance.

Schedule 3.13 sets forth a description of all insurance maintained by or on

behalf of the Loan Parties and their Subsidiaries. Each of such policies is in

full force and effect.  All premiums in

respect of such insurance that are due and payable have been paid.

 

SECTION 3.14       Labor

Matters.  There are no strikes,

lockouts or slowdowns against any Loan Party pending or, to the knowledge of

the Borrower, threatened. The hours worked by and payments made to employees of

the Loan Parties have not been in violation of the Fair Labor Standards Act or

any other applicable federal, state, local or foreign law dealing with such

matters to the extent that any such violation could reasonably be expected to

have a Material Adverse Effect. All payments due from any Loan Party, or for

which any claim may be made against any Loan Party, on account of wages and

employee health and welfare insurance and other benefits, have been paid or

accrued as a liability on the books of such member. The consummation of the

transactions contemplated by the Loan Documents will not give rise to any right

of termination or right of renegotiation on the part of any union under any

collective bargaining agreement to which any Loan Party is bound.

 

SECTION 3.15       Security

Documents. The Security Documents create in favor of the Collateral Agent,

for the ratable benefit of the Secured Parties, a legal, valid and enforceable

security interest in the Collateral, and the Security Documents constitute the

creation of a fully perfected first priority Lien on, and security interest in,

all right, title and interest of the Loan Parties thereunder in such

Collateral, in each case prior and superior in right to any other Person (other

than Permitted Encumbrances having priority under Applicable Law).

 

SECTION 3.16       Federal

Reserve Regulations. (a)  No Loan

Party is engaged principally, or as one of its important activities, in the

business of extending credit for the purpose of buying or carrying Margin

Stock.

 

(b)           No

part of the proceeds of any Loan or any Letter of Credit will be used, whether

directly or indirectly, and whether immediately, incidentally or ultimately,

(i) to buy or carry Margin Stock or to extend credit to others for the purpose

of buying or carrying Margin Stock or to refund indebtedness originally

incurred for such purpose or (ii) for any purpose that entails a violation of,

or that is inconsistent with, the provisions of the Regulations of the Board,

including Regulation U or X.

 

55

 

SECTION 3.17       Solvency.

The Loan Parties, on a Consolidated basis, are Solvent. No transfer of property

is being made by any Loan Party and no obligation is being incurred by any Loan

Party in connection with the transactions contemplated by this Agreement or the

other Loan Documents with the intent to hinder, delay, or defraud either

present or future creditors of any Loan Party.

 

SECTION 3.18       Pharmaceutical

Laws.

 

(a)           The

Loan Parties have obtained all permits, licenses and other authorizations which

are required with respect to the ownership and operations of their businesses

under any Pharmaceutical Law, except where the failure to obtain such permits,

licenses or other authorizations could not reasonably be expected to have a Material

Adverse Effect.

 

(b)           The

Loan Parties are in compliance with all terms and conditions of all such

permits, licenses, orders and authorizations, and are also in compliance with

all Pharmaceutical Laws, including all other limitations, restrictions, conditions,

standards, prohibitions, requirements, obligations, schedules and timetables

contained in the Pharmaceutical Laws, except where the failure to comply with

such terms, conditions or laws could not reasonably be expected to have a

Material Adverse Effect.

 

(c)           None

of the Loan Parties have any liabilities, claims against them, and presently

outstanding notices imposed or based upon any provision of any Pharmaceutical

Law, except for such liabilities, claims, citations or notices which

individually or in the aggregate could not reasonably be expected to have a

Material Adverse Effect.

 

ARTICLE IV

 

Conditions

 

SECTION 4.01       Closing

Date.  The obligation of the Lenders

to make each Loan and of the Issuing Bank to issue each Letter of Credit,

including the initial Loan and the initial Letters of Credit, if any, on the

Closing Date, is subject to the following conditions precedent:

 

(a)           The

Agents (or their counsel) shall have received from each party hereto other than

the Lenders either (i) a counterpart of this Agreement and all other Loan

Documents (including, without limitation, the Security Documents) signed on

behalf of such party or (ii) written evidence satisfactory to the Agents (which

may include telecopy transmission of a signed signature page of this Agreement)

that such party has signed a counterpart of this Agreement and all other Loan

Documents.

 

(b)           The

Agents shall have received a favorable written opinion (addressed to each Agent

and the Lenders and dated the Closing Date) of Shearman & Sterling LLP,

counsel for the Loan Parties substantially in the form of Exhibit C, and

covering such other matters relating to the Loan Parties, the Loan Documents or

the transactions contemplated thereby as the Required Lenders shall reasonably

request. The Borrower hereby requests such counsel to deliver such opinion.

 

(c)           The

Agents shall have received such documents and certificates as the Agents or

their counsel may reasonably request relating to the organization, existence

and good standing of each Loan Party, the authorization of the transactions

contemplated by the Loan Documents and

 

56

 

any other legal

matters relating to the Loan Parties, the Loan Documents or the transactions

contemplated thereby, all in form and substance satisfactory to the Agents and

their counsel.

 

(d)           After

giving effect to the first funding under the Loans; any charges to the Loan

Account made in connection with the establishment of the credit facility

contemplated hereby; and all Letters of Credit to be issued at, or immediately

subsequent to, such establishment, Excess Availability shall be not less than

$70,000,000. The Agents shall have received a Borrowing Base Certificate dated

the Closing Date, relating to the month ended on June 28, 2003, and executed by

a Financial Officer of the Borrower.

 

(e)           The

Agents shall have received a certificate, reasonably satisfactory in form and

substance to the Agents, (i) with respect to the Solvency of the Loan Parties

as of the Closing Date, and (ii) certifying that, as of the Closing Date, the

representations and warranties made by the Loan Parties in the Loan Documents

and otherwise are true and complete and that no Default or Event of Default

exists.

 

(f)            Intentionally

Omitted.

 

(g)           All

necessary consents and approvals to the transactions contemplated hereby shall

have been obtained and shall be satisfactory to the Agents.

 

(h)           The

Collateral Agent shall have received (a) appraisals of the Collateral

consisting of Inventory and prescription lists by a third party appraiser

acceptable to the Collateral Agent, the results of which are reasonably

satisfactory to the Collateral Agent; and (b) a written report regarding the

results of a commercial finance examination of the Loan Parties, which shall be

reasonably satisfactory to the Collateral Agent.

 

(i)            The

Agents shall be reasonably satisfied that any financial statements delivered to

them fairly present the business and financial condition of the Parent and its

Subsidiaries, and that there has been no material adverse change in the assets,

business, financial condition, income or prospects of the Parent and its

Subsidiaries since the date of the most recent financial information delivered

to the Agents.

 

(j)            The

Administrative Agent shall have received and be satisfied with (a) monthly

detailed one-year financial projections and business assumptions for the Parent

and its Subsidiaries, and (b) such other information (financial or otherwise)

reasonably requested by the Administrative Agent.

 

(k)           There

shall not be pending any litigation or other proceeding, the result of which

could reasonably be expected to have a Material Adverse Effect (other than

those described on Schedule 3.06).

 

(l)            There

shall not have occurred any default of any material contract or agreement of

any Loan Party (including, without limitation, the Convertible Indenture),

which could reasonably be expected to have a Material Adverse Effect.

 

(m)          The

Collateral Agent shall have received results of searches or other evidence reasonably

satisfactory to the Collateral Agent (in each case dated as of a date

reasonably satisfactory to the Collateral Agent) indicating the absence of

Liens on the assets of the Loan Parties, except for Permitted Encumbrances and

Liens for which termination statements and

 

57

 

releases or subordination agreements

reasonably satisfactory to the Collateral Agent are being tendered concurrently

with such extension of credit.

 

(n)           The

Collateral Agent shall have received (i) all documents and instruments,

including Uniform Commercial Code financing statements, required by law or

reasonably requested by the Collateral Agent to be filed, registered or

recorded to create or perfect the first priority Liens intended to be created

under the Loan Documents and all such documents and instruments shall have been

so filed, registered or recorded to the satisfaction of the Collateral Agent,

and (ii) the DDA Notifications, Credit Card Notifications, and Blocked Account Agreements

required pursuant to Section 2.22(c) hereof.

 

(o)           The

Collateral Agent shall have entered into an intercreditor agreement with

Amerisource Bergen, such agreement to be reasonably satisfactory to the

Collateral Agent.

 

(p)           The

Collateral Agent shall have received, and be satisfied with, evidence of the

Loan Parties’ insurance, together with such endorsements as are required by the

Loan Documents.

 

(q)           All

fees due at or immediately after the Closing Date and all costs and expenses

incurred by the Agents in connection with the establishment of the credit

facility contemplated hereby (including the fees and expenses of counsel to the

Agents) shall have been paid in full.

 

(r)            The

consummation of the transactions contemplated hereby shall not (a) violate any

Applicable Law or (b) conflict with, or result in a default or event of default

under, any material agreement of any Loan Party, including, without limitation,

the Convertible Indenture (and the Agents and the Lenders shall receive a

satisfactory opinion of Loan Parties’ counsel to that effect). No event shall

exist which is, or solely with the passage of time, the giving of notice or

both, would be a default under any material agreement of any Loan Party.

 

(s)           No

material changes in governmental regulations or policies affecting the Loan

Parties, the Agents, the Arranger or any Lender involved in this transaction

shall have occurred prior to the Closing Date.

 

(t)            There

shall not have occurred any disruption or material adverse change in the United

States financial or capital markets in general that has had, in the reasonable

opinion of the Agents, a material adverse effect on the market for loan

syndications or adversely affecting the syndication of the Loans.

 

(u)           There

shall have been delivered to the Administrative Agent such additional

instruments and documents as the Agents or counsel to the Agents reasonably may

require or request.

 

The Administrative Agent shall notify the

Borrower and the Lenders of the Closing Date, and such notice shall be conclusive

and binding. Notwithstanding the foregoing, the obligations of the Lenders to

make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall

not become effective unless each of the foregoing conditions is satisfied (or

waived by the Administrative Agent in writing) at or prior to 12:00 noon,

Boston time, on July 15, 2003 (and, in the event such conditions are not so

satisfied or waived, this Agreement shall terminate at such time).

 

58

 

SECTION 4.02       Conditions

Precedent to Each Loan and Each Letter of Credit.

 

In addition to those conditions described in

Section 4.01, the obligation of the Lenders to make each Revolving Loan and of

the Issuing Bank to issue each Letter of Credit, is subject to the following

conditions precedent:

 

(a)           Notice.

The Administrative Agent shall have received a notice with respect to such

Borrowing or issuance, as the case may be, as required by Article II.

 

(b)           Representations

and Warranties. All representations and warranties contained in this

Agreement and the other Loan Documents or otherwise made in writing in

connection herewith or therewith shall be true and correct in all material

respects on and as of the date of each Borrowing or the issuance of each Letter

of Credit hereunder with the same effect as if made on and as of such date,

other than representations and warranties that relate solely to an earlier

date.

 

(c)           No

Default. On the date of each Borrowing hereunder and the issuance of each

Letter of Credit, no Default or Event of Default shall have occurred and be

continuing.

 

(d)           Borrowing

Base Certificate. The Administrative Agent shall have received the timely

delivery of the most recently required Borrowing Base Certificate, with each

such Borrowing Base Certificate including schedules as required by the

Administrative Agent.

 

The request by the Borrower for, and the

acceptance by the Borrower of, each extension of credit hereunder shall be

deemed to be a representation and warranty by the Borrower that the conditions

specified in this Section 4.02 have been satisfied at that time and that after

giving effect to such extension of credit the Borrower shall continue to be in

compliance with the Borrowing Base.  The

conditions set forth in this Section 4.02 are for the sole benefit of the

Administrative Agent and each Lender and may be waived by the Administrative

Agent, in whole or in part, without prejudice to the Administrative Agent or

any Lender.

 

ARTICLE

V

 

Affirmative

Covenants

 

Until (i) the Commitments have expired or been

terminated, and (ii) the principal of and interest on each Loan and all fees

payable hereunder shall have been paid in full, and (iii) all Letters of Credit

shall have expired or terminated or been collateralized, to the extent of 103%

of the then Letter of Credit Outstandings, by cash or a letter of credit issued

by a financial institution and on terms reasonably satisfactory to the

Administrative Agent, and (iv) all L/C Disbursements shall have been

reimbursed, each Loan Party covenants and agrees with the Agents and the

Lenders that:

 

SECTION 5.01       Financial

Statements and Other Information. The Borrower will furnish to the Agents:

 

(a)           within

ninety (90) days after the end of each Fiscal Year of the Parent, its

Consolidated balance sheet and related statements of operations, stockholders’

equity and cash flows as of the end of and for such year, setting forth in each

case in comparative form the figures for the previous Fiscal Year, all audited

and reported on by PricewaterhouseCoopers, LLP

 

59

 

or another independent public accountants of

recognized national standing (without a “going concern” or like qualification

or exception and without a qualification or exception as to the scope of such

audit) to the effect that such Consolidated financial statements present fairly

in all material respects the financial condition and results of operations of

the Parent and its Subsidiaries on a Consolidated basis in accordance with GAAP

consistently applied;

 

(b)           within

forty-five (45) days after the end of each Fiscal Quarter of the Parent, its

Consolidated balance sheet and related statements of operations, stockholders’

equity and cash flows, and a summary of all Capital Expenditures in the form

previously delivered to the Administrative Agent, as of the end of and for such

Fiscal Quarter and the elapsed portion of the Fiscal Year, setting forth in

each case in comparative form the figures for the previous Fiscal Year and the

figures as set forth in the projections delivered pursuant to Section 5.01(e)

hereof, all certified by one of its Financial Officers as presenting in all

material respects the financial condition and results of operations of the

Parent and its Subsidiaries on a Consolidated basis in accordance with GAAP

consistently applied, subject to normal year end audit adjustments and the

absence of footnotes;

 

(c)           within

thirty (30) days after the end of each fiscal month of the Parent, its

Consolidated balance sheet and related statements of operations, stockholders’

equity and cash flows, and a summary of all Capital Expenditures in the form

previously delivered to the Administrative Agent, as of the end of and for such

fiscal month and the elapsed portion of the Fiscal Year, setting forth in each

case in comparative form the figures for the previous Fiscal Year and the

figures as set forth in the projections delivered pursuant to Section 5.01(e)

hereof, all certified by one of its Financial Officers as presenting in all

material respects the financial condition and results of operations of the

Parent and its Subsidiaries on a Consolidated basis in accordance with GAAP

consistently applied, subject to normal year end audit adjustments and the

absence of footnotes;

 

(d)           concurrently

with any delivery of financial statements under clause (a), (b), or (c) above,

a certificate of a Financial Officer of the Borrower in the form of Exhibit D

(i) certifying as to whether a Default has occurred and, if a Default has

occurred, specifying the details thereof and any action taken or proposed to be

taken with respect thereto, and (ii) setting forth reasonably detailed

calculations (A) with respect to the average Excess Availability for such

period, and (B) demonstrating compliance with Section 6.11 (whether or not the

Borrower’s obligation to comply with the Fixed Charge Coverage Ratio is then in

effect), and (iii) stating whether any change in GAAP or in the application

thereof has occurred since the date of the Parent’s audited financial statements

referred to in Section 3.04 and, if any such change has occurred, specifying

the effect of such change on the financial statements accompanying such

certificate;

 

(e)           within

thirty (30) days after the commencement of each Fiscal Year of the Parent, a

detailed Consolidated budget by month for such Fiscal Year (including a

projected Consolidated balance sheet and related statements of projected

operations and cash flow as of the end of and for such Fiscal Year);

 

(f)            on

the tenth day of each month, a certificate in the form of Exhibit E (a “Borrowing

Base Certificate”) showing the Borrowing Base as of the close of business

on the last day of the immediately preceding month, each Borrowing Base

Certificate to be certified as complete and correct on behalf of the Borrower

by a Financial Officer of the Borrower; provided that at any time

that,  and as long as, Excess

Availability is less than $30,000,000, a Borrowing Base Certificate shall be

provided weekly on Wednesday of each week (or, if Wednesday is not a

 

60

 

Business Day, on the next succeeding Business

Day) showing the Borrowing Base as of the close of business on the immediately

preceding Saturday;

 

(g)           promptly

after the same become publicly available, copies of all periodic and other

reports, proxy statements and other materials filed in final form by any Loan

Party with the Securities and Exchange Commission (including, without

limitation, Forms 10K and 10Q but excluding any registration statement on Form

S-8 or its equivalent), or any Governmental Authority succeeding to any or all

of the functions of said Commission, or with any national securities exchange,

as the case may be;

 

(h)           Intentionally

Omitted;

 

(i)            the

financial and collateral reports described on Schedule 5.01(i) hereto, at the

times set forth in such Schedule;

 

(j)            notice

of any intended Permitted Acquisition, the aggregate consideration paid

(whether in cash, capital stock, assumption of indebtedness or otherwise) for

which shall exceed $20,000,000, at least thirty (30) days prior to the intended

date of the consummation thereof;

 

(k)           With

respect to any Permitted Acquisition, the aggregate consideration paid (whether

in cash, capital stock, assumption of indebtedness or otherwise) for which

shall exceed $20,000,000, (i) copies of the most recent audited, and if later,

unaudited financial statements of the Person which is the subject of the

Permitted Acquisition, (ii) a description of the proposed Permitted Acquisition

in such detail as the Administrative Agent may reasonably request, including

copies of letters of intent and purchase and sale agreements or other

acquisition documents executed in connection with the proposed Permitted

Acquisition, (iii) an unaudited pro  forma Consolidated balance

sheet and income statement of the Parent and its Subsidiaries as of the end of

the most recently completed Fiscal Quarter but prepared as though the Permitted

Acquisition had occurred on such date and related pro  forma

calculations of average Excess Availability for the subsequent four Fiscal

Quarters period, and (iv) unaudited projections of balance sheets and income

statements and related calculations for the following four Fiscal Quarters,

assuming the Permitted Acquisition has closed;

 

(l)            notice

of any intended (i) sale or other disposition of assets of any Loan Party

permitted under Sections 6.05(c), 6.05(d) or 6.05(e) hereof at least three

(3) Business Days prior to the date of consummation such sale or disposition or

(ii) incurrence of any Indebtedness permitted hereunder promptly following the

incurrence of such Indebtedness; and

 

(m)          promptly

following any request therefor, such other information regarding the

operations, business affairs and financial condition of any Loan Party, or

compliance with the terms of any Loan Document, as the Agents or any Lender may

reasonably request.

 

SECTION 5.02       Notices

of Material Events. The Borrower will furnish to the Agents prompt written

notice of the following:

 

(a)           the

occurrence of any Default or Event of Default;

 

(b)           the

filing or commencement of any action, suit or proceeding by or before any

arbitrator or Governmental Authority against or affecting any Loan Party or any

Affiliate thereof

 

61

 

that, if adversely determined, could

reasonably be expected to result in a Material Adverse Effect;

 

(c)           the

occurrence of any ERISA Event that, alone or together with any other ERISA

Events that have occurred, could reasonably be expected to result in a Material

Adverse Effect;

 

(d)           any

other development that results in, or could reasonably be expected to result

in, a Material Adverse Effect;

 

(e)           any

change in any Loan Party’s senior executive officers;

 

(f)            any

failure by any Loan Party to pay rent at any of such Loan Party’s locations,

which failure continues for more than ten (10) days following the day on which

such rent first came due if the result of such failure would be reasonably

likely to result in a Material Adverse Effect;

 

(g)           the

discharge by any Loan Party of its present independent accountants or any

withdrawal or resignation by such independent accountants;

 

(h)           any

collective bargaining agreement or other labor contract to which a Loan Party

becomes a party, or the application for the certification of a collective

bargaining agent;

 

(i)            the

filing of any Lien for unpaid Taxes against any Loan Party in excess of

$1,000,000; and

 

(j)            promptly

upon receipt any management letter from the Borrower’s accountants specifying a

material weakness in internal controls, notice of receipt thereof specifying in

reasonable detail the issues raised by such accountants.

 

Each notice delivered under this Section shall

be accompanied by a statement of a Financial Officer or other executive officer

of the Borrower setting forth the details of the event or development requiring

such notice and, if applicable, any action taken or proposed to be taken with

respect thereto.

 

SECTION 5.03       Information

Regarding Collateral. (a)  The

Borrower will furnish to the Agents at least ten (10) days prior written notice

of any change (i) in any Loan Party’s corporate name or in any trade name used

to identify it in the conduct of its business or in the ownership of its

properties, (ii) in the location of any Loan Party’s chief executive office,

its principal place of business, any office in which it maintains books or

records relating to Collateral owned by it or any office or facility at which

Collateral owned by it is located (including the establishment of any such new

office or facility), (iii) in any Loan Party’s corporate structure or

jurisdiction of incorporation or formation, or (iv) in any Loan Party’s Federal

Taxpayer Identification Number or organizational identification number assigned

to it by its state of organization. The Borrower also agrees promptly to notify

the Agents if any material portion of the Collateral is damaged or destroyed.

 

(b)           Each

year, at the time of delivery of annual financial statements with respect to

the preceding Fiscal Year pursuant to clause (a) of Section 5.01, the Borrower

shall deliver to the Agents a certificate of a Financial Officer of the

Borrower setting forth the information required pursuant to Section 2 of the

Perfection Certificate or confirming that there

 

62

 

has been no change in such information since

the date of the Perfection Certificate delivered on the Closing Date or the

date of the most recent certificate delivered pursuant to this Section.

 

SECTION 5.04       Existence;

Conduct of Business. Each Loan Party will, and will cause each of its

Subsidiaries to, do or cause to be done all things necessary to comply with its

respective Organic Documents, as applicable, and to preserve, renew and keep in

full force and effect its legal existence and the rights, licenses, permits,

privileges, franchises, patents, copyrights, trademarks and trade names

material to the conduct of its business, provided that the foregoing

shall not prohibit any merger, consolidation, liquidation or dissolution permitted

under Section 6.03, and provided further that neither the Borrower nor

any of its Subsidiaries shall be required to preserve any right, license,

permit, privilege, franchise, patent, copyright, trademark or trade name if the

Board of Directors (or the equivalent governing body or committee of the Board

or such other body given responsibility therefor) shall determine that the

preservation thereof is no longer desirable in the conduct of the business of

the Borrower or such Subsidiary, as the case may be, and the loss thereof would

not reasonably be likely to result in a Material Adverse Effect.

 

SECTION 5.05       Payment

of Obligations. Each Loan Party will, and will cause each of the

Subsidiaries to, pay its Indebtedness and other obligations, including Tax

liabilities, and claims for labor, materials, or supplies, before the same

shall become delinquent or in default, except where (a) the validity or amount

thereof is being contested in good faith by appropriate proceedings, (b) such

Loan Party or such Subsidiary has set aside on its books adequate reserves with

respect thereto in accordance with GAAP, (c) such contest effectively suspends

collection of the contested obligation and enforcement of any Lien securing

such obligation, (d) no Lien has been filed with respect thereto, and (e) the

failure to make payment pending such contest could not reasonably be expected

to result in a Material Adverse Effect. Nothing contained herein shall be

deemed to limit the rights of the Administrative Agent under Section 2.03(b)

hereof.

 

SECTION 5.06       Maintenance

of Properties. Each Loan Party will, and will cause each of the

Subsidiaries to, keep and maintain all property material to the conduct of its

business in good working order and condition, ordinary wear and tear excepted

and with the exception of storing closings and asset dispositions permitted

hereunder.

 

SECTION 5.07       Insurance.

(a)  Each Loan Party shall (i) maintain

insurance with financially sound and reputable insurers reasonably acceptable

to the Administrative Agent (or, to the extent consistent with prudent business

practice, a program of self-insurance approved by the Administrative Agent) on

such of its property and in at least such amounts and against at least such

risks as is customary with companies in the same or similar businesses

operating in the same or similar locations, including public liability

insurance against claims for personal injury or death occurring upon, in or

about or in connection with the use of any properties owned, occupied or controlled

by it (including the insurance required pursuant to the Security Documents);

(ii) maintain such other insurance as may be required by law; and (iii) furnish

to the Administrative Agent, upon written request, full information as to the

insurance carried.

 

(b)           Fire

and extended coverage policies maintained with respect to any Collateral shall

be endorsed or otherwise amended to include (i) a non-contributing mortgage

clause (regarding improvements to real property) and lenders’ loss payable

clause (regarding personal property), in form and substance satisfactory to the

Collateral Agent, which endorsements or amendments shall provide that the

insurer shall pay all proceeds otherwise payable to the Loan Parties under the

policies directly to the Collateral Agent, (ii) a provision to

 

63

 

the effect that none of the Loan Parties, the

Administrative Agent, the Collateral Agent, or any other party shall be a

coinsurer and (iii) such other provisions as the Collateral Agent may

reasonably require from time to time to protect the interests of the Lenders.

Commercial general liability policies shall be endorsed to name the Collateral

Agent as an additional insured. 

Business interruption policies shall name the Collateral Agent as a loss

payee and shall be endorsed or amended to include (i) a provision that, from

and after the Closing Date, the insurer shall pay all proceeds otherwise

payable to the Loan Parties under the policies directly to the Administrative

Agent or the Collateral Agent, (ii) a provision to the effect that none of the

Loan Parties, the Administrative Agent, the Collateral Agent or any other party

shall be a co-insurer and (iii) such other provisions as the Collateral Agent

may reasonably require from time to time to protect the interests of the

Lenders. Each such policy referred to in this paragraph also shall provide that

it shall not be canceled, modified or not renewed (i) by reason of nonpayment

of premium except upon not less than 10 days’ prior written notice thereof by

the insurer to the Collateral Agent (giving the Collateral Agent the right to

cure defaults in the payment of premiums) or (ii) for any other reason except

upon not less than 60 days’ prior written notice thereof by the insurer to the

Collateral Agent. The Borrower shall deliver to the Collateral Agent, prior to

the cancellation, modification or nonrenewal of any such policy of insurance, a

copy of a renewal or replacement policy (or other evidence of renewal of a

policy previously delivered to the Collateral Agent, including an insurance

binder) together with evidence satisfactory to the Collateral Agent of payment

of the premium therefor.

 

SECTION 5.08       Casualty

and Condemnation. The Borrower will furnish to the Agents and the Lenders

prompt written notice of any casualty or other insured damage to any material

portion of the Collateral or the commencement of any action or proceeding for

the taking of any interest in a material portion of the Collateral under power

of eminent domain or by condemnation or similar proceeding.

 

SECTION 5.09       Books

and Records; Inspection and Audit Rights; Appraisals; Accountants. (a)  Each Loan Party will, and will cause each of

the Subsidiaries to, keep proper books of record and account in accordance with

GAAP and in which full, true and correct entries are made of all dealings and

transactions in relation to its business and activities. Each Loan Party will,

and will cause each of the Subsidiaries to, permit any representatives

designated by any Agent, upon reasonable prior notice, to visit and inspect its

properties, to examine and make extracts from its books and records, and to

discuss its affairs, finances and condition with its officers and, with an

officer of the Borrower present, its independent accountants, all at such

reasonable times and as often as reasonably requested.

 

(b)           Each

Loan Party will, and will cause each of the Subsidiaries to, from time to time

upon the request of the Collateral Agent or the Required Lenders through the

Administrative Agent and after reasonable prior notice, permit any Agent or

professionals (including investment bankers, consultants, accountants, lawyers

and appraisers) retained by the Agents to conduct appraisals, commercial

finance examinations and other evaluations, including, without limitation, of

(i) the Borrower’s practices in the computation of the Borrowing Base and (ii)

the assets included in the Borrowing Base and related financial information

such as, but not limited to, sales, gross margins, payables, accruals and

reserves, and pay the reasonable fees and expenses of the Agents or such

professionals with respect to such evaluations and appraisals. Without limiting

the foregoing, the Loan Parties acknowledge that the Agents intend to undertake

at least three (3) inventory appraisals and three (3) commercial finance

examinations each Fiscal Year after the Closing Date, at the Loan Parties’

expense.  Notwithstanding the foregoing,

the Agents may cause additional appraisals and commercial finance examinations

to

 

64

 

be undertaken as they in their discretion deem

necessary or appropriate, or as may be required by Applicable Law, provided

that the Loan Parties shall not be obligated to pay for any such additional

appraisals and commercial finance examinations unless an Event of Default has

occurred and is continuing.

 

(c)           The

Loan Parties shall, at all times, retain independent certified public

accountants who are reasonably satisfactory to the Administrative Agent and

instruct such accountants to cooperate with, and be available to, the

Administrative Agent or its representatives to discuss, with an officer of the

Borrower present, the Loan Parties’ financial performance, financial condition,

operating results, controls, and such other matters, within the scope of the

retention of such accountants, as may be raised by the Administrative Agent.

 

SECTION 5.10       Physical

Inventories.

 

(a)           The

Collateral Agent, at the expense of the Loan Parties, may participate in and/or

observe each physical count and/or inventory of so much of the Collateral as

consists of Inventory which is undertaken on behalf of the Borrower so long as

such participation does not disrupt the normal inventory schedule or process.

 

(b)           The

Borrower, at its own expense, shall cause not less than one physical inventory

of the Borrower’s distribution centers in each twelve (12) month period and one

physical inventory of the Borrower’s retail stores (on a cycle basis) to be

undertaken in each twelve (12) month period during which this Agreement is in

effect, conducted by nationally recognized inventory takers (other than with

respect to the distribution centers which count may be undertaken by the

Borrower’s employees) and using practices consistent with practices in effect

on the date hereof

 

(c)           The

Borrower shall provide the Collateral Agent with the preliminary Inventory

levels at each of the Borrower’s stores within ten (10) days following the

completion of such inventory.

 

(d)           The

Borrower, within forty-five (45) days following the completion of such

inventory, shall provide the Collateral Agent with a reconciliation of the

results of each such inventory (as well as of any other physical inventory

undertaken by the Borrower) and shall post such results to the Borrower’s stock

ledger and general ledger, as applicable.

 

(e)           The

Borrower shall promptly furnish the Agent with a copy of the results of any

physical inventory undertaken in accordance with the Amerisource Bergen

Agreement.

 

(f)            The

Collateral Agent, in its discretion, if any Default exists, may cause such

additional inventories to be taken as the Collateral Agent determines (each, at

the expense of the Borrower).  The

Collateral Agent shall use its best efforts to schedule any such inventories so

as to not unreasonably disrupt the operation of the Borrower’s business.

 

SECTION 5.11       Compliance

with Laws. Each Loan Party will, and will cause each of the Subsidiaries

to, comply with all Applicable Laws (including Pharmaceutical Laws), except where

the failure to do so, individually or in the aggregate, could not reasonably be

expected to result in a Material Adverse Effect.

 

65

 

SECTION 5.12       Use

of Proceeds and Letters of Credit. The proceeds of Loans made hereunder and

Letters of Credit issued hereunder will be used only (a) to refinance the

Indebtedness under the Existing Financing Agreement, (b) to finance the

acquisition of working capital assets of the Borrower, including the purchase

of inventory, in the ordinary course of business, (c) to finance Capital

Expenditures of the Borrower and the Facility Guarantors, and (d) for general

corporate purposes, including repurchases of capital stock of the Parent,

repurchase or retirement of Indebtedness evidenced by the Convertible Indenture

and Permitted Acquisitions, all to the extent permitted herein. No part of the

proceeds of any Loan will be used, whether directly or indirectly, for any

purpose that entails a violation of any of the Regulations of the Board,

including Regulations U and X.

 

SECTION 5.13       Additional

Subsidiaries. If any additional Subsidiary of any Loan Party is formed or

acquired after the Closing Date, the Borrower will notify the Agents and the

Lenders thereof and (a) if such Subsidiary is not a Foreign Subsidiary, the

Borrower will cause such Subsidiary to become a Loan Party hereunder and under

each applicable Security Document in the manner provided therein within fifteen

(15) days after such Subsidiary is formed or acquired and promptly take such

actions to create and perfect Liens on such Subsidiary’s assets to secure the

Obligations as any Agent or the Required Lenders shall reasonably request and

(b) if any shares of capital stock or Indebtedness of such Subsidiary are owned

by or on behalf of any Loan Party, the Borrower will cause such shares and

promissory notes evidencing such Indebtedness to be pledged within fifteen (15)

Days after such Subsidiary is formed or acquired (except that, if such

Subsidiary is a Foreign Subsidiary (other than an Immaterial Foreign Subsidiary

until it no longer qualifies as an Immaterial Foreign Subsidiary), shares of

stock of such Subsidiary to be pledged may be limited to 65% of the outstanding

shares of Voting Stock of such Subsidiary and such time period may be extended

based on local law or practice).

 

SECTION 5.14       Further

Assurances. Each Loan Party will execute any and all further documents,

financing statements, agreements and instruments, and take all such further

actions (including the filing and recording of financing statements and other

documents), that may be required under any Applicable Law, or which any Agent

may reasonably request, to effectuate the transactions contemplated by the Loan

Documents or to grant, preserve, protect or perfect the Liens created or

intended to be created by the Security Documents or the validity or priority of

any such Lien, all at the expense of the Loan Parties. The Loan Parties also

agree to provide to the Agents, from time to time upon request, evidence

reasonably satisfactory to the Agents as to the perfection and priority of the

Liens created or intended to be created by the Security Documents.

 

(b)           If

any material assets are acquired by any Loan Party after the Closing Date

(other than assets constituting Collateral under the Security Agreement that

become subject to the Lien of the Security Agreement upon acquisition thereof),

the Borrower will notify the Agents and the Lenders thereof, and the Loan

Parties will cause such assets to be subjected to a Lien securing the

Obligations and will take such actions as shall be necessary or reasonably

requested by any Agent to grant and perfect such Liens, including actions

described in paragraph (a) of this Section, all at the expense of the Loan

Parties.

 

(c)           Upon

the request of the Administrative Agent, the Borrower shall cause each of its

customs brokers to deliver an agreement to the Administrative Agent covering

such matters and in such form as the Administrative Agent may reasonably

require.

 

66

 

ARTICLE

VI

 

Negative

Covenants

 

Until (i) the

Commitments have expired or been terminated, and (ii) the principal of and

interest on each Loan and all fees payable hereunder shall have been paid in

full, and (iii) all Letters of Credit shall have expired or terminated or been

collateralized, to the extent of 103% of the then Letter of Credit

Outstandings, by cash or a letter of credit issued by a financial institution

and on terms reasonably satisfactory to the Administrative Agent, and (iv) all

L/C Disbursements shall have been reimbursed, each Loan Party covenants and

agrees with the Agents and the Lenders that:

 

SECTION 6.01       Indebtedness

and Other Obligations. (a)  The Loan

Parties will not, and will not permit any Subsidiary to, create, incur, assume

or permit to exist any Indebtedness, except:

 

(i)            Indebtedness

created under the Loan Documents;

 

(ii)           Indebtedness

set forth in Schedule 6.01 and extensions, renewals and replacements of any

such Indebtedness provided that after giving effect to the refinancing

(i) the principal amount of the outstanding Indebtedness is not increased, (ii)

neither the tenor nor the average life is reduced, and (iii) the holders of

such refinancing Indebtedness are not afforded covenants, defaults, rights or

remedies more burdensome in any material respect to the obligor or obligors

than those contained in the Indebtedness being refinanced;

 

(iii)          Indebtedness

of any Loan Party to any other Loan Party, all of which Indebtedness shall be reflected

in the Loan Parties’ books and records in accordance with GAAP;

 

(iv)          Indebtedness

of any Loan Party to finance the acquisition of any fixed or capital assets,

including Capital Lease Obligations and any Indebtedness assumed in connection

with the acquisition of any such assets or secured by a Lien on any such assets

prior to the acquisition thereof, and extensions, renewals and replacements of

any such Indebtedness that do not increase the outstanding principal amount

thereof or result in an earlier maturity date or decreased weighted average

life thereof, provided that the aggregate principal amount of

Indebtedness permitted by this clause (v) shall not exceed $25,000,000 at any

time outstanding;

 

(v)           Indebtedness

incurred to refinance any Real Estate owned by any Loan Party or incurred in

connection with sale-leaseback transactions permitted hereunder;

 

(vi)          Indebtedness

under Hedging Agreements, other than for speculative purposes, entered into in

the ordinary course of business;

 

(vii)         Contingent

liabilities under surety bonds or similar instruments incurred in the ordinary

course of business in connection with the construction or improvement of

stores;

 

67

 

(viii)        Indebtedness

arising under the Convertible Indenture and related documents and any

Indebtedness which refinances same, provided however that after giving

effect to the refinancing (i) the principal amount of the outstanding

Indebtedness is not increased, (ii) neither the tenor nor the average life is

reduced, (iii) the refinancing Indebtedness shall be unsecured, and (iv) the

holders of such refinancing Indebtedness are not afforded covenants, defaults,

rights or remedies more burdensome in any material respect to the obligor or

obligors than those contained in the Indebtedness being refinanced;

 

(ix)           Indebtedness

due to Amerisource Bergen on account of the consignment of pharmaceutical

Inventory pursuant to the Amerisource Bergen Agreement;

 

(x)            Indebtedness

of (i) Duane Reade Realty, Inc. consisting of lease obligations in respect of

leases relating to realty that is leased to the Borrower, and (ii) the Parent

and the Borrower consisting of guarantees in respect of such Indebtedness of

Duane Reade Realty, Inc.; and

 

(xi)           other

unsecured Indebtedness, including Subordinated Indebtedness, in an aggregate

principal amount not exceeding $100,000,000 at any time outstanding.

 

(b)           None

of the Loan Parties will, nor will they permit any Subsidiary to, issue any

preferred stock (except for preferred stock (i) all dividends in respect of

which are to be paid (and all other payments in respect of which are to be

made) in additional shares of such preferred stock, in lieu of cash, (ii) that

is not subject to redemption other than redemption at the option of the Loan

Party issuing such preferred stock and (iii) all payments in respect of which

are expressly subordinated to the Obligations) or be or become liable in

respect of any obligation (contingent or otherwise) to purchase, redeem,

retire, acquire or make any other payment in respect of (i) any shares of

capital stock of any Loan Party or (ii) any option, warrant or other right to

acquire any such shares of capital stock.

 

SECTION 6.02       Liens.  The Loan Parties will not, and will not

permit any Subsidiary to, create, incur, assume or permit to exist any Lien on

any property or asset now owned or hereafter acquired by it, or assign or sell

any income or revenues (including accounts receivable) or rights in respect of

any thereof, except:

 

(a)           Liens

created under the Loan Documents;

 

(b)           Permitted

Encumbrances;

 

(c)           any

Lien on any property or asset of any Loan Party set forth in Schedule 6.02,

provided that (i) such Lien shall not apply to any other property or

asset of any Loan Party and (ii) such Lien shall secure only those obligations

that it secures as of the Closing Date, and extensions, renewals and

replacements thereof that do not increase the outstanding principal amount

thereof;

 

(d)           Liens

on fixed or capital assets acquired by any Loan Party, provided that (i)

such Liens secure Indebtedness permitted by clause (iv) of Section 6.01(a),

(ii) such Liens and the Indebtedness secured thereby are incurred prior to or

within 90 days after such acquisition or the

 

68

 

completion of such construction or

improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the

cost of acquiring such fixed or capital assets and (iv) such Liens shall not

extend to any other property or assets of the Loan Parties; and

 

(e)           Liens

to secure Indebtedness permitted by clause (v) of Section 6.01(a) provided

that such Liens shall not apply to any property or assets of the Loan

Parties other than the Real Estate so refinanced or which is the subject of a

sale-leaseback transaction.

 

SECTION 6.03       Fundamental

Changes. (a)  The Loan Parties will

not merge into or consolidate with any other Person, or permit any other Person

to merge into or consolidate with it, or liquidate or dissolve, except that, if

at the time thereof and immediately after giving effect thereto no Default or

Event of Default shall have occurred and be continuing, (i) any Facility

Guarantor may merge into any other Facility Guarantor, provided that in

any such transaction involving the Parent, the Parent shall be the surviving

entity, and (ii) mergers may take place in connection with Permitted

Acquisitions, and (iii) any Facility Guarantor (other than the Parent) may

liquidate or dissolve voluntarily into the Parent.

 

(b)           The

Loan Parties will not engage to any material extent in any business other than

businesses of the type conducted by the Loan Parties on the date of execution

of this Agreement and businesses reasonably related thereto.

 

SECTION 6.04       Investments,

Loans, Advances, Guarantees and Acquisitions. The Loan Parties will not

purchase, hold or acquire (including pursuant to any merger with any Person

that was not a wholly owned Subsidiary prior to such merger) any capital stock,

evidences of Indebtedness or other securities (including any option, warrant or

other right to acquire any of the foregoing) of, make or permit to exist any

loans or advances to, guarantee any obligations of, or make or permit to exist

any Investment or any other interest in, any other Person, or purchase or otherwise

acquire (in one transaction or a series of transactions) any assets of any

other Person constituting a business unit, except:

 

(a)           Permitted

Investments;

 

(b)           Investments

existing on the Closing Date, and set forth on Schedule 6.04;

 

(c)           loans

or advances made by any Loan Party to any other Loan Party;

 

(d)           Equity

Investments made by any Facility Guarantor in the Borrower or by any Facility

Guarantor or by the Borrower in another Facility Guarantor;

 

(e)           Guarantees

constituting Indebtedness permitted by Section 6.01;

 

(f)            Investments

received in connection with the bankruptcy or reorganization of, or settlement

of delinquent accounts and disputes with, customers and suppliers, in each case

in the ordinary course of business;

 

(g)           Permitted

Acquisitions;

 

(h)           loans

or advances to employees for the purpose of travel, entertainment or relocation

in the ordinary course of business in an amount not to exceed $1,000,000 in the

aggregate at any time outstanding; and

 

69

 

(i)            other

Investments not to exceed $5,000,000 in the aggregate at any time outstanding.

 

SECTION 6.05       Asset

Sales. The Loan Parties will not, and will not permit any of the

Subsidiaries to, sell, transfer, lease or otherwise dispose of any asset, including

any capital stock, nor will the Loan Parties permit any of the Subsidiaries to

issue any additional shares of its capital stock or other ownership interest in

such Subsidiary, except:

 

(a)           (i)

sales of Inventory in the ordinary course of business, or (ii) sales of used or

surplus equipment, or (iii)  Permitted

Investments, in each case in the ordinary course of business;

 

(b)           sales,

transfers and dispositions among the Loan Parties and their Subsidiaries, provided

that any such sales, transfers or dispositions involving a Subsidiary that is

not a Loan Party shall be made in compliance with Section 6.07;

 

(c)           sale-leaseback

transactions involving any Loan Party’s Real Estate as long as if the

Administrative Agent so requests, the Administrative Agent shall have received

an intercreditor agreement executed by the purchaser of such Real Estate on

terms and conditions reasonably satisfactory to the Administrative Agent;

 

(d)           sales

of pharmacy files in the ordinary course of business; and

 

(e)           the

closure of any locations at which the Borrower maintains, offers for sale or

stores any of its Inventory or other Collateral and the disposition of

Collateral located thereat not to exceed twenty percent (20%) of the number of

locations (net of any new store openings after the Closing Date) in existence

as of the Closing Date.

 

provided that all sales, transfers,

leases and other dispositions permitted hereby (other than sales, transfers and

other disposition permitted under clause (b)) shall be made at arm’s length and

for fair value and solely for cash consideration; and further provided that

the authority granted under clauses (c) through (e) hereof may be terminated in

whole or in part by the Agents upon the occurrence and during the continuance

of any Event of Default.

 

SECTION 6.06       Restricted

Payments; Certain Payments of Indebtedness. (a)  The Loan Parties will not, and will not permit any Subsidiary to,

declare or make, or agree to pay or make, directly or indirectly, any

Restricted Payment, except as long as no Default or Event of Default exists or

would arise therefrom (i) the Loan Parties may declare and pay dividends with

respect to their capital stock payable solely in additional shares of or

warrants to purchase their common stock, (ii) splits or reclassifications of

its stock into additional or other shares of its common stock, and (iii) only

if the Payment Conditions are then satisfied, (x) the Parent may repurchase its

capital stock and/or declare and pay cash dividends to its shareholders, and

(y) the Subsidiaries of the Parent may declare and pay cash dividends to the

Parent or to any other Loan Party which is its stockholder.

 

(b)           The

Loan Parties will not, and will not permit any Subsidiary to, make or agree to

pay or make, directly or indirectly, any payment or other distribution (whether

in cash securities or other property) of or in respect of principal of or

interest on any Indebtedness, or any payment or other distribution (whether in

cash, securities or other property), including any

 

70

 

sinking fund or similar deposit, on account of

the purchase, redemption, retirement, acquisition, cancellation or termination

of any Indebtedness, except:

 

(i)  as

long as the Payment Conditions are satisfied, the repayment, redemption, or

repurchase of Indebtedness evidenced by the Convertible Indenture or of

Subordinated Indebtedness;

 

(ii) 

payment of regularly scheduled interest and principal payments as and

when due in respect of any other Indebtedness permitted hereunder; and

 

(iii) 

refinancings of Indebtedness described in clause (ii), above, to the

extent permitted by Section 6.01.

 

SECTION 6.07       Transactions

with Affiliates. The Loan Parties will not, and will not permit any

Subsidiary to, sell, lease or otherwise transfer any property or assets to, or

purchase, lease or otherwise acquire any property or assets from, or otherwise

engage in any other transactions with, any of its Affiliates, except (a)

transactions in the ordinary course of business that are at prices and on terms

and conditions not less favorable to the Loan Parties or such Subsidiary than

could be obtained on an arm’s-length basis from unrelated third parties, (b)

royalty payments to Duane Reade International, Inc. at or less than fair market

value under the royalty and licensing agreement between the Borrower and Duane

Reade International, Inc. for the licensing and use of intellectual property,

(c) sublease payments to Duane Reade Realty Inc. at or less than fair market

value under the sublease agreements between the Borrower and said Duane Reade

Realty Inc., and (d) transactions disclosed on Schedule 6.07 hereto in

existence on the Closing Date.

 

SECTION 6.08       Restrictive

Agreements. The Loan Parties will not, and will not permit any Subsidiary

to, directly or indirectly, enter into, incur or permit to exist any agreement

or other arrangement that prohibits, restricts or imposes any condition upon

(a) the ability of the Loan Parties or any Subsidiary to create, incur or

permit to exist any Lien upon any of its property or assets or (b) the ability

of any Subsidiary to pay dividends or other distributions with respect to any

shares of its capital stock or to make or repay loans or advances to the Loan

Parties or any other Subsidiary or to guarantee Indebtedness of the Loan

Parties or any other Subsidiary, provided that (i) the foregoing shall

not apply to restrictions and conditions imposed by law or by any Loan

Document, (ii) clause (a) of the foregoing shall not apply to restrictions or

conditions imposed by any agreement relating to secured Indebtedness permitted

by this Agreement if such restrictions or conditions apply only to the property

or assets securing such Indebtedness and (iii) clause (a) of the foregoing

shall not apply to customary provisions in leases restricting the assignment or

subleasing thereof.

 

SECTION 6.09       Amendment

of Material Documents. The Loan Parties will not, and will not permit any

Subsidiary to, amend, modify or waive any of its rights under (a) its Organic

Documents, to the extent that such amendment, modification or waiver would

reasonably likely have a Material Adverse Effect, (b) the Convertible Indenture

and related documents, (c) any Subordinated Indebtedness, (d) the Amerisource

Bergen Agreement, to the extent that such amendment (i) increases the amount of

Consigned Inventory (as defined in the Amerisource Bergen Agreement) to an

amount in excess of $30,000,000, (ii) modifies the rights or obligations of the

Borrower to purchase or return the Consigned Inventory upon expiration or

termination of the Amerisource Bergen Agreement, (iii) modifies the definition

of “Cost”, “Consigned Inventory” or “Products”, or (iv) would otherwise

reasonably likely have a Material Adverse

 

71

 

Effect, or (e) any other instruments,

documents or agreements, in each case with respect to this clause (e), to the

extent that such amendment, modification or waiver would be materially adverse

to the interests of the Lenders.

 

SECTION 6.10       Additional

Subsidiaries. The Loan Parties will not, and will not permit any Subsidiary

to, create any additional Subsidiary unless no Default or Event of Default

would arise therefrom and the requirements of Section 5.13 are satisfied.

 

SECTION 6.11       Fixed

Charge Coverage Ratio; Capital Expenditures.  (a)  At any time that

Excess Availability is less than ten percent (10%) of the then Borrowing Base,

the Loan Parties shall maintain a Fixed Charge Coverage Ratio, calculated as of

the last day of each month, during the Fiscal Years set forth below as follows:

 

	

  Period

  	

   

  	

  Minimum Ratio

  
	

  Fiscal Year 2003

  	

   

  	

  1.10:1.00

  
	

  Fiscal Year 2004

  	

   

  	

  1.20:1.00

  
	

  Fiscal Year 2005 and thereafter

  	

   

  	

  1.35:1.00

  

 

(b) 

The Loan Parties shall not make or incur Capital Expenditures in excess

of $70,000,000 in any Fiscal Year.

 

SECTION 6.12       Fiscal

Year.  The Parent and its

Subsidiaries shall not change their Fiscal Year without the prior written

consent of the Administrative Agent, which consent shall not be unreasonably

withheld.

 

SECTION 6.13       Environmental

Laws.  The Loan Parties shall not

(a)  fail to comply with any

Environmental Law or to obtain, maintain or comply with any permit, license or

other approval required under any Environmental Law, or (b) become subject to

any Environmental Liability, in each case which is reasonably likely to have a

Material Adverse Effect.

 

ARTICLE VII

 

Events of

Default

 

SECTION 7.01 If any of the following events (“Events

of Default”) shall occur:

 

(a)           the

Loan Parties shall fail to pay any principal of any Loan or any reimbursement

obligation in respect of any L/C Disbursement 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 otherwise;

 

(b)           the

Loan Parties shall fail to pay any interest on any Loan or any fee or any other

amount (other than an amount referred to in clause (a) of this Article) payable

under this Agreement or any other Loan Document, within three (3) Business Days

after the same shall become due and payable;

 

72

 

(c)           any

representation or warranty made or deemed made by or on behalf of any Loan

Party in or in connection with any Loan Document or any amendment or

modification thereof or waiver thereunder, or in any report, certificate,

financial statement or other document furnished pursuant to or in connection

with any Loan Document or any amendment or modification thereof or waiver

thereunder, shall prove to have been incorrect in any material respect when

made or deemed made;

 

(d)           the

Loan Parties shall fail to observe or perform any covenant, condition or

agreement contained in Sections 2.22, 5.01(f), 5.07 (with respect to

insurance covering the Collateral), 5.09, or 5.12, or in Article VI;

 

(e)           any

Loan Party shall fail to observe or perform any covenant, condition or

agreement contained in any Loan Document (other than those specified in clause

(a), (b), (c), or (d) of this Article), and such failure shall continue

unremedied for a period of 25 days after notice thereof from the Administrative

Agent to the Borrower;

 

(f)            any

Loan Party shall fail to make any payment (whether of principal or interest and

regardless of amount) in respect of any Material Indebtedness when and as the

same shall become due and payable (after giving effect to the expiration of any

grace or cure period set forth therein);

 

(g)           any

event or condition occurs that results in any Material Indebtedness becoming

due prior to its scheduled maturity or that enables or permits (with or without

the giving of notice, the lapse of time or both) the holder or holders of any

such Material Indebtedness or any trustee or agent on its or their behalf to

cause any such Material Indebtedness to become due, or to require the

prepayment, repurchase, redemption or defeasance thereof, prior to its

scheduled maturity;

 

(h)           an

involuntary proceeding shall be commenced or an involuntary petition shall be

filed seeking (i) liquidation, reorganization or other relief in respect of any

Loan Party or its debts, or of a substantial part of its assets, under any

federal or state bankruptcy, insolvency, receivership or similar law now or

hereafter in effect or (ii) the appointment of a receiver, trustee, custodian,

sequestrator, conservator or similar official for any Loan Party or for a

substantial part of its assets, and, in any such case, such proceeding or

petition shall continue undismissed for 60 days or an order or decree approving

or ordering any of the foregoing shall be entered;

 

(i)            any

Loan Party shall (i) voluntarily commence any proceeding or file any petition

seeking liquidation, reorganization or other relief under any federal or state

bankruptcy, insolvency, receivership or similar law now or hereafter in effect,

(ii) consent to the institution of, or fail to contest in a timely and

appropriate manner, any proceeding or petition described in clause (h) of this

Section 7.01, (iii) apply for or consent to the appointment of a receiver,

trustee, custodian, sequestrator, conservator or similar official for any Loan

Party or for a substantial part of its assets, (iv) file an answer admitting

the material allegations of a petition filed against it in any such proceeding,

(v) make a general assignment for the benefit of creditors or (vi) take any

action for the purpose of effecting any of the foregoing;

 

(j)            any

Loan Party shall become unable, admit in writing its inability or fail

generally to pay its debts as they become due;

 

73

 

(k)           one

or more judgments for the payment of money in an aggregate amount in excess of

$10,000,000 shall be rendered against any Loan Party or any combination thereof

and the same shall remain undischarged for a period of 30 consecutive days

during which execution shall not be effectively stayed, or any action shall be

legally taken by a judgment creditor to attach or levy upon any material assets

of any Loan Party to enforce any such judgment;

 

(l)            an

ERISA Event shall have occurred that when taken together with all other ERISA

Events that have occurred, could reasonably be expected to result in liability

of the Loan Parties in an aggregate amount exceeding $10,000,000;

 

(m)          (i)            any challenge by or on behalf of any

Loan Party to the validity of any Loan Document or the applicability or

enforceability of any Loan Document strictly in accordance with the subject

Loan Document’s terms or which seeks to void, avoid, limit, or otherwise

adversely affect any security interest created by or in any Loan Document or

any payment made pursuant thereto;

 

(ii)           any

challenge by or on behalf of any other Person to the validity of any Loan

Document or the applicability or enforceability of any Loan Document strictly

in accordance with the subject Loan Document’s terms or which seeks to void,

avoid, limit, or otherwise adversely affect any security interest created by or

in any Loan Document or any payment made pursuant thereto.

 

(iii)          any

Lien purported to be created under any Security Document shall cease to be, or

shall be asserted by any Loan Party not to be, a valid and perfected Lien on

any Collateral, with the priority required by the applicable Security Document,

except as a result of any acts or omissions of any Agent or the sale or other

disposition of the applicable Collateral in a transaction permitted under the

Loan Documents;

 

(n)           the

occurrence of any uninsured loss to any material portion of the Collateral;

 

(o)           the

indictment of, or institution of any legal process or proceeding against, any

Loan Party, under any federal, state, municipal, and other civil or criminal

statute, rule, regulation, order, or other requirement having the force of law

where the relief, penalties, or remedies sought or available include the

forfeiture of any material property of any Loan Party and/or the imposition of

any stay or other order, the effect of which could reasonably be to restrain in

any material way the conduct by the Loan Parties, taken as a whole, of their

business in the ordinary course;

 

(p)           the

determination by the Borrower, whether by vote of the Borrower’s partners or

otherwise to: suspend the operation of the Borrower’s business in the ordinary

course, liquidate all or a material portion of the Borrower’s assets or store

locations, or employ an agent or other third party to conduct a program of

closings, liquidations or “Going-Out-Of-Business” sales of any material portion

of the business; or

 

(q)           the

occurrence of any default by the Borrower under the Amerisource Bergen

Agreement, which could reasonably be expected to have a Material Adverse

Effect;

 

then, and in every such event (other than an

event with respect to any Loan Party described in clause (h) or (i) of this

Section 7.01), and at any time thereafter during the continuance of such event,

the Administrative Agent may, and at the request of the Required Lenders shall,

by notice

 

74

 

to the Borrower, take either or both of the

following actions, at the same or different times:  (i) terminate the Commitments, and thereupon the Commitments

shall terminate immediately, and (ii) declare the Loans then outstanding to be

due and payable in whole (or in part, in which case any principal not so

declared to be due and payable may thereafter be declared to be due and

payable), and thereupon the principal of the Loans so declared to be due and

payable, together with accrued interest thereon and all fees and other

obligations of the Borrower accrued hereunder, shall become due and payable

immediately, without presentment, demand, protest or other notice of any kind, all

of which are hereby waived by the Loan Parties; and in case of any event with

respect to any Loan Party described in clause (h) or (i) of this Article, the

Commitments shall automatically terminate and the principal of the Loans then

outstanding, together with accrued interest thereon and all fees and other

obligations of the Borrower accrued hereunder, shall automatically become due

and payable, without presentment, demand, protest or other notice of any kind,

all of which are hereby waived by the Loan Parties.

 

SECTION 7.02       When

Continuing.

 

For all purposes under this Agreement, each

Default and Event of Default that has occurred shall be deemed to be continuing

at all times thereafter unless it either (a) is cured or corrected to the

reasonable written satisfaction of the Lenders in accordance with Section 9.02,

or (b) is waived in writing by the Lenders in accordance with Section 9.02.

 

SECTION 7.03       Remedies

on Default

 

In case any one or more of the Events of

Default shall have occurred and be continuing, and whether or not the maturity

of the Loans shall have been accelerated pursuant hereto, the Administrative

Agent may proceed to protect and enforce its rights and remedies under this

Agreement, the Notes or any of the other Loan Documents by suit in equity,

action at law or other appropriate proceeding, whether for the specific

performance of any covenant or agreement contained in this Agreement and the

other Loan Documents or any instrument pursuant to which the Obligations are

evidenced, and, if such amount shall have become due, by declaration or

otherwise, proceed to enforce the payment thereof or any other legal or

equitable right of the Agents or the Lenders. No remedy herein is intended to

be exclusive of any other remedy and each and every remedy shall be cumulative

and shall be in addition to every other remedy given hereunder or now or

hereafter existing at law or in equity or by statute or any other provision of

law.

 

SECTION 7.04       Application

of Proceeds

 

After the occurrence of an Event of Default

and acceleration of the Obligations, all proceeds realized from any Loan Party

or on account of any Collateral shall be applied in the manner set forth in

Section 6.02 of the Security Agreement. All amounts required to be applied to

Loans hereunder (other than Swingline Loans) shall be applied ratably in

accordance with each Lender’s Commitment Percentage.

 

75

 

ARTICLE VIII

 

The Agents

 

SECTION 8.01       Administration

by Administrative Agent.

 

Each Lender, the Collateral Agent and the

Issuing Bank hereby irrevocably designate Fleet as Administrative Agent under

this Agreement and the other Loan Documents. The general administration of the

Loan Documents shall be by the Administrative Agent. The Lenders, the

Collateral Agent and the Issuing Bank each hereby irrevocably authorizes the

Administrative Agent (i) to enter into the Loan Documents to which it is a

party and (ii) at its discretion, to take or refrain from taking such actions

as agent on its behalf and to exercise or refrain from exercising such powers

under the Loan Documents and the Notes as are delegated by the terms hereof or

thereof, as appropriate, together with all powers reasonably incidental

thereto. The Administrative Agent shall have no duties or responsibilities

except as set forth in this Agreement and the remaining Loan Documents, nor

shall it have any fiduciary relationship with any Lender, and no implied

covenants, responsibilities, duties, obligations, or liabilities shall be read

into the Loan Documents or otherwise exist against the Administrative Agent.

 

SECTION 8.02       The

Collateral Agent.

 

Each Lender, the Administrative Agent and the

Issuing Bank hereby irrevocably (i) designate FRF as Collateral Agent under

this Agreement and the other Loan Documents, (ii) authorize the Collateral

Agent to enter into the Collateral Documents and the other Loan Documents to

which it is a party and to perform its duties and obligations thereunder,

together with all powers reasonably incidental thereto, and (iii) agree and

consent to all of the provisions of the Security Documents. All Collateral

shall be held or administered by the Collateral Agent (or its duly-appointed

agent) for its benefit and for the ratable benefit of the other Secured

Parties. Any proceeds received by the Collateral Agent from the foreclosure,

sale, lease or other disposition of any of the Collateral and any other

proceeds received pursuant to the terms of the Security Documents or the other

Loan Documents shall be paid over to the Administrative Agent for application

as provided in Sections 2.19, 2.23, or 7.04, as applicable. The Collateral

Agent shall have no duties or responsibilities except as set forth in this

Agreement and the remaining Loan Documents, nor shall it have any fiduciary

relationship with any Lender, and no implied covenants, responsibilities,

duties, obligations, or liabilities shall be read into the Loan Documents or

otherwise exist against the Collateral Agent.

 

SECTION 8.03       Sharing

of Excess Payments.

 

Each of the Lenders, the Agents and the

Issuing Bank agrees that if it shall, through the exercise of a right of

banker’s lien, setoff or counterclaim against the Loan Parties, including, but

not limited to, a secured claim under Section 506 of the Bankruptcy Code or

other security or interest arising from, or in lieu of, such secured claim and

received by such Lender, any Agent or the Issuing Bank under any applicable

bankruptcy, insolvency or other similar law, or otherwise, obtain payment in

respect of the Obligations owed it (an “excess payment”) as a result of

which such Lender, such Agent or the Issuing Bank has received payment of any

Loans or other Obligations outstanding to it in excess of the amount that it

would have received if all payments at any time applied to the Loans and other

Obligations had been applied in the order of priority set forth in Section

7.04, then such Lender, Agent or the Issuing Bank shall promptly purchase at

par (and shall be deemed to have thereupon purchased) from the other Lenders,

such Agent and the Issuing Bank, as applicable, a participation in the Loans

and Obligations outstanding to such other Persons, in an amount determined by

the Administrative Agent in good faith as the amount necessary to ensure that

the economic benefit of such excess payment is reallocated in such

 

76

 

manner as to cause such excess payment and all

other payments at any time applied to the Loans and other Obligations to be

effectively applied in the order of priority set forth in Section 7.04 in

proportion to its Commitment Percentages; provided, that if any such

excess payment is thereafter recovered or otherwise set aside such purchase of

participations shall be correspondingly rescinded (without interest). The Loan

Parties expressly consent to the foregoing arrangements and agree that any

Lender, any Agent or the Issuing Bank holding (or deemed to be holding) a

participation in any Loan or other Obligation may exercise any and all rights

of banker’s lien, setoff or counterclaim with respect to any and all moneys

owing by such Loan Party to such Lender, such Agent or the Issuing Bank as

fully as if such Lender, Agent or the Issuing Bank held a Note and was the

original obligee thereon, in the amount of such participation.

 

SECTION 8.04       Agreement

of Required Lenders.

 

(i)            Upon

any occasion requiring or permitting an approval, consent, waiver, election or

other action on the part of only the Required Lenders, action shall be taken by

the Agents for and on behalf or for the benefit of all Lenders upon the

direction of the Required Lenders, and any such action shall be binding on all

Lenders, and (ii) upon any occasion requiring or permitting an approval,

consent, waiver, election or other action on the part of the Required

Supermajority Lenders, action shall be taken by the Agents for and on behalf or

for the benefit of all Lenders upon the direction of the Required Supermajority

Lenders and any such action shall be binding on all Lenders. No amendment, modification,

consent, or waiver shall be effective except in accordance with the provisions

of Section 9.02.

 

(ii)           Upon

the occurrence of an Event of Default, the Agents shall (subject to the

provisions of Section 9.02) take such action with respect thereto as may be

reasonably directed by the Required Lenders; provided that unless and

until the Agents shall have received such directions, the Agents may (but shall

not be obligated to) take such action as it shall deem advisable in the best

interests of the Lenders. In no event shall the Agents be required to comply

with any such directions to the extent that the Agents believe that the Agents’

compliance with such directions would be unlawful.

 

SECTION 8.05       Liability

of Agents.

 

(i)            Each

of the Agents, when acting on behalf of the Lenders and the Issuing Bank, may

execute any of its respective duties under this Agreement by or through any of

its respective officers, agents and employees, and none of the Agents nor their

respective directors, officers, agents or employees shall be liable to the

Lenders or the Issuing Bank or any of them for any action taken or omitted to

be taken in good faith, or be responsible to the Lenders or the Issuing Bank or

to any of them for the consequences of any oversight or error of judgment, or

for any loss, except to the extent of any liability imposed by law by reason of

such Agent’s own gross negligence or willful misconduct. The Agents and their

respective directors, officers, agents and employees shall in no event be

liable to the Lenders or the Issuing Bank or to any of them for any action

taken or omitted to be taken by them pursuant to instructions received by them

from the Required Lenders, or Required Supermajority Lenders, as applicable, or

in reliance upon the advice of counsel selected by it. Without limiting the

foregoing, none of the Agents, nor any of their respective directors, officers,

employees, or agents (A) shall be responsible to any Lender or the Issuing Bank

for the due execution, validity, genuineness, effectiveness, sufficiency, or

enforceability of, or for any recital, statement, warranty or representation

in, this Agreement, any Loan Document or any related agreement, document or

order, or (B) shall be required to

 

77

 

ascertain or to make any inquiry concerning the performance or

observance by any Loan Party of any of the terms, conditions, covenants, or

agreements of this Agreement or any of the Loan Documents, or (C) shall be

responsible to any Lender or the Issuing Bank for the state or condition of any

properties of the Borrower or any other obligor hereunder constituting

Collateral for the Obligations of the Borrower hereunder, or any information

contained in the books or records of the Borrower; or (D) shall be responsible

to any Lender or the Issuing Bank for the validity, enforceability,

collectibility, effectiveness or genuineness of this Agreement or any other

Loan Document or any other certificate, document or instrument furnished in

connection therewith; or (E) shall be responsible to any Lender or the Issuing

Bank for the validity, priority or perfection of any lien securing or

purporting to secure the Obligations or the value or sufficiency of any of the

Collateral.

 

(ii)           The

Agents may execute any of their duties under this Agreement or any other Loan

Document by or through their agents or attorneys-in-fact, and shall be entitled

to the advice of counsel concerning all matters pertaining to its rights and

duties hereunder or under the Loan Documents. 

The Agents shall not be responsible for the negligence or misconduct of

any agents or attorneys-in-fact selected by them with reasonable care.

 

(iii)          None

of the Agents nor any of their respective directors, officers, employees, or

agents shall have any responsibility to the Loan Parties on account of the

failure or delay in performance or breach by any Lender (other than by the

Agent in its capacity as a Lender) or the Issuing Bank of any of their

respective obligations under this Agreement or the Notes or any of the Loan

Documents or in connection herewith or therewith.

 

(iv)          The

Agents shall be entitled to rely, and shall be fully protected in relying, upon

any notice, consent, certificate, affidavit, or other document or writing

believed by it to be genuine and correct and to have been signed, sent or made

by the proper person or persons, and upon the advice and statements of legal

counsel (including, without, limitation, counsel to the Loan Parties),

independent accountants and other experts selected by the Agents.  The Agents shall be fully justified in

failing or refusing to take any action under this Agreement or any other Loan

Document unless they shall first receive such advice or concurrence of the

Required Lenders as they deem appropriate or they shall first be indemnified to

their satisfaction by the Lenders against any and all liability and expense

which may be incurred by them by reason of the taking or failing to take any

such action.

 

SECTION 8.06       Notice of

Default.  The Agents shall not be deemed

to have knowledge or notice of the occurrence of any Default or Event of

Default unless the Agents have actual knowledge of the same or has received

notice from a Lender or the Loan Parties referring to this Agreement,

describing such Default or Event of Default and stating that such notice is a

“notice of default”.  In the event that

the Agents obtain such actual knowledge or receive such a notice, the Agents

shall give prompt notice thereof to each of the Lenders.  The Agents shall take such action with

respect to such Default or Event of Default as shall be reasonably directed by

the Required Lenders.  Unless and until

the Agents shall have received such direction, the Agents may (but shall not be

obligated to) take such action, or refrain from taking such action, with

respect to any such Default or Event of Default as they shall deem advisable in

the best interest of the Lenders.

 

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SECTION 8.07       Lenders’

Credit Decisions.  Each Lender

acknowledges that it has, independently and without reliance upon the Agents or

any other Lender, and based on the financial statements prepared by the Loan

Parties and such other documents and information as it has deemed appropriate,

made its own credit analysis and investigation into the business, assets,

operations, property, and financial and other condition of the Loan Parties and

has made its own decision to enter into this Agreement and the other Loan

Documents.  Each Lender also

acknowledges that it will, independently and without reliance upon the Agents

or any other Lender, and based on such documents and information as it shall

deem appropriate at the time, continue to make its own credit decisions in

determining whether or not conditions precedent to closing any Loan hereunder

have been satisfied and in taking or not taking any action under this Agreement

and the other Loan Documents.

 

SECTION 8.08       Reimbursement

and Indemnification.

 

Each Lender agrees (i) to reimburse (x) each

Agent for such Lender’s Commitment Percentage of any expenses and fees incurred

by such Agent for the benefit of the Lenders or the Issuing Bank under this

Agreement, the Notes and any of the Loan Documents, including, without

limitation, counsel fees and compensation of agents and employees paid for

services rendered on behalf of the Lenders or the Issuing Bank, and any other

expense incurred in connection with the operations or enforcement thereof not

reimbursed by the Loan Parties and (y) each Agent for such Lender’s Commitment

Percentage of any expenses of such Agent incurred for the benefit of the

Lenders or the Issuing Bank that the Loan Parties have agreed to reimburse

pursuant to Section 9.03 and has failed to so reimburse and (ii) to indemnify

and hold harmless the Agents and any of their directors, officers, employees,

or agents, on demand, in the amount of such Lender’s Commitment Percentage,

from and against any and all liabilities, obligations, losses, damages,

penalties, actions, judgments, suits, costs, expenses, or disbursements of any

kind or nature whatsoever which may be imposed on, incurred by, or asserted

against it or any of them in any way relating to or arising out of this

Agreement, the Notes or any of the Loan Documents or any action taken or

omitted by it or any of them under this Agreement, the Notes or any of the Loan

Documents to the extent not reimbursed by the Loan Parties (except such as

shall result from their respective gross negligence or willful

misconduct).  The provisions of this

Section 8.08 shall survive the repayment of the Obligations and the termination

of the Commitments.

 

SECTION 8.09       Rights of

Agents.

 

It is understood and agreed that Fleet and FRF

shall each have the same rights and powers hereunder (including the right to

give such instructions) as the other Lenders and may exercise such rights and

powers, as well as its rights and powers under other agreements and instruments

to which it is or may be party, and engage in other transactions with the

Borrower, as though they were not the Administrative Agent or the Collateral

Agent, respectively, of the Lenders under this Agreement.  The Agents and their affiliates may accept

deposits from, lend money to, and generally engage in any kind of commercial or

investment banking, trust, advisory or other business with the Loan Parties and

their Subsidiaries and Affiliates as if it were not the Agent hereunder.

 

79

 

SECTION 8.10       Independent

Lenders and Issuing Bank.

 

The Lenders and the Issuing Bank each

acknowledge that they have decided to enter into this Agreement and to make the

Loans or issue the Letters of Credit hereunder based on their own analysis of

the transactions contemplated hereby and of the creditworthiness of the Loan

Parties and agrees that the Agents shall bear no responsibility therefor.

 

SECTION 8.11       Notice

of Transfer.

 

The Agents may deem and treat a Lender party

to this Agreement as the owner of such Lender’s portion of the Loans for all

purposes, unless and until, and except to the extent, an Assignment and

Acceptance shall have become effective as set forth in Section 9.04(b).

 

SECTION 8.12       Successor

Agent

 

Any Agent may resign at any time by giving

five (5) Business Days’ written notice thereof to the Lenders, the Issuing

Bank, the other Agents and the Borrower. Upon any such resignation of any

Agent, the Required Lenders shall have the right to appoint a successor Agent,

which so long as there is no Default or Event of Default, shall be reasonably

satisfactory to the Borrower (whose consent shall not be unreasonably withheld

or delayed). If no successor Agent shall have been so appointed by the Required

Lenders and shall have accepted such appointment, within 30 days after the

retiring Agent’s giving of notice of resignation, the retiring Agent may, on

behalf of the Lenders, the other Agents and the Issuing Bank, appoint a

successor Agent which shall be a Person capable of complying with all of the

duties of such Agent (and the Issuing Bank), hereunder (in the opinion of the

retiring Agent and as certified to the Lenders in writing by such successor

Agent) which, so long as there is no Default or Event of Default, shall be

reasonably satisfactory to the Borrower (whose consent shall not be

unreasonably withheld or delayed). Notwithstanding the foregoing, if Fleet

resigns as Administrative Agent, FRF may, at its option, become successor

Administrative Agent; and if FRF resigns as Collateral Agent, Fleet may, at its

option, become successor Collateral Agent. Upon the acceptance of any appointment

as Agent by a successor Agent, such successor Agent shall thereupon succeed to

and become vested with all the rights, powers, privileges and duties of the

retiring Agent and the retiring Agent shall be discharged from its duties and

obligations under this Agreement. After any retiring Agent’s resignation

hereunder as such Agent, the provisions of this Article VIII shall inure to its

benefit as to any actions taken or omitted to be taken by it while it was such

Agent under this Agreement.

 

SECTION 8.13       Reports and

Financial Statements.

 

Promptly after receipt thereof from the

Borrower, the Administrative Agent shall remit to each Lender and the

Collateral Agent copies of all financial statements and Borrowing Base

Certificates required to be delivered by the Borrower hereunder and all

commercial finance examinations and appraisals of the Collateral received by

the Administrative Agent.

 

SECTION 8.14       Delinquent

Lender.  If for any reason any

Lender shall fail or refuse to abide by its obligations under this Agreement,

including without limitation its obligation to make available to Administrative

Agent its Commitment Percentage of any Revolving Loans, expenses or setoff or

purchase its Commitment Percentage of a participation interest in the Swingline

Loans (a “Delinquent Lender”) and such failure is not cured within ten

(10) days of receipt from the Administrative Agent of written notice thereof,

then, in addition to the rights and remedies

 

80

 

that may be available to Agents, other

Lenders, the Loan Parties or any other party at law or in equity, and not at

limitation thereof, (i) such Delinquent Lender’s right to participate in the

administration of, or decision-making rights related to, the Loans, this

Agreement or the other Loan Documents shall be suspended during the pendency of

such failure or refusal, and (ii) a Delinquent Lender shall be deemed to have

assigned any and all payments due to it from the Loan Parties, whether on

account of outstanding Loans, interest, fees or otherwise, to the remaining

non-delinquent Lenders for application to, and reduction of, their

proportionate shares of all outstanding Loans until, as a result of application

of such assigned payments the Lenders’ respective Commitment Percentage of all

outstanding Loans shall have returned to those in effect immediately prior to

such delinquency and without giving effect to the nonpayment causing such

delinquency.  The Delinquent Lender’s decision-making

and participation rights and rights to payments as set forth in clauses (i) and

(ii) hereinabove shall be restored only upon the payment by the Delinquent

Lender of its Commitment Percentage of any Loans, any participation obligation,

or expenses as to which it is delinquent, together with interest thereon at the

rate set forth in Section 2.11 hereof from the date when originally due until

the date upon which any such amounts are actually paid.

 

The non-delinquent Lenders shall also have the

right, but not the obligation, in their respective, sole and absolute

discretion, to acquire for no cash consideration, (pro  rata,

based on the respective Commitments of those Lenders electing to exercise such

right) the Delinquent Lender’s Commitment to fund future Loans (the “Delinquent

Lender’s Future Commitment”). Upon any such purchase of the Commitment

Percentage of any Delinquent Lender’s Future Commitment, the Delinquent

Lender’s share in future Loans and its rights under the Loan Documents with

respect thereto shall terminate on the date of purchase, and the Delinquent

Lender shall promptly execute all documents reasonably requested to surrender

and transfer such interest, including, if so requested, an Assignment and

Acceptance.  Each Delinquent Lender

shall indemnify the Agents and each non-delinquent Lender from and against any

and all loss, damage or expenses, including but not limited to reasonable

attorneys’ fees and funds advanced by any Agent or by any non-delinquent

Lender, on account of a Delinquent Lender’s failure to timely fund its

Commitment Percentage of a Loan or to otherwise perform its obligations under

the Loan Documents.

 

SECTION 8.15       Documentation

Agent and Arranger. Notwithstanding the provisions of this Agreement or any

of the other Loan Documents, the Documentation Agent and, except as provided in

the commitment letter for this transaction, the Arranger shall have no powers,

rights, duties, responsibilities or liabilities with respect to this Agreement

and the other Loan Documents.

 

ARTICLE IX

 

Miscellaneous

 

SECTION 9.01       Notices.

Except in the case of notices and other communications expressly permitted to

be given by telephone, all notices and other communications provided for herein

shall be in writing and shall be delivered by hand or overnight courier

service, mailed by certified or registered mail or sent by telecopy, as

follows:

 

(a)           if

to any Loan Party, to it at 440 Ninth Avenue, New York, New York 10011,

Attention: Chief Financial Officer (Telecopy No. (212) 494-8294), Attention:

Vice President and General Counsel (Telecopy No. (212) 594-0832) with a copy to

Shearman & Sterling LLP, 599

 

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Lexington Avenue, New York, New York 10022,

Attention: Howard Fine, Esquire (Telecopy No. (212) 848-7179);

 

(b)           if

to the Administrative Agent or the Collateral Agent, or the Swingline Lender to

Fleet Retail Finance Inc., 40 Broad Street, Boston, Massachusetts 02109,

Attention Mark Forti (Telecopy No. (617) 434-4339), with a copy to Riemer &

Braunstein, LLP, Three Center Plaza, Boston, Massachusetts 02108, Attention:

David S. Berman, Esquire (Telecopy No. (617) 880 3456);

 

(c)           if

to any other Lender, to it at its address (or telecopy number) set forth on the

signature pages hereto or on any Assignment and Acceptance for such Lender.

 

Any party hereto may change its address or

telecopy number for notices and other communications hereunder by notice to the

other parties hereto. All notices and other communications given to any party

hereto in accordance with the provisions of this Agreement shall be deemed to

have been given on the date of receipt.

 

SECTION 9.02       Waivers;

Amendments. (a)  No failure or delay

by the Agents, the Issuing Bank or any Lender in exercising any right or power

hereunder or under any other Loan Document shall operate as a waiver thereof,

nor shall any single or partial exercise of any such right or power, or any

abandonment or discontinuance of steps to enforce such a right or power,

preclude any other or further exercise thereof or the exercise of any other right

or power. The rights and remedies of the Agents, the Issuing Bank and the

Lenders hereunder and under the other Loan Documents are cumulative and are not

exclusive of any rights or remedies that they would otherwise have. No waiver

of any provision of any Loan Document or consent to any departure by any Loan

Party therefrom shall in any event be effective unless the same shall be

permitted by paragraph (b) of this Section, and then such waiver or consent

shall be effective only in the specific instance and for the purpose for which

given. Without limiting the generality of the foregoing, the making of a Loan

or issuance of a Letter of Credit shall not be construed as a waiver of any

Default, regardless of whether the Agents, any Lender or the Issuing Bank may

have had notice or knowledge of such Default at the time.

 

(b)           Neither

this Agreement nor any other Loan Document nor any provision hereof or thereof

may be waived, amended or modified except, in the case of this Agreement,

pursuant to an agreement or agreements in writing entered into by the Borrower

and the Required Lenders or, in the case of any other Loan Document, pursuant

to an agreement or agreements in writing entered into by the Agents and the

Loan Parties that are parties thereto, in each case with the Consent of the

Required Lenders, provided that no such agreement shall (i) increase the

Commitment of any Lender without the Consent of such Lender or increase the

Total Commitments to an amount greater than $225,000,000, (ii) reduce the principal

amount of any Loan or L/C Disbursement or reduce the rate of interest thereon,

or reduce any fees payable hereunder, without the Consent of each Lender

affected thereby, (iii) postpone the scheduled date of payment of the principal

amount of any Loan or L/C Disbursement, or any interest thereon, or any fees

payable hereunder, or reduce the amount of, waive or excuse any such payment,

or postpone the scheduled date of expiration of the Commitments or the Maturity

Date, without the Consent of each Lender affected thereby, (iv) change Sections

2.02, 2.19, 2.22, or 2.23 or Section 6.02 of the Security Agreement, without

the Consent of each Lender, (v) change any of the provisions of this Section

9.02 or the definition of the term “Required Lenders” or “Required

Supermajority Lenders” or any other provision of any Loan Document specifying

the number or percentage of Lenders required to waive, amend or modify any

rights thereunder or make any

 

82

 

determination or grant any consent thereunder,

without the Consent of each Lender, (vi) release any Loan Party from its

obligations under any Loan Document, or limit its liability in respect of such

Loan Document, without the Consent of each Lender, (vii) except for sales

described in Section 6.05 or as permitted in the Security Documents, release

any material portion of the Collateral from the Liens of the Security

Documents, without the Consent of each Lender, (viii) change the definition of

the term “Borrowing Base” or any component definition thereof if as a result

thereof the amounts available to be borrowed by the Borrower would be

increased, without the Consent of each Lender, provided

that the foregoing shall not limit the discretion of the

Administrative Agent to change, establish or eliminate any Reserves, (ix)

increase the Permitted Overadvance, without the Consent of each Lender, (x)

subordinate the Obligations hereunder, or the Liens granted hereunder or under

the other Loan Documents, to any other Indebtedness or Lien, as the case may be

without the prior Consent of each Lender, and provided further that no

such agreement shall amend, modify or otherwise affect the rights or duties of

the Agents or the Issuing Bank without the prior written consent of the Agents

or the Issuing Bank, as the case may be.

 

(c)           Notwithstanding

anything to the contrary contained herein, no modification, amendment or waiver

which increases the maximum amount of the Swingline Loans to an amount in

excess of $25,000,000 (or such greater amount to which such limit has been

previously increased in accordance with the provisions of this Section 9.02(c))

shall be made without the Consent of the Required Supermajority Lenders.

 

(d)           Notwithstanding

anything to the contrary contained in this Section 9.02, in the event that the

Borrower requests that this Agreement or any other Loan Document be modified,

amended or waived in a manner which would require the Consent of the Lenders

pursuant to Sections 9.02(b) or 9.02(c) and such amendment is approved by the

Required Lenders, but not by the percentage of the Lenders set forth in said

Sections 9.02(b) or 9.02(c), as applicable, the Borrower, and the Required

Lenders shall be permitted to amend this Agreement without the Consent of the

Lender or Lenders which did not agree to the modification or amendment

requested by the Borrower (such Lender or Lenders, collectively the “Minority

Lenders”) to provide for (w) the termination of the Commitment of each of

the Minority Lenders, (x) the addition to this Agreement of one or more other

financial institutions, or an increase in the Commitment of one or more of the

Required Lenders, so that the aggregate Commitments after giving effect to such

amendment shall be in the same amount as the aggregate Commitments immediately

before giving effect to such amendment, (y) if any Loans are outstanding at the

time of such amendment, the making of such additional Loans by such new or

increasing Lender or Lenders, as the case may be, as may be necessary to repay

in full the outstanding Loans (including principal, interest, and fees) of the

Minority Lenders immediately before giving effect to such amendment and (z)

such other modifications to this Agreement or the Loan Documents as may be

appropriate and incidental to the foregoing.

 

(e)           No

notice to or demand on any Loan Party shall entitle any Loan Party to any other

or further notice or demand in the same, similar or other circumstances. Each

holder of a Note shall be bound by any amendment, modification, waiver or consent

authorized as provided herein, whether or not a Note shall have been marked to

indicate such amendment, modification, waiver or consent and any consent by a

Lender, or any holder of a Note, shall bind any Person subsequently acquiring a

Note, whether or not a Note is so marked. No amendment to this Agreement or any

other Loan Document shall be effective against the Borrower unless signed by

the Borrower or other applicable Loan Party.

 

83

 

SECTION 9.03       Expenses;

Indemnity; Damage Waiver. (a)  The

Loan Parties shall jointly and severally pay (i) all reasonable out-of-pocket

expenses incurred by the Agents and their Affiliates, including the reasonable

fees, charges and disbursements of counsel for the Agents, outside consultants

for the Agents, appraisers, for commercial finance examinations and

environmental site assessments, in connection with the syndication of the

credit facilities provided for herein, the preparation and administration of

the Loan Documents or any amendments, modifications or waivers of the

provisions thereof (whether or not the transactions contemplated hereby or

thereby shall be consummated), (ii) all reasonable out-of-pocket expenses

incurred by the Issuing Bank in connection with the issuance, amendment,

renewal or extension of any Letter of Credit or any demand for payment

thereunder, and (iii) all reasonable out-of-pocket expenses incurred by the

Agents, the Issuing Bank or any Lender, including the reasonable fees, charges

and disbursements of any counsel and any outside consultants for the Agents,

the Issuing Bank or any Lender, for appraisers, commercial finance

examinations, and environmental site assessments, in connection with the

enforcement or protection of its rights in connection with the Loan Documents,

including its rights under this Section, or in connection with the Loans made

or Letters of Credit issued hereunder; provided

that the Lenders who are not the Agents or the Issuing Bank shall be

entitled to reimbursement for no more than one counsel representing all such

Lenders (absent a conflict of interest in which case the Lenders may engage and

be reimbursed for additional counsel).

 

(b)           The

Loan Parties shall, jointly and severally, indemnify the Agents, the Issuing

Bank and each Lender, and each Related Party of any of the foregoing Persons

(each such Person being called an “Indemnitee”) against, and hold each

Indemnitee harmless from, any and all losses, claims, damages, liabilities and

related expenses, including the reasonable and documented fees, charges and

disbursements of any counsel for any Indemnitee, incurred by or asserted

against any Indemnitee arising out of, in connection with, or as a result of

(i) the execution or delivery of any Loan Document or any other agreement or

instrument contemplated hereby, the performance by the parties to the Loan

Documents of their respective obligations thereunder or the consummation of the

transactions contemplated by the Loan Documents or any other transactions

contemplated hereby, (ii) any Loan or Letter of Credit or the use of the

proceeds therefrom (including any refusal by the Issuing Bank to honor a demand

for payment under a Letter of Credit if the documents presented in connection

with such demand do not strictly comply with the terms of such Letter of

Credit), (iii) any actual or alleged presence or release of Hazardous Materials

on or from any property currently or formerly owned or operated by any Loan

Party or any of the Subsidiaries, or any Environmental Liability related in any

way to any Loan Party or any of the Subsidiaries, or (iv) any actual or

prospective claim, litigation, investigation or proceeding relating to any of

the foregoing, whether based on contract, tort or any other theory and

regardless of whether any Indemnitee is a party thereto, provided that

such indemnity shall not, as to any Indemnitee, be available to the extent that

such losses, claims, damages, liabilities or related expenses resulted from the

gross negligence, wilful misconduct or bad faith of such Indemnitee or any

Affiliate of such Indemnitee (or of any officer, director, employee, advisor or

agent of such Indemnitee or any such Indemnitee’s Affiliates).  In connection with any indemnified claim hereunder,

the Indemnitee shall be entitled to select its own counsel and the Loan Parties

shall promptly pay the reasonable fees and expenses of such counsel.

 

(c)           To

the extent that any Loan Party fails to pay any amount required to be paid by

it to the Agents or the Issuing Bank under paragraph (a) or (b) of this

Section, each Lender severally agrees to pay to the Agents or the Issuing Bank,

as the case may be, such Lender’s pro rata share (determined as of the time

that the applicable unreimbursed expense or

 

84

 

indemnity payment is sought) of such unpaid

amount, provided that the unreimbursed expense or indemnified loss,

claim, damage, liability or related expense, as the case may be, was incurred

by or asserted against the Agents or the Issuing Bank. For purposes hereof, a

Lender’s “pro rata share” shall be determined based upon its share of the Total

Commitments at the time.

 

(d)           To

the extent permitted by Applicable Law, no Loan Party shall assert, and each

hereby waives, any claim against any Indemnitee, on any theory of liability,

for special, indirect, consequential or punitive damages (as opposed to direct

or actual damages) arising out of, in connection with, or as a result of, this

Agreement or any agreement or instrument contemplated hereby, the transactions

contemplated by the Loan Documents, any Loan or Letter of Credit or the use of

the proceeds thereof.  The Loan Parties

further agree that no Indemnitee shall have any liability to the Loan Parties,

any Person asserting claims by or on behalf of any Loan Party or any other

Person in connection with this Agreement or the other Loan Documents except (i)

for breach of the Indemnitee’s obligations under this Agreement and the other

Loan Documents, or (ii) the Indemnitee’s gross negligence, willful misconduct

or bad faith.

 

(e)           All

amounts due under this Section shall be payable promptly after written demand

therefor.

 

SECTION 9.04       Successors

and Assigns. (a)  The provisions of

this Agreement shall be binding upon and inure to the benefit of the parties

hereto and their respective successors and assigns permitted hereby (including

any Affiliate of the Issuing Bank that issues any Letter of Credit), except

that no Loan Party may assign or otherwise transfer any of its rights or

obligations hereunder without the prior written consent of each Lender (and any

such attempted assignment or transfer without such consent shall be null and

void). Nothing in this Agreement, expressed or implied, shall be construed to

confer upon any Person (other than the parties hereto, their respective

successors and assigns permitted hereby (including any Affiliate of the Issuing

Bank that issues any Letter of Credit) and, to the extent expressly

contemplated hereby, the Related Parties of each of the Agents, the Issuing

Bank and the Lenders) any legal or equitable right, remedy or claim under or by

reason of this Agreement.

 

(b)           Any

Lender may assign to one or more Eligible Assignees all or a portion of its

rights and obligations under this Agreement (including all or a portion of its

Commitment and the Loans at the time owing to it), provided that (i)

except in the case of an assignment to a Lender or an Affiliate of a Lender,

the Borrower (but only if no Default then exists), the Agents and the Issuing

Bank must give their prior written consent to such assignment (which consent

shall not be unreasonably withheld or delayed), (ii) except in the case of an

assignment to a Lender or an Affiliate of a Lender or an assignment of the

entire remaining amount of the assigning Lender’s Commitment or Loans, the

amount of the Commitment or Loans of the assigning Lender subject to each such

assignment (determined as of the date the Assignment and Acceptance with

respect to such assignment is delivered to the Administrative Agent) shall not

be less than $5,000,000 unless the Administrative Agent otherwise consents,

(iii) each partial assignment shall be made as an assignment of a proportionate

part of all the assigning Lender’s rights and obligations, (iv) the parties to

each assignment shall execute and deliver to the Administrative Agent an

Assignment and Acceptance, and, after completion of the syndication of the

Loans, together with a processing and recordation fee of $3,500.  Subject to acceptance and recording thereof

pursuant to paragraph (d) of this Section, from and after the effective date

specified in each Assignment and Acceptance the assignee thereunder shall be a

party hereto and, to the extent of the interest assigned by such Assignment and

Acceptance, have the rights and obligations of a Lender under this Agreement,

and the assigning Lender thereunder shall, to the

 

85

 

extent of the interest assigned by such

Assignment and Acceptance, be released from its obligations under this

Agreement (and, in the case of an Assignment and Acceptance covering all of the

assigning Lender’s rights and obligations under this Agreement, such Lender

shall cease to be a party hereto but shall continue to be entitled to the

benefits of Section 9.03). Any assignment or transfer by a Lender of rights or

obligations under this Agreement that does not comply with this paragraph shall

be treated for purposes of this Agreement as a sale by such Lender of a

participation in such rights and obligations in accordance with

paragraph (e) of this Section.

 

(c)           The

Administrative Agent, acting for this purpose as an agent of the Loan Parties,

shall maintain at one of its offices in Boston, Massachusetts a copy of each

Assignment and Acceptance delivered to it and a register for the recordation of

the names and addresses of the Lenders, and the Commitment of, and principal

amount of the Loans and L/C Disbursements owing to, each Lender pursuant to the

terms hereof from time to time (the “Register”). The entries in the

Register shall be conclusive and the Loan Parties, the Administrative Agent,

the Issuing Bank and the Lenders may treat each Person whose name is recorded

in the Register pursuant to the terms hereof as a Lender hereunder for all

purposes of this Agreement, notwithstanding notice to the contrary. The

Register shall be available for inspection by the Borrower, the Issuing Bank

and any Lender, at any reasonable time and from time to time upon reasonable

prior notice.

 

(d)           Upon

its receipt of a duly completed Assignment and Acceptance executed by an

assigning Lender and an assignee, the processing and recordation fee referred

to in paragraph (b) of this Section and any written consent to such assignment

required by paragraph (b) of this Section, the Administrative Agent shall

accept such Assignment and Acceptance and record the information contained

therein in the Register. No assignment shall be effective for purposes of this

Agreement unless it has been recorded in the Register as provided in this paragraph.

 

(e)           Any

Lender may, without the consent of the Loan Parties, the Agents, and the

Issuing Bank, sell participations to one or more banks or other entities (a “Participant”)

in all or a portion of such Lender’s rights and obligations under this Agreement

(including all or a portion of its Commitment and the Loans owing to it), provided

that (i) such Lender’s obligations under this Agreement shall remain unchanged,

(ii) such Lender shall remain solely responsible to the other parties hereto

for the performance of such obligations and (iii) the Loan Parties, the Agents,

the Issuing Bank and the other Lenders shall continue to deal solely and

directly with such Lender in connection with such Lender’s rights and

obligations under this Agreement. Any agreement or instrument pursuant to which

a Lender sells such a participation in the Commitments, the Loans and the

Letters of Credit Outstandings shall provide that such Lender shall retain the

sole right to enforce the Loan Documents and to approve any amendment,

modification or waiver of any provision of the Loan Documents, provided

that such agreement or instrument may provide that such Lender will not,

without the consent of the Participant, agree to any amendment, modification or

waiver described in the first proviso to Section 9.02(b) that affects such

Participant. Subject to paragraph (f) of this Section, the Loan Parties agree

that each Participant shall be entitled to the benefits of Sections 2.24, 2.26

and 2.27 to the same extent as if it were a Lender and had acquired its

interest by assignment pursuant to paragraph (b) of this Section. To the extent

permitted by law, each Participant also shall be entitled to the benefits of

Section 9.08 as though it were a Lender, provided such Participant

agrees to be subject to Section 2.26(c) as though it were a Lender.  Each Lender, acting for this purpose as an

agent of the Loan Parties, shall maintain at its offices a record of each

agreement or instrument effecting any participation and a register for the recordation

of the names and addresses of its Participants

 

86

 

and their rights with respect to principal

amounts and other Obligations from time to time (each a “Participation

Register”). The entries in each Participation Register shall be conclusive

and the Loan Parties, the Administrative Agent, the Issuing Bank and the

Lenders may treat each Person whose name is recorded in a Participant Register

as a Participant for all purposes of this Agreement (including, for the

avoidance of doubt, for purposes of entitlement to benefits under Sections

2.24, 2.26, 2.27 or 9.08). The Participation Register shall be available for

inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable

time and from time to time upon reasonable prior notice.

 

(f)            A

Participant shall not be entitled to receive any greater payment under Section

2.24 or 2.27 than the applicable Lender would have been entitled to receive

with respect to the participation sold to such Participant, unless the sale of

the participation to such Participant is made with the Borrower’s prior written

consent. A Participant that would be a Foreign Lender if it were a Lender shall

not be entitled to the benefits of Section 2.27 unless (i) the Borrower is

notified of the participation sold to such Participant and such Participant

agrees, for the benefit of the Borrower, to comply with Section 2.27(e) as

though it were a Lender and (ii) such Participant is eligible for exemption

from the withholding Tax referred to therein, following compliance with Section

2.27(e).

 

(g)           Any

Lender may at any time pledge or assign a security interest in all or any

portion of its rights under this Agreement to secure obligations of such

Lender, including any pledge or assignment to secure obligations to any of the

twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve

Act, 12 U.S.C. Section 341, and this Section shall not apply to any such pledge

or assignment of a security interest, provided that no such pledge or

assignment of a security interest shall release a Lender from any of its

obligations hereunder or substitute any such pledgee or assignee for such

Lender as a party hereto.

 

SECTION 9.05       Survival.

All covenants, agreements, representations and warranties made by the Loan

Parties in the Loan Documents and in the certificates or other instruments

delivered in connection with or pursuant to this Agreement or any other Loan

Document shall be considered to have been relied upon by the other parties

hereto and shall survive the execution and delivery of the Loan Documents and

the making of any Loans and issuance of any Letters of Credit, regardless of

any investigation made by any such other party or on its behalf and

notwithstanding that the Agents, the Issuing Bank or any Lender may have had

notice or knowledge of any Default or incorrect representation or warranty at

the time any credit is extended hereunder, and shall continue in full force and

effect as long as the principal of or any accrued interest on any Loan or any

fee or any other amount payable under this Agreement is outstanding and unpaid

or any Letter of Credit is outstanding and so long as the Commitments have not

expired or terminated. The provisions of Sections 2.24, 2.27 and 9.03 and

Article VIII shall survive and remain in full force and effect regardless of

the consummation of the transactions contemplated hereby, the repayment of the

Loans, the expiration or termination of the Letters of Credit and the

Commitments or the termination of this Agreement or any provision hereof.

 

SECTION 9.06       Counterparts;

Integration; Effectiveness. This Agreement may be executed in counterparts

(and by different parties hereto on different counterparts), each of which

shall constitute an original, but all of which when taken together shall

constitute a single contract. This Agreement, the other Loan Documents and any

separate letter agreements with respect to fees payable to the Agents

constitute the entire contract among the parties relating to the subject matter

hereof and supersede any and all contemporaneous or previous agreements and

 

87

 

understandings, oral or written, relating to

the subject matter hereof. Except as provided in Section 4.01, this Agreement

shall become effective when it shall have been executed by the Agents and the

Lenders and when the Administrative Agent shall have received counterparts

hereof that, when taken together, bear the signatures of each of the other

parties hereto, and thereafter shall be binding upon and inure to the benefit

of the parties hereto and their respective successors and assigns. Delivery of

an executed counterpart of a signature page of this Agreement by telecopy shall

be effective as delivery of a manually executed counterpart of this Agreement.

 

SECTION 9.07       Severability.

Any provision of this Agreement held to be invalid, illegal or unenforceable in

any jurisdiction shall, as to such jurisdiction, be ineffective to the extent

of such invalidity, illegality or unenforceability without affecting the

validity, legality and enforceability of the remaining provisions hereof; and

the invalidity of a particular provision in a particular jurisdiction shall not

invalidate such provision in any other jurisdiction.

 

SECTION 9.08       Right

of Setoff. If an Event of Default shall have occurred and be continuing,

each Lender and each of its Affiliates is hereby authorized at any time and

from time to time, to the fullest extent permitted by law, to set off and apply

any and all deposits (general or special, time or demand, provisional or final)

at any time held and other obligations at any time owing by such Lender or

Affiliate to or for the credit or the account of the Loan Parties against any

of and all the obligations of the Loan Parties now or hereafter existing under

this Agreement held by such Lender, irrespective of whether or not such Lender

shall have made any demand under this Agreement and although such obligations

may be unmatured. The rights of each Lender under this Section are in addition

to other rights and remedies (including other rights of setoff) that such

Lender may have.

 

SECTION 9.09       Governing

Law; Jurisdiction; Consent to Service of Process.

 

(a)           THIS

AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,

THE LAWS OF THE STATE OF NEW YORK.

 

(b)           The

Loan Parties agree that any suit for the enforcement of this Agreement or any

other Loan Document may be brought in any New York state or federal court

sitting in the Borough of Manhattan in New York City as the Administrative

Agent may elect in its sole discretion and consent to the non-exclusive

jurisdiction of such courts.  The Loan

Parties hereby waive any objection which they may now or hereafter have to the

venue of any such suit or any such court or that such suit is brought in an

inconvenient forum. The Loan Parties agree that any action commenced by any

Loan Party asserting any claim or counterclaim arising under or in connection

with this Agreement or any other Loan Document shall be brought solely in any

New York state or federal court sitting in the Borough of Manhattan in New York

City as the Administrative Agent may elect in its sole discretion and consent

to the exclusive jurisdiction of such courts with respect to any such action.

 

(c)           Each

party to this Agreement irrevocably consents to service of process in the

manner provided for notices in Section 9.01. Nothing in this Agreement or any

other Loan Document will affect the right of any party to this Agreement to

serve process in any other manner permitted by law.

 

88

 

SECTION 9.10       WAIVER

OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT

PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR

CONTROVERSY IN WHICH THE BORROWER, ANY AGENT, FLEET, FSI,, ANY LENDER OR ANY

PARTICIPANT IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS

INITIATED BY OR AGAINST THE BORROWER, THE AGENT, FLEET, FSI, AND/OR SUCH LENDER

OR PARTICIPANT OR IN WHICH THE BORROWER, THE AGENT, FLEET, FSI, OR SUCH LENDER

OR PARTICIPANT, IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY

ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE

BORROWER OR ANY OTHER PERSON AND THE AGENT, FSI, FLEET, OR SUCH LENDER OR

PARTICIPANT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR

ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH

OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE

FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE

BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL

WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

SECTION 9.11       Headings.

Article and Section headings and the Table of Contents used herein are for

convenience of reference only, are not part of this Agreement and shall not

affect the construction of, or be taken into consideration in interpreting,

this Agreement.

 

SECTION 9.12       Interest

Rate Limitation. Notwithstanding anything herein to the contrary, if at any

time the interest rate applicable to any Loan, together with all fees, charges

and other amounts that are treated as interest on such Loan under Applicable

Law (collectively the “Charges”), shall exceed the maximum lawful rate

(the “Maximum Rate”) that may be contracted for, charged, taken,

received or reserved by the Lender holding such Loan in accordance with

Applicable Law, the rate of interest payable in respect of such Loan hereunder,

together with all Charges payable in respect thereof, shall be limited to the

Maximum Rate and, to the extent lawful, the interest and Charges that would

have been payable in respect of such Loan but were not payable as a result of

the operation of this Section shall be cumulated and the interest and Charges

payable to such Lender in respect of other Loans or periods shall be increased

(but not above the Maximum Rate therefor) until such cumulated amount, together

with interest thereon at the Federal Funds Effective Rate to the date of

repayment, shall have been received by such Lender.

 

SECTION 9.13       Additional

Waivers.

 

(a)           The

Obligations are the joint and several obligations of each Loan Party. To the

fullest extent permitted by Applicable Law, the obligations of each Loan Party

hereunder shall not be affected by (i) the failure of any Agent or any other

Secured Party to assert any claim or demand or to enforce or exercise any right

or remedy against any other Loan Party under the provisions of this Agreement,

any other Loan Document or otherwise, (ii) any rescission, waiver, amendment or

modification of, or any release from any of the terms or provisions of, this

Agreement, any other Loan Document, or any other agreement, including with

respect to any other Loan Party, or (iii) the failure to perfect any security

interest in, or the release of, any of the security held by or on behalf of the

Collateral Agent or any other Secured Party.

 

(b)           To

the fullest extent permitted by Applicable Law, the obligations of each Loan

 

89

 

Party hereunder shall not be subject to any

reduction, limitation, impairment or termination for any reason (other than the

indefeasible payment in full in cash of the Obligations), including any claim

of waiver, release, surrender, alteration or compromise of any of the

Obligations, and shall not be subject to any defense or set-off, counterclaim,

recoupment or termination whatsoever by reason of the invalidity, illegality or

unenforceability of the Obligations or otherwise. Without limiting the

generality of the foregoing, the obligations of each Loan Party hereunder shall

not be discharged or impaired or otherwise affected by any default, failure or

delay, wilful or otherwise, in the performance of the Obligations, or by any

other act or omission that may or might in any manner or to any extent vary the

risk of any Loan Party or that would otherwise operate as a discharge of any

Loan Party as a matter of law or equity (other than the indefeasible payment in

full in cash of all the Obligations).

 

(c)           To

the fullest extent permitted by Applicable Law, each Loan Party waives any

defense based on or arising out of any defense of any other Loan Party or the

unenforceability of the Obligations or any part thereof from any cause, or the

cessation from any cause of the liability of any other Loan Party, other than

the indefeasible payment in full in cash of all the Obligations. The Collateral

Agent and the other Secured Parties may, at their election, foreclose on any

security held by one or more of them by one or more judicial or nonjudicial

sales, accept an assignment of any such security in lieu of foreclosure,

compromise or adjust any part of the Obligations, make any other accommodation

with any other Loan Party, or exercise any other right or remedy available to

them against any other Loan Party, without affecting or impairing in any way

the liability of any Loan Party hereunder except to the extent that all the

Obligations have been indefeasibly paid in full in cash. Pursuant to Applicable

Law, each Loan Party waives any defense arising out of any such election even

though such election operates, pursuant to Applicable Law, to impair or to

extinguish any right of reimbursement or subrogation or other right or remedy

of such Loan Party against any other Loan Party, as the case may be, or any

security.

 

(d)           Upon

payment by any Loan Party of any Obligations, all rights of such Loan Party

against any other Loan Party arising as a result thereof by way of right of

subrogation, contribution, reimbursement, indemnity or otherwise shall in all

respects be subordinate and junior in right of payment to the prior

indefeasible payment in full in cash of all the Obligations. In addition, any

indebtedness of any Loan Party now or hereafter held by any other Loan Party is

hereby subordinated in right of payment to the prior payment in full of the

Obligations.  Notwithstanding the

foregoing, prior to the occurrence of an Event of Default, Loan Party may make

payments to any other Loan Party on account of any such indebtedness. After the

occurrence and during the continuance of an Event of Default, none of the Loan

Parties will demand, sue for, or otherwise attempt to collect any such

indebtedness.

 

SECTION 9.14       Confidentiality.

 

Each of the Lenders agrees that it will use

its best efforts not to disclose without the prior consent of the Borrower

(other than to its employees, auditors, counsel or other professional advisors,

to affiliates or to another Lender if the Lender or such Lender’s holding or

parent company in its sole discretion determines that any such party should

have access to such information) any information with respect to the Borrower

or any other Loan Party which is furnished pursuant to this Agreement provided

that any Lender may disclose any such information (a) as has become generally

available to the public, (b) as may be required or appropriate in any report,

statement or testimony submitted to any municipal, state or federal regulatory

body having or claiming to have jurisdiction over such Lender or to the Federal

 

90

 

Reserve Board or the Federal Deposit Insurance

Corporation or similar organizations (whether in the United States or

elsewhere) or their successors, (c) as may be required or appropriate in

response to any summons or subpoena or in connection with any litigation, provided

that if the Lender is able to do so prior to complying with the summons or

subpoena, such Lender shall provide the Borrower with prompt notice of such

requested disclosure so that the Borrower may seek a protective order or other

appropriate remedy (nothing contained herein however shall result in such

Lender’s non-compliance with Applicable Law), (d) in order to comply with any law,

order, regulation or ruling applicable to such Lender, (e) in connection with

the enforcement of remedies under this Agreement and the other Loan Documents,

and (f) to any prospective transferee in connection with any contemplated

transfer of any of the Loans or Notes or any interest therein by such Lender

provided that such prospective transferee agrees to be bound by the provisions

of this Section. The Lenders shall endeavor in good faith in making any

disclosures pursuant to clauses (b), (c), or (d) above to provide only that

portion of such information, which, in the reasonable judgment of such Lender,

is relevant and legally required to be provided.  The Loan Parties hereby agree that the failure of a Lender to

comply with the provisions of this Section 9.14 shall not relieve the Loan

Parties of any of its obligations to such Lender under this Agreement and the

other Loan Documents.  Notwithstanding

anything to the contrary herein contained, and except to the extent reasonably

necessary to comply with applicable securities laws, each party (and their

respective employees, representatives and other agents) may disclose to any

Person the tax treatment and tax structure of the transactions contemplated by

this Agreement and all materials (including opinions or other tax analyses)

that are provided to such part relating to such tax treatment and tax

structure.

 

[SIGNATURE PAGES FOLLOW]

 

91

 

IN WITNESS WHEREOF, the parties hereto have

caused this Agreement to be duly executed by their respective authorized

officers as a sealed instrument as of the day and year first above written.

 

	

   

  	

  DUANE READE

  
	

   

  	

  as Borrower

  
	

   

  
	

   

  	

  By:

  	

  DUANE READE INC., its

  
	

   

  	

   

  	

  General Partner

  
	

   

  
	

   

  	

  by

  	

  /s/ John K. Henry

  	

   

  
	

   

  	

  Name:

  	

  John K. Henry

  	

   

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ Michelle D. Bergman

  	

   

  
	

   

  	

  Name:

  	

  Michelle D. Bergman

  	

   

  
	

   

  	

  Title:

  	

  Vice President

  	

   

  
	

   

  
	

   

  
	

   

  	

  By:

  	

  DRI I INC., its General

  	

   

  
	

   

  	

   

  	

   

  	

  Partner

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

  by

  	

  /s/ John K. Henry

  	

   

  
	

   

  	

  Name:

  	

  John K. Henry

  	

   

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ Michelle D. Bergman

  	

   

  
	

   

  	

  Name:

  	

  Michelle D. Bergman

  	

   

  
	

   

  	

  Title:

  	

  Vice President

  	

   

  
	

   

  
	

   

  
	

   

  	

  DUANE READE INC., as Facility

  
	

   

  	

  Guarantor

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ John K. Henry

  	

   

  
	

   

  	

  Name:

  	

  John K. Henry

  	

   

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ Michelle D. Bergman

  	

   

  
	

   

  	

  Name:

  	

  Michelle D. Bergman

  	

   

  
	

   

  	

  Title:

  	

  Vice President

  	

   

  

 

S-1

 

	

   

  	

  DRI I INC., as Facility Guarantor

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ John K. Henry

  	

   

  
	

   

  	

  Name:

  	

  John K. Henry

  	

   

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ Michelle D. Bergman

  	

   

  
	

   

  	

  Name:

  	

  Michelle D. Bergman

  	

   

  
	

   

  	

  Title:

  	

  Vice President

  	

   

  
	

   

  
	

   

  
	

   

  	

  DUANE READE

  	

   

  
	

   

  	

  INTERNATIONAL, INC., as

  	

   

  
	

   

  	

  Facility Guarantor

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ John K. Henry

  	

   

  
	

   

  	

  Name:

  	

  John K. Henry

  	

   

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ Michelle D. Bergman

  	

   

  
	

   

  	

  Name:

  	

  Michelle D. Bergman

  	

   

  
	

   

  	

  Title:

  	

  Vice President

  	

   

  
	

   

  
	

   

  
	

   

  	

  DUANE READE REALTY, INC.,

  	

   

  
	

   

  	

  as Facility Guarantor

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ John K. Henry

  	

   

  
	

   

  	

  Name:

  	

  John K. Henry

  	

   

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  	

   

  
	

   

  
	

   

  
	

   

  	

  by

  	

  /s/ Michelle D. Bergman

  	

   

  
	

   

  	

  Name:

  	

  Michelle D. Bergman

  	

   

  
	

   

  	

  Title:

  	

  Vice President

  	

   

  
					

 

S-2

 

	

   

  	

  FLEET RETAIL FINANCE INC.,

  	

   

  
	

   

  	

  As Collateral Agent, as Swingline

  	

   

  
	

   

  	

  Lender and as Lender

  	

   

  
	

   

  
	

   

  	

  By:

  	

  /s/ Mark Forti

  	

   

  
	

   

  	

  Name:

  	

  Mark Forti

  	

   

  
	

   

  	

  Title:

  	

  Director

  	

   

  
	

   

  
	

   

  	

  Address:

  	

   

  
	

   

  	

  40 Broad Street, 10th Floor

  	

   

  
	

   

  	

  Boston, Massachusetts 02109

  	

   

  
	

   

  	

  Attn: Mark Forti

  	

   

  
	

   

  	

  Telephone: (617) 434-4364

  	

   

  
	

   

  	

  Telecopy: (617) 434-4339

  	

   

  
	

   

  
	

   

  
	

   

  	

  FLEET NATIONAL BANK,

  	

   

  
	

   

  	

  as Administrative Agent and as

  	

   

  
	

   

  	

  Issuing Bank

  	

   

  
	

   

  
	

   

  
	

   

  	

  By:

  	

  /s/ Mark Forti

  	

   

  
	

   

  	

  Name:

  	

  Mark Forti

  	

   

  
	

   

  	

  Title:

  	

  Director

  	

   

  
	

   

  
	

   

  	

  Address:

  	

   

  
	

   

  	

  40 Broad Street

  	

   

  
	

   

  	

  Boston, Massachusetts 02109

  	

   

  
	

   

  	

  Attn: Mark Forti

  	

   

  
	

   

  	

  Telephone: (617) 434-4364

  	

   

  
	

   

  	

  Telecopy: (617) 434-4339

  	

   

  
					

 

S-3

 

	

   

  	

  CONGRESS FINANCIAL

  	

   

  
	

   

  	

  CORPORATION, as Documentation Agent

  
	

   

  	

  and Lender

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

  /s/ Christopher S. Hudik

  	

   

  
	

   

  
	

   

  	

   

  	

  Name:

  	

  Christopher S. Hudik

  	

   

  
	

   

  
	

   

  	

   

  	

  Title:

  	

  1st Vice President

  	

   

  
	

   

  
	

   

  	

   

  	

  Address:

  	

   

  
	

   

  
	

   

  	

   

  	

  Telephone:

  	

   

  
	

   

  	

   

  	

  Telecopy:

  	

   

  
										

 

S-4

 

	

   

  	

  GENERAL ELECTRIC CAPITAL

  	

   

  
	

   

  	

  CORPORATION, as Syndication Agent and

  	

   

  
	

   

  	

  Lender

  	

   

  
	

   

  
	

   

  	

   

  	

  By:

  	

  /s/ Craig Winslow

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Name:

  	

  Craig Winslow

  	

   

  
	

   

  
	

   

  	

   

  	

  Title:

  	

  Authorized Signatory

  	

   

  
	

   

  
	

   

  	

   

  	

  Address:

  	

   

  
	

   

  	

   

  	

  Telephone:

  	

   

  
	

   

  	

   

  	

  Telecopy:

  	

   

  
								

 

S-5

 

	

   

  	

   

  	

  THE CIT GROUP/BUSINESS

  CREDIT, INC., as Lender

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

  /s/ Steven Schuit

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Name:

  	

  Steven Schuit

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Title:

  	

  Vice President

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Address:

  	

   

  
	

   

  	

   

  	

  Telephone:

  	

   

  
	

   

  	

   

  	

  Telecopy:

  	

   

  
							

 

S-6

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