Document:

Exhibit 10.4

 

CREDIT AGREEMENT

 

dated as of

October 31, 2006

 

MICHAELS STORES, INC.

 

The Lead Borrower

For

THE BORROWERS NAMED HEREIN

 

THE FACILITY GUARANTORS PARTY HERETO

 

BANK OF AMERICA, N.A.

As Administrative Agent and Collateral Agent

 

DEUTSCHE BANK SECURITIES INC. 

As Syndication Agent

 

CREDIT SUISSE

JPMORGAN CHASE BANK, N.A.

WELLS FARGO RETAIL FINANCE, LLC 

As Co-Documentation Agents

 

THE LENDERS

NAMED HEREIN

 

And

 

BANC OF AMERICA SECURITIES LLC

DEUTSCHE BANK SECURITIES INC.

J.P. MORGAN SECURITIES INC.

As Joint Lead Arrangers and Joint Book Runners

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  	
  1

  
	
   

  	
   

  	
   

  
	
  SECTION 1.01

  	
  Definitions

  	
  1

  
	
  SECTION 1.02

  	
  Terms
  Generally

  	
  57

  
	
  SECTION 1.03

  	
  Accounting
  Terms

  	
  58

  
	
  SECTION 1.04

  	
  Rounding

  	
  59

  
	
  SECTION 1.05

  	
  Times of Day

  	
  59

  
	
  SECTION 1.06

  	
  Letter of
  Credit Amounts

  	
  59

  
	
  SECTION 1.07

  	
  Certifications

  	
  59

  
	
  SECTION 1.08

  	
  Currency
  Equivalents Generally

  	
  60

  
	
  SECTION 1.09

  	
  Change of
  Currency

  	
  60

  
	
   

  	
   

  
	
  ARTICLE II
  Amount and Terms of Credit

  	
  60

  
	
   

  	
   

  	
   

  
	
  SECTION 2.01

  	
  Commitment
  of the Lenders

  	
  60

  
	
  SECTION 2.02

  	
  Increase in
  Tranche A Commitments

  	
  61

  
	
  SECTION 2.03

  	
  Reserves;
  Changes to Reserves

  	
  63

  
	
  SECTION 2.04

  	
  Making of
  Revolving Credit Loans

  	
  64

  
	
  SECTION 2.05

  	
  Overadvances

  	
  66

  
	
  SECTION 2.06

  	
  Swingline
  Loans

  	
  66

  
	
  SECTION 2.07

  	
  Notes

  	
  67

  
	
  SECTION 2.08

  	
  Interest on
  Revolving Credit Loans

  	
  67

  
	
  SECTION 2.09

  	
  Conversion
  and Continuation of Revolving Credit Loans

  	
  68

  
	
  SECTION 2.10

  	
  Alternate
  Rate of Interest for Revolving Credit Loans

  	
  69

  
	
  SECTION 2.11

  	
  Change in
  Legality

  	
  69

  
	
  SECTION 2.12

  	
  Default Interest

  	
  70

  
	
  SECTION 2.13

  	
  Letters of
  Credit

  	
  70

  
	
  SECTION 2.14

  	
  Increased
  Costs

  	
  75

  
	
  SECTION 2.15

  	
  Optional
  Termination or Reduction of Commitments

  	
  77

  
	
  SECTION 2.16

  	
  Optional
  Prepayment of Revolving Credit Loans; Reimbursement of Lenders

  	
  77

  
	
  SECTION 2.17

  	
  Mandatory
  Prepayment; Commitment Termination; Cash Collateral

  	
  79

  
	
  SECTION 2.18

  	
  Cash
  Management

  	
  81

  
	
  SECTION 2.19

  	
  Fees

  	
  85

  
	
  SECTION 2.20

  	
  Maintenance
  of Loan Account; Statements of Account

  	
  86

  
	
  SECTION 2.21

  	
  Payments;
  Sharing of Setoff

  	
  86

  
	
  SECTION 2.22

  	
  Settlement
  Amongst Lenders

  	
  87

  
	
  SECTION 2.23

  	
  Taxes

  	
  89

  
	
  SECTION 2.24

  	
  Mitigation
  Obligations; Replacement of Lenders

  	
  92

  
	
  SECTION 2.25

  	
  Designation
  of Lead Borrower as Borrowers’ Agent

  	
  93

  
	
  SECTION 2.26

  	
  Provisions
  Applicable to Canadian Loan Parties

  	
  93

  
	
   

  	
   

  
	
  ARTICLE III
  Representations and Warranties

  	
  94

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.01

  	
  Existence,
  Qualification and Power; Compliance with Laws

  	
  94

  
	
  SECTION 3.02

  	
  Authorization;
  No Contravention

  	
  95

  
	
  SECTION 3.03

  	
  Governmental
  Authorization; Other Consents

  	
  95

  
				

 

 

	
  SECTION 3.04

  	
  Binding
  Effect

  	
  95

  
	
  SECTION 3.05

  	
  Financial
  Statements; No Material Adverse Effect

  	
  95

  
	
  SECTION 3.06

  	
  Litigation

  	
  97

  
	
  SECTION 3.07

  	
  No Default

  	
  97

  
	
  SECTION 3.08

  	
  Ownership of
  Property; Liens

  	
  97

  
	
  SECTION 3.09

  	
  Environmental
  Compliance

  	
  97

  
	
  SECTION 3.10

  	
  Taxes

  	
  99

  
	
  SECTION 3.11

  	
  ERISA; Plan
  Compliance

  	
  99

  
	
  SECTION 3.12

  	
  Subsidiaries;
  Equity Interests

  	
  99

  
	
  SECTION 3.13

  	
  Margin Regulations;
  Investment Company Act

  	
  100

  
	
  SECTION 3.14

  	
  Disclosure

  	
  100

  
	
  SECTION 3.15

  	
  Intellectual
  Property; Licenses, Etc

  	
  100

  
	
  SECTION 3.16

  	
  Solvency

  	
  101

  
	
  SECTION 3.17

  	
  Subordination
  of Junior Financing

  	
  101

  
	
  SECTION 3.18

  	
  Labor Matters

  	
  101

  
	
  SECTION 3.19

  	
  Compliance
  with Laws and Agreements

  	
  102

  
	
  SECTION 3.20

  	
  Security
  Documents

  	
  102

  
	
   

  	
   

  
	
  ARTICLE IV
  Conditions

  	
  102

  
	
   

  	
   

  	
   

  
	
  SECTION 4.01

  	
  Conditions
  of Initial Credit Extension

  	
  102

  
	
  SECTION 4.02

  	
  Conditions
  Precedent to Each Revolving Credit Loan and Each Letter of Credit

  	
  105

  
	
   

  	
   

  
	
  ARTICLE V
  Affirmative Covenants

  	
  107

  
	
   

  	
   

  	
   

  
	
  SECTION 5.01

  	
  Financial
  Statements

  	
  107

  
	
  SECTION 5.02

  	
  Certificates;
  Other Information

  	
  109

  
	
  SECTION 5.03

  	
  Notices

  	
  111

  
	
  SECTION 5.04

  	
  Payment of
  Taxes, Etc

  	
  112

  
	
  SECTION 5.05

  	
  Preservation
  of Existence, Etc

  	
  112

  
	
  SECTION 5.06

  	
  Maintenance
  of Properties

  	
  112

  
	
  SECTION 5.07

  	
  Maintenance
  of Insurance

  	
  112

  
	
  SECTION 5.08

  	
  Compliance
  with Laws

  	
  113

  
	
  SECTION 5.09

  	
  Books and
  Records

  	
  113

  
	
  SECTION 5.10

  	
  Inspection
  Rights

  	
  114

  
	
  SECTION 5.11

  	
  Covenant to
  Become a Loan Party and Give Security

  	
  115

  
	
  SECTION 5.12

  	
  Compliance
  with Environmental Laws

  	
  117

  
	
  SECTION 5.13

  	
  Further
  Assurances and Post-Closing Conditions

  	
  117

  
	
  SECTION 5.14

  	
  Designation
  of Subsidiaries

  	
  118

  
	
  SECTION 5.15

  	
  Information
  Regarding Collateral

  	
  118

  
	
  SECTION 5.16

  	
  Physical
  Inventories

  	
  118

  
	
  SECTION 5.17

  	
  Use of
  Proceeds of Credit Extensions

  	
  119

  
	
  SECTION 5.18

  	
  Proceeds
  From Surplus Cash Deposits

  	
  119

  
	
  SECTION 5.19

  	
  Excess
  Collections, Canadian Investments, Etc

  	
  119

  
	
  SECTION 5.20

  	
  Pension
  Plans

  	
  119

  
	
  SECTION 5.21

  	
  Corporate
  Separateness

  	
  119

  
	
  SECTION 5.22

  	
  Holdco

  	
  120

  

 

 

	
  ARTICLE VI
  Negative Covenants

  	
  120

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.01

  	
  Liens

  	
  120

  
	
  SECTION 6.02

  	
  Investments

  	
  124

  
	
  SECTION 6.03

  	
  Indebtedness

  	
  126

  
	
  SECTION 6.04

  	
  Fundamental
  Changes

  	
  130

  
	
  SECTION 6.05

  	
  Dispositions

  	
  131

  
	
  SECTION 6.06

  	
  Restricted
  Payments

  	
  134

  
	
  SECTION 6.07

  	
  Change in
  Nature of Business

  	
  137

  
	
  SECTION 6.08

  	
  Transactions
  with Affiliates

  	
  137

  
	
  SECTION 6.09

  	
  Burdensome
  Agreements

  	
  138

  
	
  SECTION 6.10

  	
  Accounting
  Changes

  	
  138

  
	
  SECTION 6.11

  	
  Prepayments,
  Etc., of Indebtedness

  	
  139

  
	
  SECTION 6.12

  	
  Equity
  Interests of the Lead Borrower and Restricted Subsidiaries

  	
  140

  
	
  SECTION 6.13

  	
  Amendment of
  Material Documents

  	
  140

  
	
  SECTION 6.14

  	
  Designated
  Account

  	
  140

  
	
   

  	
   

  
	
  ARTICLE VII
  Events of Default

  	
  140

  
	
   

  	
   

  	
   

  
	
  SECTION 7.01

  	
  Events of
  Default

  	
  140

  
	
  SECTION 7.02

  	
  Remedies
  Upon Event of Default

  	
  144

  
	
  SECTION 7.03

  	
  Exclusion of
  Immaterial Subsidiaries

  	
  145

  
	
  SECTION 7.04

  	
  Application
  of Proceeds

  	
  145

  
	
   

  	
   

  
	
  ARTICLE VIII
  The Administrative Agent

  	
  146

  
	
   

  	
   

  	
   

  
	
  SECTION 8.01

  	
  Appointment
  of Administrative Agent

  	
  146

  
	
  SECTION 8.02

  	
  Appointment
  of Collateral Agent

  	
  147

  
	
  SECTION 8.03

  	
  Solidary Interests/Quebec
  Liens (Hypothecs)

  	
  147

  
	
  SECTION 8.04

  	
  Sharing of
  Excess Payments

  	
  148

  
	
  SECTION 8.05

  	
  Agreement of
  Applicable Lenders

  	
  148

  
	
  SECTION 8.06

  	
  Liability of
  Agents

  	
  149

  
	
  SECTION 8.07

  	
  Notice of
  Default

  	
  150

  
	
  SECTION 8.08

  	
  Credit
  Decisions

  	
  150

  
	
  SECTION 8.09

  	
  Reimbursement
  and Indemnification

  	
  150

  
	
  SECTION 8.10

  	
  Rights of
  Agents

  	
  151

  
	
  SECTION 8.11

  	
  Notice of
  Transfer

  	
  151

  
	
  SECTION 8.12

  	
  Successor
  Agents

  	
  151

  
	
  SECTION 8.13

  	
  Relation
  Among the Lenders

  	
  152

  
	
  SECTION 8.14

  	
  Reports and
  Financial Statements

  	
  152

  
	
  SECTION 8.15

  	
  Agency for
  Perfection

  	
  153

  
	
  SECTION 8.16

  	
  Delinquent
  Lender

  	
  153

  
	
  SECTION 8.17

  	
  Collateral
  Matters

  	
  154

  
	
  SECTION 8.18

  	
  Syndication
  Agent, Co-Documentation Agents, and Arrangers

  	
  155

  
	
   

  	
   

  
	
  ARTICLE IX
  Miscellaneous

  	
  155

  
	
   

  	
   

  	
   

  
	
  SECTION 9.01

  	
  Amendments,
  Etc

  	
  155

  
	
  SECTION 9.02

  	
  Notices and
  Other Communications; Facsimile Copies

  	
  157

  
	
  SECTION 9.03

  	
  No Waiver;
  Cumulative Remedies

  	
  158

  
						

 

 

	
  SECTION 9.04

  	
  Attorney
  Costs and Expenses

  	
  159

  
	
  SECTION 9.05

  	
  Indemnification
  by the Lead Borrower

  	
  159

  
	
  SECTION 9.06

  	
  Payments Set
  Aside

  	
  160

  
	
  SECTION 9.07

  	
  Successors
  and Assigns

  	
  161

  
	
  SECTION 9.08

  	
  Confidentiality

  	
  164

  
	
  SECTION 9.09

  	
  Setoff

  	
  165

  
	
  SECTION 9.10

  	
  Interest
  Rate Limitation

  	
  165

  
	
  SECTION 9.11

  	
  Counterparts

  	
  166

  
	
  SECTION 9.12

  	
  Integration

  	
  166

  
	
  SECTION 9.13

  	
  Severability

  	
  166

  
	
  SECTION 9.14

  	
  GOVERNING
  LAW

  	
  166

  
	
  SECTION 9.15

  	
  WAIVER OF
  RIGHT TO TRIAL BY JURY

  	
  167

  
	
  SECTION 9.16

  	
  Binding
  Effect

  	
  167

  
	
  SECTION 9.17

  	
  Judgment
  Currency

  	
  167

  
	
  SECTION 9.18

  	
  Lender
  Action

  	
  168

  
	
  SECTION 9.19

  	
  USA PATRIOT
  ACT; PROCEEDS OF CRIME ACT

  	
  168

  
	
  SECTION 9.20

  	
  Foreign
  Asset Control Regulations

  	
  169

  
	
  SECTION 9.21

  	
  Survival

  	
  169

  
	
  SECTION 9.22

  	
  Press
  Releases and Related Matters

  	
  169

  
	
  SECTION 9.23

  	
  Additional
  Waivers

  	
  170

  
	
  SECTION 9.24

  	
  Intercreditor
  Agreement

  	
  172

  

 

 

EXHIBITS

 

	
  Exhibit A-1:

  	
  Form of
  Assignment and Acceptance (Tranche A)

  	
   

  
	
  Exhibit A-2:

  	
  Form of
  Assignment and Acceptance (Tranche A-1)

  	
   

  
	
  Exhibit B:

  	
  Form of
  Customs Broker Agreement

  	
   

  
	
  Exhibit C:

  	
  Notice of
  Borrowing

  	
   

  
	
  Exhibit D:

  	
  Form of
  Revolving Credit Note

  	
   

  
	
  Exhibit E:

  	
  Form of
  Swingline Note

  	
   

  
	
  Exhibit F:

  	
  Form of
  Joinder

  	
   

  
	
  Exhibit G:

  	
  Form of
  Credit Card Notification

  	
   

  
	
  Exhibit H:

  	
  Form of
  Compliance Certificate

  	
   

  
	
  Exhibit I:

  	
  Form of
  Borrowing Base Certificate

  	
   

  
	
  Exhibit J:

  	
  Closing
  Agenda

  	
   

  

 

 

SCHEDULES

 

	
  Schedule
  1.1:

  	
  Lenders and
  Commitments

  	
   

  
	
  Schedule
  2.13(k):

  	
  Existing
  Letters of Credit

  	
   

  
	
  Schedule
  2.18(b):

  	
  Credit Card
  Arrangements

  	
   

  
	
  Schedule
  2.18(c):

  	
  Blocked
  Accounts

  	
   

  
	
  Schedule
  3.01:

  	
  Organization
  Information

  	
   

  
	
  Schedule
  3.05:

  	
  Financial
  Statement Exceptions

  	
   

  
	
  Schedule
  3.08(b)(i):

  	
  Owned Real
  Estate

  	
   

  
	
  Schedule
  3.08(b)(ii):

  	
  Leased Real
  Estate

  	
   

  
	
  Schedule
  3.09(b):

  	
  Environmental
  Matters

  	
   

  
	
  Schedule
  3.09(d):

  	
  Environmental
  Investigation

  	
   

  
	
  Schedule
  3.10:

  	
  Taxes

  	
   

  
	
  Schedule
  3.11:

  	
  ERISA and
  Other Pension Matters

  	
   

  
	
  Schedule
  3.12:

  	
  Subsidiaries;
  Equity Interests

  	
   

  
	
  Schedule
  3.15:

  	
  Intellectual
  Property

  	
   

  
	
  Schedule
  4.01(b):

  	
  Local
  Counsel Opinions

  	
   

  
	
  Schedule
  5.02(f):

  	
  Reporting
  Requirements

  	
   

  
	
  Schedule
  5.02:

  	
  Lead
  Borrower’s Website

  	
   

  
	
  Schedule
  5.07:

  	
  Insurance

  	
   

  
	
  Schedule
  5.14:

  	
  Unrestricted
  Subsidiaries

  	
   

  
	
  Schedule
  6.01:

  	
  Permitted
  Encumbrances

  	
   

  
	
  Schedule
  6.02:

  	
  Permitted
  Investments

  	
   

  
	
  Schedule
  6.03:

  	
  Existing
  Indebtedness

  	
   

  
	
  Schedule
  6.05:

  	
  Permitted
  Dispositions

  	
   

  
	
  Schedule
  6.08:

  	
  Affiliate
  Transactions

  	
   

  
	
  Schedule
  6.09:

  	
  Burdensome
  Agreements

  	
   

  

 

 

CREDIT AGREEMENT
dated as of October 31, 2006 among:

 

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

 

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

 

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

 

The LENDERS party hereto;

 

DEUTSCHE BANK SECURITIES INC.,
as Syndication Agent; and

 

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

 

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

 

ARTICLE I

 

SECTION 1.01                                                                    Definitions.

 

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

 

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

 

“ACH” means automated clearing house transfers.

 

“Accommodation Payment” has the meaning provided in SECTION
9.23.

 

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

 

“Accrual Amount” means the accrual made by the Loan Parties in
their general ledger in the ordinary course of business for Inventory
in-transit to the Loan Parties from domestic and foreign vendors (but not
Inventory accounted for as “in transit” by the Lead Borrower by virtue of such
Inventory’s being in transit between the Loan Parties’ locations or in storage
trailers at

 

1

 

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

 

“Acquisition” means, with respect to a specified Person, (a) an
Investment in or a purchase of a 50% or greater interest in the Capital Stock
of any other Person, (b) a purchase or acquisition of all or substantially all
of the assets of any other Person, (c) a purchase or acquisition of a Real
Estate portfolio or Stores from any other Person or assets constituting a
business unit, line of business or division of any other Person, or (d) any
merger, amalgamation or consolidation of such Person with any other Person or
other transaction or series of transactions resulting in the acquisition of all
or substantially all of the assets, or a 50% or greater interest in the Capital
Stock of, any Person, in each case in any transaction or group of transactions
which are part of a common plan.

 

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

 

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

 

“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 1/100 of one percent) 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 Borrowings
then outstanding as of the effective date of any change in the Statutory
Reserve Rate.

 

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

 

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

 

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

 

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

 

2

 

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

 

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

 

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

 

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

 

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

 

“Applicable Margin” means:

 

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

 

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

 

	
  Level

  	
   

  	
  Average Daily

  Availability

  	
   

  	
  Tranche A

  LIBO

  Applicable

  Margin

  	
   

  	
  Tranche A

  Prime Rate

  Applicable

  Margin

  	
   

  	
  Tranche A-

  1 LIBO

  Applicable

  Margin

  	
   

  	
  Tranche A-

  1 Prime

  Rate

  Applicable

  Margin

  	
   

  
	
  I

  	
   

  	
  Greater than
  $500,000,000

  	
   

  	
  1.00

  	
  %

  	
  0

  	
  %

  	
  2.00

  	
  %

  	
  1.00

  	
  %

  
	
  II

  	
   

  	
  Less than or

  equal to

  $500,000,000 but greater than $300,000,000

  	
   

  	
  1.25

  	
  %

  	
  0.25

  	
  %

  	
  2.25

  	
  %

  	
  1.25

  	
  %

  
	
  III

  	
   

  	
  Less than or

  equal to $300,000,000

  	
   

  	
  1.50

  	
  %

  	
  0.50

  	
  %

  	
  2.50

  	
  %

  	
  1.50

  	
  %

  

 

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

 

3

 

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

 

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

 

“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 9.07), and accepted by the Administrative Agent, in substantially the
form of Exhibit A-1 or Exhibit A-2, as applicable, or any other
form approved by the Administrative Agent.

 

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

 

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

 

(a)                                  is the result of:

 

(i)                                     The Revolving
Credit Ceiling,

 

Minus

 

(ii)                                  The aggregate
outstanding amount of Credit Extensions to, or for the account of, the
Borrowers; and

 

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

 

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

 

(A)          The
Tranche A Borrowing Base, as determined from the most recent Borrowing Base
Certificate (delivered by the Lead Borrower to the Administrative Agent
pursuant to SECTION 5.01(e) hereof (as may be adjusted from time to time
pursuant to SECTION 2.03 hereof));

 

Minus

 

(B)                                The aggregate
outstanding amount of Credit Extensions to, or for the account of, the
Borrowers; or

 

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

 

(A)          The
Tranche A-1 Borrowing Base, as determined from the most recent Borrowing Base
Certificate (delivered by the Lead Borrower to the Administrative Agent
pursuant to SECTION 5.01(e) hereof (as may be adjusted from time to time
pursuant to SECTION 2.03 hereof)),

 

4

 

Minus

 

(B)                                The aggregate
outstanding amount of Credit Extensions to, or for the account of, the
Borrowers.

 

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

 

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

 

“Bank Products” means any services or facilities (other than
Cash Management Services) provided to any Loan Party by any Lender or any
Affiliate of a Lender (and with respect to Swap Contracts, any Lender or
Affiliate of a Lender who (x) was a Lender or an Affiliate of a Lender at the
time such Swap Contract was entered into and who is no longer a Lender or an
Affiliate of a Lender, and (y) is, and at all times remains, in compliance with
the provisions of SECTION 8.14(a) and (z) agrees in writing that the Agents and
the other Secured Parties shall have no duty to such Person (other than the
payment of any amounts to which such Person may be entitled under SECTION 7.04)
and acknowledges that the Agents and the other Secured Parties may deal with
the Loan Parties and the Collateral as they deem appropriate (including the
release of any Loan Party or all or any portion of the Collateral) without
notice or consent from such Person, whether or not such action impairs the
ability of such Person to be repaid its Other Liabilities) on account of (a) credit
cards, (b) purchase cards, (c) merchant services constituting a line of credit,
and (d) Swap Contracts designated by the Lead Borrower at the time such Swap
Contract is entered into as being Obligations under this Agreement, provided
further that any Bank Product for the benefit of Michaels of Canada, ULC or any
Foreign Subsidiary shall name the Lead Borrower as the party thereto.

 

“Bank Product Reserves” means such reserves as the
Administrative Agent, from time to time after the occurrence and during the
continuation of a Cash Dominion Event, determines in its reasonable commercial
discretion exercised in good faith as being appropriate to reflect the
reasonably anticipated liabilities and obligations of the Loan Parties with
respect to Bank Products then provided or outstanding.

 

5

 

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

 

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

 

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

 

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

 

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

 

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

 

“Borrowing Base Certificate” has the meaning provided in SECTION
5.01(e).

 

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

 

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

 

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

 

“Canadian Dollars” or “CD$” means lawful currency of
Canada.

 

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

 

“Canadian
Loan Party” means a Loan Party that is organized under the laws of Canada
or any province thereof.

 

6

 

“Canadian
Security Agreements” means the Security Agreements dated as of the date
hereof and executed and delivered by Michaels of Canada, ULC to the
Administrative Agent for the benefit of the Secured Parties, as amended and in
effect from time to time and any Deed of Immovable and Moveable Hypothec or
other Security Document hereafter executed and delivered by any Canadian Loan
Party to the Administrative Agent for the benefit of the Secured Parties as
provided in SECTION 5.11.

 

“Canadian
Subsidiary” means any Subsidiary that is organized under the laws of Canada
or any province thereof.

 

“Capital
Expenditures” means, with respect to the Loan Parties for any period, all
expenditures by the Lead Borrower and its Restricted Subsidiaries during such
period that, in conformity with GAAP, are or are required to be included as
additions to property, plant and equipment that are set forth in a Consolidated
balance sheet of the Lead Borrower and its Restricted Subsidiaries for such
period prepared in accordance with GAAP; provided that “Capital Expenditures”
shall not include (i) any additions to property and equipment and other capital
expenditures made with the proceeds of any equity securities issued or capital
contributions received by any Loan Party or any Subsidiary, (ii) expenditures
made in connection with the replacement, substitution, restoration or repair of
assets to the extent financed with (x) insurance proceeds paid on account of
the loss of or damage to the assets being replaced, restored or repaired, or
(y) awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced, (iii) the purchase price of
equipment that is purchased simultaneously with the trade-in of existing
equipment to the extent that the gross amount of such purchase price is reduced
by the credit granted by the seller of such equipment for the equipment being
traded in at such time, (iv) the purchase of property, plant or equipment
to the extent financed with the proceeds of Permitted Dispositions that are not
required to be applied to prepay the Obligations or the Term Loan Facility, (v)
expenditures that are accounted for as capital expenditures by the Lead
Borrower or any Restricted Subsidiary and that actually are paid for by a
Person other than the Lead Borrower or any Restricted Subsidiary to the extent
neither the Lead Borrower nor any Restricted Subsidiary has provided or is
required to provide or incur, directly or indirectly, any consideration or
obligation to such Person or any other Person (whether before, during or after
such period), (vi) any expenditures which are contractually required to be, and
are, advanced or reimbursed to the Loan Parties in cash by a third party
(including landlords) during such period of calculation, (vii) the book value
of any asset owned by the Lead Borrower or any Restricted Subsidiary prior to
or during such period to the extent that such book value is included as a
Capital Expenditure during such period as a result of such Person reusing or
beginning to reuse such asset during such period without a corresponding
expenditure actually having been made in such period, provided that
(A) any expenditure necessary in order to permit such asset to be reused
shall be included as a Capital Expenditure during the period in which such
expenditure actually is made and (B) such book value shall have been
included in Capital Expenditures when such asset was originally acquired,
(viii) expenditures that constitute Permitted Acquisitions, or (ix) that
portion of interest on Indebtedness incurred for Capital Expenditures which is
paid in cash and capitalized in accordance with GAAP.

 

“Capitalized
Leases” means all leases that have been or should be, in accordance with
GAAP, recorded as capitalized leases; provided that
for all purposes hereunder the amount of

 

7

 

obligations
under any Capitalized Lease shall be the amount thereof accounted for as a
liability in accordance with GAAP.

 

“Capital
Stock” shall mean, as to any Person that is a corporation, the authorized
shares of such Person’s capital stock, including all classes of common,
preferred, voting and nonvoting capital stock, and, as to any Person that is
not a corporation or an individual, the membership or other ownership interests
in such Person, including, without limitation, the right to share in profits
and losses, the right to receive distributions of cash and other property, and
the right to receive allocations of items of income, gain, loss, deduction and
credit and similar items from such Person, whether or not such interests
include voting or similar rights entitling the holder thereof to exercise
Control over such Person, collectively with, in any such case, all warrants,
options and other rights to purchase or otherwise acquire, and all other
instruments convertible into or exchangeable for, any of the foregoing.

 

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

 

“Cash
Dominion Event” means either (a) the occurrence and continuance of any
Specified Default, or (b) the failure of the Borrowers to maintain Availability
of at least $100,000,000 for five (5) consecutive Business Days. For purposes
of this Agreement, the occurrence of a Cash Dominion Event shall be deemed
continuing (unless the Administrative Agent otherwise agrees in its reasonable
discretion or the Administrative Agent, in its reasonable judgment, has
determined that circumstances surrounding such Specified Default cease to
exist) (a) so long as such Specified Default is continuing or has not been
waived, and/or (b) if the Cash Dominion Event arises as a result of the
Borrowers’ failure to achieve Availability as required hereunder, until
Availability has exceeded $100,000,000 for thirty (30) consecutive days, in
which case a Cash Dominion Event shall no longer be deemed to be continuing for
purposes of this Agreement, provided, that a Cash Dominion Event may not
be so cured on more than three (3) occasions in any period of 365 consecutive
days.

 

“Cash
Equivalents” means any of the following types of Investments, to the extent
owned by the Lead Borrower or any Restricted Subsidiary:

 

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

 

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

 

8

 

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

 

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

 

(v)                                 repurchase agreements entered into by any
Person with a bank or trust company (including any of the Lenders) or
recognized securities dealer, in each case, having capital and surplus in
excess of $250,000,000 for direct obligations issued by or fully guaranteed or
insured by the government or any agency or instrumentality of the United States
or Canada or any member nation of the European Union, in which such Person
shall have a perfected first priority security interest (subject to no other
Liens) and having, on the date of purchase thereof, a fair market value of at
least 100% of the amount of the repurchase obligations;

 

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

 

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

 

(viii)                        instruments equivalent to those referred to
in clauses (i) through (vii) above denominated in Canadian Dollars, Euros,
Pounds Sterling or any other foreign currency comparable in credit quality and
tenor to those referred to above and customarily used by corporations for cash
management purposes in any jurisdiction outside the United States to the extent
reasonably required in connection with any business conducted by any Restricted
Subsidiary organized in such jurisdiction; and

 

(ix)                                Investments, classified in accordance with
GAAP as current assets of the Lead Borrower or any Restricted Subsidiary, in
money market investment programs which are registered under the Investment Company
Act of 1940 or which are

 

9

 

administered
by financial institutions having capital of at least $250,000,000, and, in
either case, the portfolios of which are limited such that substantially all of
such investments are of the character, quality and maturity described in
clauses (i) through (viii) of this definition.

 

“Cash
Management Reserves” means such reserves as the Administrative Agent, from
time to time after the occurrence and during the continuation of a Cash
Dominion Event, determines in its reasonable commercial discretion exercised in
good faith as being appropriate to reflect the reasonably anticipated
liabilities and obligations of the Loan Parties with respect to Cash Management
Services then provided or outstanding.

 

“Cash
Management Services” means any one or more of the following types of
services or facilities provided to any Loan Party by any Lender or any
Affiliate of a Lender: (a) ACH transactions, (b) treasury and/or cash
management services , including, without limitation, controlled disbursement
services, (c) foreign exchange facilities, (d) credit or debit cards, (e)
deposit and other accounts and (f) merchant services (other than those
constituting a line of credit).

 

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

 

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

 

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

 

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

 

“Change
in Control” means the earliest to occur of (a) the Permitted Holders
ceasing to have the power, directly or indirectly, to vote or direct the voting
of securities having a majority of the ordinary voting power for the election
of directors of the Parent; provided that
the occurrence of the foregoing event shall not be deemed a Change in Control
if,

 

(i)                                     at any time prior to the consummation of a
Qualifying IPO, and for any reason whatsoever, (A) one or more of the Permitted
Holders otherwise have the right, directly or indirectly, to designate (and do
so designate) a majority of the board of directors of the Parent or (B) one or
more of the Permitted Holders own, directly or indirectly, of record and
beneficially an amount of common stock of the Parent equal to an amount more
than fifty percent (50%) of the amount of common stock of the Parent owned,
directly or indirectly, by the Permitted Holders of record and beneficially as
of the Closing Date and such ownership by one or more of the Permitted Holders
represents the largest single block of voting securities of the Parent held by
any Person or related group for purposes of Section 13(d) of the Exchange
Act, or

 

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

 

10

 

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

 

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

 

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

 

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

 

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

 

“Closing
Date” means October 31, 2006.

 

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

 

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

 

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

 

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

 

11

 

 

 

 

 

such
Person’s possession or on the Real Estate for the purposes of conducting a
Liquidation and (iv) makes such other agreements with the Collateral Agent as
the Collateral Agent may reasonably require.

 

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

 

“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 a Borrower or a Restricted Subsidiary in the
ordinary course of business of such Borrower or Restricted Subsidiary.

 

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

 

“Commitment” shall mean, with respect to each Lender, the
aggregate commitments of such Lender hereunder to make Credit Extensions
(including Tranche A Loans and Tranche A-1 Loans) to the Borrowers 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
increased or reduced from time to time pursuant to SECTIONS 2.02 and 2.15 of
this Agreement.

 

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

 

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

 

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

 

“Commitment Percentage” shall mean, with respect to each Lender,
that percentage of the Commitments of all Lenders hereunder to make Credit
Extensions to the Borrowers, in the amount set forth opposite such Lender’s
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 increased or reduced from time
to time pursuant to SECTIONS 2.02 and 2.15 of this Agreement, or if the
Commitments have been terminated, such percentage as calculated immediately prior
to such termination.

 

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

 

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

 

12

 

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

 

“Consolidated
Depreciation and Amortization Expense” means with respect to any Person for
any period, the total amount of depreciation and amortization expense,
including the amortization of deferred financing fees of such Person and its
Restricted Subsidiaries for such period on a Consolidated basis and otherwise
determined in accordance with GAAP.

 

“Consolidated
EBITDA” means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period

 

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

 

(i)                                     provision for Consolidated Taxes paid or
accrued during such period to the extent the same were deducted (and not added
back) in computing Consolidated Net Income; plus

 

(ii)                                  Consolidated Interest Expense of such Person
for such period plus amounts excluded from Consolidated Interest Expense as set
forth in clauses (i) through (viii) of the definition thereof, to the extent
the same were deducted (and not added back) in calculating such Consolidated
Net Income; plus

 

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

 

(iv)                              any non-cash charges, including (i) any write offs or write downs, (ii)
equity based awards compensation expense, (iii) losses on sales, disposals or
abandonment of, or any impairment charges or asset write off, related to
intangible assets, long-lived assets and investments in debt and equity
securities, (iv) all losses from investments recorded using the equity method,
and (v) other non-cash charges, non-cash expenses or non-cash losses reducing
Consolidated Net Income for such period (provided that
if any such non-cash charges referred to in clauses (i) through (v) of this
clause represent an accrual or reserve for potential cash items in any future
period, the cash payment in respect thereof in such future period shall be
subtracted from EBITDA to such extent, and excluding amortization of a prepaid
cash item that was paid in a prior period); plus

 

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

 

13

 

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

 

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

 

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

 

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

 

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

 

(b)                                                         decreased by (without duplication)

 

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

 

(ii)                                  any net income from disposed or discontinued
operations; and

 

(c)                                                          increased or decreased by (without
duplication), as applicable, any adjustments resulting from the application of
FASB Interpretation No. 45 (Guarantees).

 

For
purposes of calculating Consolidated EBITDA for any period, the impact of
changes in estimates for inventory cost capitalization and the initial adoption
of an accounting policy for gift card breakage made in the fourth quarter of
Fiscal Year 2005 shall be excluded.

 

“Consolidated
Fixed Charge Coverage Ratio” means, with respect to the Lead Borrower and
its Restricted Subsidiaries for any period, the ratio of (a) (i) Consolidated
EBITDA for such period, plus (ii) Net Proceeds of capital contributions
received or Permitted Equity Issuances made during such period to the extent
used to make payments on account of Debt Service Charges or Taxes, except that
only Specified Equity Contributions (and no other equity contributions) may be
included for purposes of the calculation of Consolidated Fixed Charge

 

14

 

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

 

“Consolidated
Interest Expense” means, with respect to the Lead Borrower and its
Restricted Subsidiaries on a Consolidated basis for any period, determined in
accordance with GAAP, (a) total interest expense payable in cash (including
that attributable to obligations with respect to Capitalized Leases in
accordance with GAAP but excluding any imputed interest as a result of purchase
accounting) of the Lead Borrower and its Restricted Subsidiaries on a
Consolidated basis with respect to all outstanding Indebtedness of the Lead
Borrower and its Restricted Subsidiaries, including, without limitation, the
Obligations and all commissions, discounts and other fees and charges owed with
respect thereto, but excluding (i) any non-cash interest or deferred financing
costs, (ii) any amortization or write-down of deferred financing fees, debt
issuance costs, discounted liabilities, commissions, fees and expenses, (iii)
the accretion or accrual of discounted liabilities, (iv) all non-recurring cash
interest expense including liquidated damages for failure to timely comply with
registration rights obligations and any non-recurring expense or loss
attributable to the early extinguishment or conversion of Indebtedness, (v) any
expensing of commitment and other fees in connection with the Senior Notes, the
Senior Subordinated Notes and the Subordinated Discount Notes (and all bridge
financing backstopping same), (vi) in connection with the determination of the
Consolidated Fixed Charge Coverage Ratio for any purpose other than clause
(vii) below, any expensing of bridge, commitment and other financing fees not
covered in clause (v) above, (vii) in connection with the determination of
satisfaction of the provisions of SECTION 4.02(d) and with the determination of
the Consolidated Fixed Charge Coverage Ratio for the purpose of determining the
amount available for Restricted Payments under SECTION 6.06 and for prepayments
of Indebtedness under SECTION 6.11, any expensing of bridge, commitment and
other financing fees not covered in clause (v) above only to the extent
reasonably approved in good faith by the Administrative Agent (which approval
for purposes of SECTION 6.11 and SECTION 6.11 only, shall not be required if
Availability at the time of determination and after giving effect to the
Specified Payment, is greater than or equal to 33.33% of the Tranche A-1
Borrowing Base (or if the Tranche A-1 Commitments have been terminated, the
Tranche A Borrowing Base)), and (viii) penalties and interest related to Taxes,
and reduced by interest income received or receivable in cash for such period. For
purposes of the foregoing, interest expense of the Lead Borrower and its
Restricted Subsidiaries shall be determined after giving effect to any net
payments made or received by such Persons with respect to interest rate Swap
Contracts.

 

For
purposes of determining Consolidated Interest Expense for any period ending
prior to the first anniversary of the Closing Date after giving Pro Forma
Effect to the Transactions, Consolidated Interest Expense shall be $84.3
million for the Fiscal Quarter ended January 28, 2006, $83.2 million for the
Fiscal Quarter ended April 29, 2006 and $83.8 million for the Fiscal Quarter
ended July 29, 2006.

 

15

 

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

 

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

 

(b)                                 the Net Income for such period shall not
include the cumulative effect of a change in accounting principles during such
period,

 

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

 

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

 

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

 

(f)            solely for the purpose of
determining the amount available for Restricted Payments under SECTION 6.06 and
for prepayments of Indebtedness under SECTION 6.11, and compliance with SECTION
4.02(d), the Net Income for such period of any Restricted Subsidiary (other than
any Facility Guarantor) shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
its Net Income is

 

16

 

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

 

(g)                                 effects of adjustments (including the effects
of such adjustments pushed down to the Lead Borrower and its Restricted
Subsidiaries) in the merchandise inventory, property and equipment, goodwill,
intangible assets, deferred revenue and debt line items in such Person’s
consolidated financial statements pursuant to GAAP resulting from the
application of purchase accounting in relation to the Transactions or any
consummated acquisition or the amortization or write-off of any amounts
thereof, net of taxes, shall be excluded,

 

(h)           any after-tax effect of income (loss)
from the early extinguishment or conversion of Indebtedness or Swap Contracts
or other derivative instruments shall be excluded, subject to the following:
(1) in connection with the determination of satisfaction of the provisions of
SECTION 4.02(d), any such items shall be excluded only to the extent reasonably
approved in good faith by the Administrative Agent, and (2) in connection with
the determination of the Consolidated Fixed Charge Coverage Ratio for the
purpose of determining the amount available for Restricted Payments under
SECTION 6.06 and for prepayments of Indebtedness under SECTION 6.11, any such
items shall be excluded only to the extent reasonably approved in good faith by
the Administrative Agent (which approval for purposes of SECTION 6.06 and
SECTION 6.11 shall not be required if Availability at the time of determination
and after giving effect to the Specified Payment, is greater than or equal to
33.33% of the Tranche A-1 Borrowing Base (or if the Tranche A-1 Commitments
have been terminated, the Tranche A Borrowing Base)),

 

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

 

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

 

(k)           any fees and expenses incurred during
such period, or any amortization thereof for such period, in connection with
any Acquisition, Investment, Dispositions, issuance or repayment of
Indebtedness, issuance of Capital Stock, refinancing transaction or amendment
or modification of any debt instrument (in each case, including any such
transaction consummated prior to the Closing Date and any such transaction
undertaken but not completed) and any charges or non-recurring merger costs
incurred during such period as a result of any such transaction shall be
excluded, subject to the following: (1) in connection with the determination of
satisfaction of the provisions of SECTION 4.02(d), any such items which are
cash fees, expenses, charges or costs shall be excluded only to the extent
reasonably approved in good faith

 

17

 

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

 

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

 

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

 

(n)                                 any unrealized net gains and losses resulting
from Swap Contracts and the application of Statement of Financial Accounting
Standards No. 133 shall be excluded.

 

In
addition, to the extent not already included in the Net Income of such Person
and its Restricted Subsidiaries, notwithstanding anything to the contrary in
the foregoing, Consolidated Net Income shall include the amount of proceeds
received from business interruption insurance and reimbursements of any
expenses and charges that are covered by indemnification or other reimbursement
provisions in connection with any Permitted Investment or any sale, conveyance,
transfer or other disposition of assets permitted under this Agreement.

 

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

 

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

 

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

 

18

 

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

 

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

 

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

 

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

 

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

 

“Credit
Party” means (a) the Lenders, (b) the Agents and their respective
Affiliates and branches, (c) each Issuing Bank, (d) the Arrangers and (e) the
successors and permitted assigns of each of the foregoing.

 

“Credit
Party Expenses” means, without limitation, all of the following to the
extent incurred in connection with this Agreement and the other Loan Documents:
(a) all reasonable out-of-pocket expenses incurred by the Agents and the
Arrangers, including the reasonable fees, charges and disbursements of one
counsel for the Agents and their Affiliates (plus local counsel in any other
jurisdiction to the extent reasonably necessary), outside consultants for the
Agents consisting of one inventory appraisal firm and one commercial finance
examination firm in connection with the preparation and administration of the
Loan Documents, the syndication of the credit facilities provided for herein,
or any amendments, modifications or waivers requested by a Loan Party of the
provisions hereof or thereof (whether or not any such amendments, modifications
or waivers shall be consummated), (b) all reasonable out-of-pocket expenses
incurred by any Issuing Bank in connection with the issuance, amendment,
renewal or extension of any Letter of Credit or any demand for payment
thereunder, (c) all reasonable out-of-pocket expenses incurred by the Agents
or, subject to the proviso below any Lender and their respective Affiliates and
branches, including the reasonable fees, charges and disbursements of one
counsel for the Agents and their Affiliates (plus local counsel in any other
jurisdiction to the extent reasonably necessary) and outside consultants for
the Agents (including, without limitation, inventory appraisal firms and
commercial finance examination firms in connection with the enforcement and
protection of their rights in connection with the Loan Documents, including all
such out-of-pocket expenses incurred during any workout, restructuring or
related negotiations in respect of such Revolving Credit Loans or Letters of
Credit; provided that the Lenders who are not the Agents or Affiliates
of the Agents 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). Credit Party
Expenses shall not include the allocation of any overhead expenses of any
Credit Party.

 

19

 

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

 

“Customs
Broker Agreement” means an agreement in substantially the form attached
hereto as Exhibit B among a Loan Party, a customs broker or other
carrier, and the Collateral Agent, in which the customs broker or other carrier
acknowledges that it has control over and holds the documents evidencing
ownership of the subject Inventory or other property for the benefit of the
Collateral Agent, and agrees, upon notice from the Collateral Agent (which
notice shall be delivered only upon the occurrence and during the continuance
of an Event of Default), to hold and dispose of the subject Inventory and other
property solely as directed by the Collateral Agent.

 

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

 

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

 

For
purposes of determining Debt Service Charges for any period ending prior to the
first anniversary of the Closing Date after giving Pro Forma Effect to the
Transactions, Debt Service Charges shall be $90.3 million for the Fiscal
Quarter ended January 28, 2006, $89.2 million for the Fiscal Quarter ended
April 29, 2006 and $89.8 million for the Fiscal Quarter ended July 29, 2006.

 

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

 

“Default
Rate” has the meaning provided in SECTION 2.12.

 

“Delinquent
Lender” has the meaning provided in SECTION 8.16.

 

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

 

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

 

20

 

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

 

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

 

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

 

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

 

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

 

“Eligible
Credit Card Receivables” means, as of any date of determination, Accounts
due to a Loan Party from major credit card and debit card processors
(including, but not limited to, JCB, VISA, Mastercard, American Express, Diners
Club, DiscoverCard, Interlink, NYCE, Star/Mac, Tyme, Pulse, Accel, AFF, Shazam,
CU244, Alaska Option and Maestro) as arise in the ordinary course of business
and which have been earned by performance and that are not excluded as
ineligible by virtue of one or more of the criteria set forth below (without
duplication of any Reserves established by the Administrative Agent). None of
the following shall be deemed to be Eligible Credit Card Receivables:

 

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

 

21

 

longer
period(s) as may be approved by the Administrative Agent in its reasonable
discretion;

 

(b)                                 Accounts due from major credit card and debit
card processors with respect to which a Loan Party 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 own benefit and the benefit of the
other Secured Parties pursuant to the Security Documents, Liens in favor of the
agent under the Term Loan Facility, and Permitted Encumbrances);

 

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

 

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

 

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

 

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

 

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

 

“Eligible
In-Transit Inventory” means, as of any date of determination, without
duplication of other Eligible Inventory, Inventory (a) which has been shipped
from any location for receipt by a Loan Party within sixty (60) days of the
date of determination but which in either case has not yet been received by a
Loan Party, (b) for which the purchase order is in the name of a Loan Party and
title has passed to a Loan Party, (c) for which the document of title, to the
extent applicable, reflects a Loan Party as consignee (along with delivery to a
Loan Party of the documents of title, to the extent applicable, with respect
thereto), (d) as to which the Collateral Agent has control over the documents
of title, to the extent applicable, which evidence ownership of the subject
Inventory (such as by the delivery of a Customs Broker Agreement if the
documents of title are negotiable), and (e) which otherwise is not excluded
from the

 

22

 

definition
of Eligible Inventory. Eligible In-Transit Inventory shall not include
Inventory accounted for as “in transit” by the Lead Borrower by virtue of such
Inventory’s being in transit between the Loan Parties’ locations or in storage
trailers at the Loan Parties’ locations; rather such Inventory shall be treated
as “Eligible Inventory” if it satisfies the conditions therefor.

 

“Eligible
Inventory” means, as of any date of determination, without duplication,
items of Inventory of a Loan Party that are finished goods, merchantable and
readily saleable to the public in the ordinary course (including goods
manufactured by the Lead Borrower pursuant to, and commodity goods of, its
Artistree division, custom floral goods and custom framing goods), or (ii)
items of “non PI” Inventory that are finished goods, merchantable and readily
saleable to the public in the ordinary course, in each case, that are not
excluded as ineligible by virtue of one or more of the criteria set forth below
(without duplication of any Reserves established by the Administrative Agent). None
of the following shall be deemed to be Eligible Inventory:

 

(a)                                  Inventory with respect to which a Loan Party
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 own benefit and
the benefit of the other Secured Parties pursuant to the Security Documents,
Liens in favor of the agent under the Term Loan Facility, and Permitted
Encumbrances), or is leased by or is on consignment to a Loan Party, or that is
not solely owned by a Loan Party;

 

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

 

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

 

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

 

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

 

23

 

(f)            Inventory
which consists of samples, labels, bags, packaging materials, and other similar
non-merchandise categories (for greater clarity, display models are not deemed
a non-merchandise category);

 

(g)                                 Inventory as to which casualty 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 Inventory to the extent that any Loan Party has accepted a deposit
therefor and which is no longer reflected in the Loan Parties’ stock ledger;
and

 

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

 

“Eligible
Letter of Credit” means, as of any date of determination thereof, a
Commercial Letter of Credit which supports the purchase of Inventory, (i) which
Inventory does not constitute Eligible In-Transit Inventory and for which no
documents of title have then been issued; (ii) which Inventory when completed
would otherwise constitute Eligible Inventory, (iii) which Commercial Letter of
Credit has an initial expiry, subject to the proviso hereto, within 120 days
after the date of initial issuance of such Commercial Letter of Credit, provided
that ninety percent (90%) of the maximum Stated Amount of all such
Commercial Letters of Credit shall not, at any time, have an initial expiry
greater than ninety (90) days after the original date of issuance of such
Commercial Letters of Credit, and (iv) which Commercial Letter of Credit
provides that it may be drawn only after the Inventory is completed and after
documents of title have been issued for such Inventory reflecting a Loan Party
or the Collateral Agent as consignee of such Inventory.

 

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

 

“Environmental
Liability” means any liability, contingent or otherwise (including, without
limitation, any liability for damages, natural resource damage, costs of
environmental remediation, administrative oversight costs, fines, penalties or
indemnities), of any Loan Party 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 

 

24

 

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

 

“Equity
Contribution” means, collectively, the contribution in an aggregate amount
of cash of not less than $1,630,000,000 to Bain Paste Mergerco, Inc. and to
Blackstone Paste Mergerco, Inc.

 

“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 Lead Borrower, 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 in the case of a Plan or Multiemployer Plan subject to ERISA,
(a) any “reportable event”, as defined in Section 4043 of ERISA with respect 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) that would reasonably
be expected to result in a Material Adverse Effect, whether or not waived; (c)
the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of
an application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Lead Borrower or any ERISA Affiliate of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Lead Borrower or any ERISA Affiliate from the PBGC or 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 Lead Borrower or any ERISA Affiliate of any liability that would reasonably
be expected to result in a Material Adverse Effect with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g)
the receipt by the Lead Borrower or any ERISA Affiliate of any notice, or the
receipt by any Multiemployer Plan from the Lead Borrower or any ERISA Affiliate
of any notice, concerning the imposition of Withdrawal Liability that would
reasonably be expected to result in a Material Adverse Effect 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 provided 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 in writing by the Administrative Agent in
accordance with the terms of this Agreement.

 

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

 

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

 

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

 

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

 

25

 

“Excluded Taxes” means, with respect to the Administrative
Agent, any Lender, any Issuing Bank or any other recipient of any payment to be
made by or on account of any obligation of the Borrowers 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 imposed
as a result of any present or former connection between the jurisdiction
imposing such Tax and such recipient other than a connection arising solely as
a result of such recipient having performed its obligations or received payment
hereunder or under any Loan Document, 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 America or any similar Tax imposed by any other
jurisdiction in which any Borrower is located, 
and (c) in the case of a Foreign Lender (other than an assignee pursuant
to a request by a Borrower under SECTION 2.24(b)), any United States
withholding Tax that is imposed on amounts payable to such Foreign Lender (i)
at the time such Foreign Lender becomes a party to this Agreement (or
designates a New Lending Office other than at the request of a Borrower under
SECTION 2.24), except to the extent that such Foreign Lender (or its assignor,
if any) was entitled, at the time of designation of a New Lending Office (or
assignment), to receive additional amounts from the Borrowers with respect to
such withholding Tax pursuant to SECTION 2.23(a), or (ii) is attributable to
such Foreign Lender’s failure to comply with SECTION 2.23(e).

 

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

 

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

 

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

 

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

 

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

 

“Fee Letters” means, collectively, (a) the Fee Letter dated July
13, 2006 by and among Bain Paste Finco, LLC, Blackstone Paste Finco, LLC, Bank
of America, N.A., Banc of America

 

26

 

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

 

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

 

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

 

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

 

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

 

“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, or any of its territories or
possessions, provided, that Michaels of
Canada, ULC and any other Canadian Subsidiary designated by the Lead Borrower
shall not be deemed a Foreign Subsidiary so long as it remains a Facility
Guarantor.

 

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

 

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

 

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

 

“GAAP” means generally accepted accounting principles in effect
from time to time in the United States of America which are 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.

 

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

 

27

 

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

 

“Guarantee” means, as to any Person, without duplication, (a)
any obligation, contingent or otherwise, of such Person guaranteeing or having
the economic effect of guaranteeing any Indebtedness or other monetary
obligation payable or performable by another Person (the “primary obligor”) in
any manner, whether directly or indirectly, and including any obligation of
such Person, direct or indirect, (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or other monetary
obligation, (ii) to purchase or lease property, securities or services for the
purpose of assuring the obligee in respect of such Indebtedness or other monetary
obligation of the payment or performance of such Indebtedness or other monetary
obligation, (iii) to maintain working capital, equity capital or any other
financial statement condition or liquidity or level of income or cash flow of
the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other monetary obligation, or (iv) entered into for the purpose
of assuring in any other manner the obligee in respect of such Indebtedness or
other monetary obligation of the payment or performance thereof or to protect
such obligee against loss in respect thereof (in whole or in part), or (b) any
Lien on any assets of such Person securing any Indebtedness or other monetary
obligation of any other Person, whether or not such Indebtedness or other
monetary obligation is assumed by such Person (or any right, contingent or
otherwise, of any holder of such Indebtedness to obtain any such Lien); or (c)
to be an account party in respect of any letter of credit or letter of guaranty
issued to support such Indebtedness or obligation; provided
that the term “Guarantee” shall not include endorsements for collection or
deposit, in either case in the ordinary course of business, or customary and
reasonable indemnity obligations in effect on the Closing Date or entered into
in connection with any acquisition or Disposition of assets permitted under
this Agreement (other than such obligations with respect to Indebtedness). The
amount of any Guarantee shall be deemed to be an amount equal to the stated or
determinable amount of the related primary obligation, or portion thereof, in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
the guaranteeing Person in good faith. The term “Guarantee” as a verb has a
corresponding meaning.

 

“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,  mold, fungi or similar bacteria, infectious
or medical wastes and all other substances or wastes of any nature regulated pursuant
to any Environmental Law.

 

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

 

28

 

“Holdco” means a holding company to be formed as the direct
parent company of the Lead Borrower, the primary purpose of which is to own
100% of the Capital Stock of the Lead Borrower.

 

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

 

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

 

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

 

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

 

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

 

(ii)                                  the
maximum amount (after giving effect to any prior drawings which may have been
reimbursed or reductions) of all Letters of Credit (including Standby Letters
of Credit and Commercial Letters of Credit), bankers’ acceptances, bank
guaranties, surety bonds, performance bonds and similar instruments issued or
created by or for the account of such Person;

 

(iii)                               net
obligations of such Person under any Swap Contract;

 

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

 

(v)                                 indebtedness
(excluding prepaid interest thereon) secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under
conditional sales or other title retention agreements and mortgage, industrial
revenue bond, industrial development bond and similar financings), whether or
not such indebtedness shall have been assumed by such Person or is limited in
recourse;

 

29

 

(vi)                              all
Attributable Indebtedness;

 

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

 

(viii)                        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; and

 

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

 

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

 

“Indemnified Taxes” means Taxes other than Excluded Taxes.

 

“Indemnitee” has the meaning provided in SECTION 9.05.

 

“Information” has the meaning provided in SECTION 9.08.

 

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

 

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

 

30

 

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

 

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

 

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

 

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

 

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

 

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

 

(c)                                                          no
Interest Period shall extend beyond the Termination Date, and

 

(d)                                                         there
shall not be more than two Borrowings having an Interest Period of seven or
fourteen days outstanding at any time.

 

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

 

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

 

	
  Period

  	
   

  	
  Advance Rate for Tranche A Borrowing Base

  	
   

  	
  Advance Rate for Tranche A-1 Borrowing Base

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Closing Date through October 31, 2007

  	
   

  	
  90

  	
  %

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Each January 1 through August 31 thereafter
  beginning January 1, 2008

  	
   

  	
  85

  	
  %

  	
  95

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Each September 1 through December 31
  thereafter beginning November 1, 2007

  	
   

  	
  87.5

  	
  %

  	
  97.5

  	
  %

  

 

31

 

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

 

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

 

“IP Rights” shall have the meaning given such term in SECTION
3.15.

 

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

 

32

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Letter of Credit” means (a) each Existing Letter of Credit, and
(b) a letter of credit that (i) is issued by an Issuing Bank pursuant to this
Agreement for the account of a Borrower, (ii) constitutes a Standby Letter of
Credit or Commercial Letter of Credit (and for which such Issuing Bank is not
otherwise prohibited from issuing such letter of credit due to the internal
general policies of such Issuing Bank), and (iii) is in form reasonably
satisfactory to such Issuing Bank.

 

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

 

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

 

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

 

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

 

33

 

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

 

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

 

“LIBO Loan” shall mean any Revolving Credit 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,

 

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

 

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

 

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

 

“Lien” means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
charge, or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement, any easement, right of way or other
encumbrance on title to real property, and any Capitalized Lease having
substantially the same economic effect as any of the foregoing) whether or not
filed, recorded or perfected under Applicable Law, and in the case of
securities, any purchase option, call or similar right of a third party with
respect to such securities.

 

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

 

34

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Maturity Date” means October 31, 2011.

 

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

 

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

 

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

 

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

 

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

 

35

 

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

 

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

 

“Net Proceeds” means,

 

(a)                                  with
respect to the Disposition of any asset by the Parent or any Restricted Subsidiary
or any Casualty Event, the excess, if any, of (i) the sum of cash and Cash
Equivalents received in connection with such Disposition or Casualty Event
(including any cash or Cash Equivalents received by way of deferred payment
pursuant to, or by monetization of, a note receivable or otherwise, but only as
and when so received and, with respect to any Casualty Event, any insurance
proceeds or condemnation awards in respect of such Casualty Event actually
received by or paid to or for the account of the Parent or any Restricted
Subsidiary) over (ii) the sum of (A) the principal amount, premium or
penalty, if any, interest and other amounts on any Indebtedness that is secured
by the asset subject to such Disposition or Casualty Event, but only to the extent
that the Lien securing such Indebtedness is senior to the Lien of the
Collateral Agent and that is required to be repaid (and is timely repaid) in
connection with such Disposition or Casualty Event (other than Indebtedness
under the Loan Documents), (B) the out-of-pocket expenses (including attorneys’
fees, investment banking fees, survey costs, title insurance premiums, and
related search and recording charges, transfer taxes, deed or mortgage
recording taxes, other customary expenses and brokerage, consultant and other
customary fees) actually incurred by the Parent or such Restricted Subsidiary
in connection with such Disposition or Casualty Event, (C) taxes paid or
reasonably estimated to be actually payable in connection therewith (after
taking into account any available tax credits or deductions), provided
that the Administrative Agent may, in its commercially reasonable discretion,
establish an Availability Reserve in the amount of any taxes so deducted in
calculating Net Proceeds, and (D) any reserve for adjustment in respect of (x)
the sale price of such asset or assets established in accordance with GAAP and
(y) any liabilities associated with such asset or assets and retained by the
Parent or any Restricted Subsidiary after such sale or other Disposition
thereof, including pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction and it being understood that “Net
Proceeds” shall include any cash or Cash Equivalents (i) received upon the
Disposition of any non-cash consideration received by the Parent or any
Restricted Subsidiary in any such Disposition and (ii) upon the reversal
(without the satisfaction of any applicable liabilities in cash in a
corresponding amount) of any reserve described in clause (D) of the preceding
sentence or, if such liabilities have not been satisfied in cash and such
reserve is not reversed within three hundred and sixty-five (365) days after
such Disposition or Casualty Event, the amount of such reserve; and

 

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

 

36

 

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

 

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

 

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

 

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

 

“NPL” means the National Priorities List under CERCLA.

 

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

 

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

 

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

 

37

 

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

 

“Other Taxes” means any and all current or future stamp or
documentary Taxes or any other excise or property Taxes, charges or similar
levies in the nature of a Tax 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, but not including, for the avoidance of doubt,
any Excluded Taxes.

 

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

 

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

 

“Participant” shall have the meaning provided in SECTION
9.07(d).

 

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

 

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

 

38

 

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

 

“PBGC” means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA and any successor entity performing similar functions
or any Governmental Authority of another jurisdiction exercising similar
functions in respect of any Plan of a Loan Party (including the Pension Benefit
Guarantee Fund of Ontario).

 

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

 

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

 

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

 

(a)                                  No Default or Event
of Default then exists or would arise from the consummation of such
Acquisition;

 

(b)                                 If the Acquisition is
an Acquisition of Capital Stock, the Person being acquired shall become a
Subsidiary of the Lead Borrower;

 

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

 

(d)                                 The Borrowers shall
have satisfied the Payment Conditions.

 

“Permitted Disposition” shall have the meaning set forth in SECTION
6.05.

 

“Permitted
Encumbrances” has the meaning set forth in SECTION 6.01.

 

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

 

“Permitted
Holdco Debt” means unsecured Indebtedness of Holdco that (A) is not subject
to any Guarantee by the Lead Borrower or any Restricted Subsidiary, (B) will
not mature prior to the date that is 91 days after the Maturity Date, (C) has
no scheduled amortization or mandatory

 

39

 

redemption
of principal (excluding customary offers to purchase under certain
circumstances, such as a “change in control”) prior to the date that is 91 days
after the Maturity Date, (D) does not permit payments in cash of interest or
other amounts in the nature of interest prior to the earlier to occur of (A)
the date that is four (4) years from the date of issuance or incurrence
thereof, and (B) the date that is 91 days after the Maturity Date, and (E) has
covenants, defaults and remedies provisions customary for senior discount notes
of an issuer that is the parent of a borrower under senior credit facilities,
and in any event, are no more restrictive than those set forth in the
Indentures governing the Senior Subordinated Notes and the Subordinated
Discount Notes taken as a whole (other than more restrictive provisions
customary for senior discount notes of a holding company), provided
that a certificate of a Responsible Officer of the Lead Borrower delivered to
the Administrative Agent at least five (5) Business Days prior to the
incurrence of such Indebtedness, together with a reasonably detailed
description of the material terms and conditions of such Indebtedness or drafts
of documentation relating thereto, stating that the Lead Borrower has
determined in good faith that such terms and conditions satisfy the foregoing
requirement shall be conclusive evidence that such terms and conditions satisfy
the foregoing requirement unless the Administrative Agent notifies the Lead
Borrower within such five (5) Business Day period that it disagrees with such
determination (except that the Administrative Agent shall not have the right to
contest the Lead Borrower’s determination if all of the Net Proceeds of such
Indebtedness are contributed to the Lead Borrower or its Restricted
Subsidiaries), and provided further
that any such Indebtedness shall constitute Permitted Holdco Debt only if
before and after giving effect to the issuance or the incurrence thereof, no
Event of Default shall have occurred and be continuing.

 

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

 

“Permitted
Indebtedness” has the meaning set forth in SECTION 6.03.

 

“Permitted
Investments” has the meaning set forth in SECTION 6.02.

 

“Permitted
Overadvance” means an Overadvance made by the Administrative Agent, in its
reasonable discretion, which:

 

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

 

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

 

40

 

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

 

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

 

provided however, that the foregoing shall not
(i) modify or abrogate any of the provisions of SECTION 2.13(e) regarding any
Lender’s obligations with respect to Letter of Credit Disbursements, or (ii)
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
provided that in no event shall the Administrative Agent make an
Overadvance, if after giving effect thereto, the principal amount of the
Revolving Credit Extensions would exceed the aggregate of the Commitments (as
in effect prior to any termination of the Commitments pursuant to SECTION 7.01
hereof).

 

“Permitted
Refinancing” means, with respect to any Person, any modification,
refinancing, refunding, renewal or extension of any Indebtedness of such
Person; provided that (a) the principal amount
(or accreted value, if applicable) thereof does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness so modified, refinanced,
refunded, renewed or extended except by an amount equal to unpaid accrued
interest and premium thereon plus other reasonable amounts paid, and fees and
expenses reasonably incurred, in connection with such modification,
refinancing, refunding, renewal or extension and by an amount equal to any
existing commitments unutilized thereunder, (b) other than with respect to a
Permitted Refinancing in respect of Indebtedness permitted pursuant to SECTION
6.03(e), such modification, refinancing, refunding, renewal or extension has a
final maturity date equal to or later than the final maturity date of, and has
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being modified, refinanced,
refunded, renewed or extended (except by virtue of prior amortization or prior
prepayments of the Indebtedness being modified, refinanced, refunded, renewed
or extended), (c) other than with respect to a Permitted Refinancing in respect
of Indebtedness permitted pursuant to SECTION 6.03(e), at the time thereof, no
Event of Default shall have occurred and be continuing, (d) such modification,
refinancing, refunding, renewal or extension shall not include: (i)
Indebtedness of a Subsidiary of the Lead Borrower that is not a Facility
Guarantor that refinances Indebtedness of the Lead Borrower; (ii) Indebtedness
of a Subsidiary of the Lead Borrower that is not a Facility Guarantor that
refinances Indebtedness of a Facility Guarantor; or (iii) Indebtedness of the
Lead Borrower or a Restricted Subsidiary that refinances Indebtedness of an
Unrestricted Subsidiary, (e) the collateral, if applicable, granted pursuant to
any such refinancing Indebtedness is the same or less than the collateral under
the Indebtedness being extended, renewed or replaced, and (f) to the extent
such Indebtedness being modified, refinanced, refunded, renewed or extended is
subordinated in right of payment to the Obligations, (i) such modification,
refinancing, refunding, renewal or extension is subordinated in right of
payment to the Obligations on terms at least as favorable to the Lenders as
those contained in the documentation governing the Indebtedness being modified,
refinanced, 

 

41

 

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

 

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

 

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

 

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

 

“PPSA”
means the Personal Property Security Act of
Ontario (or any successor statute) or similar legislation of any other Canadian
jurisdiction, including, without limitation, the Civil Code of Quebec, the laws
of which are required by such legislation to be applied in connection with the
issue, perfection, enforcement, opposability, validity or effect of security
interests.

 

“Prepayment
Event” means the occurrence of any of the following events:

 

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

 

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

 

“Prime
Rate” means, as to any Borrowing, for any day, the higher of: (a) the
variable annual rate of interest then most recently announced by Bank of
America, N.A. at its head office in Charlotte, North Carolina 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. The
Prime Rate is a rate set by Bank of America, N.A. based upon various factors
including Bank of

 

42

 

America’s
costs and desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans, which may be priced at,
above, or below such announced rate. If for any reason the Administrative 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 Bank of
America’s Prime Rate or the Federal Funds Effective Rate shall be effective on
the effective date of such change in Bank of America’s Prime Rate or the
Federal Funds Effective Rate, respectively.

 

“Prime
Rate Loan” means any Revolving Credit Loan bearing interest at a rate
determined by reference to the Prime Rate in accordance with the provisions of
Article II.

 

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

 

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

 

“Pro
Forma Availability Condition” shall mean, for any date of calculation with
respect to any Specified Payment, the Pro Forma Availability following, and
after giving effect to, such Specified Payment, will be equal to or greater
than $125,000,000.

 

“Pro
Forma Balance Sheet” shall have the meaning given such term in SECTION
3.05(a).

 

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

 

43

 

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

 

“Pro
Forma Financial Statements” shall have the meaning given such term in
SECTION 3.05(a).

 

“Proceeds
of Crime Act” means the Proceeds of Crime (Money
Laundering) and Terrorist Financing Act (Canada) and the regulations
promulgated thereunder, as amended from time to time.

 

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

 

“Public
Company Costs” means costs relating to compliance with the Sarbanes-Oxley
Act, and other expenses arising out of or incidental to the Lead Borrower’s
status as a public company, including costs, fees and expenses (including
legal, accounting and other professional fees) relating to compliance with
provisions of the Securities Act, as applicable to companies with equity
securities held by the public, the Exchange Act, the rules of national
securities exchange companies with listed equity securities, the portion of
directors’ compensation, fees and expense reimbursement; costs of shareholder
meetings and reports to shareholders; directors and officers’ insurance and
other executive costs; legal and other professional fees; and listing fees, in
each case incurred or accrued prior to the Closing Date and that will not
continue to be incurred immediately after the Closing Date.

 

“Qualified
Capital Stock” means any Capital Stock that is not Disqualified Capital
Stock.

 

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

 

“Real
Estate” means all Leases and all land, tenements, hereditaments and any
estate or interest therein, together with the buildings, structures, parking
areas, and other improvements thereon (including all fixtures), 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.

 

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

 

44

 

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

 

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

 

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

 

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

 

“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 provided in Section 101(22) of CERCLA.

 

“Reports”
has the meaning provided in SECTION 8.14.

 

“Required
Lenders” means, at any time, Lenders (other than Delinquent Lenders) having
Commitments aggregating more than 50% of the Total Commitments, or if the
Commitments have been terminated, Lenders (other than Delinquent Lenders) whose
percentage of the outstanding Credit Extensions (calculated assuming settlement
and repayment of all Swingline Loans by the Lenders) aggregate more than 50% of
all such Credit Extensions.

 

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

 

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

 

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

 

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

 

45

 

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, defeasance, acquisition, cancellation or termination of any such
Capital Stock, or on account of any return of capital to the Parent’s
stockholders, partners or members (or the equivalent Persons thereof).

 

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

 

“Revolving
Credit Ceiling” means $1,000,000,000, as such amount may be increased or
reduced in accordance with the terms of this Agreement.

 

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

 

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

 

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

 

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

 

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

 

“Secured
Party” means (a) each Credit Party, (b) any Person providing Cash
Management Services or entering into or furnishing any Bank Products to or with
any Loan Party, (c) the beneficiaries of each indemnification obligation
undertaken by any Loan Party under any Loan Document, and (d) the successors
and, subject to any limitations contained in this Agreement, assigns of each of
the foregoing.

 

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

 

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

 

“Security
Documents” means the Security Agreement, the Canadian Security Agreements,
the Mortgages, the Pledge Agreement, the Facility Guarantee, the Canadian
Guarantee, and each other security agreement or other instrument or document
executed and

 

46

 

delivered
pursuant to this Agreement or any other Loan Document that creates a Lien in
favor of the Collateral Agent to secure any of the Obligations.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

47

 

“Specified
Equity Contribution” means cash equity contributions (which if in the form
of preferred equity shall be on terms and conditions reasonably acceptable to
the Administrative Agent) made to the Lead Borrower after the Closing Date and
on or prior to the day on which any borrowing hereunder is requested when
Availability is less than $75,000,000, which equity contribution is added to
Consolidated EBITDA for the purposes of calculating compliance with SECTION
4.02(d).

 

“Specified
Legal Expenses” means all attorneys’ and experts’ fees and expenses and all
other costs and expenses paid or payable in connection with investigating or
defending or preparing to investigate or defend any threatened, pending,
completed or future claim, demand, action, suit, proceeding, inquiry or
investigation (whether civil, criminal, administrative or investigative) arising
out of or related to (i) the Lead Borrower’s compensation practices (including
option grants) prior to the Closing Date, (ii) any disclosure or alleged lack
of disclosure on the part of the Lead Borrower or any of its directors or
officers regarding the beneficial ownership of any securities of the Lead
Borrower prior to the Closing Date by any such director or officer (or any
trust established for the benefit of any such director or officer or any family
member thereof), (iii) any transaction prior to the Closing Date involving any
securities of the Lead Borrower alleged to have been engaged in by any such
Person, (iv) any alleged deficiencies in the Lead Borrower’s financial
reporting, internal control over financial reporting or disclosure controls
prior to the Closing Date and procedures relating to any of the foregoing, and
(v) any alleged bad faith, breach of fiduciary duty or other act or omission on
the part of any director or officer of the Lead Borrower relating to any of the
foregoing, together in each case with all damages, losses, liabilities,
judgments, fines, penalties and amounts paid in settlement arising out of or
incurred in connection with any of the foregoing (including all amounts paid to
or on behalf of other Persons in connection with any of the foregoing pursuant
to any indemnification agreements, arrangements or obligations).

 

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

 

“Specified
Transaction” means, with respect to any period, any Investment, Disposition
of all or substantially all of the Capital Stock in or assets of any Restricted
Subsidiary of the Lead Borrower or any division, business unit, line of
business or facility used for the operations of the Lead Borrower or any of its
Restricted Subsidiaries, incurrence or repayment of Indebtedness, the making of
any Restricted Payment, designation or redesignation of a Subsidiary as a
Restricted Subsidiary or an Unrestricted Subsidiary, or any asset classified as
discontinued operations by the Lead Borrower or any Restricted Subsidiary that
by the terms of this Agreement requires “Pro Forma Compliance” with a test or
covenant hereunder or requires such test or covenant to be tested on a “Pro
Forma Basis.”

 

“Sponsor
Affiliated Lender” means financial institutions (including commercial
finance companies), investment funds or managed accounts with respect to which
any Sponsor or an Affiliate of such Sponsor is an Affiliate or an advisor or
manager in the ordinary course of business, provided, that, such
Person executes a waiver in form and substance reasonably satisfactory to the
Administrative Agent which provides that, so long as such Person is an
Affiliate of a Sponsor, it and other Sponsor Affiliated Lenders shall have no
right whatsoever

 

48

 

with
respect to that portion of the Commitments which all Sponsor Affiliated Lenders
hold in the aggregate in excess of twenty-five percent (25%) of the Commitments
of all Lenders: (a) to consent to any amendment, modification, waiver, consent
or other such action with respect to any of the terms of any Loan Document, (b)
otherwise to vote on any matter related to any Loan Document, (c) to require
Agents or any Lender to undertake any action (or refrain from taking any
action) with respect to any Loan Document, (d) to attend any meeting with the
Administrative Agent or any Lender or receive any information from the
Administrative Agent or any Lender or (e) make or bring any claim, in its
capacity as Lender, against any Agent with respect to the fiduciary duties of
such Agent or Lender and the other duties and obligations of the Agents
hereunder; except, that, (i) no amendment, modification or waiver to any Loan
Document shall deprive any Sponsor Affiliated Lender of its pro rata share of
any payments to which such Lender is entitled to share hereunder, and (ii) in the
case of any Sponsor Affiliated Lender which is a financial institution,
including a commercial finance company, investment fund or managed account
(such type of Sponsor Affiliated Lender being referred to herein as, the
“Voting Sponsor Affiliated Lenders”), none of the restrictions set forth in
clauses (a) through (e) shall apply to a Voting Sponsor Affiliated Lender so
long as any information obtained by such Voting Sponsor Affiliated Lender(s) in
its capacity as a Lender is not provided to any Sponsor or other Affiliate of
Sponsor. All Voting Sponsor Affiliated Lenders, are deemed to have agreed in
favor of the Agents, the Issuing Bank and the other Lenders parties hereto, by
their signatures below or to any Assignment and Acceptance in respect of this
Agreement in respect of which they become a Lender, that such financial
institution/commercial finance company will not provide any of the information
it receives in its capacity as a Lender with any Sponsor or any Loan Party.

 

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

 

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

 

“Stated
Amount” means at any time the maximum amount for which a Letter of Credit
may be honored.

 

“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 FRB 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 FRB). 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.

 

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

 

49

 

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

 

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

 

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

 

“Subordinated
Indebtedness” means Indebtedness which is expressly subordinated in right
of payment to the prior payment in full of the Obligations on terms reasonably
acceptable to the Agents, it being understood that subordination terms set
forth in the Senior Subordinated Note Documents and the Subordinated Discount
Note Documents shall also be deemed to be acceptable for other Subordinated
Indebtedness incurred.

 

“Subsidiary”
of a Person means a corporation, partnership, joint venture, limited liability
company, unlimited liability company, or other business entity of which a
majority of the shares of securities or other interests having ordinary voting
power for the election of directors or other governing body (other than
securities or interests having such power only by reason of the happening of a
contingency) are at the time beneficially owned, or the management of which is
otherwise Controlled, directly, or indirectly through one or more
intermediaries, or both, by such Person. Unless otherwise specified, all
references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a
Subsidiary or Subsidiaries of the Lead Borrower.

 

“Successful
Syndication” has the meaning set forth in the Fee Letters.

 

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

 

“Swap
Contract” means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity
options, forward commodity contracts, equity or equity index swaps or options,
bond or bond price or bond index swaps or options or forward bond or forward
bond price or forward bond index transactions, interest rate options, forward
foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all
transactions of any kind, and the related confirmations, which are subject to
the terms and conditions of, or governed by, any form of master agreement
published by the International Swaps and Derivatives Association, Inc., any
International Foreign Exchange Master Agreement, 

 

50

 

or any other
master agreement (any such master agreement, together with any related
schedules, a “Master Agreement”), including any such obligations or
liabilities under any Master Agreement.

 

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

 

“Swingline
Lender” means Bank of America, N.A., in its capacity as lender of Swingline
Loans hereunder to the Borrowers hereunder.

 

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

 

“Swingline
Loan Ceiling” means $75,000,000, as such amount may be increased or reduced
in accordance with the provisions of this Agreement.

 

“Swingline
Note” means the promissory note of the Borrowers substantially in the form
of Exhibit E, payable to the order of the Swingline Lender, evidencing
the Swingline Loans made by the Swingline Lender to the Borrowers.

 

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

 

“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 (including
stamp duties), deductions, charges (including ad valorem charges) or
withholdings in the nature of taxes imposed by any Governmental Authority, and
any and all interest and penalties related thereto.

 

“Termination
Date” means the earlier to occur of (i) the Maturity Date, or (ii) the date
on which the maturity of the Obligations (other than the Other Liabilities) is
accelerated (or deemed accelerated) and the Commitments are irrevocably
terminated (or deemed terminated) in accordance with Article VII.

 

“Term Loan
Agreement” means that certain Credit Agreement dated October 31, 2006 by
and among the Lead Borrower, as borrower, Deutsche Bank AG New York Branch as
administrative agent and as collateral agent, and the lenders identified
therein.

 

51

 

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

 

“Term
Priority Collateral” has the meaning set forth in the Intercreditor
Agreement.

 

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

 

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

 

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

 

plus

 

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

 

plus

 

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

 

plus

 

52

 

(d)           with respect to any
Eligible Letter of Credit, the lesser of (i) the Cost of Inventory of the Loan
Parties supported by such Eligible Letter of Credit, net of Inventory Reserves,
multiplied by the Inventory Advance Rate for the Tranche A Borrowing
Base for such Inventory when completed, multiplied by the Appraised
Value of the Inventory supported by such Eligible Letter of Credit or (ii) the
Stated Amount of such Eligible Letter of Credit, multiplied by the
Inventory Advance Rate for the Tranche A Borrowing Base, multiplied by
the Appraised Value of the Inventory supported by such Eligible Letter of
Credit;

 

minus

 

(e)           the then amount of
all Availability Reserves.

 

“Tranche A
Commitment” shall mean, with respect to each Tranche A Lender, the
commitment of such Tranche A Lender hereunder set forth as its Tranche A
Commitment 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
increased or reduced from time to time pursuant to this Agreement. As of the
Closing Date, the Tranche A Commitments aggregate $900,000,000.

 

“Tranche A
Commitment Percentage” shall mean, with respect to each Tranche A Lender,
that percentage of the Tranche A Commitments of all Lenders hereunder to make
Tranche A Loans to the Borrowers 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 increased or reduced from time to time pursuant to
SECTION 2.02 or SECTION 2.15, or if the Tranche A Commitments have been
terminated, such percentage as calculated immediately prior to such
termination.

 

“Tranche A
Credit Extensions” means Tranche A Loans and Letters of Credit issued
hereunder.

 

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

 

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

 

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

 

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

 

plus

 

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

 

53

 

plus

 

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

 

plus

 

(d)           with respect to any
Eligible Letter of Credit, the lesser of (i) the Cost of Inventory of the Loan
Parties supported by such Eligible Letter of Credit, net of Inventory Reserves,
multiplied by the Inventory Advance Rate for the Tranche A-1 Borrowing
Base for such Inventory when completed, multiplied by the Appraised
Value of the Inventory supported by such Eligible Letter of Credit or (ii) the
Stated Amount of such Eligible Letter of Credit, multiplied by the
Inventory Advance Rate for the Tranche A-1 Borrowing Base, multiplied by
the Appraised Value of the Inventory supported by such Eligible Letter of
Credit;

 

minus

 

(e)           the then amount of
all Availability Reserves.

 

“Tranche
A-1 Commitment” shall mean, with respect to each Tranche A-1 Lender, the
commitment of such Tranche A-1 Lender hereunder set forth as its Tranche A-1
Commitment 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
reduced from time to time pursuant to this Agreement. As of the Closing Date,
the Tranche A-1 Commitments aggregate $100,000,000.

 

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

 

54

 

Tranche A-1
Loans to the Borrowers 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 reduced from time to time pursuant to SECTION 2.15, or
if the Tranche A-1 Commitments have been terminated, such percentage as
calculated immediately prior to such termination.

 

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

 

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

 

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

 

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

 

“Transaction
Documents” means the Recapitalization Agreement and all other material
documents, instruments and certificates contemplated by the Recapitalization
Agreement.

 

“Transaction
Expenses” means any fees or expenses incurred or paid by the Lead Borrower
or any Restricted Subsidiary in connection with the Transaction, including
payments to officers, employees and directors of the Lead Borrower and its
Restricted Subsidiaries as change of control payments, severance payments or
special or retention bonuses and any fees or expenses, including
pre-Transaction payments or other compensation made to employees of the Lead
Borrower and its Restricted Subsidiaries.

 

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

 

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

 

55

 

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

 

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

 

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

 

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

 

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

 

“Unused
Commitment” shall mean, on any day, (a) as to the Tranche A Lenders, except
as provided in SECTION 2.19(b), (i) the then aggregate Tranche A Commitments, minus
(ii) the sum of (A) the principal amount of Tranche A Loans (other than
Swingline Loans) of the Borrowers then outstanding, and (B) the then Letter of
Credit Outstandings; and (b) as to the Tranche A-1 Lenders, (i) the then
aggregate Tranche A-1 Commitments, minus (ii) the principal amount of
Tranche A-1 Loans of the Borrowers then outstanding.

 

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

 

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

 

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

 

“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 1 of Subtitle E of Title IV of ERISA.

 

56

 

SECTION 1.02               Terms
Generally.

 

With reference
to this Agreement and each other Loan Document, unless otherwise specified
herein or in such other Loan Document:

 

(a)           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, (i)
any definition of or reference to any agreement, instrument or other document
(including any Organization Document) 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 or in any other Loan
Document), (ii) any reference herein to any Person shall be construed to
include such Person’s successors and permitted assigns, (iii) the words “herein,”
“hereof” and “hereunder,” and words of similar import when used
in any Loan Document, shall be construed to refer to such Loan Document in its
entirety and not to any particular provision thereof, (iv) all references in a
Loan Document to Articles, Sections, Exhibits and Schedules shall be construed
to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan
Document in which such references appear, (v) any reference to any law shall
include all statutory and regulatory provisions consolidating, amending
replacing or interpreting such law and any reference to any law or regulation
shall, unless otherwise specified, refer to such law or regulation as amended,
modified or supplemented from time to time, (vi) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights, (vii) all references to “$” or “dollars” or to
amounts of money and all calculations of Availability, Tranche A Borrowing
Base, Tranche A-1 Borrowing Base, permitted “baskets” and other similar matters
shall be deemed to be references to the lawful currency of the United States of
America, and (viii) references to “knowledge” of any Loan Party means the
actual knowledge of a Responsible Officer.

 

(b)           In the computation
of periods of time from a specified date to a later specified date, the word “from”
means “from and including;” the words “to” and “until”
each mean “to but excluding;” and the word “through” means “to
and including.”

 

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

 

57

 

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

 

(d)           Section headings
herein and in the other Loan Documents are included for convenience of
reference only and shall not affect the interpretation of this Agreement or any
other Loan Document.

 

(e)           This Agreement and
the other Loan Documents are the result of negotiation among, and have been
reviewed by counsel to, among others, the Loan Parties and the Administrative
Agent and are the product of discussions and negotiations among all parties. Accordingly,
this Agreement and the other Loan Documents are not intended to be construed
against the Administrative Agent or any of the Lenders merely on account of the
Administrative Agent’s or any Lender’s involvement in the preparation of such
documents.

 

SECTION 1.03               Accounting
Terms.

 

(a)           Generally. All
accounting terms not specifically or completely defined herein shall be
construed in conformity with, and all financial data (including financial
ratios and other financial calculations) required to be submitted pursuant to
this Agreement shall be prepared in conformity with, GAAP applied on a
consistent basis, as in effect from time to time, except as otherwise
specifically prescribed in SECTION 1.03(b) below. All amounts used for purposes
of financial calculations required to be made shall be without duplication.

 

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

 

58

 

amortization,
write-up, write-down or write-off of any amounts thereof, (b) the application
of FAS 133, FAS 150, FASB Interpretation No. 45 or FAS 123r (to the extent that
the pronouncements in FAS 123r result in recording an equity award as a
liability on the Consolidated balance sheet of the Lead Borrower and its
Subsidiaries in the circumstance where, but for the application of the
pronouncements, such award would have been classified as equity), (c) any mark-to-market
adjustments to any derivatives (including embedded derivatives contained in
other debt or equity instruments under FAS 133), and (d) any non-cash
compensation charges resulting from the application of FAS 123r.

 

(c)           Notwithstanding anything to the
contrary herein, for purposes of determining compliance with any test or
covenant contained in this Agreement with respect to any period during which
any Specified Transaction occurs, the Consolidated Fixed Charge Coverage Ratio
shall be calculated with respect to such period and such Specified Transaction
on a Pro Forma Basis.

 

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

 

SECTION 1.04               Rounding.

 

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

 

SECTION 1.05               Times
of Day.

 

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

 

SECTION 1.06               Letter
of Credit Amounts.

 

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

 

SECTION 1.07               Certifications.

 

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

 

59

 

SECTION 1.08               Currency
Equivalents Generally.

 

Any amount
specified in this Agreement (other than in Article 2) or any of the other Loan
Documents to be in Dollars shall also include the equivalent of such amount in
any currency other than Dollars, such equivalent amount to be determined at the
rate of exchange quoted by the Reuters World Currency Page for the applicable
currency at 11:00 a.m. (London time) on such day (or, in the event such
rate does not appear on any Reuters World Currency Page, by reference to such
other publicly available service for displaying exchange rates as may be agreed
upon by the Administrative Agent and the Lead Borrower, or, in the absence of
such agreement, such rate shall instead be the arithmetic average of the spot
rates of exchange of the Administrative Agent in the market where its foreign
currency exchange operations in respect of such currency are then being
conducted, at or about 10:00 a.m. (New York City time) on such date for
the purchase of Dollars for delivery two Business Days later). Notwithstanding
the foregoing, for purposes of determining compliance with SECTION 6.01,
SECTION 6.02, SECTION 6.03, SECTION 6.05 and SECTION 6.06, (i) any amount in a
currency other than Dollars will be converted to Dollars based on the exchange
rate for such currency as determined above, and (ii) no Default shall be deemed
to have occurred solely as a result of changes in rates of exchange occurring
after the time any transaction described in any of such Sections is
consummated; provided that, for the avoidance
of doubt, the foregoing provisions of this SECTION 1.08 shall otherwise apply
to such Sections, including with respect to determining whether any such
transaction described in such Sections may be consummated at any time under
such Sections.

 

SECTION
1.09               Change of Currency.

 

Each provision of this
Agreement shall be subject to such reasonable changes of construction as the
Administrative Agent may from time to time specify with the Lead Borrower’s
consent to appropriately reflect a change in currency of any country and any
relevant market conventions or practices relating to such change in currency.

 

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 make Credit Extensions to or for the benefit of the Borrowers, on a
revolving basis, subject in each case to the following limitations:

 

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

 

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

 

60

 

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

 

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

 

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

 

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

 

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

 

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

 

(b)           Except as provided in SECTION
2.01(a)(vii), each Borrowing of Revolving Credit Loans to the Borrowers (other
than Swingline Loans) shall be made by the Lenders pro  rata in
accordance with their respective Tranche A Commitments or Tranche A-1
Commitments, as applicable. The failure of any Lender to make any Revolving
Credit Loan to the Borrowers shall neither relieve any other Lender of its
obligation to fund its Revolving Credit Loan to the Borrowers in accordance
with the provisions of this Agreement nor increase the obligation of any such
other Lender.

 

SECTION
2.02               Increase in Tranche
A Commitments.

 

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

 

61

 

aggregate $200,000,000. The
Administrative Agent and the Lead Borrower shall determine the effective date
of such requested increase and any such requested increase shall be first made
available to all existing Tranche A Lenders on a pro rata basis. To the extent
that the existing Tranche A Lenders decline to increase their Tranche A
Commitments, or decline to increase their Tranche A Commitments to the amount
requested by the Lead Borrower, the Administrative Agent, in consultation with
the Lead Borrower, will use its reasonable best efforts to arrange for other
Persons to become a Tranche A Lender hereunder and to issue commitments in an
amount equal to the amount of the increase in the Tranche A Commitments
requested by the Lead Borrower and not accepted by the existing Tranche A
Lenders (each such increase by either means, a “Commitment Increase,”
and each Person issuing, or Lender increasing, its Tranche A Commitment, an “Additional
Commitment Lender”), provided, however, that (i) no Tranche A Lender
shall be obligated to provide a Commitment Increase as a result of any such
request by the Lead Borrower, (ii) any Additional Commitment Lender which is
not an existing Tranche A Lender shall be subject to the approval of the
Administrative Agent, the Issuing Banks and the Lead Borrower (which approval
shall not be unreasonably withheld), and (iii) without the consent of the
Administrative Agent, at no time shall the Tranche A Commitment of any
Additional Commitment Lender under this Agreement be less than $5,000,000. Each
Commitment Increase shall be in a minimum aggregate amount of at least $25,000,000
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 or waived:

 

(i)            The Borrowers, 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 shall
reasonably require;

 

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

 

(iii)          The Borrowers 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
Borrowers and dated such date;

 

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

 

(v)           The Borrowers and the Additional
Commitment Lender shall have delivered such other instruments, documents and
agreements as the Administrative Agent may reasonably have requested in order
to effectuate the foregoing.

 

62

 

(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 Tranche A 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 Tranche A
Commitment Percentages and Commitment Percentages of the relevant Tranche A Lenders,
and (iii) this Agreement shall be deemed amended, without further action, to
the extent necessary to reflect such increased Tranche A Commitments.

 

(d)           In connection with Commitment Increases hereunder, the
Lenders and the Borrowers agree that, notwithstanding anything to the contrary
in this Agreement, (i) the Borrowers shall, in coordination with the
Administrative Agent, (x) repay outstanding Tranche A Loans of certain Tranche
A Lenders, and obtain Tranche A Loans from certain other Tranche A 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 Tranche A Lenders effectively participate
in each of the outstanding Tranche A Loans pro rata on the basis of their
Tranche A Commitment Percentages (determined after giving effect to any
increase in the Tranche A Commitments pursuant to this SECTION 2.02), and (ii)
the Borrowers shall pay to the Tranche A Lenders any costs of the type referred
to in SECTION 2.16(c) in connection with any repayment and/or Tranche A Loans
required pursuant to preceding clause (i). Without limiting the obligations of
the Borrowers provided for in this SECTION 2.02, the Administrative Agent and
the Tranche A Lenders agree that they will use their best efforts to attempt to
minimize the costs of the type referred to in SECTION 2.16(c) which the
Borrowers would otherwise incur in connection with the implementation of an
increase in the Tranche A Commitments.

 

SECTION
2.03               Reserves; Changes to
Reserves.

 

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

 

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

 

(ii)           Landlord Lien Reserve (an
Availability Reserve): (A) An amount equal to all past due rent for all of the
Borrowers’ leased locations in the states of Washington, Virginia and
Pennsylvania, other than leased locations with respect to which the Agents have
received a landlord’s waiver or subordination of lien in form reasonably
satisfactory to the Agents, plus (B) an amount equal to all past due rent for
all of the Borrowers’ distribution centers or warehouses, other than
distribution centers or warehouses with respect to which the Agents have
received a landlord’s waiver or subordination of lien in form reasonably
satisfactory to the Agents.

 

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

 

63

 

(b)           The Administrative Agent may hereafter establish
additional Reserves or change any of the foregoing Reserves, in the exercise of
its reasonable business judgment acting in accordance with industry standards
for asset based lending in the retail industry, 
provided that such Reserves shall not be established or changed
except upon not less than six (6) Business Days notice to the Borrowers (during
which period the Agents shall be available to discuss any such proposed Reserve
with the Borrowers and the Borrowers may take such action as may be required so
that the event, condition or matter that is the basis for such Reserve no
longer exists, in a manner and to the extent reasonably satisfactory to the
Administrative Agent). The amount of any Reserve established by the
Administrative Agent shall have a reasonable relationship to the event,
condition or other matter that is the basis for the Reserve. Notwithstanding
anything herein to the contrary, Reserves shall not duplicate eligibility
criteria contained in the definition of Eligible Inventory, or reserves or
criteria deducted in computing the Appraised Value of Eligible Inventory.

 

SECTION
2.04               Making of Revolving
Credit Loans.

 

(a)           Except as set forth in SECTION 2.09, SECTION 2.10 and
SECTION 2.11, Revolving Credit Loans (other than Swingline Loans) shall be
either Prime Rate Loans or LIBO Loans as the Lead Borrower on behalf of the
Borrowers may request (which request shall substantially be made in the form
attached hereto as Exhibit C) subject to and in accordance with this
SECTION 2.04. All Swingline Loans shall be only Prime Rate Loans. All Revolving
Credit Loans made pursuant to the same Borrowing shall, unless otherwise
specifically provided herein, be Revolving Credit Loans of the same Type. Each
Lender may fulfill its Commitment with respect to any Revolving Credit Loan by
causing any lending office of such Lender to make such Revolving Credit Loan; provided,
however, that any such use of a lending office shall not affect the
obligation of the Borrowers to repay such Revolving Credit Loan in accordance
with the terms of the applicable Revolving Credit Note. Each Lender shall,
subject to its overall policy considerations, use reasonable efforts to select
a lending office which will not result in the payment of increased costs by the
Borrowers. Subject to the other provisions of this SECTION 2.04 and the
provisions of SECTION 2.10 and SECTION 2.11, Borrowings of Revolving Credit
Loans of more than one Type may be incurred at the same time, but in any event
no more than ten (10) Borrowings of LIBO Loans may be outstanding at any time.

 

(b)           The Lead Borrower shall give the Administrative Agent (w)
two (2) Business Days’ prior telephonic notice (thereafter confirmed in
writing) of each Borrowing of LIBO Loans, and (x) prior telephonic notice
(thereafter confirmed in writing) of each Borrowing of Prime Rate Loans by the
Borrowers on the same Business Day requested for such Borrowing. Any such
notice, to be effective, must be received by the Administrative Agent not later
than 12:30 p.m. on the second Business Day in the case of LIBO Loans, and not
later than 12:00 noon on the same Business Day in the case of Prime Rate Loans,
prior to the date on which such Borrowing is to be made. Such notice shall be
irrevocable (except to the extent set forth in SECTION 2.10 or SECTION 2.11
hereof), shall contain disbursement instructions and shall specify: (i) 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; (ii)
the amount of the proposed Borrowing (which shall be in an integral multiple of
$1,000,000, but not less than $5,000,000 in the case of LIBO Loans); and (iii)
the date of the proposed Borrowing (which shall be a Business Day). If no
election of Interest Period is specified in any such notice

 

64

 

for a Borrowing of LIBO
Loans, such notice shall be deemed a request for an Interest Period of one (1)
month. If no election is made as to the Type of Revolving Credit Loan, 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 Federal Street, Boston, Massachusetts 02110 (or such other place
as the Administrative Agent may request) no later than 3:00 p.m., 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 2.04
and may, in reliance upon such assumption, make available to the Borrowers a
corresponding amount. In the event a Lender has not in fact made its share of
the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrowers 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 Borrowers 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 Borrowers, 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 Revolving Credit 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 in the manner
specified in the notice of borrowing delivered by the Lead Borrower and shall
use reasonable efforts to make the funds so received from the Lenders available
to the Borrowers no later than 5:00 p.m.

 

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

 

(d)           To the extent not paid by the Borrowers when due (after
taking into consideration any applicable grace period), the Administrative
Agent, without the request of the Lead Borrower, may advance any interest or
fee payable pursuant to SECTION 2.19 or other payment to which any Credit Party
is entitled from the Loan Parties 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 Lead 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 Borrowers’ obligations under SECTION
2.17(a) or SECTION 2.17(b). Any amount which is

 

65

 

added to the principal
balance of the Loan Account as provided in this SECTION 2.04(d) shall bear
interest at the interest rate then and thereafter applicable to Prime Rate
Loans.

 

SECTION
2.05               Overadvances.

 

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

 

(b)           The Administrative Agent may, in its discretion, make
Permitted Overadvances to the Borrowers without the consent of the Lenders and
each Lender shall be bound thereby. Any Permitted Overadvances may constitute
Swingline Loans. The making of a Permitted Overadvance is for the benefit of
the Borrowers and shall constitute a Revolving Credit Loan and an Obligation. The
making of any such Permitted Overadvance on any one occasion shall not obligate
the Administrative Agent or any Lender to make or permit any Permitted
Overadvance on any other occasion or to permit such Permitted Overadvances to
remain outstanding, nor shall the making of any such Permitted Overadvance
modify or abrogate the Borrowers’ obligations under SECTION 2.17(a) and SECTION
2.17(b) hereof.

 

(c)           The making by the Administrative Agent of a Permitted
Overadvance shall not modify or abrogate any of the provisions of SECTION
2.13(g) regarding the Lenders’ obligations to purchase participations with
respect to Letter of Credit 
Disbursements.

 

SECTION
2.06               Swingline Loans. 

 

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

 

(b)           The Lead Borrower’s request for a Swingline Loan shall be
deemed a representation that the applicable conditions for borrowing under
SECTION 4.02 are satisfied (unless such conditions have been waived). If the
conditions for borrowing under SECTION 4.02 cannot in fact be fulfilled, (x)
the Lead Borrower shall give immediate notice (a “Noncompliance Notice”)
thereof to the Administrative Agent and the Swingline Lender, and the
Administrative Agent shall promptly provide each Lender with a copy of the
Noncompliance Notice, and (y) 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 9.01. Unless the Required
Lenders so direct the Swingline Lender, the Swingline Lender may, but is not
obligated to, continue to make Swingline Loans commencing one (1) Business Day
after the Noncompliance Notice is furnished to the Lenders. Notwithstanding the
foregoing, no Swingline Loans (other than Permitted Overadvances) shall be made
pursuant to this SECTION 2.06(b) if

 

66

 

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

 

SECTION
2.07               Notes.

 

(a)           Upon the request of any Lender, the Revolving Credit Loans
made by such Lender shall be evidenced by a Revolving Credit Note, duly
executed on behalf of the Borrowers, dated the Closing Date, payable to the
order of such Lender in an aggregate principal amount equal to such Lender’s
Commitment.

 

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

 

(c)           Each Lender is hereby authorized by the Borrowers to
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 Revolving Credit Loan from such
Lender, each payment and prepayment of principal of any such Revolving Credit
Loan, each payment of interest on any such Revolving Credit 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 any Borrower to repay the Revolving Credit
Loans made by such Lender in accordance with the terms of this Agreement and
the applicable Notes.

 

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

 

SECTION
2.08               Interest on
Revolving Credit Loans.

 

(a)           Subject to SECTION 2.12, 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 2.09 through SECTION 2.12, 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 Revolving Credit Loans shall be
payable in arrears on each Interest Payment Date applicable thereto, at
maturity (whether by acceleration or otherwise) and after such maturity on
demand.

 

67

 

SECTION
2.09               Conversion and
Continuation of Revolving Credit Loans.

 

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

 

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

 

(ii)           If less than a full Borrowing of
Revolving Credit Loans is converted, such conversion shall be made pro  rata
among the Lenders based upon their Tranche A Commitment Percentages (or Tranche
A-1 Commitment Percentages as the case may be) in accordance with the respective
principal amounts of the Revolving Credit Loans comprising such Borrowing held
by such Lenders immediately prior to such conversion;

 

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

 

(iv)          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 Revolving Credit Loan being so converted;

 

(v)           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;

 

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

 

(vii)         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
(1) month.

 

(b)           If the Lead 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 in
SECTION 2.09(a) above, such Borrowing shall automatically be converted to, or continued
as, as applicable, a Borrowing of

 

68

 

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

 

SECTION
2.10               Alternate Rate of
Interest for Revolving Credit Loans.

 

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

 

(a)           Reasonably determines (which
determination shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate (in
accordance with the terms of the definition thereof) for such Interest Period;
or

 

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

 

then the Administrative Agent
shall give notice thereof to the Lead Borrower and the Lenders by telephone or
telecopy as promptly as practicable thereafter and, until the Administrative
Agent notifies the Lead Borrower and the applicable Lenders that the
circumstances giving rise to such notice no longer exist (which notice the
Administrative Agent shall deliver promptly upon obtaining knowledge of the
same), (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 unless withdrawn by the Lead
Borrower.

 

SECTION
2.11               Change in Legality.

 

(a)           Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if any Change in Law occurring after the Closing
Date 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, then, by written notice to the Lead Borrower, such Lender may (x) declare
that LIBO Loans will not thereafter be made by such Lender hereunder, whereupon
any request by the Lead 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 (y) require that all outstanding LIBO Loans made
by such Lender be converted to Prime Rate Loans, in which event all such LIBO
Loans shall be automatically converted to Prime Rate Loans as of the effective
date of such notice as provided in SECTION 2.09(b). In the event any Lender
shall exercise its rights hereunder, 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.

 

69

 

(b)           For purposes of this SECTION 2.11, a notice to the Lead
Borrower pursuant to SECTION 2.11(a) above shall be effective, if lawful, and
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 Lead Borrower.

 

SECTION
2.12               Default Interest.

 

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

 

SECTION
2.13               Letters of Credit.

 

(a)           Upon the terms and subject to the conditions herein set
forth, at any time and from time to time after the date hereof and prior to the
Termination Date, the Lead Borrower on behalf of the Borrowers may request an
Issuing Bank to issue, and subject to the terms and conditions contained
herein, the applicable Issuing Bank shall issue, for the account of the Lead
Borrower or a Restricted Subsidiary, one or more Letters of Credit; provided,
however, that no Letter of Credit shall be issued if after giving effect
to such issuance (i) the aggregate Letter of Credit Outstandings shall exceed
the Letter of Credit Sublimit, or (ii) the Tranche A Credit Extensions and/or
the aggregate Credit Extensions (including Swingline Loans) would exceed the
limitations set forth in SECTION 2.01(a) provided, further, that
no Letter of Credit shall be issued unless an Issuing Bank shall have received
notice from the Administrative Agent that the conditions to such issuance have
been met (such notice shall be deemed given (x) if the Issuing Bank has not
received notice that the conditions have not been met within two Business Days
of the initial request to the Issuing Bank and the Administrative Agent
pursuant to SECTION 2.13(h), or (y) if the aggregate undrawn amount under
Letters of Credit issued by such Issuing Bank then outstanding does not exceed
the amount theretofore agreed to by the Lead Borrower, the Administrative Agent
and the Issuing Bank, and provided further that any Letter of Credit
issued for the benefit of  Michaels of
Canada, ULC or any Foreign Subsidiary shall be issued naming the Lead Borrower
as the account party on any such Letter of Credit but such Letter of Credit may
contain a statement that it is being issued for the benefit of  Michaels of Canada, ULC or such Foreign
Subsidiary. A permanent reduction of the Tranche A Commitments shall not
require a corresponding pro rata reduction in the Letter of Credit Sublimit; provided,
however, that if the Tranche A Commitments are reduced to an amount less
than the Letter of Credit Sublimit, then the Letter of Credit Sublimit shall be
reduced to an amount equal to (or, at Lead Borrower’s option, less than) the
Tranche A Commitments. Any Issuing Bank (other than Bank of America or any of
its Affiliates) shall notify the Administrative Agent in writing on each
Business Day of all Letters of Credit issued on the prior Business Day by such
Issuing Bank, provided that until the aggregate amount of the Letters of
Credit issued in any such week exceeds such amount as shall be agreed by the
Administrative Agent and the Issuing Bank, such Issuing

 

70

 

Bank shall be required to so
notify the Administrative Agent in writing only once each week of the Letters
of Credit issued by such Issuing Bank during the immediately preceding week as
well as the daily amounts outstanding for the prior week, such notice to be
furnished on such day of the week as the Administrative Agent and such Issuing
Bank may agree.

 

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

 

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

 

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

 

71

 

telephone (confirmed by
telecopy) of such demand for payment and whether such Issuing Bank has made or
will make payment thereunder; provided, however, that any failure
to give or delay in giving such notice shall not relieve the Borrowers of their
obligation to reimburse such Issuing Bank and the Lenders with respect to any
such payment.

 

(e)           If any Issuing Bank shall make any Letter of Credit
Disbursement, then, unless the applicable Borrowers shall reimburse such
Issuing Bank in full on the date provided in SECTION 2.13(d) above, the unpaid
amount thereof shall bear interest  at
the rate per annum then applicable to Prime Rate Loans for each day from and
including the date such payment is made to, but excluding, the date that such
Borrowers reimburse such Issuing Bank therefor, provided, however,
that, if such Borrowers fail to reimburse any Issuing Bank when due pursuant to
SECTION 2.13(d), then interest shall accrue at the Default Rate. Interest
accrued pursuant to this paragraph shall be for the account of, and promptly
remitted by the Administrative Agent, upon receipt to, the applicable Issuing
Bank, except that interest accrued on and after the date of payment by any
Lender pursuant to SECTION 2.13(g) to reimburse such 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
any Issuing Bank (or the amendment of a Letter of Credit increasing the amount
thereof), and without any further action on the part of such Issuing Bank, such
Issuing Bank shall be deemed to have sold to each Tranche A Lender, and each
such Tranche A Lender shall be deemed unconditionally and irrevocably to have
purchased from such Issuing Bank, without recourse or warranty, an undivided
interest and participation, to the extent of such Tranche A Lender’s Tranche A
Commitment Percentage, in such Letter of Credit, each drawing thereunder and
the obligations of the Borrowers under this Agreement and the other Loan
Documents with respect thereto. Upon any change in the Tranche A Commitments
pursuant to SECTION 2.02 or SECTION 9.07 of this Agreement, 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
Tranche A Commitment Percentages of the assigning and assignee Tranche A
Lenders and the Additional Commitment Lenders, if applicable. If any Letter of
Credit Outstandings remain upon the termination of the Tranche A Commitments,
if the lesser of (i) Tranche A-1 Commitments (determined without regard to any
concurrent termination of such Tranche A-1 Commitments) or (ii) Incremental
Availability exceeds the Tranche A-1 Credit Extensions (the “Excess Amount”)
upon such termination of the Tranche A Commitments, the Tranche A Lenders shall
be deemed to have sold to each Tranche A-1 Lender, and each Tranche A-1 Lender
shall be deemed unconditionally and irrevocably to have so purchased from the
Tranche A Lenders, without recourse or warranty, an undivided interest and
participation, to the extent of such Tranche A-1 Lender’s Tranche A-1
Commitment Percentage in the lesser of such Excess Amount or such undivided
interest and participation of each Tranche A Lender in the Letter of Credit
Outstandings, each drawing thereunder and the obligations of the Borrowers
under this Agreement and the other Loan Documents with respect thereto. Any
action taken or omitted by any 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 such Issuing Bank any resulting
liability to any Lender.

 

(g)           In the event that any Issuing Bank makes any Letter of
Credit Disbursement and the Borrowers shall not have reimbursed such amount in
full to such Issuing

 

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Bank pursuant to this
SECTION 2.13, such Issuing Bank shall promptly notify the Administrative Agent,
which shall promptly notify each Tranche A Lender (or Tranche A-1 Lender, with
respect to the Excess Amount, if applicable), of such failure, and each Tranche
A Lender (or Tranche A-1 Lender, with respect to the Excess Amount, if
applicable) shall promptly and unconditionally pay to the Administrative Agent,
for the account of such Issuing Bank the amount of such Tranche A Lender’s (or
Tranche A-1 Lender’s, with respect to the Excess Amount, if applicable) Tranche
A Commitment Percentage (or Tranche A-1 Commitment Percentage, with respect to
the Excess Amount, if applicable) of such unreimbursed payment in Dollars and
in same day funds. If the applicable Issuing Bank so notifies the
Administrative Agent and the Administrative Agent so notifies the Tranche A
Lenders (or Tranche A-1 Lender, with respect to the Excess Amount, if
applicable) prior to 11:00 a.m. on any Business Day, each such Tranche A Lender
(or Tranche A-1 Lender, with respect to the Excess Amount, if applicable) shall
make available to the applicable Issuing Bank such Tranche A Lender’s (or
Tranche A-1 Lender’s , with respect to the Excess Amount, if applicable)
Tranche A Commitment Percentage (or Tranche A-1 Commitment Percentage, with
respect to the Excess Amount, if applicable) of the amount of such payment on such
Business Day in same day funds (or if such notice is received by the Tranche A
Lenders (or Tranche A-1 Lender, with respect to the Excess Amount, if
applicable) after 11:00 a.m. on the day of receipt, payment shall be made on
the immediately following Business Day in same day funds). If and to the extent
such Tranche A Lender (or Tranche A-1 Lender, with respect to the Excess
Amount, if applicable) shall not have so made its Tranche A Commitment
Percentage (or Tranche A-1 Commitment Percentage, with respect to the Excess
Amount, if applicable) of the amount of such payment available to the
applicable Issuing Bank, such Tranche A Lender (or Tranche A-1 Lender, with
respect to the Excess Amount, if applicable) agrees to pay to such 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 such Issuing Bank at the Federal Funds Effective Rate. Each
Tranche A Lender (or Tranche A-1 Lender, with respect to the Excess Amount, if
applicable) agrees to fund its Tranche A Commitment Percentage (or Tranche A-1
Commitment Percentage, with respect to the Excess Amount, if applicable) of
such unreimbursed payment notwithstanding a failure to satisfy any applicable
lending conditions or the provisions of SECTION 2.01 or SECTION 2.06, or the
occurrence of the Termination Date. The failure of any Tranche A Lender (or
Tranche A-1 Lender, with respect to the Excess Amount, if applicable) to make available
to the applicable Issuing Bank its Tranche A Commitment Percentage (or Tranche
A-1 Commitment Percentage, with respect to the Excess Amount, if applicable) of
any payment under any Letter of Credit shall neither relieve any Tranche A
Lender (or Tranche A-1 Lender, with respect to the Excess Amount, if
applicable) of its obligation hereunder to make available to such Issuing Bank
its Tranche A Commitment Percentage (or Tranche A-1 Commitment Percentage, with
respect to the Excess Amount, if applicable) of any payment under any Letter of
Credit on the date required, as specified above, nor increase the obligation of
such other Tranche A Lender (or Tranche A-1 Lender, with respect to the Excess
Amount, if applicable). Whenever any Tranche A Lender (or Tranche A-1 Lender,
with respect to the Excess Amount, if applicable) has made payments to any
Issuing Bank in respect of any reimbursement obligation for any Letter of
Credit, such Tranche A Lender (or Tranche A-1 Lender, with respect to the
Excess Amount, if applicable) shall be entitled to share ratably, based on its
Tranche A Commitment Percentage (or Tranche A-1 Commitment

 

73

 

Percentage, with respect to
the Excess Amount, if applicable), in all payments and collections thereafter
received on account of such reimbursement obligation.

 

(h)           Whenever the Lead Borrower desires that any Issuing Bank
issue a Letter of Credit (or the amendment, renewal or extension (other than
automatic renewal or extensions) of an outstanding Letter of Credit), the Lead
Borrower shall give to the applicable Issuing Bank and the Administrative Agent
at least two (2) Business Days’ prior written (including, without limitation,
by telegraphic, telex, facsimile or cable communication) notice (or such
shorter period as may be agreed upon in writing by such Issuing Bank and the
Lead 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 applicable Issuing Bank, the Lead Borrower shall
also submit documentation on such Issuing Bank’s standard form in connection
with any request for the issuance, amendment, renewal or extension of a Letter
of Credit, provided that in the event of a conflict or inconsistency
between the terms of such documentation and this Agreement, the terms of this
Agreement shall supersede any inconsistent or contrary terms in such
documentation and this Agreement shall control.

 

(i)            Subject to the limitations set forth below, the
obligations of the Borrowers to reimburse the Issuing Banks for any Letter of
Credit 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 (it being understood that any such
payment by the Borrowers shall be without prejudice to, and shall not
constitute a waiver of, any rights the Borrowers might have or might acquire
hereunder as a result of the payment by the applicable Issuing Bank of any
draft or the reimbursement by the Borrowers thereof): (i) Any lack of validity
or enforceability of a Letter of Credit; (ii) The existence of any claim,
setoff, defense or other right which a Borrower may have at any time against a
beneficiary of any Letter of Credit or against any 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 or fraudulent in any respect or any statement therein being untrue or
inaccurate in any respect; (iv) payment by any Issuing Bank of any Letter of
Credit against presentation of a demand, draft or certificate or other document
which does not strictly 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 2.13,
constitute a legal or equitable discharge of, or provide a right of setoff
against, any Loan Party’s obligations hereunder; or (vi) The fact that any
Event of Default shall have occurred and be continuing; provided, that the
Borrowers shall have no obligation to reimburse any Issuing Bank to the extent
that such payment was made in error due to the gross negligence, bad faith or
willful misconduct of such Issuing Bank (as determined by a court of competent
jurisdiction or another independent tribunal having jurisdiction). No Credit
Party 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 

 

74

 

technical terms or any
consequence arising from causes beyond the control of the applicable Issuing
Bank, provided that the foregoing shall not be construed to excuse such
Issuing Bank from liability to the Borrowers to the extent of any direct
damages (as opposed to consequential damages, claims in respect of which are
hereby waived by the Borrowers to the extent permitted by Applicable Law)
suffered by the Borrowers that are caused by such 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, bad faith or willful
misconduct on the part of any Issuing Bank (as determined by a court of
competent jurisdiction or another independent tribunal having jurisdiction),
such 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 applicable Issuing Bank may, in its reasonable 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 Specified Default shall occur and be continuing,
on the Business Day that the Lead Borrower receives notice from the
Administrative Agent (which notice may be given at the election of the
Administrative Agent or at the direction of the Required Lenders) demanding the
deposit of cash collateral pursuant to this paragraph, the applicable Loan
Parties shall immediately deposit in the applicable Cash Collateral Account an
amount in cash equal to 101.5% of the Letter of Credit Outstandings owing by
such Loan Parties as of such date, plus any accrued and unpaid interest
thereon. Each such deposit shall be held by the Collateral Agent for the
payment and performance of the Obligations. 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
in the sole discretion of the Administrative Agent (at the request of the Lead
Borrower and at the Borrowers’ 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
Administrative Agent to reimburse the Issuing Banks 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 for the satisfaction of the
reimbursement obligations of the Borrowers for the Letter of Credit
Outstandings at such time or, if the maturity of the Revolving Credit Loans has
been accelerated, shall be applied to satisfy the other respective Obligations
of the applicable Borrower. If the applicable Borrower is required to provide
an amount of cash collateral hereunder as a result of the occurrence and
continuance of a Specified Default, such amount (to the extent not applied as
aforesaid) shall be returned promptly to the respective Borrower but in no
event later than two (2) Business Days after all Specified Defaults have been
cured or waived.

 

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

 

SECTION
2.14               Increased Costs.

 

(a)           If any Change in Law shall:

 

75

 

(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 any Issuing Bank; or

 

(ii)                                  impose on any Lender
or any Issuing Bank or the London interbank market any other condition
affecting 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 in
any material amount in excess of those incurred by similarly situated lenders
to such Lender of making or maintaining any LIBO Loan (or of maintaining its
obligation to make any such Revolving Credit Loan) or to increase the cost in
any material amount in excess of those incurred by similarly situated lenders
to such Lender or any Issuing Bank of participating in, issuing or maintaining
any Letter of Credit or to reduce the amount in any material respect of any sum
received or receivable by such Lender or such Issuing Bank hereunder (whether
of principal, interest or otherwise), then the Borrowers will pay to such
Lender or such Issuing Bank, as the case may be, such additional amount or amounts
as will compensate such Lender or such Issuing Bank, as the case may be, for
such additional costs incurred or reduction suffered.

 

(b)                                 If
any Lender or any 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 such Issuing Bank’s capital or on the capital of
such Lender’s or such Issuing Bank’s holding company, if any, as a consequence
of this Agreement or the Revolving Credit Loans made by, or participations in
Letters of Credit held by, such Lender, or the Letters of Credit issued by such
Issuing Bank, to a level below that which such Lender or such Issuing Bank or
such Lender’s or such Issuing Bank’s holding company would have achieved but
for such Change in Law (taking into consideration such Lender’s or such Issuing
Bank’s policies and the policies of such Lender’s or such Issuing Bank’s
holding company with respect to capital adequacy), then from time to time the
Borrowers will pay to such Lender or such Issuing Bank, as the case may be,
such additional amount or amounts as will compensate such Lender or such
Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any
such reduction suffered.

 

(c)                                  A
certificate of a Lender or any Issuing Bank setting forth the amount or amounts
necessary to compensate such Lender or such Issuing Bank or its holding
company, as the case may be, as specified in paragraph (a) or (b) of this SECTION 2.14 and setting forth in reasonable
detail the manner in which such amount or amounts were determined shall be
delivered to the Lead Borrower and shall be conclusive absent manifest error.
The Borrowers shall pay such Lender or such Issuing Bank, as the case may be,
the amount shown as due on any such certificate within fifteen (15) Business
Days after receipt thereof.

 

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

 

76

 

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

 

SECTION 2.15                                            Optional Termination or Reduction of
Commitments.

 

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

 

(b)                                 The Lead Borrower may reduce or terminate the
Tranche A-1 Commitments at any time as long as immediately after giving effect
to such reduction or termination, there are no Tranche A Loans or Swingline
Loans outstanding. In the event that all of the Tranche A Commitments are
terminated, the Lead Borrower shall contemporaneously therewith terminate all
Tranche A-1 Commitments. Each reduction of the Tranche A-1 Commitments shall be
in the principal amount of $5,000,000 or any integral multiple thereof. The
Borrowers shall pay to the Administrative Agent for application as provided
herein (i) at the effective time of any such termination (but not any partial
reduction), all Unused Fees accrued on the Tranche A-1 Commitments so
terminated, and (ii) at the effective time of any such reduction or
termination, any amount by which the Tranche A-1 Credit Extensions to the
Borrowers outstanding on such date exceed the amount to which the Tranche A-1
Commitments are to be reduced effective on such date.

 

SECTION 2.16                                            Optional Prepayment of Revolving Credit
Loans; Reimbursement of Lenders.

 

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

 

77

 

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

 

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

 

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

 

(b)                                 Notwithstanding the provisions of SECTION
2.16(a) which generally permit voluntary prepayments of the Revolving Credit
Loans, except as provided in SECTION 2.17, only if all Tranche A Loans are
repaid in full may the Borrowers prepay amounts owed with respect to the
Tranche A-1 Loans, provided, however, that any such prepayment shall not
reduce or terminate the Tranche A-1 Commitments. In addition, the Borrowers
shall also repay the Tranche A-1 Loans as required (i) under SECTION 2.17
hereof, and (ii) upon any reduction or termination of the Tranche A-1
Commitments in accordance with the provisions of SECTION 2.15(b) hereof.

 

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

 

78

 

Loans
or acceleration by virtue of, and after, the occurrence and during the
continuance of an Event of Default) of any LIBO Loan required or permitted
under this Agreement, if such Revolving Credit Loan is prepaid prior to the
last day of the Interest Period for such Revolving Credit Loan or (ii) in the
event that after the Lead Borrower delivers a notice of borrowing under SECTION
2.04 in respect of LIBO Loans, such Revolving Credit 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 2.09, SECTION 2.10 or SECTION 2.11,
or (iii) in the event that after a Borrower delivers a notice of commitment
reduction under SECTION 2.15 or a notice of prepayment under SECTION 2.16 in
respect of LIBO Loans, such commitment reductions or such prepayments are not
made on the day specified in such notice of reduction or prepayment. Such loss
shall be the amount (herein, collectively, “Breakage Costs”) 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, not
prepaid or not borrowed at a rate of interest equal to the Adjusted LIBO Rate
for such Revolving Credit Loan (but specifically excluding any Applicable
Margin), for the period from the date of such payment or failure to borrow or
failure to prepay to the last day (x) in the case of a payment or refinancing
of a LIBO Loan with Prime Rate Loans prior to the last day of the Interest
Period for such Revolving Credit Loan or the failure to prepay a LIBO Loan, of
the then current Interest Period for such Revolving Credit Loan or (y) in the
case of such failure to borrow, of the Interest Period for such LIBO 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 placing
such amount on deposit for a comparable period with leading banks in the London
interbank market. Any Lender demanding reimbursement for such loss shall
deliver to the Lead 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 and such
amounts shall be due within ten (10) Business Days after the receipt of such
notice.

 

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

 

SECTION 2.17                                            Mandatory Prepayment; Commitment Termination;
Cash Collateral.

 

The
outstanding Obligations shall be subject to prepayment as follows:

 

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

 

79

 

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

 

(c)                                  The Revolving Credit Loans shall be repaid
daily in accordance with (and to the extent required under) the provisions of
SECTION 2.18, to the extent then applicable. All such payments shall be applied
first to Tranche A Loans and after prepayment in full thereof, to the Tranche
A-1 Loans.

 

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

 

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

 

(f)                                    Subject to the foregoing, except as otherwise
directed by the Lead Borrower (whose direction may be given only if a Cash
Dominion Event has not occurred and is not continuing), outstanding Prime Rate
Loans shall be prepaid before outstanding LIBO Loans are prepaid. No prepayment
of LIBO Loans shall be permitted pursuant to this SECTION 2.17 prior to the
last day of an Interest Period applicable thereto, unless the Borrowers
reimburse the Lenders for all Breakage Costs associated therewith within five
(5) Business Days of receiving a written demand for such reimbursement which
sets forth the calculation of such Breakage Costs in reasonable detail. In
order to avoid such Breakage Costs, as long as no Specified Default has
occurred and is continuing, at the request of the Lead 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 (provided
that the foregoing shall in no way limit or restrict the Agents’ rights
upon the occurrence and during the continuance of any other 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 $5,000,000. A prepayment of the Revolving Credit
Loans pursuant to SECTION 2.16 or SECTION 2.17 shall not permanently reduce the
Total Commitments.

 

80

 

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

 

SECTION 2.18                                            Cash Management.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

81

 

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

 

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

 

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

 

If,
at any time during the continuance of a Cash Dominion Event, any cash or Cash
Equivalents owned by any US Loan Party (other than (i) amounts on deposit in
the Designated Account, which funds, shall not be funded from, or when
withdrawn from the Designated Account, shall not be replenished by, funds
constituting proceeds of Collateral so long as such Cash Dominion Event
continues, (ii) petty cash accounts funded in the ordinary course of business,
the deposits in which shall not aggregate more than $25,000,000 or exceed
$5,000,000 with respect to any one account (or in each case, such greater
amounts to which the Administrative Agent may agree), and (iii) payroll, trust
and tax withholding accounts funded in the ordinary course of business and
required by Applicable Law) 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 (or a DDA which is swept daily to a Blocked Account), the
Collateral Agent may require the applicable US Loan Party to close such account
and have all funds therein transferred to a Blocked Account, and all future
deposits made to a Blocked Account which is subject to a Blocked Account
Agreement. In addition to the foregoing, during the continuance of a Cash
Dominion Event, the US Loan Parties shall provide the Collateral Agent with an
accounting of the contents of the Blocked Accounts, which shall identify, to
the satisfaction of the Collateral Agent, the proceeds from the Term Priority
Collateral which were deposited into a Blocked Account and swept to the
Concentration Account. Upon the receipt of (x) the contents of the Blocked
Accounts, and (y) such accounting, the Collateral Agent agrees to promptly
remit to the agent under the Term Loan Facility the proceeds of the Term
Priority Collateral received by the Administrative Agent. Notwithstanding
anything in any Loan Document to the contrary, (i) so long as the Obligations
have not been accelerated, no DDAs maintained by any Canadian Loan Party nor
credit card or debit card processing accounts maintained by any Canadian Loan
Party shall be subject to the dominion and control of the Administrative Agent,
and (ii) all Canadian Loan Parties shall provide the Collateral Agent with a
monthly accounting of the contents of, and a copy of the bank statement for,
each Blocked Account maintained in Canada for the immediately preceding month.

 

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

 

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

 

82

 

(ii)                                  So long as the Obligations have not been
accelerated:

 

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

 

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

 

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

 

(A)                              upon notice to a Canadian Blocked Account Bank (which the Agents agree
not to give unless the Obligations have been accelerated), no Loan Party shall
have any access to or right of withdrawal from the Canadian Blocked Accounts
maintained with such Canadian Blocked Account Bank; and

 

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

 

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

 

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

 

83

 

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

 

(i)                                     Any amounts received in the Concentration
Account at any time when all of the Obligations then due have been and remain
fully repaid shall be remitted to the operating account of the Borrowers
maintained with the Administrative Agent.

 

(j)                                     The Collateral Agent shall promptly (but in
any event within one Business Day) furnish written notice to each Person with
whom a Blocked Account is maintained of any termination of a Cash Dominion
Event.

 

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

 

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

 

(ii)                                  Funds paid to the Administrative Agent, other
than by deposit to the Concentration Account, shall be deemed to have been
received on the Business Day when they are good and collected funds, provided
that such payment is available to the Administrative Agent by 4:00 p.m. on
that Business Day (except that if the Obligations are being paid in full, by
2:00 p.m. Boston time, on that Business Day);

 

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

 

(iv)                              If any item deposited to the 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
applicable Loan Account and the Borrowers shall indemnify the Secured Parties
against all out-of-pocket claims and losses resulting from such dishonor or
return;

 

84

 

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

 

SECTION 2.19                                            Fees.

 

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

 

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

 

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

 

(i)                                     Standby Letters of Credit: At a per annum
rate equal to the then Applicable Margin for LIBO Loans with respect to Tranche
A Loans;

 

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

 

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

 

85

 

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

 

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

 

SECTION 2.20                                            Maintenance of Loan Account; Statements of
Account.

 

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

 

(b)                                 The Loan Account will be credited with all
amounts received by the Administrative Agent from the Borrowers or from other
Persons for the Borrowers’ account, including all amounts received in the
Concentration Account from the Blocked Account Banks, and the amounts so
credited shall be applied as set forth in and to the extent required by SECTION
2.17(e) or SECTION 7.04, as applicable. After the end of each month, the
Administrative Agent shall send to the Borrowers a statement accounting for the
charges (including interest), loans, advances and other transactions occurring
among and between the Administrative Agent, the Lenders and the Borrowers
during that month. The monthly statements, absent manifest error, shall be
deemed presumptively correct.

 

SECTION 2.21                                            Payments; Sharing of Setoff.

 

(a)                                  The Borrowers shall make each payment
required to be made hereunder or under any other Loan Document (whether of
principal, interest, fees or reimbursement of drawings under Letters of Credit,
of amounts payable under SECTIONS 2.14, 2.16(c) or 2.23, or otherwise) prior to
2:00 p.m. 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 (or such other place as the
Administrative Agent may direct), except payments to be made directly to each
Issuing Bank or Swingline Lender as expressly provided herein and except that
payments pursuant to SECTIONS 2.14, 2.16(c), 2.23 and SECTION 9.05 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 to the appropriate
recipient promptly following receipt thereof. If any payment under any Loan

 

86

 

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

 

(b)                                 All funds received by and available to the
Administrative Agent to pay principal, unreimbursed drawings under Letters of
Credit, interest, fees and other amounts then due hereunder, shall be applied
in accordance with the provisions of SECTION 2.17(e) or SECTION 7.04 ratably
among the parties entitled thereto in accordance with the amounts of principal,
unreimbursed drawings under Letters of Credit, interest, fees and other amounts
then due to such respective parties. For purposes of calculating interest due
to a Lender, that Lender shall be entitled to receive interest on the actual
amount contributed by that Lender towards the principal balance of the
Revolving Credit Loans outstanding during the applicable period covered by the
interest payment made by the Borrowers. Any net principal reductions to the
Revolving Credit Loans received by the Administrative Agent in accordance with
the Loan Documents during such period shall not reduce such actual amount so
contributed, for purposes of calculation of interest due to that Lender, until
the Administrative Agent has distributed to the applicable Lender its
Commitment Percentage thereof.

 

(c)                                  Unless the Administrative Agent shall have
received notice from the Lead Borrower prior to the date on which any payment
is due to the Administrative Agent for the account of the Lenders or the
Issuing Banks hereunder that the Borrowers will not make such payment, the
Administrative Agent may assume that the Borrowers have made such payment on
such date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the applicable Issuing Bank, as the case may be,
the amount due. In such event, if the Borrowers have not in fact made such
payment, then each of the Lenders or the applicable 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 such 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.

 

(d)                                 In accordance with the provisions of SECTION
8.16, 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 Section.

 

SECTION 2.22                                            Settlement Amongst Lenders. 

 

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

 

87

 

the
Tranche A Lenders to make a Tranche A Loan (which shall be a Prime Rate Loan)
in an amount equal to such Lender’s Tranche A Commitment Percentage of 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 Tranche A Lender shall make
available to the Administrative Agent the proceeds of such Tranche A Loan for
the account of the Swingline Lender. If the Swingline Lender requires a Tranche
A Loan to be made by the Tranche A Lenders and the request therefor is received
prior to 12:00 noon on a Business Day, such transfers shall be made in
immediately available funds no later than 3:00 p.m. that day; and, if the
request therefor is received after 12:00 noon, then no later than 3:00 p.m. on
the next Business Day. The obligation of each such Tranche A 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 any
Tranche A Lender shall not have so made its transfer to the Administrative
Agent, such Tranche A 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 Tranche A
Commitment Percentage or Tranche A-1 Commitment Percentage of outstanding
Revolving Credit Loans (including outstanding Swingline Loans, except that
settlements of Swingline Loans during the months of October, November and
December of each year shall be required to be made by the Swingline Lender only
with respect to those Swingline Loans in excess of $25,000,000 in the aggregate
only (the amounts in excess of $25,000,000 being referred to as the “Excess
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 Credit Loans (including Swingline Loans other than
Excess Swingline Loans) and repayments of Revolving Credit Loans (including
Swingline Loans other than Excess Swingline Loans) received by the
Administrative Agent as of 3:00 p.m. on the first Business Day (such date, the
“Settlement Date”) following the end of the period specified by the
Administrative Agent.

 

(c)                                  The Administrative Agent shall deliver to
each of the Lenders promptly after a Settlement Date a summary statement of the
amount of outstanding Revolving Credit Loans (including Swingline Loans other
than Excess Swingline Loans) for the period and the amount of repayments
received for the period. As reflected on the summary statement, (i) the
Administrative Agent shall transfer to each Tranche A Lender or Tranche A-1
Lender, as applicable, its Tranche A Commitment Percentage or Tranche A-1
Commitment Percentage of repayments, and (ii) 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 Credit Loans made
by each Tranche A Lender or Tranche A-1 Lender, as applicable, with respect to
Revolving Credit Loans to the Borrowers (including Swingline Loans other than
Excess Swingline Loans) shall be equal to such Tranche A Lender’s Tranche A
Commitment Percentage, or Tranche A-1 Lender’s Tranche A-1 Commitment
Percentage of Revolving Credit Loans, as applicable (including Swingline Loans
which are not Excess Swingline Loans) outstanding as of such Settlement Date. If
the summary statement requires transfers to be made to the Administrative

 

88

 

Agent
by the Lenders and is received prior to 12:00 noon on a Business Day, such
transfers shall be made in immediately available funds no later than 3:00 p.m.
that day; and, if received after 12:00 noon, then no later than 3:00 p.m. 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 Federal Funds Effective Rate.

 

SECTION 2.23                                            Taxes.

 

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

 

(b)                                 In addition, the Loan Parties shall pay any
Other Taxes to the relevant Governmental Authority in accordance with
Applicable Law.

 

(c)                                  The Loan Parties shall indemnify each Credit
Party, within ten (10) days after written demand therefor, for the full amount
of any Indemnified Taxes or Other Taxes paid or payable by such Credit Party on
or with respect to any payment by or on account of any obligation of the Loan
Parties 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 2.23) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto; provided that if any Loan Party
reasonably believes that such Taxes were not correctly or legally asserted,
each Lender will use reasonable efforts to cooperate with such Loan Party to
obtain a refund of such Taxes so long as such efforts would not, in the sole
determination of such Lender, result in any additional costs, expenses or risks
or be otherwise disadvantageous to it; provided further, that the Loan
Parties shall not be required to compensate any Lender pursuant to this SECTION
2.23 for any amounts incurred in any fiscal year for which such Lender is
claiming compensation if such Lender does not furnish notice of such claim
within six (6) months from the end of such fiscal year; provided  further,
that if the circumstances giving rise to such claim have a retroactive effect,
then the beginning of such six month period shall be extended to include such
period of retroactive effect. A certificate as to the amount of such payment or
liability delivered to the Lead Borrower by a Credit Party, or by the
Administrative Agent on its own behalf or on behalf of any other Credit Party,
setting forth in reasonable detail the manner in which such amount was
determined, shall be conclusive absent manifest error.

 

89

 

(d)                                 As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by a Loan Party to a Governmental Authority,
the Lead 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)                                  (i)                                     Any Foreign Lender that is entitled to an
exemption from or reduction in United States withholding Tax shall deliver to
the Lead Borrower and the Administrative Agent two (2) copies of (i) either
United States Internal Revenue Service Form W-8BEN (claiming a treaty benefit)
or Form W-8ECI, or any subsequent versions thereof or successors thereto, or,
(ii) in the case of a Foreign Lender claiming exemption from or reduction in
U.S. federal withholding Tax under Section 871(h) or 881(c) of the Code with
respect to payments of “portfolio interest”, a (A) Form W-8BEN, or any
subsequent versions thereof or successors thereto and (B) a certificate
representing that such Foreign Lender (1) is not a bank for purposes of Section
881(c) of the Code, (2) is not a 10 percent shareholder (within the meaning of
Section 871(h)(3)(B) of the Code) of any Loan Party and (3) is not a controlled
foreign corporation related to the Loan Parties (within the meaning of Section
864(d)(4) of the Code)), in all cases, 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 Loan Parties 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. Any Lender shall, if reasonably requested by a Loan Party, deliver such
other documentation prescribed by Applicable Law or as reasonably requested by
such Loan Party, as will enable such Loan Party to determine whether such
Lender is subject to withholding under the laws of Canada, is entitled to an
exemption from such withholding or is eligible for a reduced rate of
withholding in Canada. Notwithstanding any other provision of this SECTION
2.23(e), a Lender shall not be required to deliver any form pursuant to this
SECTION 2.23(e) that such Lender is not legally able to deliver.

 

(ii)                                  Each Lender that is a “United States person”
as defined under Section 7701(a)(30) of the Code (a “U.S. Lender”) shall
deliver to the Lead Borrower and the Administrative Agent such form or forms,
certificates or documentation, including two original copies of United States
Internal Revenue Service Form W-9, as reasonably requested by any Borrower to
confirm or establish that such U.S. Lender is not subject to deduction,
withholding, or backup withholding of United States federal income Tax with
respect to any payments to such U.S. Lender. Such forms shall be delivered by
each U.S. Lender to the Borrower on or before the date such U.S. Lender 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).

 

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

 

90

 

pursuant
to paragraph (a) or (c) above or Canadian taxes in lieu of withholding taxes
pursuant to clause (j) below, 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 paragraph (e) above. Should a Lender become
subject to Taxes because of its failure to deliver a form required hereunder,
the Loan Parties shall, at such Lender’s expense, take such steps as such
Lender shall reasonably request to assist such Lender to recover such Taxes.

 

(g)                                 If any Loan Party shall be required pursuant
to this SECTION 2.23 to pay any additional amount to, or to indemnify, any
Credit Party to the extent that such Credit Party becomes subject to
Indemnified Taxes or Other Taxes subsequent to the Closing Date (or, if
applicable, subsequent to the date such Person becomes a party to this Agreement)
as a result of any change in the circumstances of such Credit Party (other than
a change in Applicable Law), including without limitation a change in the
residence, place of incorporation, principal place of business of such Credit
Party or a change in the branch or lending office of such Credit Party, as the
case may be, such Credit Party shall use reasonable efforts to avoid or
minimize any amounts which might otherwise be payable pursuant to this SECTION
2.23(g); provided, however, that such efforts shall not include
the taking of any actions by such Credit Party that would result in any Tax,
costs or other expense to such Credit Party (other than a Tax, cost or other
expense for which such Credit Party shall have been reimbursed or indemnified by
the Loan Parties pursuant to this Agreement or otherwise) or any action which
would or might in the reasonable opinion of such Credit Party have an adverse
effect upon its business, operations or financial condition or otherwise be
disadvantageous to such Credit Party.

 

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

 

(i)                                     If any Credit Party 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 Loan Parties pursuant to
subsection (a) or (c) above in respect of payments under the Loan Documents
(which refund, deduction or credit is provided by the jurisdiction imposing
such Taxes), a current monetary benefit that it would otherwise not have
obtained and that would result in the total payments under this SECTION 2.23
exceeding the amount needed to make such Credit Party whole, such Credit Party
shall pay to the Lead Borrower, with reasonable promptness following the date
upon which it actually realizes such benefit, an amount equal to the amount of
such refund, deduction or credit, net of all out of pocket expenses incurred in
securing such refund, deduction or credit. This SECTION 2.23(i) shall not be
construed to require any Credit Party to make available its Tax returns (or any
other confidential information relating to its Taxes) to any Loan Party.

 

(j)                                     In addition to the provisions of SECTION
2.23(a), in respect of amounts paid or credited by a Loan Party that is
resident in Canada for purposes of the ITA to or for the benefit of a Credit Party
that is an “authorized foreign bank” for purposes of the ITA, the obligations
under SECTION 2.23 to pay an additional amount shall apply where the particular
Credit Party is liable for tax under Part XIII of the ITA in respect of such
payment, even if the Loan Party is not required under the ITA to deduct or withhold
an amount in respect of

 

91

 

Indemnified
Taxes on such payment and SECTION 2.23 shall apply, mutatis
mutandis, as if the Loan Party were required to deduct or withhold
an amount in respect of such Indemnified Taxes.

 

SECTION 2.24                                            Mitigation Obligations; Replacement of
Lenders. 

 

(a)                                  If any Lender requests compensation under
SECTION 2.14 or cannot make Revolving Credit Loans under SECTION 2.11, or if
the Borrowers are required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to SECTION 2.23,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Revolving Credit Loans hereunder or to assign
its rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the reasonable judgment of such Lender, such designation or
assignment (i) would eliminate or reduce amounts payable pursuant to SECTION
2.14 or SECTION 2.23, as the case may be, in the future and (ii) would not
subject such Lender to any unreimbursed cost or expense. The Borrowers hereby
agree to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment; provided, however,
that the Borrowers 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.

 

(b)                                 (i) If any Lender requests compensation under
SECTION 2.14 or cannot make Revolving Credit Loans under SECTION 2.11 for
thirty (30) consecutive days, or (ii) if any Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account
of any Lender pursuant to SECTION 2.23, or (iii) if any Lender becomes a
Delinquent Lender or otherwise defaults in its obligation to fund Revolving
Credit Loans hereunder, then the Borrowers may, at their 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 9.07), 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, however, that (i) the Lead Borrower shall
have received the prior written consent of the Administrative Agent, the
Issuing Banks and the Swingline Lender, which consent shall not be unreasonably
withheld, (ii) such Lender shall have received payment of an amount equal to
the outstanding principal of its Revolving Credit 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 Borrowers (in the case of all other amounts) and (iii) in the
case of any such assignment resulting from a claim for compensation under
SECTION 2.14 or payments required to be made pursuant to SECTION 2.23, 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 Borrowers to require such assignment and delegation
cease to apply.

 

92

 

SECTION 2.25                                            Designation of Lead Borrower as Borrowers’
Agent.

 

(a)                                  Each Borrower hereby irrevocably designates
and appoints the Lead Borrower as such Borrower’s agent to obtain Revolving
Credit Loans and Letters of Credit, the proceeds of which shall be available to
each Borrower for such uses as are permitted under this Agreement. As the disclosed
principal for its agent, each Borrower shall be obligated to the Administrative
Agent and each Lender on account of Revolving Credit Loans so made and Letters
of Credit so issued as if made directly by the Lenders to such Borrower,
notwithstanding the manner by which such Revolving Credit Loans and Letters of
Credit are recorded on the books and records of the Lead Borrower and of any
other Borrower.

 

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

 

(c)                                  The Lead Borrower shall act as a conduit for
each Borrower (including itself, as a Borrower) on whose behalf the Lead
Borrower has requested a Revolving Credit Loan. None of the Agents nor any
other Credit Party shall have any obligation to see to the application of such
proceeds.

 

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

 

SECTION 2.26                                            Provisions Applicable to Canadian Loan
Parties.

 

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

 

(b)         Notwithstanding any provision herein to the contrary, and to the extent
applicable, in no event will the aggregate “interest” (as defined in section
347 of the Criminal Code (Canada))

 

93

 

payable
by a Canadian Loan Party under any Loan Document exceed the maximum effective
annual rate of interest on the “credit advanced” (as defined in that section
347) permitted under that section and, if any payment, collection or demand
pursuant to such Loan Document in respect of “interest” (as defined in that
section 347) is determined to be contrary to the provisions of such section
347, such payment, collection or demand will be deemed to have been made by
mutual mistake of such Canadian Loan Party, the Administrative Agent and the
applicable Lender or Lenders and the amount of such payment or collection will
be refunded to such Canadian Loan Party only to the extent of the amount which is
greater than the maximum effective annual rate permitted under such law. For
purposes of determining compliance with such section 347, the effective annual
rate of interest will be determined in accordance with generally accepted
actuarial practices and principles over the term of this Agreement and, in the
event of dispute, a certificate of a Fellow of the Canadian Institute of
Actuaries appointed by the Administrative Agent will be prima facie
evidence for the purposes of such determination.

 

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

 

ARTICLE III

 

Representations and Warranties

 

To
induce the Credit Parties to make the Revolving Credit Loans (including
Swingline Loans) and to issue Letters of Credit, the Loan Parties, jointly and
severally, make the following representations and warranties to each Credit
Party with respect to each Loan Party:

 

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

 

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

 

94

 

SECTION 3.02                                            Authorization; No Contravention.

 

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

 

SECTION 3.03                                            Governmental Authorization; Other Consents.

 

No
approval, consent, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person is necessary or
required in connection with (a) the execution, delivery or performance by, or
enforcement against, any Loan Party of this Agreement or any other Loan
Document, or for the consummation of the Transaction, (b) the grant by any Loan
Party of the Liens granted by it pursuant to the Security Documents, (c) the
perfection or maintenance of the Liens created under the Security Documents
(including the priority thereof) or (d) the exercise by the Agents or any
Lender of their rights under the Loan Documents or the remedies in respect of
the Collateral pursuant to the Security Documents, except for (i) filings
necessary to perfect the Liens on the Collateral granted by the Loan Parties in
favor of the Secured Parties, (ii) the approvals, consents, exemptions,
authorizations, actions, notices and filings which have been duly obtained,
taken, given or made and are in full force and effect and (iii) those
approvals, consents, exemptions, authorizations or other actions, notices or
filings, the failure of which to obtain or make could not reasonably be
expected to have a Material Adverse Effect.

 

SECTION 3.04                                            Binding Effect.

 

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

 

SECTION 3.05                                            Financial Statements; No Material Adverse
Effect.

 

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

 

95

 

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

 

(ii)
The unaudited pro  forma condensed Consolidated balance sheet of
the Lead Borrower and its Subsidiaries as at July 29, 2006 (including the notes
thereto) (the “Pro Forma Balance Sheet”) and the unaudited pro  forma
condensed Consolidated statements of operations (the “Pro Forma Statements
of Operations”) of the Lead Borrower and its Subsidiaries for the most
recent Fiscal Year, the six months ended July 29, 2006 and the 12-month period
ending on July 29, 2006 (together with the Pro Forma Balance Sheet, the “Pro
Forma Financial Statements”), copies of which have heretofore been
furnished to each Lender, have been prepared giving effect (as if such events
had occurred on July 29, 2006 with respect to the Pro Forma Balance Sheet or
January 30, 2005 with respect to the Pro Forma Statements of Operations) to the
Transaction. The Pro Forma Financial Statements have been prepared in good
faith, based on assumptions believed by the Lead Borrower to be reasonable as
of the date of delivery thereof, and present fairly in all material respects
the pro  forma Consolidated financial position of the Lead
Borrower and its Subsidiaries as at July 29, 2006 and their Consolidated
results of operations for the periods covered thereby, assuming that the events
specified in the preceding sentence had actually occurred on July 29, 2006 with
respect to the Pro Forma Balance Sheet or January 30, 2005 with respect to the
Pro Forma Statements of Operations.

 

(b)                            Since the Closing Date, there has been no
event or circumstance, either individually or in the aggregate, that has had or
could reasonably be expected to have a Material Adverse Effect.

 

(c)                             The forecasts of Consolidated balance sheets,
income statements and cash flow statements of the Lead Borrower and its
Subsidiaries for each Fiscal Year ending after the Closing Date until the fifth
anniversary of the Closing Date, copies of which have been furnished to the
Agents prior to the Closing Date in a form reasonably satisfactory to the
Agents, have been prepared in good faith on the basis of the assumptions stated
therein, which assumptions were believed to be reasonable at the time of
preparation of such forecasts, it being understood that actual results may vary
from such forecasts and that such variations may be material.

 

(d)                            As of the Closing Date, neither the Lead
Borrower nor any Subsidiary has any Indebtedness or other obligations or
liabilities, direct or contingent (other than (i) the liabilities
reflected on Schedule 6.03, (ii) obligations arising under this
Agreement, (iii) the Term Loan Facility, the Senior Notes, the Senior
Subordinated Notes, and the Subordinated Discount Notes, and
(iv) liabilities incurred in the ordinary course of business) that, either
individually or in the aggregate, have had or could reasonably be expected to
have a Material Adverse Effect.

 

96

 

SECTION 3.06                                            Litigation.

 

Except
as disclosed in the Lead Borrower’s annual report (filed on Form 10-K) for the
Fiscal Year ending January 28, 2006 and on the quarterly reports (filed on Form
10-Q) for the Fiscal Quarters ending April 29, 2006 and July 29, 2006, there
are no actions, suits, proceedings, claims or disputes pending or, to the
knowledge of any Loan Party, threatened in writing or contemplated, at law, in
equity, in arbitration or before any Governmental Authority, by or against the
Parent or any of its Subsidiaries or against any of their properties or
revenues that (a) either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, or (b) involve any of the Loan
Documents, which could reasonably be expected to have a Material Adverse
Effect.

 

SECTION 3.07                                            No Default.

 

Neither
the Parent nor any Subsidiary is in default under or with respect to, or a
party to, any contractual obligation or Material Indebtedness that could,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

SECTION 3.08                                            Ownership of Property; Liens.

 

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

 

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

 

SECTION 3.09                                            Environmental Compliance.

 

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

 

(b)                            Except as specifically disclosed in Schedule 3.09(b)
or except as could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, (i) none of the properties currently or
formerly owned, leased or operated by any Loan Party or any of its Restricted
Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or
any analogous foreign, state, provincial or local list or is adjacent to any
such property; (ii) to the knowledge of the Loan Parties, there are no, and
never have been, any underground or aboveground storage tanks or any surface
impoundments, septic tanks, pits, sumps or lagoons in

 

97

 

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

 

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

 

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

 

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

 

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

 

(g)                                 The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
will not require any notification, registration, filing, reporting, disclosure,
investigation, remediation or cleanup pursuant to any applicable Environmental
Law, except for any requirement the noncompliance with which could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.

 

(h)                                 As of the Closing Date, the Lead Borrower has
made available to the Agents and the Lenders all material documents, studies,
and reports in the possession, custody or control of the Loan Parties
concerning compliance with or liability under Environmental Law, including
those concerning the actual or suspected existence of Hazardous Material at
Real

 

98

 

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

 

SECTION 3.10                                            Taxes.

 

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

 

SECTION 3.11                                            ERISA; Plan Compliance.

 

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

 

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

 

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

 

SECTION 3.12                                            Subsidiaries; Equity Interests.

 

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

 

99

 

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

 

SECTION 3.13                                            Margin Regulations; Investment Company Act.

 

(a)                                  No Borrower is engaged nor will it engage,
principally or as one of its important activities, in the business of
purchasing or carrying Margin Stock, or extending credit for the purpose of
purchasing or carrying Margin Stock and no proceeds of any Revolving Credit
Loan (including Swingline Loans) or drawings under any Letter of Credit will be
used for the purpose of purchasing or carrying Margin Stock (other than
pursuant to, or in connection with, the MIK Recapitalization), or any other
purpose that violates Regulation U. The value of the Margin Stock at any time
owned by the Loan Parties and their Subsidiaries at any time a Credit Extension
constitutes a “purpose credit” (within the meaning of Regulation U) does not
exceed 25% of the value of the assets of the Loan Parties and their Subsidiaries
taken as a whole.

 

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

 

SECTION 3.14                                            Disclosure.

 

No
report, financial statement, certificate or other written information furnished
by or on behalf of any Loan Party to any Credit Party in connection with the
transactions contemplated hereby and the negotiation of this Agreement or
delivered hereunder or any other Loan Document (as modified or supplemented by
other information so furnished) when taken as a whole 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 materially misleading; provided that,
with respect to projected financial information and pro  forma
financial information, the Lead Borrower represents only that such information
was prepared in good faith based upon assumptions believed to be reasonable at
the time of preparation; it being understood that such projections may vary
from actual results and that such variances may be material.

 

SECTION 3.15                                            Intellectual Property; Licenses, Etc.

 

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

 

100

 

reasonably
necessary for the operation of their respective businesses as currently
conducted, and, without conflict with the rights of any Person, except to the
extent such conflicts, either individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect. No IP Rights,
advertising, product, process, method, substance, part or other material used
by any Loan Party or any Subsidiary in the operation of their respective
businesses as currently conducted infringes upon any rights held by any Person
except for such infringements, individually or in the aggregate, which could
not reasonably be expected to have a Material Adverse Effect. No claim or
litigation regarding any of the IP Rights, is pending or, to the knowledge of
any Borrower, threatened against any Loan Party or Subsidiary, which, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

 

SECTION 3.16                                            Solvency.

 

On
the Closing Date after giving effect to the Transaction, the Loan Parties, on a
Consolidated basis, are Solvent.

 

SECTION 3.17                                            Subordination of Junior Financing.

 

The
Obligations are “Senior Debt,” “Senior Indebtedness,” “Guarantor Senior Debt”
“Designated Senior Indebtedness” or “Senior Secured Financing” (or any
comparable term) under, and as defined in, any Senior Subordinated Note
Documents, any Subordinated Discount Note Documents and any other Junior
Financing.

 

SECTION 3.18                                            Labor Matters.

 

Except
as, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect or as disclosed in the Lead Borrower’s annual report (filed on
Form 10-K) for the Fiscal Year ending January 28, 2006 and on the quarterly
reports (filed on Form 10-Q) for the Fiscal Quarters ending April 29, 2006 and
July 29, 2006:  (a) there are no
strikes or other labor disputes against any of the Parent or its Subsidiaries
pending or, to the knowledge of the Lead Borrower, threatened; (b) hours
worked by and payment made to employees of each of the Parent or its Restricted
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other Applicable Laws dealing with such matters; and (c) all payments due
from any of the Parent or its Restricted Subsidiaries on account of employee
health and welfare insurance have been paid or accrued as a liability on the
books of the relevant party. Except as disclosed in the Lead Borrower’s annual
report (filed on Form 10-K) for the Fiscal Year ending January 28, 2006 and on
the quarterly reports (filed on Form 10-Q) for the Fiscal Quarters ending April
29, 2006 and July 29, 2006, as of the Closing Date no Loan Party is a party to
or bound by any collective bargaining agreement or any similar agreement. As of
the Closing Date, there are no representation proceedings pending or, to the
actual knowledge of any Responsible Officer of any Loan Party, threatened to be
filed with the National Labor Relations Board or other applicable Governmental
Authority, and no labor organization or group of employees of any Loan Party
has made a pending demand in writing for recognition. As of the Closing Date,
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 to the extent that such would be reasonably expected to result in a
Material Adverse Effect.

 

101

 

SECTION
3.19       Compliance with Laws and Agreements.

 

Each
Loan Party is in compliance with all Applicable Law, except where the failure
to comply, individually or in the aggregate, would not reasonably be expected
to result in a Material Adverse Effect. Without limiting the generality of the
foregoing, each Loan Party has obtained all permits, licenses and other
authorizations which are required with respect to the ownership and operations
of its business, except where the failure to obtain such permits, licenses or
other authorizations, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect. Each Loan Party is in compliance
with all terms and conditions of all such permits, licenses, orders and
authorizations, except where the failure to comply with such terms or
conditions, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.

 

SECTION
3.20       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 and hypothec in the Collateral described therein as security for the
Obligations to the extent that a legal, valid, binding and enforceable security
interest in such Collateral may be created under any Applicable Law of the
United States of America and any states thereof, including, without limitation,
the applicable Uniform Commercial Code, and under any Applicable Law of Canada
and any provinces thereof, including, without limitation, the PPSA and the
Civil Code, and the Security Documents constitute, or will upon the filing of
financing statements and the obtaining of “control”, in each case, as
applicable, with respect to the relevant Collateral as required under the
applicable Uniform Commercial Code, PPSA or Civil Code, the creation of a fully
perfected first priority Lien on, and security interest and hypothec in, all
right, title and interest of the Borrowers and each Facility Guarantor 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
and with respect to the Term Priority Collateral), except as permitted
hereunder or under any other Loan Document, in each case to the extent that a
security interest may be perfected by the filing of a financing statement or
hypothec under the applicable Uniform Commercial Code, PPSA or Civil Code, or
by obtaining “control”.

 

ARTICLE IV

Conditions

 

SECTION
4.01       Conditions of Initial Credit Extension.

 

The
obligation of each Lender to make its initial Credit Extension hereunder is
subject to satisfaction of the following conditions precedent:

 

(a)           The Agents and the Arrangers (or their counsel) shall have received
from each party either (i) a counterpart of this Agreement and all other Loan
Documents signed on behalf of such party or (ii) written evidence satisfactory
to the Agents and the Arrangers (which may include telecopy transmission or
electronic pdf copy of a signed signature page of this

 

102

 

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

 

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

 

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

 

(d)           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 and a
Borrowing Base Certificate dated the Closing Date, relating to the month ended
on September 30, 2006, and executed by a Financial Officer of the Lead
Borrower.

 

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

 

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

 

(g)           No Material Adverse Effect (as defined in the Recapitalization
Agreement) shall have occurred since the date of the most recent financial
information delivered to the Agents and the Arrangers and the Agents shall have
received a certificate from a Responsible Officer of the Lead Borrower to that
effect.

 

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

 

103

 

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

 

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

 

(j)            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 releases or subordination agreements are being tendered on the
Closing Date.

 

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

 

(l)            Prior to or simultaneously with the initial
Credit Extensions, the Lead Borrower shall have terminated the Existing Credit
Agreement and the Administrative Agent shall have received a payoff letter in
form reasonably satisfactory to the Administrative Agent, including, without
limitation, the agreement of the agents under the Existing Credit Agreement to
terminate, or cause to be terminated, the Liens, if any, which secure the
Existing Credit Agreement.

 

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

 

(n)           The Lead Borrower shall have received the Equity Contribution in cash
to pay a portion of the purchase price under the Transaction Documents. The
existing equity and/or stock options in the Lead Borrower shall have been
rolled over. The Borrowers and/or their Affiliates shall have received the
proceeds from (a) the Senior Notes, the Senior Subordinated Notes, and the Subordinated
Discount Notes, and (b) the Term Loan Facility.

 

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

 

104

 

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

 

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

 

(q)           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 in the United States 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 reasonable
satisfaction of the Collateral Agent and (ii) the Credit Card Notifications,
and Blocked Account Agreements required pursuant to SECTION 2.18 hereof and
(iii) with respect to any Loan Party located in or organized under the laws of
Canada, all filings and recordations required by Applicable Law of Canada
(including, without limitation, under the PPSA and the Civil Code) or
reasonably requested by the Collateral Agent to be filed, registered or
recorded to create or perfect in Canada the Collateral Agent’s Lien in any
Collateral located in Canada.

 

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

 

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

 

SECTION
4.02       Conditions Precedent to Each Revolving Credit
Loan and Each Letter of Credit.

 

The
obligation of the Lenders to make each Revolving Credit Loan and of the Issuing
Banks to issue each Letter of Credit is also subject to the satisfaction by the
Loan Parties or the waiver of each of the following conditions precedent:

 

(a)           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, and
in the case of the issuance of a Letter of Credit, the applicable Issuing Bank
shall have received notice with respect thereto in accordance with SECTION
2.13.

 

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

 

105

 

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, which shall be true and
correct in all material respects as of such earlier date, provided that any
representation and warranty which is qualified as to “materiality”, “Material
Adverse Effect” or similar language shall be true and correct in all respects
on such respective dates.

 

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

 

(d)           If Availability shall be less than $75,000,000, the Loan Parties shall
have demonstrated, to the reasonable satisfaction of the Administrative Agent,
that the Consolidated Fixed Charge Coverage Ratio on a Pro Forma Basis was at
least 1.1 to 1.00 at the end of the month immediately preceding the request for
a Credit Extension (tested on a trailing twelve month basis), provided
that this condition shall not apply to the initial Revolving Credit Loan and
Letters of Credit to be issued on the Closing Date in order to consummate the
MIK Recapitalization. For purposes of determining satisfaction with the
foregoing Consolidated Fixed Charge Coverage Ratio under this SECTION 4.02(d),
any Specified Equity Contribution will, at the request of the Lead Borrower, be
included in the calculation of Consolidated EBITDA for any period of
calculation which includes the month in which such Specified Equity
Contribution was received by the Loan Parties, provided that (a) in each
four Fiscal Quarter period, there shall be a period of at least two Fiscal Quarters
in respect of which no Specified Equity Contribution is made, (b) the amount of
any Specified Equity Contribution shall be no greater than the amount required
to cause the Loan Parties to be in pro  forma compliance with the
Consolidated Fixed Charge Coverage Ratio specified above and (c) all Specified
Equity Contributions shall be disregarded for purposes of determining any
baskets with respect to the covenants contained herein. For clarification, any
equity contributions described in clause (a)(ii) of the definition of
Consolidated Fixed Charge Coverage Ratio other than on account of Specified
Equity Contributions shall not be included in the calculation of Consolidated
EBITDA under this SECTION 4.02(d).

 

The
request by the Lead Borrower for, and the acceptance by any Borrower of, each
extension of credit hereunder shall be deemed to be a representation and
warranty by the Loan Parties 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 Borrowers shall continue to be in compliance with the Tranche A-1
Borrowing Base (or, if the Tranche A-1 Commitments have been terminated, the
then Tranche A Borrowing Base). The conditions set forth in this SECTION 4.02
are for the sole benefit of the Administrative Agent and each other Credit
Party and may be waived by the Administrative Agent, in whole or in part,
without prejudice to the rights of the Administrative Agent or any other Credit
Party.

 

106

 

ARTICLE V

Affirmative Covenants

 

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

 

SECTION
5.01       Financial Statements.

 

The
Lead Borrower will deliver to the Administrative Agent for prompt further
distribution to each Lender:

 

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

 

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

 

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

 

107

 

Month
and for the portion of the Fiscal Year then ended and (ii) Consolidated
statements of cash flows for the portion of the Fiscal Year then ended, setting
forth in each case in comparative form the figures for the corresponding Fiscal
Month of the previous Fiscal Year and the corresponding portion of the previous
Fiscal Year, all in reasonable detail and certified by a Responsible Officer of
the Lead Borrower as fairly presenting in all material respects the financial
condition, results of operations, stockholders’ equity and cash flows of the
Lead Borrower and its Subsidiaries in accordance with GAAP, subject only to
normal year-end audit adjustments and the absence of footnotes;

 

(d)           as soon as available, and in any event no later than ninety (90) days
after the end of each Fiscal Year of the Lead Borrower, a detailed consolidated
budget by month for the following Fiscal Year (including a projected
Consolidated balance sheet of the Lead Borrower and its Subsidiaries as of the
end of each month of the following Fiscal Year, the related Consolidated
statements of projected cash flow and projected income and a summary of the
material underlying assumptions applicable thereto), and, as soon as available,
significant revisions, if any, of such budget and projections with respect to
such Fiscal Year (collectively, the “Projections”), which Projections
shall in each case be accompanied by a certificate of a Responsible Officer
stating that such Projections are based on estimates, information and
assumptions believed to be reasonable and that such Responsible Officer has no
reason to believe that such Projections are incorrect or misleading in any
material respect;

 

(e)           On the 10th Business Day of each month (or more frequently
as the Lead Borrower may elect), a certificate in the form of Exhibit I
(a “Borrowing Base Certificate”) showing the Tranche A Borrowing Base
and the Tranche A-1 Borrowing Base as of the close of business on the
immediately preceding calendar month (or in the case of a voluntary delivery of
a Borrowing Base Certificate at the election of the Borrowers, a subsequent
date), each Borrowing Base Certificate to be certified as complete and correct
in all material respects on behalf of the Lead Borrower by a Responsible
Officer of the Lead Borrower, provided that if Availability is at any
time less than $125,000,000, such Borrowing Base Certificate shall be furnished
on Wednesday of each week (or, if Wednesday is not a Business Day, on the next succeeding
Business Day), as of the close of business on the immediately preceding
Saturday;

 

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

 

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

 

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

 

108

 

any
direct or indirect parent of Holdco), as applicable, Form 10-K or 10-Q, as
applicable, filed with the SEC, provided that
to the extent that such information relates to Holdco (or any direct or
indirect parent of Holdco), such information is accompanied by consolidating
information that explains in reasonable detail the differences between the
information relating to Holdco (or such direct or indirect parent) and its
Restricted Subsidiaries, on the one hand, and the Lead Borrower and its
Restricted Subsidiaries on the other hand, and (ii) to the extent such
information is in lieu of information required to be provided under SECTION
5.01(a), such materials are accompanied by a report and opinion of Ernst &
Young LLP or any other independent registered public accounting firm of
nationally recognized standing, which report and opinion shall be prepared in
accordance with generally accepted auditing standards and shall not be subject
to any “going concern” or like qualification or exception or any qualification
or exception as to the scope of such audit.

 

SECTION
5.02       Certificates; Other Information.

 

The
Lead Borrower will deliver to the Administrative Agent for prompt further distribution
to each Lender:

 

(a)           [Reserved]

 

(b)           contemporaneously with the delivery of the financial statements
referred to in SECTION 5.01(a), SECTION 5.01(b) and SECTION 5.01(c), a duly
completed Compliance Certificate signed by a Responsible Officer of the Lead
Borrower in the form of Exhibit H hereto (a “Compliance Certificate”)
(i) certifying as to whether a Default or Event of Default has occurred and, if
a Default or Event of Default has occurred, specifying the details thereof and
any action taken or proposed to be taken with respect thereto, (ii) setting
forth reasonably detailed calculations with respect to the average daily
Availability (based on the most recent monthly and/or weekly Borrowing Base
Certificates furnished to the Administrative Agent) and the Consolidated Fixed
Charge Coverage Ratio for such period, (iii) detailing all Store openings and
Store closings during the immediately preceding fiscal period, and stating the
aggregate number of the Loan Parties’ Stores as of the first day of the current
fiscal period, (iv) setting forth in reasonable detail the status of rental
payments for each of the Loan Parties’ (A) warehouses and distribution centers,
and (B) other leased locations in the Landlord Lien States designated by the
Administrative Agent in its commercially reasonable judgment (which, as of the
Closing Date, are Washington, Pennsylvania and Virginia), and (v) stating
whether any change in GAAP or in the application thereof has occurred since the
date of the Lead Borrower’s most recent audited financial statements and, if
any such change has occurred, specifying the effect of such change on the
financial statements accompanying such Compliance Certificate;

 

(c)           promptly after the same are publicly available, copies of all annual,
regular, periodic and special reports and registration statements which the
Lead Borrower or Holdco files with the SEC or with any Governmental Authority
that may be substituted therefor (other than amendments to any registration
statement (to the extent such registration statement, in the form it became
effective, is delivered), exhibits to any registration statement and, if
applicable, any registration statement on Form S-8) and in any case not
otherwise required to be delivered to the Administrative Agent pursuant hereto;

 

109

 

(d)           promptly after the furnishing thereof, copies of any material requests
or material notices received by any Loan Party (other than in the ordinary
course of business) or material statements or material reports furnished to any
holder of debt securities of any Loan Party or of any of its Restricted
Subsidiaries pursuant to the terms of the Senior Notes, the Senior Subordinated
Notes, the Subordinated Discount Notes, or the Term Loan Facility and not
otherwise required to be furnished to the Lenders pursuant to any other clause
of this SECTION 5.02;

 

(e)           together with the delivery of each Compliance Certificate pursuant to
SECTION 5.02(b), (i) a report setting forth the information required by
Section 4.01(e) of the Security Agreement or confirming that there has been no
change in such information since the Closing Date or the date of the last such
report), and (ii) a list of each Subsidiary that identifies each
Subsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary as of the
date of delivery of such Compliance Certificate;

 

(f)            The financial and collateral reports
described on Schedule 5.02(f) hereto, at the times set forth in such Schedule
5.02(f); and

 

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

 

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

 

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

 

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

 

Documents
required to be delivered pursuant to SECTION 5.01(a), SECTION 5.01(b), SECTION
5.01(c) or SECTION 5.02(d) (to the extent any such documents are included in
materials otherwise filed with the SEC) may be delivered electronically and if
so delivered, shall be deemed to have been delivered on the date (i) on
which the Lead Borrower posts such documents, or provides a link thereto on the
Lead Borrower’s website on the Internet at the website address listed on Schedule
5.02; or (ii) on which such documents are posted on the Lead

 

110

 

Borrower’s
behalf on IntraLinks/IntraAgency or another relevant website, if any, to which
each Lender and the Administrative Agent have access (whether a commercial,
third-party website or whether sponsored by the Administrative Agent); provided that: 
(i) upon written request by the Administrative Agent, the Lead
Borrower shall deliver paper copies of such documents to the Administrative
Agent for further distribution to each Lender until a written request to cease
delivering paper copies is given by the Administrative Agent and (ii) the
Lead Borrower shall notify (which may be by facsimile or electronic mail) the
Administrative Agent of the posting of any such documents and provide to the
Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding
anything contained herein, in every instance the Lead Borrower shall be
required to provide paper copies of the Compliance Certificates required by
SECTION 5.02(b) to the Administrative Agent. Each Lender shall be solely
responsible for timely accessing posted documents or requesting delivery of
paper copies of such documents from the Administrative Agent and maintaining
its copies of such documents.

 

SECTION
5.03       Notices.

 

Promptly
after obtaining knowledge thereof, the Lead Borrower shall notify the
Administrative Agent in writing:

 

(a)           of the occurrence of any Default, specifying the nature and extent
thereof and the action (if any) which is proposed to be taken with respect
thereto; and

 

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

 

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

 

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

 

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

 

(f)            The discharge by any Loan Party of its
present independent accountants or any withdrawal or resignation by such
independent accountants;

 

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

 

111

 

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

 

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

 

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

 

SECTION
5.04       Payment of Taxes, Etc.

 

The
Loan Parties shall pay, discharge or otherwise satisfy as the same shall become
due and payable, all its obligations and liabilities in respect of Taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits or in respect of its property, except, in each case, (a) where the
validity or amount thereof is being contested in good faith by appropriate
actions and such Loan Party or such Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with GAAP, and such
contest effectively suspends collection of the contested obligation and
enforcement of any Lien securing such obligation, or (b) to the extent the
failure to pay or discharge the same could not reasonably be expected to have a
Material Adverse Effect.

 

SECTION
5.05       Preservation of Existence, Etc.

 

The
Loan Parties shall (a) preserve, renew and maintain in full force and effect
their legal existence under the Applicable Laws of the jurisdiction of its
organization except in a transaction permitted by SECTION 6.04 or SECTION 6.05,
and (b) take all reasonable action to maintain all rights, privileges
(including its good standing), permits, licenses and franchises necessary or
desirable in the normal conduct of its business, except (i) to the extent that
failure to do so could not reasonably be expected to have a Material Adverse
Effect or (ii) pursuant to a transaction permitted by SECTION 6.04 or SECTION
6.05.

 

SECTION
5.06       Maintenance of Properties.

 

Unless
the failure to do so could not reasonably be expected to have a Material
Adverse Effect, each Loan Party shall (a) maintain, preserve and protect
all of its material properties and equipment necessary in the operation of its
business in good working order, repair and condition, ordinary wear and tear
excepted and casualty or condemnation excepted, and (b) make all necessary
renewals, replacements, modifications, improvements, upgrades, extensions and
additions thereof or thereto in accordance with prudent industry practice.

 

SECTION
5.07       Maintenance of Insurance. 

 

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

 

112

 

business,
of such types and in such amounts (after giving effect to any self-insurance
reasonable and customary for similarly situated Persons engaged in the same or
similar businesses as the Parent and its Restricted Subsidiaries) as are
customarily carried under similar circumstances by such other Persons. The Loan
Parties shall furnish to the Agents, 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
a lenders’ loss payable clause (regarding personal property), in form and
substance reasonably satisfactory to the Agents, 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 Administrative
Agent, (ii) a provision to the effect that none of the Loan Parties, Credit
Parties (in their capacity as such) or any other Affiliate of a Loan Party shall
be a co-insurer (the foregoing not being deemed to limit the amount of
self-insured retention or deductibles under such policies, which self-insured
retention or deductibles shall be consistent with business practices in effect
on the Closing Date or as otherwise determined by the Responsible Officers of
the Loan Parties acting reasonably in their business judgment), and (iii) such
other provisions as the Administrative Agent may reasonably require from time
to time to protect the interests of the Credit Parties. Commercial general
liability policies shall be endorsed to name the Administrative Agent as an
additional insured. Each endorsement to such casualty or liability policy
referred to in this SECTION 5.07(b) shall also provide that it shall not be canceled,
modified in any manner that would cause this SECTION 5.07 to be violated, or
not renewed (i) by reason of nonpayment of premium except upon not less than
thirty (30) days’ prior written notice thereof by the insurer to the
Administrative Agent (giving the Administrative Agent the right to cure
defaults in the payment of premiums) or (ii) for any other reason except upon
not less than thirty (30) days’ prior written notice thereof by the insurer to
the Administrative Agent. The Lead Borrower shall deliver to the Administrative
Agent, prior to the cancellation, modification or non-renewal 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 Administrative Agent,
including an insurance binder) together with evidence satisfactory to the
Administrative Agent of payment of the premium therefor.

 

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

 

SECTION
5.08       Compliance with Laws.

 

Each
Loan Party shall comply in all material respects with the requirements of all
Applicable Laws applicable to it or to its business or property, except where
the failure to comply therewith could not reasonably be expected to have a
Material Adverse Effect.

 

SECTION
5.09       Books and Records.

 

Each
Loan Party shall maintain proper books of record and account, in which entries
that are full, true and correct in all material respects shall be made of all
material financial transactions and matters involving the assets and business
of the Lead Borrower or its Restricted

 

113

 

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

 

SECTION
5.10       Inspection Rights.

 

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

 

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

 

114

 

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

 

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

 

SECTION
5.11       Covenant to Become a Loan Party and Give
Security.

 

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

 

(a)           upon the formation or acquisition of Holdco or any new direct or
indirect wholly owned Subsidiary (in each case, other than an Excluded
Subsidiary) by any Loan Party or the designation in accordance with SECTION
5.14 of any existing direct or indirect wholly owned Subsidiary as a Restricted
Subsidiary:

 

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

 

(a)           cause
Holdco and each such Restricted Subsidiary that is required to become a Loan
Party to execute and deliver to the Administrative Agent a Joinder Agreement;

 

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

 

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

 

115

 

Loan
Party to duly execute and deliver to the Agents such Security Documents as
reasonably requested by and in form and substance reasonably satisfactory to
the Agents (consistent with the Security Documents in effect on the Closing
Date), in each case granting Liens to the Collateral Agent to secure the
Obligations;

 

(d)           (x) cause
Holdco and each such Restricted Subsidiary that is required to become a Loan
Party to deliver any and all certificates representing Capital Stock (to the
extent certificated) that are required to be pledged pursuant to the Security
Documents, accompanied by undated stock powers or other appropriate instruments
of transfer executed in blank and instruments evidencing the intercompany
Indebtedness held by such Restricted Subsidiary and required to be pledged
pursuant to the Security Documents, indorsed in blank to the Collateral Agent
and (y) cause each direct or indirect parent of such Restricted Subsidiary
that is required to be a Loan Party to deliver any and all certificates
representing the outstanding Capital Stock (to the extent certificated) of such
Restricted Subsidiary that are required to be pledged pursuant to the Security
Documents, accompanied by undated stock powers or other appropriate instruments
of transfer executed in blank and instruments evidencing the intercompany
Indebtedness issued by such Restricted Subsidiary and required to be pledged in
accordance with the Security Documents, indorsed in blank to the Collateral
Agent;

 

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

 

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

 

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

 

(b)           After the Closing Date, concurrently with (x) the acquisition of any
material personal property by any Loan Party or of any personal property in
connection with a Permitted Acquisition, or (y) the acquisition of any owned
Real Estate by any Loan Party with a

 

116

 

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

 

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

 

SECTION
5.12       Compliance with Environmental Laws.

 

Except,
in each case, to the extent that the failure to do so could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect,
the Loan Parties shall comply, and take all reasonable actions to cause all
lessees and other Persons operating or occupying its properties to comply with
all applicable Environmental Laws and permits; obtain and renew all permits
necessary for its operations and properties; and, in each case to the extent
required by Environmental Laws, conduct any investigation, study, sampling and
testing, and undertake any cleanup, removal, remedial or other action necessary
to remove and clean up all Hazardous Materials from any of its properties, in
accordance with the requirements of all Environmental Laws.

 

SECTION
5.13       Further Assurances and Post-Closing
Conditions.

 

(a)           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
or the Required Lenders 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. Without
limiting the foregoing, the Loan Parties shall use commercially reasonable
efforts to obtain a Collateral Access Agreement from any Person from whom a
Loan Party enters into a Lease after the Closing Date for a warehouse or
distribution center prior to entering into such Lease.

 

(b)           Upon the request of the Collateral Agent (which the Collateral Agent
shall not request unless either negotiable documents of title are issued for
the Inventory in transit or an Event of Default exists), each Loan Party shall
use commercially reasonable efforts to cause each of its customs brokers to
deliver an agreement (including, without limitation, a Customs Broker
Agreement) to the Collateral Agent covering such matters and in such form as
the Collateral Agent may reasonably require. In the event Inventory is in the
possession or control of a customs broker that has not delivered an agreement
as required by the preceding sentence, such Inventory shall not be considered
Eligible In-Transit Inventory hereunder.

 

117

 

SECTION
5.14       Designation of Subsidiaries.

 

The
board of directors of the Lead Borrower may at any time designate any Restricted
Subsidiary as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a
Restricted Subsidiary; provided that
(i) immediately before and after such designation, no Default shall have
occurred and be continuing, (ii) after giving effect to such designation, the
Payment Conditions shall have been satisfied, (iii) no Subsidiary may be
designated as an Unrestricted Subsidiary if such Subsidiary is a Borrower or if
such Subsidiary owns any property of the type (e.g. Inventory and Accounts)
included in the Tranche A Borrowing Base or the Tranche A-1 Borrowing Base,
(iv) no Subsidiary may be designated as an Unrestricted Subsidiary if it
is a “Restricted Subsidiary” for the purpose of the Senior Notes, the Senior
Subordinated Notes, the Subordinated Discount Notes or the Term Loan Facility,
as applicable, and (v) no Restricted Subsidiary may be designated as an
Unrestricted Subsidiary if it was previously designated an Unrestricted
Subsidiary. The designation of any Subsidiary as an Unrestricted Subsidiary
shall constitute an Investment by the Lead Borrower therein at the date of
designation in an amount equal to the net book value of the Lead Borrower’s or
Restricted Subsidiary’s (as applicable) investment therein. The designation of
any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the
incurrence at the time of designation of any Indebtedness or Liens of such
Subsidiary existing at such time.

 

SECTION
5.15       Information Regarding Collateral.

 

The
Lead Borrower will furnish to the Agents prompt written notice of any change
in: (a) any Loan Party’s name; (b) the location of any Loan Party’s chief
executive office or its principal place of business; (c) any Loan Party’s
organizational structure or jurisdiction of incorporation or formation; or (d)
any Loan Party’s Federal Taxpayer Identification Number or organizational
identification number assigned to it by its state or province of organization.
The Loan Parties agree not to effect or permit any change referred to in the
preceding sentence unless all filings, publications and registrations, have
been made (or will be made in a timely fashion) under the UCC, PPSA, Civil Code
or other Applicable Law that are required in order for the Collateral Agent to
continue at all times following such change to have a valid, legal and
perfected first priority security interest to the extent required under the
Security Documents (subject only to Permitted Encumbrances having priority
under Applicable Law) in all the Collateral for its own benefit and the benefit
of the other Secured Parties.

 

SECTION
5.16       Physical Inventories.

 

The
Loan Parties, at their own expense, shall cause not less than one (1) physical
count of Inventory to be undertaken in each twelve (12) month period (or
alternatively, periodic cycle counts) in conjunction with the preparation of
its annual audited financial statements, conducted following such methodology
as is consistent with the methodology used in the immediately preceding
Inventory (or cycle count) or as otherwise may be reasonably satisfactory to
the Agents. Following the completion of such Inventory count, and in any event
by the next date required for the delivery of a Borrowing Base Certificate
hereunder, the Borrowers shall deliver the results of such physical inventory
to the Administrative Agent and shall post such results to the Loan Parties’
stock ledgers and general ledgers, as applicable.

 

118

 

SECTION
5.17       Use of Proceeds of Credit Extensions. 

 

The
proceeds of Revolving Credit Loans made hereunder and of Letters of Credit
issued hereunder will be used only (a) to directly or indirectly finance a
portion of the aggregate amounts required to consummate the MIK
Recapitalization and to pay Transaction Expenses associated therewith, (b) to
finance the acquisition of working capital assets of the Borrowers and their
Subsidiaries, including the purchase of inventory and equipment, in each case
in the ordinary course of business, (c) to finance Capital Expenditures of the
Borrowers and their Subsidiaries, (d) to finance Permitted Acquisitions, and
(d) for general corporate purposes, all to the extent permitted in this
Agreement. No part of the proceeds of any Revolving Credit Loan will be used,
whether directly or indirectly, for any purpose that entails a violation of any
of the regulations of the FRB, including Regulations U and X.

 

SECTION
5.18       Proceeds From Surplus Cash Deposits.

 

If
any Canadian Loan Party has on deposit in any bank account unapplied cash
(being surplus cash not used for general working capital needs) exceeding
$5,000,000 at any time a Cash Dominion Event exists and is continuing, it shall
transfer such unapplied cash to a Borrower by loan, distribution or other
intercompany transfer.

 

SECTION
5.19       Excess Collections, Canadian Investments, Etc.

 

At
any time a Cash Dominion Event exists and is continuing, no Canadian Loan Party
shall have, in the aggregate, a sum exceeding the equivalent amount of
$5,000,000 in the form of (i) a deposit of cash in any bank account, (ii)
securities, and/or (iii) property that is an Investment.

 

SECTION
5.20       Pension Plans.

 

Each
Loan Party shall cause each of its Plans to be duly qualified and administered
in all respects in compliance with all Applicable Laws, and the terms of the
Plans and any agreements relating thereto, except for such non-compliance as
would not reasonably be expected to have a Material Adverse Effect. Each Loan
Party and each of its Subsidiaries shall use reasonable commercial efforts to
ensure that it, except where failure to do so would not reasonably be expected
to have a Material Adverse Effect: (a) has no Unfunded Pension Liability in
respect of any Plan, including any Plan to be established and administered by
it or them; and (b) does not engage in a prohibited transaction or violation of
the fiduciary responsibility rules with respect to any Plan that could
reasonably be expected to result in liability.

 

SECTION
5.21       Corporate Separateness. (a) 
Each Loan Party shall satisfy, and cause each of its Restricted
Subsidiaries and Unrestricted Subsidiaries to satisfy, customary corporate and
other formalities, including, as applicable, the holding of regular board of
directors’ and shareholders’ meetings or action by directors or shareholders
without a meeting and the maintenance of corporate offices and records.

 

(b)           Each Loan Party shall ensure that (i) no payment is made by it or any
of its Restricted Subsidiaries to a creditor of any Unrestricted Subsidiary in
respect of any liability of any Unrestricted Subsidiary, (ii) no bank account
of any Unrestricted Subsidiary shall be

 

119

 

commingled
with any bank account of the Parent or any of its Restricted Subsidiaries, and
(iii) any financial statements distributed to any creditors of any Unrestricted
Subsidiary shall clearly establish or indicate the corporate separateness of
such Unrestricted Subsidiary from the Parent and its Restricted Subsidiaries.

 

SECTION
5.22       Holdco.

 

A
Holdco may be formed subject to the following conditions:

 

(a)           The Lead Borrower shall furnish the Administrative Agent ten (10)
Business Days prior written notice of the formation of any such Holdco.

 

(b)           Holdco shall become a Loan Party, grant a Lien on its assets and take
such other actions as are required under SECTION 5.11 hereof.

 

ARTICLE VI

Negative Covenants

 

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

 

SECTION
6.01       Liens.

 

No
Loan Party will create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired,
other than the following (each a “Permitted Encumbrance”):

 

(a)           Liens pursuant to any Loan Document;

 

(b)           Liens existing on the date hereof and listed on Schedule 6.01
and any modifications, replacements, renewals or extensions thereof; provided that (i) the Lien does not extend to any additional
property other than (A) after-acquired property that is affixed or incorporated
into the property covered by such Lien or financed by Indebtedness permitted
under SECTION 6.03, and (B) proceeds and products thereof, and (ii) the renewal,
extension or refinancing of the obligations secured or benefited by such Liens
is permitted by SECTION 6.03;

 

(c)           Liens for taxes, assessments or governmental charges which are not
required to be paid pursuant to SECTION 5.04;

 

(d)           statutory Liens of landlords, consensual Liens granted in favor of
landlords in the Province of Quebec securing the payment of rent which are
subordinate to the

 

120

 

Lien
of the Collateral Agent, carriers, warehousemen, mechanics, materialmen,
repairmen, construction contractors or other like Liens imposed by Applicable
Law arising in the ordinary course of business which secure amounts not overdue
for a period of more than thirty (30) days and no other action has been taken
to enforce such Lien or which are being contested in good faith and by
appropriate actions diligently conducted, if adequate reserves with respect
thereto are maintained on the books of the applicable Person in accordance with
GAAP and such contest effectively suspends collection of the contested
obligation and enforcement of any Lien securing such obligation;

 

(e)           (i) pledges or deposits in the ordinary course of business in
connection with workers’ compensation, unemployment insurance and other social
security legislation and (ii) pledges and deposits in the ordinary course of
business securing liability for reimbursement or indemnification obligations of
(including obligations in respect of letters of credit or bank guarantees for
the benefit of) insurance carriers providing property, casualty or liability
insurance to the Lead Borrower or any Restricted Subsidiary;

 

(f)            deposits to secure the performance of bids,
trade contracts, governmental contracts and leases (other than Indebtedness for
borrowed money), statutory obligations, surety, stay, customs and appeal bonds,
performance bonds and other obligations of a like nature (including those to
secure health, safety and environmental obligations) incurred in the ordinary
course of business;

 

(g)           easements, rights-of-way, restrictions, encroachments, servitudes,
rights of way, licenses, protrusions, site plan agreements, development
agreements, contract zoning agreements and other similar encumbrances, rights,
agreements and minor title defects affecting real property which, in the
aggregate, do not in any case materially interfere with the ordinary conduct of
the business of the Lead Borrower or any Restricted Subsidiary (other than an
Immaterial Subsidiary);

 

(h)           Liens securing judgments for the payment of money not constituting an
Event of Default under SECTION 7.01(h);

 

(i)            Liens securing Indebtedness permitted under
SECTION 6.03(e); provided that (i) such Liens
attach concurrently with or within two hundred and seventy (270) days after the
acquisition, repair, replacement, construction or improvement (as applicable)
of the property subject to such Liens, (ii) such Liens do not at any time
encumber any property except for accessions to such property other than the
property financed by such Indebtedness and the proceeds and the products
thereof and (iii) with respect to Capitalized Leases, such Liens do not at
any time extend to or cover any assets (except for accessions to such assets)
other than the assets subject to such Capitalized Leases; provided that
individual financings of equipment provided by one lender may be cross
collateralized to other financings of equipment provided by such lender;
and Liens securing any Permitted Refinancing of Indebtedness under SECTION
6.03(e) that do not extend to any property that was not subject to the Lien
securing the Indebtedness being refinanced;

 

(j)            leases, licenses, subleases or sublicenses
granted to others in the ordinary course of business which do not
(i) interfere in any material respect with the business of the Lead

 

121

 

Borrower
or any Restricted Subsidiary (other than an Immaterial Subsidiary), or
(ii) secure any Indebtedness;

 

(k)           Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the importation
of goods in the ordinary course of business which payments are not overdue for
a period of more than thirty (30) days and no other action has been taken to
enforce such Lien or which are being contested in good faith and by appropriate
actions diligently conducted, if adequate reserves with respect thereto are
maintained on the books of the applicable Person in accordance with GAAP and
such contest effectively suspends collection of the contested obligation and
enforcement of any Lien securing such obligation;

 

(l)            Liens (i) arising by operation of law under
Article 4 of the UCC in connection with collection of items provided for
therein, and (ii) in favor of a banking institution arising as a matter of
law encumbering deposits (including the right of set-off) and which are within
the general parameters customary in the banking industry;

 

(m)          Liens (i) on cash advances in favor of the seller of any property to be
acquired in a Permitted Acquisition to be applied against the purchase price
for such Permitted Acquisition, and (ii) consisting of an agreement to dispose
of any property in a Permitted Disposition, in each case, solely to the extent
such Permitted Acquisition or Permitted Disposition, as the case may be, would
have been permitted on the date of the creation of such Lien;

 

(n)           Liens on property (i) of any Foreign Subsidiary that is not a Loan
Party and (ii) that does not constitute Collateral, which Liens secure
Indebtedness of the applicable Foreign Subsidiary permitted under SECTION 6.03;

 

(o)           Liens in favor of the Lead Borrower or a Restricted Subsidiary securing
Indebtedness permitted under SECTION 6.03(d);

 

(p)           Liens existing on property (other than Inventory and Accounts) at the
time of its acquisition or existing on the property of any Person at the time
such Person becomes a Restricted Subsidiary (other than by designation as a
Restricted Subsidiary pursuant to SECTION 5.14), in each case after the date
hereof (other than Liens on the Capital Stock of any Person that becomes a
Restricted Subsidiary); provided that
(i) such Lien was not created in contemplation of such acquisition or such
Person becoming a Restricted Subsidiary, (ii) such Lien does not extend to
or cover any other assets or property (other than the proceeds or products
thereof and accessions or additions thereto);

 

(q)           any interest or title of a licensor, sublicensor, lessor or sublessor
under licenses and leases entered into by the Lead Borrower or any of its
Restricted Subsidiaries in the ordinary course of business;

 

(r)            Liens arising out of conditional sale, title
retention, consignment or similar arrangements for sale of goods entered into
by the Lead Borrower or any of its Restricted Subsidiaries in the ordinary course
of business permitted by this Agreement;

 

122

 

(s)           Liens encumbering reasonable customary initial deposits and margin
deposits and similar Liens attaching to commodity trading accounts or other
brokerage accounts incurred in the ordinary course of business and not for
speculative purposes;

 

(t)            Liens that are contractual rights of set-off
(i) relating to the establishment of depository relations with banks not
given in connection with the issuance of Indebtedness, (ii) relating to
pooled deposit or sweep accounts of the Parent or any Restricted Subsidiary to
permit satisfaction of overdraft or similar obligations incurred in the
ordinary course of business of the Parent and its Restricted Subsidiaries or
(iii) relating to purchase orders and other agreements entered into with
customers of the Lead Borrower or any Restricted Subsidiary in the ordinary
course of business;

 

(u)           Liens solely on any cash earnest money deposits made by the Parent or
any of its Restricted Subsidiaries in connection with any letter of intent or
purchase agreement permitted hereunder;

 

(v)           Liens in respect of the Term Loan Facility;

 

(w)          Liens arising from precautionary UCC
filings or PPSA filings regarding “true” operating leases or the consignment of
goods to a Loan Party;

 

(x)            Liens placed on the Capital Stock of
any joint venture entity in the form of a transfer restriction, purchase
option, call or similar right of a third party joint venture partner;

 

(y)           ground leases in respect of real
property on which facilities owned or leased by the Lead Borrower or any of its
Subsidiaries are located;

 

(z)            Liens existing on title insurance
policies relating to any Mortgages;

 

(aa)         Liens on insurance proceeds incurred in
the ordinary course of business in connection with the financing of insurance
premiums;

 

(bb)         Liens on securities which are the
subject of repurchase agreements incurred in the ordinary course of business, provided that such Liens do not extend to any assets other
than those that are the subject of such repurchase agreement;

 

(cc)         Liens arising by operation of law in
the United States under Article 2 of the UCC in favor of a reclaiming seller of
goods or buyer of goods;

 

(dd)         Security given to a public or private
utility or any Governmental Authority as required in the ordinary course of
business;

 

(ee)         With respect to any Real Property
located in Canada, any rights, reservations, limitations and conditions
contained in the grant from the Crown or any Crown Patent;

 

(ff)           Rights of a seller of unpaid goods in
respect of such goods at common law or under the Bankruptcy and Insolvency Act
(Canada) and other applicable legislation;

 

123

 

(gg)         Undetermined or inchoate Liens which have not at such time been filed
and of which none of the Loan Parties have been given notice and which relate
to obligations not then due and payable; and

 

(hh)         Without duplication of, or aggregation with, any other Lien permitted
under any other clause of this SECTION 6.01, other Liens (not covering
Accounts, Inventory or the proceeds thereof unless the Liens thereon are
subordinated to the Lien of the Collateral Agent in a manner consistent with
the terms of the Intercreditor Agreement) securing Indebtedness outstanding in
an aggregate principal amount not to exceed $30,000,000 at any time
outstanding.

 

The
designation of a Lien as a Permitted Encumbrance shall not limit or restrict
the ability of the Administrative Agent to establish any Reserve relating thereto.

 

SECTION
6.02       Investments.

 

No
Loan Party shall make or hold any Investments, except the following (each a “Permitted
Investment”):

 

(a)          Investments by the Lead Borrower or a Restricted Subsidiary in assets
that were Cash Equivalents when such Investment was made;

 

(b)         loans or advances to officers, directors and employees of the Parent
and the Restricted Subsidiaries (i)  for reasonable and customary
business-related travel, entertainment, relocation and analogous ordinary
business purposes, (ii) to the extent permitted by Applicable Law, in
connection with such Person’s purchase of Capital Stock of the Lead Borrower
(or any direct or indirect parent of the Lead Borrower), provided that
the amount of such loans and advances shall be contributed to the Lead Borrower
in cash as common equity, or paid to the Lead Borrower in connection with such
purchase of Capital Stock, and (iii) to the extent permitted by Applicable Law,
for purposes not described in the foregoing clauses (i) and (ii), in an aggregate
principal amount outstanding not to exceed $15,000,000 at any one time
outstanding;

 

(c)          Investments (i) by the Lead Borrower or any Restricted Subsidiary in
any Loan Party (other than Holdco), (ii) by any Restricted Subsidiary that is
not a Loan Party in any other such Restricted Subsidiary that is also not a
Loan Party, and (iii) by the Lead Borrower or any Restricted Subsidiary (A) in
any Foreign Subsidiary; provided that
the outstanding aggregate amount of such Investments in Foreign Subsidiaries
that are not Loan Parties shall not exceed $25,000,000 at any time (net of any
return representing a return of capital in respect of any such Investment) or
(B) in any Foreign Subsidiary that is a Loan Party, consisting of the
contribution of Capital Stock of any other Foreign Subsidiary held directly by
the Lead Borrower or such Restricted Subsidiary in exchange for Indebtedness,
Capital Stock or a combination thereof of the Foreign Subsidiary to which such
contribution is made, (C) in any Foreign Subsidiary, constituting an exchange
of Capital Stock of such Foreign Subsidiary for Indebtedness of such Foreign
Subsidiary or (D) constituting Guarantees of Indebtedness or other monetary
obligations of Foreign Subsidiaries owing to any Loan Party;

 

(d)         Investments consisting of extensions of credit in the nature of
accounts receivable or notes receivable arising from the grant of trade credit
in the ordinary course of

 

124

 

business,
and Investments received in satisfaction or partial satisfaction thereof from
financially troubled account debtors and other credits to suppliers in the
ordinary course of business;

 

(e)           Investments consisting of Permitted Encumbrances, Permitted
Indebtedness, fundamental changes, Permitted Dispositions, and Restricted
Payments permitted under SECTION 6.01, SECTION 6.03, SECTION 6.04, SECTION
6.05, and SECTION 6.06, respectively;

 

(f)            Investments (i) by the Lead Borrower and its
Restricted Subsidiaries consisting of Permitted Acquisitions and (ii) by Holdco
consisting of Permitted Acquisitions if the assets that are the subject of such
Permitted Acquisition are immediately contributed to the Lead Borrower;

 

(g)           Investments (i) existing or contemplated on the date hereof and set
forth on Schedule 6.02 and any modification, replacement, renewal,
reinvestment or extension thereof and (ii) Investments existing on the date
hereof by the Lead Borrower or any Restricted Subsidiary in the Lead Borrower
or any other Restricted Subsidiary and any modification, renewal or extension
thereof; provided that the amount of the original
Investment is not increased except by the terms of such Investment or as
otherwise permitted by this SECTION 6.02;

 

(h)           Investments in Swap Contracts permitted under SECTION 6.03;

 

(i)            promissory notes and other noncash
consideration received in connection with Permitted Dispositions;

 

(j)            the Transaction;

 

(k)           Investments in the ordinary course of
business consisting of endorsements for collection or deposit and customary
trade arrangements with customers consistent with past practices;

 

(l)            Investments (including debt obligations and
Capital Stock) received in connection with the bankruptcy or reorganization of
suppliers and customers or in settlement of delinquent obligations of, or other
disputes with, customers and suppliers arising in the ordinary course of
business or upon the foreclosure with respect to any secured Investment or
other transfer of title with respect to any secured Investment;

 

(m)          so long as immediately after giving effect to any such Investment, no
Default has occurred and is continuing and without duplication of any other
clauses of this SECTION 6.02, other Investments that do not exceed $50,000,000
in the aggregate at any time outstanding (net of any return of capital,
interest, distributions, income and similar amounts actually received in cash
in respect of any such Investment) and valued at the time of the making thereof
(provided that, such amount shall be
increased by the Net Proceeds of Permitted Equity Issuances (other than
Permitted Equity Issuances that are Specified Equity Contributions)), and
determined without regard to any write-downs or write-offs thereof;

 

(n)           advances of payroll payments to employees in the ordinary course
of business;

 

125

 

(o)           Investments to the extent that payment for such Investments is made
solely with Capital Stock of the Lead Borrower or any direct or indirect parent
of the Lead Borrower not resulting in a Change in Control;

 

(p)           Investments of a Restricted Subsidiary acquired after the Closing Date
or of a Person merged into or amalgamated with the Lead Borrower or merged,
amalgamated or consolidated with a Restricted Subsidiary in accordance with
SECTION 6.04 after the Closing Date to the extent that such Investments were
not made in contemplation of or in connection with such acquisition, merger,
amalgamation, or consolidation and were in existence on the date of such
acquisition, merger, amalgamation, or consolidation;

 

(q)           Guarantees by the Parent or any Restricted Subsidiary of leases (other
than Capitalized Leases) or of other obligations that do not constitute
Indebtedness, in each case entered into in the ordinary course of business;

 

(r)            Guarantees constituting Permitted
Indebtedness;

 

(s)           Subject to SECTION 2.18, Investments
in deposit accounts opened in the ordinary course of business;

 

(t)            Investments in new Subsidiaries
(other than Foreign Subsidiaries), subject to the provisions of SECTION 5.11;

 

(u)           Capital Expenditures;

 

(v)           Loans and advances to Holdco in lieu
of, and not in excess of the amount of (after giving effect to any other loans,
advances or Restricted Payments in respect thereof), Restricted Payments to the
extent permitted to be made to Holdco in accordance with SECTION 6.06; and

 

(w)          Without duplication of, or aggregation with, any Investment made under
any other clause of this SECTION 6.02, the Lead Borrower and its Restricted
Subsidiaries may make other Investments as long as the Payment Conditions are
satisfied;

 

provided that
no Investment in an Unrestricted Subsidiary that would otherwise be permitted
under this SECTION 6.02 shall be permitted hereunder (w) to the extent that any
portion of such Investment is used to make any prepayments, redemptions,
purchases, defeasances and other payments in respect of any Indebtedness, (x)
if immediately before or after such Investment, a Default shall have occurred
and be continuing, (y) if after giving effect to such Investment, the Payment
Conditions shall not have been satisfied, or (z) if such Investment consists of
a transfer of any property of the type (e.g. Inventory and Accounts) included
in the Tranche A Borrowing Base or the Tranche A-1 Borrowing Base.

 

SECTION
6.03       Indebtedness.

 

The
Loan Parties will not create, incur, assume or suffer to exist any
Indebtedness, except the following (each “Permitted Indebtedness”):

 

126

 

(a)           Indebtedness of the Parent and any of its Subsidiaries under the Loan
Documents;

 

(b)           Indebtedness (i) outstanding on the date hereof and listed on Schedule
6.03, and (ii) intercompany Indebtedness outstanding on the date hereof;

 

(c)           Guarantees by the Parent and its Restricted Subsidiaries in respect of
Indebtedness of the Lead Borrower or any Restricted Subsidiary otherwise
permitted hereunder; provided that
(A) no Guarantee by any Restricted Subsidiary of the Senior Notes, the Senior
Subordinated Notes, the Subordinated Discount Notes or the Term Loan Facility
shall be permitted unless such Restricted Subsidiary shall have also provided a
Guarantee of the Obligations substantially on the terms set forth in the
Facility Guarantee executed on the Closing Date and (B) if the Indebtedness
being Guaranteed is subordinated to the Obligations, such Guarantee shall be
subordinated to the Facility Guarantee of the Obligations on terms at least as
favorable to the Lenders as those contained in the subordination of such
Indebtedness;

 

(d)           Indebtedness of the Lead Borrower or any Restricted Subsidiary owing to
the Lead Borrower or any other Restricted Subsidiary to the extent constituting
an Investment permitted by SECTION 6.02; provided that,
all such Indebtedness of any Loan Party owed to any Person that is not, or
ceases to be, a Loan Party shall be subject to the subordination terms set
forth in Article VII of the Security Agreement;

 

(e)           As long as the Payment Conditions are
satisfied after giving effect thereto, Attributable Indebtedness and other
Indebtedness (including Capitalized Leases) of the Lead Borrower and its
Restricted Subsidiaries financing the acquisition, construction, repair,
replacement or improvement of fixed or capital assets, other than software; provided that (i) such Indebtedness is incurred concurrently
with or within two hundred and seventy (270) days after the applicable
acquisition, construction, repair, replacement or improvement, and (ii) if
reasonably requested by the Agents, the Loan Parties will use commercially
reasonable efforts to cause the holder of such Indebtedness to enter into a
Collateral Access Agreement with the Collateral Agent on terms reasonably
satisfactory to the Collateral Agent;

 

(f)            Indebtedness in respect of Swap Contracts
designed to hedge against interest rates, foreign exchange rates or commodities
pricing risks incurred in the ordinary course of business and not for
speculative purposes;

 

(g)           (i) Indebtedness of the Parent or any of its Restricted Subsidiaries
(A) assumed in connection with any Permitted Acquisition; provided
that such Indebtedness is not incurred in contemplation of such Permitted
Acquisition, or (B) incurred to finance a Permitted Acquisition and (ii) any
Permitted Refinancing of the foregoing; provided, in
each case that such Indebtedness and all Indebtedness resulting from any
Permitted Refinancing thereof (v) is unsecured or is subordinated to the
Obligations on terms reasonably acceptable to the Agents (it being understood
that subordination terms set forth in the Senior Subordinated Notes and the
Subordinated Discount Notes shall also be deemed to be acceptable for such
Indebtedness), (w) both immediately prior and after giving effect thereto, no
Default shall exist or result therefrom, (x) matures after, and does not
require any scheduled amortization or other scheduled payments of principal
prior to, the Maturity Date (it being understood that such Indebtedness may
have

 

127

 

mandatory
prepayment, repurchase or redemptions provisions satisfying the requirement of
clause (y) hereof), (y) has terms and conditions (other than interest rate,
redemption premiums and subordination terms), taken as a whole, that are
reasonably acceptable to the Agents provided that a
certificate of a Responsible Officer shall be delivered to the Administrative
Agent at least five Business Days prior to the incurrence of such Indebtedness,
together with a reasonably detailed description of the material terms and
conditions of such Indebtedness or drafts of the documentation relating
thereto, stating that the Lead Borrower has determined in good faith that such
terms and conditions satisfy the foregoing requirement and such certificate
shall be conclusive evidence that such terms and conditions satisfy the
foregoing requirement unless the Administrative Agent notifies the Lead
Borrower within such five Business Day period that it disagrees with such
determination (including a reasonable description of the basis upon which it
disagrees); and (z) with respect to such Indebtedness described in the immediately
preceding clause (B), is incurred by the Lead Borrower or a Facility Guarantor.

 

(h)           Indebtedness representing deferred compensation, severance, and health
and welfare retirement benefits to current and former employees of Holdco, the
Lead Borrower and its Restricted Subsidiaries incurred in the ordinary course
of business or existing on the Closing Date;

 

(i)            Indebtedness consisting of
promissory notes issued by any Loan Party to current or former officers,
directors and employees, their respective estates, spouses or former spouses to
finance the purchase or redemption of Capital Stock of the Parent or any direct
or indirect parent of the Parent permitted by SECTION 6.06;

 

(j)            Indebtedness incurred by the Lead
Borrower or its Restricted Subsidiaries in connection with any disposition
expressly permitted hereunder constituting indemnification obligations or
obligations in respect of purchase price or other similar adjustments, provided that (A) such Indebtedness is not reflected on the
balance sheet of the Lead Borrower or any of its Restricted Subsidiaries
prepared in accordance with GAAP (contingent obligations referred to in a
footnote to financial statements and not otherwise reflected on the balance
sheet will not be deemed to be reflected on such balance sheet for purposes of
this clause (A)); and (B) the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds including non-cash
proceeds (the fair market value of such non-cash proceeds being measured at the
time received and without giving effect to any subsequent changes in value)
actually received by the Lead Borrower and its Restricted Subsidiaries in
connection with such Acquisition or Investment;

 

(k)           Indebtedness consisting of
obligations of the Parent or its Restricted Subsidiaries under deferred
compensation or other similar arrangements incurred by such Person in
connection with the Transaction and Permitted Acquisitions or any other
Investment expressly permitted hereunder;

 

(l)            Obligations with respect to Cash
Management Services and other Indebtedness in respect of netting services,
overdraft protections and similar arrangements in each case in connection with
deposit accounts;

 

128

 

(m)          Without duplication of, or
accumulation with, any other clauses of this SECTION 6.03, Indebtedness in an
aggregate principal amount not to exceed $300,000,000 at any time outstanding;

 

(n)           As long as the Payment Conditions are
satisfied after giving effect thereto, Subordinated Indebtedness and other
unsecured non-amortizing long term Indebtedness;

 

(o)           Indebtedness consisting of (a) the
financing of insurance premiums or (b) take-or-pay obligations contained in
supply arrangements, in each case, in the ordinary course of business;

 

(p)           Indebtedness incurred by the Lead
Borrower or any of its Restricted Subsidiaries in respect of letters of credit
(including, without limitation, under any Commercial Letter of Credit
Facility), bank guarantees, bankers’ acceptances or similar instruments issued
or created in the ordinary course of business, including in respect of
commercial letters of credit, workers compensation claims, health, disability
or other employee benefits or property, casualty or liability insurance or
self-insurance or other Indebtedness with respect to reimbursement-type
obligations regarding workers compensation claims; provided
that any reimbursement obligations in respect thereof are reimbursed within 30
days following the incurrence thereof;

 

(q)           obligations in respect of
performance, bid, appeal and surety bonds and performance and completion
guarantees and similar obligations provided by the Lead Borrower or any of its
Restricted Subsidiaries or obligations in respect of letters of credit, bank guarantees
or similar instruments related thereto, in each case in the ordinary course of
business or consistent with past practice;

 

(r)            Indebtedness supported by a Letter
of Credit, in a principal amount not to exceed the face amount of such Letter
of Credit;

 

(s)           Indebtedness in respect of the Term
Loan Facility;

 

(t)            Indebtedness in respect of the
Senior Notes, the Senior Subordinated Notes and the Subordinated Discount
Notes;

 

(u)           Indebtedness incurred in connection
with sale-leaseback transactions permitted hereunder;

 

(v)           Unsecured Indebtedness owed to the
Sponsor and/or other stockholders of the Parent and their respective
Affiliates, provided that such Indebtedness does not require the payment
in cash of interest at a rate in excess of 10% per annum or principal prior to
the Maturity Date, has a maturity which extends beyond the Maturity Date, and
is subordinated to the Obligations on terms reasonably acceptable to the
Administrative Agent;

 

(w)          Guarantees and letters of credit and
surety bonds (other than Guarantees of, or letters of credit and surety bonds
related to, Indebtedness) issued by the Lead Borrower and its Restricted
Subsidiaries in connection with Permitted Acquisitions and Permitted
Dispositions;

 

129

 

(x)            Without duplications of any other
Indebtedness, non-cash accruals of interest, accretion or amortization of
original issue discount and payment-in-kind interest with respect to
Indebtedness permitted hereunder;

 

(y)           Indebtedness due to any landlord in
connection with the financing by such landlord of leasehold improvements;

 

(z)            All premiums (if any), interest
(including post-petition interest), fees, expenses, charges and additional or
contingent interest on obligations described in clauses (a) through (z) above;

 

(aa)         Permitted Holdco Debt; and

 

(bb)         Extensions, renewals and replacements
of any such Indebtedness described in clauses (b), (c), (d), (e), (f), (g),
(m), (n), (t), (u), (v), (w), (x) and (aa) above provided that such
Indebtedness constitutes a Permitted Refinancing.

 

For
purposes of calculating compliance with this SECTION 6.03 only, the amount of
Indebtedness of a Person which is non-recourse to such Person shall be deemed
to be equal to the lesser of (i) the aggregate unpaid amount of such
Indebtedness, or (ii) the fair market value of the property upon which a Lien
has been granted to secure such Indebtedness.

 

SECTION
6.04       Fundamental Changes.

 

No
Loan Party shall merge, amalgamate, dissolve, liquidate, wind up, consolidate
with or into another Person, or dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, except that:

 

(a)          any Restricted Subsidiary may merge or amalgamate with (i) any Borrower
(including a merger or amalgamation, the purpose of which is to reorganize such
Borrower into a new jurisdiction); provided that
such Borrower shall be the continuing or surviving Person, or (ii) any one or
more other Restricted Subsidiaries; provided that
when any Restricted Subsidiary that is a Loan Party is merging or amalgamating
with another Restricted Subsidiary, a Loan Party shall be the continuing or
surviving Person and provided
further that if such merger or amalgamation includes any Canadian Subsidiary
and a Canadian Subsidiary is not the surviving entity, such shall be on terms
and conditions reasonably satisfactory to the Administrative Agent (whose
consent shall not be unreasonably withheld);

 

(b)         (i) any Subsidiary that is not a Loan Party may merge, amalgamate
or consolidate with or into any other Subsidiary that is not a Loan Party, (ii)
any Loan Party may merge, amalgamate or consolidate with any other Loan Party, provided that if a Borrower is a party thereto, a Borrower
shall be the continuing or surviving Person, and provided
further that if such merger, amalgamation or consolidation includes any
Canadian Subsidiary and a Canadian Subsidiary is not the surviving entity, such
shall be on terms and conditions reasonably satisfactory to the Administrative
Agent (whose consent shall not be unreasonably withheld), and (iii) any
Subsidiary may liquidate or dissolve or change its legal form if the Lead
Borrower determines in good faith that such action is in the best interests of
the Lead Borrower and its

 

130

 

Subsidiaries
and if not materially disadvantageous to the Lenders; provided
that , with respect to this clause (b)(iii), a certificate of a Responsible Officer
shall be delivered to the Administrative Agent at least five Business Days
prior to the liquidation, dissolution or change of legal form, together with a
reasonably detailed description of the material terms and conditions thereof,
stating that the Lead Borrower has determined in good faith that such terms and
conditions satisfy the foregoing requirement;

 

(c)           any Restricted Subsidiary may dispose of all or substantially all of
its assets (upon voluntary liquidation or otherwise) to the Lead Borrower or to
another Restricted Subsidiary; provided that
if the transferor in such a transaction is a Loan Party, then (i) the
transferee must be another Loan Party, or (ii) to the extent constituting an
Investment, such Investment must be a permitted Investment in or Indebtedness
of a Restricted Subsidiary which is not a Loan Party in accordance with SECTION
6.02 and SECTION 6.03, respectively;

 

(d)           any Restricted Subsidiary may merge
or amalgamate with any other Person in order to effect a Permitted Investment; provided that the continuing or surviving Person shall be a
Restricted Subsidiary, which together with each of its Restricted Subsidiaries,
shall have complied with the requirements of SECTION 5.11;

 

(e)           the Lead Borrower and its Restricted
Subsidiaries may consummate the Transaction; and

 

(f)            the Lead Borrower and its Restricted
Subsidiaries may consummate a merger, amalgamation, dissolution, winding up,
liquidation, consolidation or Disposition, the purpose of which is to effect a
Permitted Disposition.

 

SECTION
6.05       Dispositions.

 

The
Loan Parties shall not make any Disposition or enter into any agreement to make
any Disposition, except the following (each, a “Permitted Disposition”):

 

(a)          Dispositions of obsolete or worn out property, whether now owned or
hereafter acquired, in the ordinary course of business and dispositions of
property no longer used or useful in the conduct of the business of the Parent
and its Restricted Subsidiaries including, without limitation, the abandonment
of or failure to maintain Intellectual Property and with respect to closed
Stores;

 

(b)         Dispositions of Inventory in the ordinary course of business;

 

(c)          Dispositions of property to the extent that (i) such property is
exchanged for credit against the purchase price of similar replacement property
or (ii) the proceeds of such disposition are promptly applied to the purchase
price of such replacement property;

 

(d)         Dispositions of property to the Lead Borrower or to a Restricted
Subsidiary; provided that if the transferor of such
property is a Loan Party (i) the transferee thereof must either be a Borrower
or a Facility Guarantor, in which event the Collateral Agent shall retain its
perfected Lien on the property so disposed of, subject to the same priority as
existed prior to such disposition, or (ii) to the extent such transaction
constitutes an Investment,

 

131

 

such
transaction is a Permitted Investment, provided
further that (A) if the property being disposed of is transferred to a
Subsidiary that is not a Loan Party, the Administrative Agent may require, in
the exercise of its reasonable business judgment, that the transferee execute
an agreement granting the Agents access to such property for purposes of
conducting a Liquidation, and (B) if the property being disposed of constitutes
Eligible Credit Card Receivables, Eligible Inventory, Eligible In-Transit
Inventory, or Eligible Letters of Credit and is being transferred to a
Subsidiary which is not a Loan Party, such disposition shall; be made only if
the Payment Conditions are satisfied after giving effect thereto;

 

(e)           Dispositions permitted by SECTION 6.04 and SECTION 6.06 and Permitted
Encumbrances;

 

(f)            Dispositions of Cash Equivalents;

 

(g)           Sales, discounting or forgiveness of
Accounts in the ordinary course of business or in connection with the
collection or compromise thereof;

 

(h)           leases, subleases, licenses or
sublicenses (including the provision of Software under an open source license),
in each case in the ordinary course of business and which (i) do not materially
interfere with the business of the Parent and its Restricted Subsidiaries, or
(ii) relate to closed Stores;

 

(i)            termination of Leases in the
ordinary course of business;

 

(j)            transfers of property subject to
Casualty Events upon receipt of the Net Proceeds of such Casualty Event;

 

(k)           licenses for the conduct of licensed departments within the Loan
Parties’ Stores in the ordinary course of business;

 

(l)            as long as no Specified Default hereof then
exists or would arise therefrom, and no Overadvance would result therefrom,
bulk sales or other dispositions of the Loan Parties’ Inventory not in the
ordinary course of business in connection with Store closings, at arm’s length,
provided that (i) such Store closures and related Inventory dispositions
shall not exceed, in any Fiscal Year of the Lead Borrower and its Subsidiaries,
10% of the number of the Loan Parties’ Stores as of the beginning of such
Fiscal Year (net of Store relocations (i) occurring substantially
contemporaneously, but in no event later than 10 Business Days after the
related Store closure date, or (ii) wherein a binding lease has been entered
into prior to the related Store closure date) as set forth in the Compliance
Certificate delivered pursuant to SECTION 5.02(b), and (ii) as of any date
after the Closing Date, the aggregate number of such Store closures since the
Closing Date shall not exceed 25% of the greater of (x) the number of the Loan
Parties’ Stores in existence as of the Closing Date or (y) the number of the
Loan Parties’ Stores as of the first day of any Fiscal Year beginning after the
Closing Date (net of Store relocations (i) occurring substantially
contemporaneously, but in no event later than 10 Business Days after the
related Store closure date or (ii) wherein a binding lease has been entered
into prior to the related Store closure date) as set forth in the Compliance
Certificate delivered pursuant to SECTION 5.02(b), provided that all
sales of Inventory in connection with Store closings in a transaction or series
of related transactions shall be in accordance with liquidation

 

132

 

agreements
and with professional liquidators reasonably acceptable to the Administrative
Agent; provided further that all Net Proceeds received in connection
therewith (other than from any Canadian Loan Party) are applied to the
Obligations, if then required in accordance with SECTION 2.17, SECTION 2.18 or
SECTION 7.04 hereof;

 

(m)          sales of non-core assets acquired in connection with a Permitted
Acquisition and sales of Real Estate acquired in a Permitted Acquisition which,
within thirty days of the date of the Acquisition, are designated in writing to
the Administrative Agent as being held for sale and not for the continued
operation of a Store;

 

(n)           exchanges or swaps, including,
without limitation, transactions covered by Section 1031 of the Code, of Leases
and other Real Estate of the Loan Parties so long as the exchange or swap is
made for fair value and on an arm’s length basis, provided that upon the
consummation of such exchange or swap, (x) the Collateral Agent has a perfected
Lien having the same priority as any Lien held on the Leases or Real Estate so
exchanged or swapped and (y) the Net Proceeds, if any, received in connection
with any such exchange or swap are applied to the Obligations if then required
in accordance with SECTION 2.17, SECTION 2.18 or SECTION 7.04 hereof;

 

(o)           sale-leaseback transactions of Real
Estate of any Loan Party as long as (A) no Specified Default then exists or
would arise therefrom, and (B) with respect to any distribution center,
warehouse, manufacturing facility or corporate offices, (1) such sale-leaseback
is made pursuant to leases on market terms, and (2) the Loan Parties cause each
purchaser of such Real Estate to enter into a Collateral Access Agreement with
the Collateral Agent on terms reasonably satisfactory to the Collateral Agent;

 

(p)           Dispositions listed on Schedule 6.05;

 

(q)           Dispositions of Investments in joint ventures to the extent required
by, or made pursuant to customary buy/sell arrangements between, the joint
venture parties set forth in joint venture arrangements and similar binding
arrangements;

 

(r)            Dispositions of property owned by Aaron
Brothers, Inc. in connection with the sale of all or substantially all the
assets of Aaron Brothers, Inc. or the Capital Stock of Aaron Brothers, Inc. by
the Lead Borrower as long as the Payment Conditions are satisfied after giving
effect thereto; and

 

(s)           Dispositions of property (other than Inventory, Accounts and
Intellectual Property) not otherwise permitted under this SECTION 6.05, provided
that (i) at the time of such Disposition (other than any such Disposition
made pursuant to a legally binding commitment entered into at any time when no
Default or Event of Default exists), no Default or Event of Default shall exist
or would result from such Disposition and (ii) the aggregate book value of all
property disposed of pursuant to this clause (s) shall not exceed $250,000,000
in any Fiscal Year or $500,000,000 in the aggregate after the Closing Date;

 

provided that
any disposition of any property pursuant to this SECTION 6.05 (except for
Dispositions pursuant to SECTION 6.05(e) and Dispositions from a Loan Party to
another Loan Party), shall be for no less than the fair market value of such
property at the time of such

 

133

 

disposition
and, (1) in the case of Accounts and Inventory solely for cash consideration,
and (2) in the case of any other assets, at least 75% of the consideration is
payable in cash at the time of consummation of the transaction. To the extent
any Collateral is disposed of as expressly permitted by this SECTION 6.05 to
any Person other than the Lead Borrower or any Restricted Subsidiary, such
Collateral shall be sold free and clear of the Liens created by the Loan
Documents, and the Agents shall be authorized to take any actions deemed
appropriate in order to effect the foregoing.

 

SECTION
6.06       Restricted Payments.

 

The
Loan Parties shall not declare or make, directly or indirectly, any Restricted
Payment, except:

 

(a)           each Restricted Subsidiary may make Restricted Payments to the Parent
and to other Restricted Subsidiaries (and, in the case of a Restricted Payment
by a non-wholly owned Restricted Subsidiary, to the Parent and any other
Restricted Subsidiary and to each other owner of Capital Stock of such
Restricted Subsidiary based on their relative ownership interests of the
relevant class of Capital Stock);

 

(b)           the Parent and each Restricted Subsidiary may declare and make dividend
payments or other distributions payable solely in the Capital Stock (other than
Disqualified Capital Stock not otherwise permitted by SECTION 6.03) of such
Person;

 

(c)           the Lead Borrower may make Restricted Payments to consummate the MIK
Recapitalization;

 

(d)           to the extent constituting Restricted Payments, the Parent and its
Restricted Subsidiaries may enter into and consummate transactions expressly
permitted by any provision of SECTION 6.04 or SECTION 6.08 (other than SECTION
6.08(g));

 

(e)           the Parent may repurchase Capital Stock in the Parent or any Restricted
Subsidiary deemed to occur upon the exercise of stock options or warrants if
such Capital Stock represents a portion of the exercise price of such options
or warrants;

 

(f)            Holdco and the Lead Borrower may pay for the
repurchase, retirement, or other acquisition of Capital Stock of the Parent or
any of its direct or indirect parent companies by any former, present, or
future employee of the Parent or any of its Restricted Subsidiaries or any of
its direct or indirect parent companies, or any of their respective estates,
spouses or former spouses pursuant to any management equity plan or stock
option plan or any other management or employee benefit plan or agreement
(including, for the avoidance of doubt, any principal and interest payable on
any notes issued by Holdco or the Lead Borrower or any direct or indirect
parent company in connection with such repurchase, retirement or other
acquisition); provided that amounts payable
under this clause (f) do not exceed in any calendar year $15,000,000 (which
shall increase to $30,000,000 subsequent to the consummation of an underwritten
Qualifying IPO by the Parent or any direct or indirect parent company of the
Parent), with unused amounts in any calendar year being carried over to
succeeding calendar years, subject to a maximum (without giving effect to the
following proviso) of $30,000,000 in any calendar year unless the Adjusted
Availability Condition shall have been satisfied after giving effect to such
Restricted Payment, in

 

134

 

which
the maximum amount shall be $60,000,000 in any calendar year after the
consummation of an underwritten Qualifying IPO by the Parent or any direct or
indirect parent company of the Parent; provided further
that such amount in any calendar year may be increased by an amount not to
exceed (A) the Net Proceeds of Permitted Equity Issuances (other than
Disqualified Capital Stock) after the Closing Date to the extent that such Net
Proceeds shall have been actually received by the Lead Borrower, in each case
to members of management, directors or consultants of the Parent or of its
Restricted Subsidiaries or any direct or indirect parent company of the Parent
that occurs after the Closing Date, plus, in respect of any sale of Capital
Stock in connection with an exercise of stock options, an amount equal to the
amount required to be withheld by Holdco, the Lead Borrower or any of its
direct or indirect parent companies in connection with such exercise under
applicable law to the extent such amount is repaid to the Parent or any of its
direct or indirect parent companies, plus (B) the cash proceeds of key man life
insurance policies received by the Parent or any Restricted Subsidiary after
the Closing Date less (C) the amount of any Restricted Payments previously made
with the cash proceeds described in clauses (A) and (B) of this clause (f); and
provided further that cancellation of
Indebtedness owing to the Parent from any employees, directors, or consultants
of the Parent, any of its Restricted Subsidiaries or any direct or indirect
parent companies in connection with a repurchase of Capital Stock of the Parent
or any of its direct or indirect parent companies will not be deemed to
constitute a Restricted Payment;

 

(g)           Holdco and the Lead Borrower may make
cash payments in lieu of the issuance of fractional shares in connection with
the exercise of warrants, options or other securities convertible into or
exchangeable for Capital Stock of the Parent or any Restricted Subsidiary;
provided, however, that any such cash payment shall not be for the purpose of
evading the limitations of this Agreement;

 

(h)           the Parent and its Restricted
Subsidiaries may make Restricted Payments in an amount equal to the aggregate
amount of the Net Proceeds of Permitted Equity Issuances (other than Permitted
Equity Issuances that are Specified Equity Contributions);

 

(i)            the Parent and its Restricted Subsidiaries
may distribute, by dividend or otherwise, shares of Capital Stock of, or
Indebtedness owed to the Parent or a Restricted Subsidiary by, Unrestricted
Subsidiaries (other than any Unrestricted Subsidiary whose primary assets are
Cash Equivalents);

 

(j)           As long as no Event of Default then exists or would arise therefrom (or
if such Event of Default exists or would so arise, with the written consent of
the Administrative Agent or without such consent, by using the amounts in the
Designated Account), the Lead Borrower may declare and pay dividends or
distributions to, or make loans to, Holdco in amounts required for Holdco or
any direct or indirect parent of Holdco to pay, in each case without
duplication,

 

(i)            franchise
taxes and other fees, Taxes and expenses required to maintain Holdco’s (or such
parent’s)  corporate existence;

 

(ii)           federal,
state, provincial and local income Taxes, to the extent such income Taxes are
attributable to the income of the Lead Borrower and its

 

135

 

Restricted
Subsidiaries and, to the extent of the amount actually received from its
Unrestricted Subsidiaries, in amounts required to pay such Taxes to the extent
attributable to the income of such Unrestricted Subsidiaries; provided that in each case the amount of such payments for
any Fiscal Year does not exceed the excess (if any) of (A) the amount that the
Lead Borrower and its Restricted Subsidiaries would be required to pay in
respect of federal, state, provincial and local income Taxes for such Fiscal
Year were the Lead Borrower, its Restricted Subsidiaries and its Unrestricted
Subsidiaries (to the extent described above) to pay such Taxes separately from
Holdco (or any such parent) over (B) the aggregate federal, state, provincial
and local income Taxes paid by the Lead Borrower and its Restricted
Subsidiaries; and

 

(iii)          for
any Permitted Acquisition made in compliance with SECTION 6.02(f)(ii) hereof.

 

(k)          Holdco may make Restricted Payments with the Net Proceeds of Permitted
Holdco Debt (unless such Net Proceeds are contributed to the Lead Borrower or
its Restricted Subsidiaries in which event such Net Proceeds may not be used to
make Restricted Payments unless the conditions of clause (l) below are
satisfied); and

 

(l)            Without duplication of, or aggregation with,
any Restricted Payments permitted under any other clause of this SECTION 6.06,
the Parent and its Restricted Subsidiaries may make other Restricted Payments
to the holders of its Capital Stock as long as the Payment Conditions are
satisfied.

 

SECTION
6.07       Change in Nature of Business.

 

(a)           The Loan Parties shall not engage in any material line of business
substantially different from those lines of business conducted by the Lead
Borrower and its Restricted Subsidiaries on the date hereof or any business
reasonably related or ancillary thereto or a reasonable extension thereof.

 

(b)           Holdco shall not conduct, transact or otherwise engage in any business
or operations other than those incidental to (i) its ownership of the Capital
Stock of the Lead Borrower, (ii) the maintenance of its legal existence, (iii)
the performance of the Loan Documents, (iv) any public offering of its common
stock or any other issuance of its Capital Stock not prohibited by this Article
VI, and (v) any transaction that Holdco is permitted to enter into or
consummate under this Article VI. Furthermore, notwithstanding anything to the
contrary herein contained, Holdco shall not (i) own any material assets other
than the Capital Stock of the Lead Borrower or (ii) grant any Liens in any of
its assets (other than Liens granted to Collateral Agent, for the benefit of
the Secured Parties, under the Loan Documents or to secure obligations under
the Term Loan Facility or Liens securing any Other Pari Passu Lien Obligations
(as defined in and to the extent permitted under the Term Loan Agreement as
amended and in effect from time to time)).

 

136

 

SECTION
6.08       Transactions with Affiliates.

 

The
Loan Parties shall not enter into any transaction of any kind with any
Affiliate of the Lead Borrower, whether or not in the ordinary course of
business, other than (a) transactions among Loan Parties or any Restricted
Subsidiary or any entity that becomes a Restricted Subsidiary as a result of
such transaction, (b) on terms substantially as favorable to the Parent or such
Restricted Subsidiary as would be obtainable by the Parent or such Restricted
Subsidiary at the time in a comparable arm’s-length transaction with a Person
other than an Affiliate, (c) the payment of fees and expenses related to the
Transaction, including Transaction Expenses, (d) the issuance of Capital Stock
to the management of the Lead Borrower or any of its Subsidiaries in connection
with the Transaction, (e) payments due pursuant to the Advisory Agreements on
account of Advisory Fees consisting of (i) the Transaction Fees (as defined in
the Advisory Agreement described in clause (i) of the definition thereof as in
effect on the Closing Date) payable on the Closing Date, (ii) payments (but not
prepayments) on account of Periodic Fees as defined in each of the Advisory
Agreements (as in effect on the Closing Date) and termination fees provided
therein as of the Closing Date, provided that such payments may not be made if
a Specified Default has occurred and is continuing or would arise therefrom,
provided further that such fees not paid shall accrue and be paid when the
applicable Specified Default has been cured or waived and no additional
Specified Default has occurred and is continuing or would arise as a result of
such payment, and (iii) Subsequent Fees (as defined in the Advisory Agreement
described in clause (i) of the definition thereof as in effect on the Closing Date),
which payments are approved by a majority of the disinterested members of the
board of directors of the Parent in good faith, provided that such payments may
not be made if an Event of Default exists under SECTION 7.01(f) or SECTION
7.01(g), (f) payments of indemnities and reasonable expense reimbursements
under the Advisory Agreements, (g) equity issuances, repurchases, retirements
or other acquisitions or retirements of Capital Stock of Holdco or the Lead
Borrower permitted under SECTION 6.06, (h) loans and other transactions by
the Parent and its Restricted Subsidiaries to the extent permitted under this
Article 6, (i) employment and severance arrangements between the Parent and its
Restricted Subsidiaries and their respective officers and employees in the
ordinary course of business, (j) payments by the Restricted Subsidiaries
pursuant to the tax sharing agreements among the Parent and its Restricted
Subsidiaries on customary terms to the extent attributable to the ownership or
operation of the Parent and its Restricted Subsidiaries, (k) the payment of
customary fees, compensation, and reasonable out of pocket costs to, and
indemnities provided on behalf of, directors, officers and employees of the
Parent and its Restricted Subsidiaries in the ordinary course of business to
the extent attributable to the ownership or operation of the Lead Borrower and
its Restricted Subsidiaries, (l) transactions pursuant to permitted agreements
in existence on the Closing Date and set forth on Schedule 6.08 or any
amendment thereto to the extent such an amendment is not adverse to the Lenders
in any material respect, and (m) dividends, redemptions and repurchases
permitted under SECTION 6.06.

 

SECTION
6.09       Burdensome Agreements.

 

The
Loan Parties shall not enter into or permit to exist any contractual obligation
(including Material Indebtedness) (other than this Agreement or any other Loan
Document) that limits the ability of (a) any Restricted Subsidiary of the Lead
Borrower that is not a Facility Guarantor to make Restricted Payments to any
Loan Party or (b) the Lead Borrower or any other Loan Party to create, incur,
assume or suffer to exist Liens on property of such Person for the benefit of
the Secured Parties with respect to the Obligations or under the Loan Documents;

 

137

 

provided that the foregoing clauses (a) and (b) shall
not apply to contractual obligations (including Material Indebtedness) which
(i) (x) exist on the date hereof and (to the extent not otherwise permitted by
this SECTION 6.09) are listed on Schedule 6.09 hereto and (y) to the
extent contractual obligations permitted by clause (x) are set forth in an
agreement evidencing Indebtedness, are set forth in any agreement evidencing
any permitted renewal, extension or refinancing of such Indebtedness so long as
such renewal, extension or refinancing does not expand the scope of such
contractual obligation in any material respect, (ii) are binding on a
Restricted Subsidiary at the time such Restricted Subsidiary first becomes a
Restricted Subsidiary of the Parent, so long as such contractual obligations
were not entered into solely in contemplation of such Person becoming a
Restricted Subsidiary of the Parent; provided further
that this clause (ii) shall not apply to contractual obligations that are
binding on a Person that becomes a Restricted Subsidiary pursuant to SECTION
5.14, (iii) represent Indebtedness of a Restricted Subsidiary of the Lead
Borrower which is not a Loan Party which is permitted pursuant to SECTION 6.03,
(iv) arise in connection with any Permitted Disposition, (v) are customary
provisions in joint venture agreements and other similar agreements applicable
to joint ventures permitted under SECTION 6.02 and applicable solely to such
joint venture entered into in the ordinary course of business, (vi) are
negative pledges and restrictions on Liens in favor of any holder of
Indebtedness permitted under SECTION 6.03 but solely to the extent any negative
pledge relates to the property financed by or the subject of such Indebtedness,
(vii) are customary restrictions on leases, subleases, licenses or asset sale
agreements otherwise permitted hereby so long as such restrictions relate to
the assets subject thereto, (viii) comprise restrictions imposed by any
agreement relating to secured Indebtedness permitted pursuant to SECTION
6.03(e) or SECTION 6.03(g) to the extent that such restrictions apply only to
the property or assets securing such Indebtedness or, in the case of
Indebtedness incurred pursuant to SECTION 6.03(g) only, to the Restricted
Subsidiaries incurring or guaranteeing such Indebtedness, (ix) are customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Lead Borrower or any Restricted Subsidiary, (x) are
customary provisions restricting assignment of any agreement entered into in
the ordinary course of business, and (xi) are restrictions on cash or other
deposits imposed by customers under contracts entered into in the ordinary
course of business.

 

SECTION
6.10       Accounting Changes.

 

The
Loan Parties shall not make any change in their Fiscal Year; provided, however, that the Lead Borrower may, upon written
notice to the Administrative Agent, change its Fiscal Year to any other Fiscal
Year reasonably acceptable to the Administrative Agent, in which case, the Lead
Borrower and the Administrative Agent will, and are hereby authorized by the
Lenders to, make any adjustments to this Agreement that are necessary to
reflect such change in Fiscal Year.

 

SECTION
6.11       Prepayments, Etc., of Indebtedness.

 

No
Loan Party will make or agree to pay or make any payment or other distribution
(whether in cash, securities or other property) of or in respect of principal
of or interest on any Indebtedness, or any payment or other distribution
(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 Indebtedness, except

 

138

 

(a)           payments in Capital Stock (as long as no Change in Control would result
therefrom), the conversion of Indebtedness to Capital Stock (other than
Disqualified Capital Stock) of the Parent (as long as no Change in Control
would result therefrom) and payments of interest in-kind of the Loan Parties or
the accretion of interest on Permitted Indebtedness;

 

(b)           payments of principal and interest as and when due in respect of any
Subordinated Indebtedness (subject to applicable subordination provisions
relating thereto);

 

(c)           payments of principal (including mandatory prepayments) and interest as
and when due in respect of any Permitted Indebtedness (other than Subordinated
Indebtedness);

 

(d)           voluntary prepayments, redemptions, purchases, and defeasances in whole
or in part of the Senior Notes, the Senior Subordinated Notes, the Subordinated
Discount Notes, the Term Loan Facility and other Indebtedness with the Net
Proceeds of any Permitted Equity Issuances (other than Permitted Equity
Issuances that are Specified Equity Contributions) for the purpose of making
such payment or prepayment;

 

(e)           voluntary prepayments in whole or in part of the Senior Notes, the
Senior Subordinated Notes, the Subordinated Discount Notes, or the Term Loan
Facility from any Permitted Refinancing thereof;

 

(f)            if the Payment Conditions are satisfied,
voluntary prepayments and mandatory prepayments in whole or in part of the
Senior Notes, the Senior Subordinated Notes, the Subordinated Discount Notes,
the Term Loan Facility or any other Permitted Indebtedness;

 

(g)           the prepayment of Indebtedness of the Lead Borrower or any Restricted
Subsidiary to the Lead Borrower or any Restricted Subsidiary to the extent
permitted by the Security Documents;

 

(h)           mandatory redemptions of the Subordinated Discount Notes (and exchange
notes issued in respect thereof) pursuant to the Subordinated Discount Note
Indenture due to the existence of an AHYDO Amount (as defined in the
Subordinated Discount Note Indenture); and

 

(i)            other Permitted Refinancings of Indebtedness.

 

SECTION
6.12       Equity Interests of the Lead Borrower and
Restricted Subsidiaries.

 

The
Loan Parties shall not permit any Subsidiary that is a Restricted Subsidiary to
be a non-wholly owned Subsidiary, except (i) as a result of or in connection
with a dissolution, merger, amalgamation, consolidation or disposition of a
Restricted Subsidiary permitted by SECTION 6.04 or  SECTION 6.05 or a Permitted Investment in any
Person or (ii) so long as such Restricted Subsidiary continues to be a Facility
Guarantor.

 

139

 

SECTION
6.13       Amendment of Material Documents.

 

(a)           No Loan Party will amend, modify or waive any of its rights under (a)
its Organization Documents, (b) the Advisory Agreements, or (c) any Material
Indebtedness (other than as a result of a Permitted Refinancing thereof), in
each case to the extent that such amendment, modification or waiver would
either (1) reasonably likely have a Material Adverse Effect or (2) with respect
to clauses (b) and (c) only, (i) shorten the maturity date of any Material
Indebtedness to a date which is prior to 91 days after the Maturity Date, (ii)
except as provided in clause (i), shorten the date scheduled for any principal
payment or increase the amount of any required principal payment, the result of
which would be to require principal payments on account thereof in excess of
the amounts previously required over the 24 months following such amendment,
modification or waiver, (iii) grant any collateral security therefor on the ABL
Priority Collateral, except to the extent that such collateral security
constitutes a Permitted Encumbrance and is granted subject to an intercreditor
agreement on terms substantially similar to those contained in the
Intercreditor Agreement, (iv) without duplication of any collateral security
granted under clause (iii) above, grant any other collateral therefor except to
the extent such grant of security constitutes a Permitted Encumbrance, the
Collateral Agent also has or obtains a Lien on such assets, and provided that
to the extent that such collateral security consists of assets that would
constitute Term Priority Collateral, such collateral security is granted
subject to an intercreditor agreement on terms substantially similar to those
contained in the Intercreditor Agreement, (v) modify the subordination
provisions thereof or (vi) be otherwise materially adverse to the interests of
the Credit Parties.

 

(b)           The Lead Borrower shall not, and shall not permit any of its Restricted
Subsidiaries to, designate any Indebtedness (or related interest obligations)
as “Designated Senior Debt” (as defined in each of the Senior Subordinated
Notes Indenture and the Subordinated Discount Notes Indenture) or any similar
term (as defined in any documents or agreements evidencing the Junior
Financing), in each case, except for the Term Loan Facility (and related
obligations).

 

SECTION
6.14       Designated Account. 

 

After
the occurrence and during the continuance of a Cash Dominion Event, the Loan
Parties shall not use utilize the funds on deposit in the Designated Account
for any purposes other than (a) the payment of operating expenses incurred by
the Loan Parties in the ordinary course of business (including payments of
interest when due on account of the Senior Notes, the Senior Subordinated
Notes, the Subordinated Discount Notes, and the Term Loan Facility), and (b)
for such other purposes as the Loan Parties deem appropriate.

 

ARTICLE VII

Events of Default

 

SECTION
7.01       Events of Default.

 

The
occurrence of any of the following events shall constitute an “Event of
Default” hereunder:

 

140

 

(a)          Non-Payment. Any
Borrower or any other Loan Party fails to pay (i) when and as required to
be paid herein, any amount of principal of any Revolving Credit Loan (including
Swingline Loans), or any reimbursement obligation in respect of any Letter of
Credit Disbursement, or (ii) within five (5) Business Days after the same becomes
due, any interest on any Revolving Credit Loan (including Swingline Loans) or
any other amount payable hereunder or with respect to any other Loan Document;
or

 

(b)           Specific Covenants. Any Loan Party shall fail to observe or
perform when due any covenant, condition or agreement contained in (i) any
Section of Article VI or (ii) SECTION 5.01(e) (after a two (2) Business Day
grace period), or (iii) in SECTION 2.18, or (iv) in any of SECTION 5.02(b),
SECTION 5.03(a), SECTION 5.07 (but only with respect to fire and extended
coverage policies maintained with respect to any Collateral), SECTION 5.10,
SECTION 5.17, SECTION 5.18, SECTION 5.19, or SECTION 5.22 (provided that,
if (A) any such Default described in this clause (iv) is of a type that can be
cured within 5 Business Days and (B) such Default could not materially
adversely impact the Lenders’ Liens on the Collateral, such default shall not
constitute an Event of Default for 5 Business Days after the occurrence of such
Default so long as the Loan Parties are diligently pursuing the cure of such
Default); or

 

(c)           Other Defaults. Any Loan Party fails to perform or observe
any other covenant or agreement (not specified in SECTION 7.01(a) or (b) above)
contained in any Loan Document on its part to be performed or observed and such
failure continues for thirty (30) days after notice thereof by the
Administrative Agent to the Lead Borrower; or

 

(d)           Representations and
Warranties. Any representation, warranty, certification or statement
of fact made or deemed made by or on behalf of the Lead Borrower or any other
Loan Party herein, in any other Loan Document, or in any document required to
be delivered in connection herewith or therewith shall be incorrect or
misleading in any material respect when made or deemed made; or

 

(e)           Cross-Default. Any
Loan Party or any Restricted Subsidiary (A) fails to make any payment beyond
the applicable grace period with respect thereto, if any (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) in respect
of any Material Indebtedness (other than the Obligations), or (B) fails to
observe or perform any other agreement or condition relating to any such
Material Indebtedness beyond the applicable grace period with respect thereto,
or any other event occurs (other than, with respect to Indebtedness consisting
of Swap Contracts, termination events or equivalent events pursuant to the
terms of such Swap Contracts), the effect of which default or other event is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries)
after the expiration of the applicable grace period with respect thereto, to
cause, with the giving of notice if required, such Indebtedness to become due
or to be repurchased, prepaid, defeased or redeemed (automatically or
otherwise), or an offer to repurchase, prepay, defease or redeem such Material
Indebtedness to be made, prior to its stated maturity; provided
that this clause (e)(B) shall not apply to secured Indebtedness that becomes
due as a result of the voluntary sale or transfer of the property or assets
securing such Indebtedness, if such sale or transfer is permitted hereunder and
under the documents providing for such Indebtedness, and further provided that the occurrence of any event of default under
the Term Loan Agreement by virtue of the breach of the leverage covenant
contained in Section 7.05

 

141

 

of
the Term Loan Agreement (or any other financial maintenance covenant from time
to time in effect under the Term Loan Agreement and not contained in this
Agreement) shall not constitute an Event of Default until the earliest of (x)
sixty (60) days after the date of such breach (during which period such breach
is not waived by the lenders under the Term Loan Agreement or such breach is
not cured pursuant to Section 8.05 of the Term Loan Agreement), or (y) the
acceleration of the obligations under the Term Loan Agreement, or (z) the commencement
of the Exercise of Any Secured Creditor Remedies (as defined in the
Intercreditor Agreement as in effect on the Closing Date) by the agent and/or
the lenders under the Term Loan Agreement as a result of such breach; or

 

(f)            Insolvency Proceedings, Etc. Any Loan Party or any of the Restricted
Subsidiaries institutes or consents to the institution of any proceeding under
the Bankruptcy Code or any other federal, state, provincial, or foreign
bankruptcy, insolvency, receivership or similar law (or any Canadian Loan Party
institutes or consents to the institution of any proposal or notice of intent
to file a proposal), or makes an assignment for the benefit of creditors; or
applies for or consents to the appointment of any receiver, trustee, custodian,
conservator, monitor, liquidator, rehabilitator, administrator, administrative
receiver or similar officer for it or for all or any material part of its
property; or any receiver, trustee, custodian, conservator, monitor,
liquidator, rehabilitator, administrator, administrative receiver or similar
officer is appointed without the application or consent of such Person and the
appointment continues undischarged or unstayed for sixty (60) calendar days; or
any proceeding under the Bankruptcy Code or any other federal, state,
provincial, or foreign bankruptcy, insolvency, receivership or similar law
relating to any such Person or to all or any material part of its property is
instituted without the consent of such Person and continues undismissed or
unstayed for sixty (60) calendar days, or an order for relief is entered in any
such proceeding; or

 

(g)           Inability to Pay Debts;
Attachment. (i) Any Loan Party or any Restricted Subsidiary becomes
unable or admits in writing its inability or fails generally to pay its debts
as they become due in an aggregate amount in excess of (x) $50,000,000 if
Availability is greater than or equal to $125,000,000 on a Pro Forma Basis for
the 12 month period following the date of determination or (y) $25,000,000 if
Availability is less than $125,000,000 on a Pro Forma Basis for the 12 month
period following the date of determination, or (ii) any writ or warrant of
attachment or execution or similar process is issued or levied against all or
any material part of the property of the Loan Parties, taken as a whole, and is
not released, vacated or fully bonded within forty-five (45) days after its
issue or levy; or

 

(h)           Judgments. There
is entered against any Loan Party or any Restricted Subsidiary a final judgment
or order for the payment of money in an aggregate amount in excess of (x)
$75,000,000 if Availability is greater than or equal to $125,000,000 on a Pro
Forma Basis for the 12 month period following such judgment or (y) $40,000,000
if Availability is less than $125,000,000 on a Pro Forma Basis for the 12 month
period following such judgment (to the extent not covered by independent
third-party insurance as to which the insurer has been notified of such
judgment or order and has not denied coverage) and such judgment or order shall
not have been satisfied, vacated, discharged or stayed or bonded pending an
appeal for a period of forty-five (45) consecutive days; or

 

142

 

(i)            ERISA. (a)(i)
An ERISA Event occurs with respect to a Plan subject to ERISA or Multiemployer
Plan subject to ERISA which has resulted or could reasonably be expected to
result in liability of any Loan Party under Title IV of ERISA in an aggregate
amount which could reasonably be expected to result in a Material Adverse
Effect, or (ii) any Loan Party or any ERISA Affiliate fails to pay when due,
after the expiration of any applicable grace period, any installment payment
with respect to its withdrawal liability under Section 4201 of ERISA under
a Multiemployer Plan in an aggregate amount which could reasonably be expected
to result in a Material Adverse Effect; or (b) except as could not reasonably
be expected to result in a Material Adverse Effect, (i) a Pension Event shall
occur which, in Collateral Agent’s determination, constitutes grounds for the
termination under any Applicable Law, of any Plan or (ii) the appointment by
the appropriate Governmental Authority of a trustee for any Plan, or (iii) if
any Plan shall be terminated or any such trustee shall be requested or
appointed, or (iv) if a Loan Party is in default with respect to payments to a
Plan resulting from their complete or partial withdrawal from such Plan or (v)
any event that may reasonably be expected to have a Material Adverse Effect or
any Lien arises (save for contribution amounts not yet due) in connection with
any Plan; or

 

(j)            Invalidity of Loan Documents. (i) Any material provision of any Loan
Document, at any time after its execution and delivery and for any reason other
than as expressly permitted hereunder or thereunder (including as a result of a
transaction permitted under SECTION 6.04 or SECTION 6.05) or as a result of
acts or omissions by any Agent or any Lender or the satisfaction in full of all
the Obligations, ceases to be in full force and effect; or any Loan Party
contests in writing the validity or enforceability of any provision of any Loan
Document; or any Loan Party denies in writing that it has any or further
liability or obligation under any Loan Document (other than as a result of repayment
in full of the Obligations and termination of the Commitments), or purports in
writing to revoke or rescind any Loan Document; or (ii) any challenge by or on
behalf of any Loan Party, receiver, trustee, custodian, conservator, monitor,
liquidator, rehabilitator, administrator, administrative receiver or similar
officer for any Loan Party or for all or any material part of its property 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; or

 

(k)           Change in Control. There occurs any Change in Control; or

 

(l)            Security Documents. (i) Any Security Document, after delivery
thereof pursuant to SECTION 4.01 or SECTION 5.11, shall for any reason (other
than pursuant to the terms thereof including as a result of a transaction
permitted under SECTION 6.04 or SECTION 6.05) cease to create a valid and
perfected or recorded Lien, with the priority required by the Security
Documents, (or other security purported to be created on the applicable
Collateral) on, security interest in, and hypothecs of any material portion of
the Collateral purported to be covered thereby, subject to Permitted
Encumbrances, except to the extent that any such loss of perfection or priority
results from the failure of the Administrative Agent or the Collateral Agent to
maintain possession of certificates actually delivered to it representing
securities pledged under the Security Documents or to file Uniform Commercial
Code continuation statements and except as to Collateral consisting of real
property to the extent that such losses are covered by a lender’s title
insurance policy and such insurer has not denied coverage, or (ii) any of the
Capital Stock of

 

143

 

the
Lead Borrower ceasing to be pledged pursuant to the Security Agreement free of
Liens other than Liens created by the Security Agreement (other than Liens to
secure the Term Loan Facility or Liens securing any Other Pari Passu Lien
Obligations (as defined in and to the extent permitted under the Term Loan
Agreement as amended and in effect from time to time)) or any nonconsensual
Liens arising solely by operation of Law;

 

(m)          Senior Subordinated Note
Documents and Subordinated Discount Note Documents. (i) Any of the
Obligations of the Loan Parties under the Loan Documents for any reason shall
cease to be “Senior Indebtedness” (or any comparable term) or “Senior Secured
Financing” (or any comparable term) under, and as defined in any Senior
Subordinated Note Documents or Subordinated Discount Note Documents, or (ii)
the subordination provisions set forth in any Senior Subordinated Note
Documents or the Subordinated Discount Note Documents shall, in whole or in
part, cease to be effective or cease to be legally valid, binding and
enforceable against the holders of any Senior Subordinated Notes and the
Subordinated Discount Notes, as applicable;

 

(n)           Termination of Business.
Except as permitted under SECTION 6.05, the determination of the Loan Parties,
whether by vote of the Loan Parties’ board of directors or otherwise to: suspend
the operation of the Loan Parties’ business in the ordinary course, liquidate
all or substantially all of the Loan Parties’ assets or Store locations, or
employ an agent or other third party to conduct any so-called store closing,
store liquidation or “Going-Out-Of-Business” sales for all or substantially all
of the Loan Parties’ Stores;

 

(o)           Termination of Guaranty.
The termination of the Facility Guaranty or any other guaranty of the
Obligations (except for any release or termination permitted hereunder); or

 

(p)           Indictment. The indictment of any Loan Party, under any
Applicable Law where the crime alleged would constitute a felony under
Applicable Law and such indictment remains unquashed or such legal process
remains undismissed for a period of 90 days or more, unless either (i) the
Administrative Agent, in its reasonable discretion, determines that the
indictment is not material or (ii) such indictment relates to the Lead Borrower’s
stock option practices.

 

SECTION
7.02       Remedies Upon Event of Default.

 

If
any Event of Default occurs and is continuing, the Administrative Agent may
and, at the request of the Required Lenders, shall take any or all of the
following actions:

 

(a)          declare the Commitment of each Lender to make Revolving Credit Loans
(including Swingline Loans) and any obligation of the Issuing Banks to issue
Letters of Credit to be terminated, whereupon such Commitments and obligation
shall be terminated;

 

(b)         declare the unpaid principal amount of all outstanding Revolving Credit
Loans (including Swingline Loans), all interest accrued and unpaid thereon, and
all other amounts owing or payable hereunder or under any other Loan Document
to be immediately due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby expressly waived by the
Borrowers;

 

144

 

(c)          require that the Borrowers cash collateralize the amount of the Letter
of Credit Outstandings (in an amount equal to 101.5% of the then Stated Amount
of outstanding Letters of Credit plus 100% of the then unreimbursed amounts due
to the Issuing Banks); and

 

(d)         exercise on behalf of itself and the Secured Parties all rights and
remedies available to it and the Secured Parties under the Loan Documents or
Applicable Law;

 

provided that
upon the occurrence of an actual or deemed entry of an order for relief with
respect to the any Loan Party under the Bankruptcy Code, the obligation of each
Lender to make Revolving Credit Loans (including Swingline Loans) and any
obligation of the Issuing Banks to issue Letters of Credit shall automatically
terminate, the unpaid principal amount of all outstanding Revolving Credit
Loans (including Swingline Loans) and all interest and other amounts as
aforesaid shall automatically become due and payable, and the obligation of the
Borrowers to cash collateralize the amount of Letter of Credit Outstandings as
aforesaid shall automatically become effective, in each case without further
act of the Administrative Agent or any Lender.

 

SECTION
7.03       Exclusion of Immaterial Subsidiaries.

 

(a)           Solely for the purpose of determining whether a Default has occurred
under clause (f) or (g) of SECTION 7.01, any reference in any such clause to
any Restricted Subsidiary or Loan Party shall be deemed not to include any
Immaterial Subsidiary affected by any event or circumstances referred to in any
such clause (it being agreed that all Immaterial Subsidiaries affected by any
event or circumstance referred to in any such clause shall be considered
together, as a single consolidated Restricted Subsidiary, for purposes of
determining whether they constitute Immaterial Subsidiaries).

 

SECTION
7.04       Application of Proceeds.

 

After
the occurrence and during the continuance of (i) any Cash Dominion Event (other
than with respect to any Canadian Loan Party), or (ii) any Event of Default and
acceleration of the Obligations, all proceeds realized from any Loan Party or
on account of any Collateral owned by a Loan Party or any payments in respect
of any Obligations and all proceeds of the Collateral, shall be applied in the
following order:

 

(a)           FIRST, ratably to pay the Obligations in respect of any Credit Party
Expenses, indemnities and other amounts then due to the Agents until paid in
full;

 

(b)           SECOND, ratably to pay any Credit Party Expenses and indemnities, and
to pay any fees then due to the Lenders (other than any fees owed to Tranche
A-1 Lenders), until paid in full;

 

(c)           THIRD, ratably to pay interest accrued in respect of the Obligations
(other than the Tranche A-1 Loans) until paid in full;

 

(d)           FOURTH, to pay principal due in respect of the Swingline Loans until
paid in full;

 

145

 

(e)           FIFTH, ratably to pay principal due in respect of the Revolving Credit
Loans (other than Tranche A-1 Loans) until paid in full;

 

(f)            SIXTH, to the Administrative Agent, to be
held by the Administrative Agent, for the ratable benefit of the Issuing Banks
and the Tranche A Lenders as cash collateral in an amount up to 101.5% of the
then Stated Amount of Letters of Credit (other than those in which the Tranche
A-1 Lenders participate) until paid in full;

 

(g)           SEVENTH, ratably to pay any fees then due to the Tranche A-1 Lenders
until paid in full;

 

(h)           EIGHTH, ratably to pay interest accrued in respect of the Tranche A-1
Loans until paid in full;

 

(i)            NINTH, ratably to pay principal due in
respect of Tranche A-1 Loans until paid in full;

 

(j)            TENTH, to the Administrative Agent, to be
held by the Administrative Agent, for the ratable benefit of the Issuing Banks
and the Tranche A-1 Lenders, as cash collateral in an amount up to 101.5% of
the then Stated Amount of Letters of Credit in which the Tranche A-1 Lenders
participate until paid in full;

 

(k)           ELEVENTH, to pay outstanding Obligations with respect to Cash
Management Services furnished to any Loan Party by the Agents;

 

(l)            TWELFTH, ratably to pay any other outstanding
Obligations (including any other outstanding Other Liabilities); and

 

(m)          THIRTEENTH, to the Lead Borrower or such other Person entitled thereto
under Applicable Law.

 

Notwithstanding
the foregoing, in the case of payments from or proceeds of Collateral of
Michaels of Canada, ULC, the same shall first be applied as provided in
subparagraphs (d) through (j) before application to any fees which may be in
the nature of interest for tax purposes as provided in subparagraphs (b) and
(g) or to interest as provided in subparagraphs (c) and (h).

 

ARTICLE VIII

The Administrative Agent

 

SECTION
8.01       Appointment of Administrative Agent.

 

Each
Credit Party hereby irrevocably designates Bank of America 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
Credit Parties each hereby (a) irrevocably authorizes the Administrative Agent
(i) to enter into the Loan Documents to which it is a party, and (ii) at 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
as are

 

146

 

delegated
by the terms hereof or thereof, as appropriate, together with all powers
reasonably incidental thereto, and (b) agrees and consents to all of the
provisions of the Security Documents. The Administrative Agent shall have no
duties or responsibilities except as set forth in this Agreement and the other
Loan Documents, nor shall it have any fiduciary relationship with any other
Credit Party, 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       Appointment of Collateral Agent.

 

Each
Secured Party hereby irrevocably designates Bank of America as Collateral Agent
under this Agreement and the other Loan Documents. The Secured Parties each
hereby (i) irrevocably authorizes the Collateral Agent (x) to enter into the
Loan Documents to which it is a party, and (y) 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 as are delegated
by the terms hereof or thereof, as appropriate, together with all powers reasonably
incidental thereto, and (ii) agrees and consents 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 own benefit and for the
ratable benefit of the other Credit 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 this Agreement and the
other Loan Documents. The Collateral Agent shall have no duties or
responsibilities except as set forth in this Agreement and the other Loan
Documents, nor shall it have any fiduciary relationship with any other Secured
Party, 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       Solidary Interests/Quebec Liens (Hypothecs).

 

Without
limiting the generality of the foregoing, for the purposes of creating a
solidarité active in accordance with Article 1541 of the Civil Code of Quebec,
between each Credit Party, taken individually, on the one hand, and the Agents,
on the other hand, the Borrowers, the Facility Guarantors and each such Credit
Party acknowledge and agree with the Agents that such Credit Party and the
Agents are hereby conferred the legal status of solidary creditors of the
Borrowers and the Facility Guarantors in respect of all Obligations, present
and future, owed by the Borrowers or the Facility Guarantors to each such
Credit Party and the Agents (collectively, the “Solidary Claim”). Accordingly,
but subject (for the avoidance of doubt) to Article 1542 of the Civil Code of
Quebec, the Borrowers and the Facility Guarantors are irrevocably bound towards
the Agents and each Credit Party in respect of the entire Solidary Claim of the
Agents and such Credit Party. As a result of the foregoing, the parties hereto
acknowledge that the Agents and each Credit Party shall at all times have a
valid and effective right of action for the entire Solidary Claim of the Agents
and such Credit Party and the right to give full acquittance for it. Accordingly,
without limiting the generality of the foregoing, the Agents, as solidary
creditor with each Credit Party, shall at all times have a valid and effective
right of action in respect of all Obligations, present and future, owed by the
Borrowers or the Facility Guarantors to the Agents and to the Credit Parties or
any of them and the right to give a full acquittance for

 

147

 

same.
For greater certainty, the foregoing provisions of this paragraph, and the
rights of the Credit Parties, shall at all times be subject to the provisions
of this Agreement.

 

SECTION
8.04       Sharing of Excess Payments.

 

If at any time or times any
Secured Party shall receive (i) by payment, foreclosure, setoff, banker’s lien,
counterclaim, or otherwise, or any payments with respect to the Obligations
owing to such Secured Party arising under, or relating to, this Agreement or
the other Loan Documents, or (ii) payments from the Administrative Agent in
excess of such Secured Party’s ratable portion of all such distributions by the
Administrative Agent, such Secured Party shall promptly (1) turn the same over
to the Administrative Agent, in kind, and with such endorsements as may be
required to negotiate the same to the Administrative Agent, or in same day
funds, as applicable, for the account of all of the Secured Parties and for
application to the Obligations in accordance with the applicable provisions of
this Agreement, or (2) purchase, without recourse or warranty, an undivided
interest and participation in the Obligations owed to the other Secured Parties
so that such excess payment received shall be applied ratably as among the
Secured Parties in accordance with the provisions of SECTION 2.17 or SECTION
7.04, as applicable; provided, however, that if all or part of
such excess payment received by the purchasing party is thereafter recovered
from it, those purchases of participations shall be rescinded in whole or in
part, as applicable, and the applicable portion of the purchase price paid
therefor shall be returned to such purchasing party, but without interest
except to the extent that such purchasing party is required to pay interest in
connection with the recovery of the excess payment. In no event shall the
provisions of this paragraph be construed to apply to any payment made by the
Borrowers 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 Revolving Credit Loans
or participations in Swingline Loans or in drawings under Letters of Credit to
any Eligible Assignee or participant, other than to the Borrowers (as to which
the provisions of this paragraph shall apply).

 

SECTION
8.05       Agreement of Applicable Lenders.

 

Upon any occasion requiring
or permitting an approval, consent, waiver, election or other action on the
part of the Applicable Lenders, action shall be taken by each Agent for and on
behalf or for the benefit of all Credit Parties upon the direction of the
Applicable Lenders, and any such action shall be binding on all Credit Parties.
No amendment, modification, consent, or waiver shall be effective except in
accordance with the provisions of SECTION 9.01.

 

SECTION
8.06       Liability of Agents.

 

(a)           The Agents, when acting on behalf of the Credit Parties, may execute
any of their respective duties under this Agreement or any of the other Loan
Documents by or through any of their respective officers, agents and employees,
and none of the Agents nor any of their respective directors, officers, agents
or employees shall be liable to any other Secured Party for any action taken or
omitted to be taken in good faith, or be responsible to any other Secured Party
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 (as determined by a court of
competent jurisdiction in a final and non-appealable

 

148

 

decision).
None of the Agents nor any of their respective directors, officers, agents and
employees shall in any event be liable to any other Secured Party for any
action taken or omitted to be taken by it pursuant to instructions received by
it from the Applicable Lenders, 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 shall be: (i)
responsible to any other Secured Party for the due execution, validity,
genuineness, effectiveness, sufficiency, or enforceability of, or for any
recital, statement, warranty or representation in, this Agreement, any other
Loan Document or any related agreement, document or order; (ii) required to
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; (iii) responsible to any other
Secured Party for the state or condition of any properties of the Loan Parties
or any other obligor hereunder constituting Collateral for the Obligations or
any information contained in the books or records of the Loan Parties; (iv) responsible
to any other Secured Party 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 (v) responsible to any other Secured Party for the validity,
priority or perfection of any Lien securing or purporting to secure the
Obligations or for the value or sufficiency of any of the Collateral.

 

(b)           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 other Loan Documents. The Agents shall
not be responsible for the negligence or misconduct of any agent or
attorneys-in-fact selected by them with reasonable care.

 

(c)           None of the Agents nor any of their respective directors, officers,
employees, or agents shall have any responsibility to any Loan Party on account
of the failure or delay in performance or breach by any other Secured Party
(other than by each such Agent in its capacity as a Lender) of any of its
respective obligations under this Agreement or any of the other Loan Documents
or in connection herewith or therewith.

 

(d)           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 them 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 any Loan
Party or any Secured Party. 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 Applicable
Lenders as they deem appropriate or they shall first be indemnified to their
satisfaction by the other Secured Parties 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
8.07       Notice of Default.

 

No Agent shall be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
unless such Agent has actual knowledge of the same or has received notice

 

149

 

from
a Secured Party or Loan Party 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 an Agent obtains such actual knowledge or receives
such a notice, such Agent shall give prompt notice thereof to each of the other
Secured Parties. Upon the occurrence of an Event of Default, the Agents shall
(subject to the provisions of SECTION 9.01) take such action with respect 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 Secured
Parties. In no event shall the Agents be required to comply with any such
directions to the extent that the Agents believe that their compliance with
such directions would be unlawful.

 

SECTION
8.08       Credit Decisions.

 

Each
Secured Party (other than the Agents) acknowledges that it has, independently
and without reliance upon the Agents or any other Secured Party, 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 Credit Party (other than
the Agents) also acknowledges that it will, independently and without reliance
upon the Agents or any other Secured Party, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in determining whether or not conditions precedent to closing
any Revolving Credit Loan hereunder have been satisfied and in taking or not
taking any action under this Agreement and the other Loan Documents.

 

SECTION
8.09       Reimbursement and Indemnification.

 

Each Secured Party (other
than the Agents) agrees to (i) reimburse the Agents for such Secured Party’s
pro rata share of all Obligations held by such Secured Party of (x) any
expenses and fees incurred by any Agent for the benefit of Secured Parties
under this Agreement and any of the other Loan Documents, including, without
limitation, counsel fees and compensation of agents and employees paid for
services rendered on behalf of the Secured Parties, and any other expense incurred
in connection with the operation or enforcement thereof not reimbursed by the
Loan Parties, and (y) any expenses of any Agent incurred for the benefit of the
Secured Parties that the Loan Parties have agreed to reimburse pursuant to this
Agreement or any other Loan Document and have failed to so reimburse, and (ii)
indemnify and hold harmless each Agent and any of their respective directors,
officers, employees, or agents, on demand, in the amount of such Secured Party’s
pro rata share of all Obligations held by such Secured Party, 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
Secured Party in any way relating to or arising out of this Agreement or any of
the other Loan Documents or any action taken or omitted by it or any of them
under this Agreement or any of the other Loan Documents to the extent not
reimbursed by the Loan Parties, including, without limitation, costs of any
suit initiated either by any Agent against any Secured Party or against any
Agent or Secured Party (except such as shall have been determined by a court of
competent jurisdiction or another independent tribunal having

 

150

 

jurisdiction by final and non-appealable
judgment to have resulted from the gross negligence or willful misconduct of
such Agent); provided, however, that the unreimbursed expense or
indemnified loss, claim, damage, liability or related expense, as the case may
be, was incurred by or asserted against such Secured Party in its capacity as
such. The provisions of this SECTION 8.09 shall survive the repayment of the
Obligations and the termination of the Commitments.

 

SECTION
8.10       Rights of Agents.

 

It
is understood and agreed that the Agents shall 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 their rights and powers
under other agreements and instruments to which they are or may be party, and
engage in other transactions with the Loan Parties, as though they were not the
Agents. Each Agent and their respective 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
Affiliates as if it were not an Agent thereunder.

 

SECTION
8.11       Notice of Transfer.

 

The Administrative Agent may
deem and treat a Lender party to this Agreement as the owner of such Lender’s
portion of the Obligations for all purposes, unless and until, and except to
the extent, an Assignment and Acceptance shall have become effective as set
forth in SECTION 9.07.

 

SECTION
8.12       Successor Agents.

 

Any Agent may resign at any
time by giving thirty (30) Business Days’ written notice thereof to the other
Secured Parties and the Lead Borrower. Upon any such resignation of an Agent,
the Required Lenders shall have the right to appoint a successor Agent, which,
so long as there is no Specified Default, shall be reasonably satisfactory to
the Lead Borrower (whose consent in any event shall not be unreasonably
withheld or delayed). If no successor Agent shall have been so appointed by the
Required Lenders and/or none shall have accepted such appointment within thirty
(30) days after the retiring Agent’s giving of notice of resignation, the
retiring Agent may, on behalf of the other Secured Parties, appoint a successor
Agent which shall be a commercial bank (or affiliate thereof) organized under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of a least $1,000,000,000, or capable of complying
with all of the duties of such Agent hereunder (in the opinion of the retiring
Agent and as certified to the other Secured Parties in writing by such
successor Agent) which, so long as there is no Specified Default, shall be
reasonably satisfactory to the Lead Borrower (whose consent shall not in any
event be unreasonably withheld or delayed). 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.

 

151

 

SECTION
8.13       Relation Among the Lenders.

 

The
Lenders are not partners or co-venturers, and no Lender shall be liable for the
acts or omissions of, or (except as otherwise set forth herein in case of any
Agent) authorized to act for, any other Lender.

 

SECTION
8.14       Reports and Financial Statements.

 

By
signing this Agreement, each Lender (and with respect to clause (a), each
Secured Party):

 

(a)           agrees to furnish the Administrative Agent on the first day of each
month with a summary of all Other Liabilities due or to become due to such
Lender;

 

(b)           is deemed to have requested that the Agents furnish such Lender,
promptly after they become available, copies of all financial statements
required to be delivered by the Lead Borrower under SECTION 5.01(a) through and
including SECTION 5.01(g), and all commercial finance examinations and appraisals
of the Collateral received by the Agents (collectively, the “Reports”)
(and the Agents agree to furnish such Reports promptly to the Lenders, which
Reports may be furnished in accordance with the final paragraph of SECTION
5.01);

 

(c)           expressly agrees and acknowledges that no Agent makes any
representation or warranty as to the accuracy of the Reports, and shall not be
liable for any information contained in any Report;

 

(d)           expressly agrees and acknowledges
that the Reports are not comprehensive audits or examinations, that the Agents
or any other party performing any audit or examination will inspect only
specific information regarding the Loan Parties and will rely significantly
upon the Loan Parties’ books and records, as well as on representations of the
Loan Parties’ personnel;

 

(e)           agrees to keep all Reports
confidential and strictly for its internal use, and not to distribute except to
its participants, or use any Report in any other manner; and

 

(f)            without limiting the generality of
any other indemnification provision contained in this Agreement, agrees: (i) to
hold each Agent and any such other Lender preparing a Report harmless from any
action the indemnifying Lender may take or conclusion the indemnifying Lender
may reach or draw from any Report in connection with any Credit Extensions that
the indemnifying Lender has made or may make to the Borrowers, or the
indemnifying Lender’s participation in Swingline Loans and Letters of Credit,
or the indemnifying Lender’s purchase of, Revolving Credit Loans of the
Borrowers; and (ii) to pay and protect, and indemnify, defend, and hold each
Agent and any such other Lender preparing a Report harmless from and against,
the claims, actions, proceedings, damages, costs, expenses, and other amounts
(including attorney costs) incurred by the Agents and any such other Lender
preparing a Report as the direct or indirect result of any third parties who
might obtain all or part of any Report through the indemnifying Lender in
violation of the terms hereof.

 

152

 

SECTION
8.15       Agency for Perfection.

 

Each
Lender hereby appoints each other Lender as agent for the purpose of perfecting
Liens for the benefit of the Agents and the Secured Parties, in assets which,
in accordance with Article 9 of the UCC or any other Applicable Law of the
United States of America or Canada under the PPSA or otherwise can be perfected
only by possession. Should any Secured Party (other than an Agent) obtain
possession of any such Collateral, such Secured Party shall notify the
Collateral Agent thereof, and, promptly upon the Collateral Agent’s request
therefor shall deliver such Collateral to the Collateral Agent, or otherwise
deal with such Collateral in accordance with the Collateral Agent’s
instructions.

 

SECTION
8.16       Delinquent Lender.

 

(a)           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 Credit Loans, expenses or setoff or purchase its Commitment
Percentage of a participation interest in the Swingline Loans or Letter of
Credit Outstandings (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 that may be
available to the other Secured Parties, 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 Obligations, 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 Revolving Credit
Loans, interest, fees or otherwise, to the remaining non-delinquent Lenders for
application to, and reduction of, their proportionate shares of all outstanding
Obligations until, as a result of application of such assigned payments the
Lenders’ respective Commitment Percentages of all outstanding Obligations
(other than Other Liabilities) 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 Obligations (other than Other
Liabilities), any participation obligation, or expenses as to which it is
delinquent, together with interest thereon at the Default Rate from the date
when originally due until the date upon which any such amounts are actually
paid.

 

(b)           The non-Delinquent Lenders shall also have the right, but not the
obligation, in their respective, sole and absolute discretion, to cause the
termination and assignment without any further action by the Delinquent Lender
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 Credit Extensions. Upon any such purchase of
the Commitment Percentage of any Delinquent Lender, the Delinquent Lender’s
share in future Credit Extensions 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. The Borrowers may, on ten (10) days’ prior written notice to the

 

153

 

Administrative
Agent and such Delinquent Lender, replace such Delinquent Lender (in its
capacity as a Lender) by causing such Delinquent Lender to (and such Delinquent
Lender shall be obligated to) assign (with the assignment fee to be paid by the
Borrowers in such instance) all of its rights and obligations under this
Agreement to one or more Eligible Assignees.

 

(c)           Each Delinquent Lender shall indemnify the Administrative Agent 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 the Administrative Agent or by any non-delinquent Lender, on
account of a Delinquent Lender’s failure to timely fund its Commitment
Percentage of a Revolving Credit Loan, or its participation in Swinglines Loan
and Letters of Credit or to otherwise perform its obligations under the Loan
Documents.

 

SECTION
8.17       Collateral Matters. 

 

(a)           The Lenders hereby irrevocably authorize the Collateral Agent to
release any Lien upon any Collateral (i) upon the termination of the
Commitments and payment and satisfaction in full of all Obligations (other than
contingent indemnity obligations with respect to then unasserted claims), all
Letters of Credit shall have expired or terminated (or been collateralized or
backstopped in a manner satisfactory to the applicable Issuing Bank) and all
Letter of Credit Outstandings have been reduced to zero (or collateralized or
backstopped in a manner satisfactory to the applicable Issuing Bank), or (ii)
constituting property being sold, transferred or disposed of in a Permitted
Disposition upon receipt by the Administrative Agent of the Net Proceeds
thereof to the extent required by this Agreement. Except as provided above, the
Collateral Agent will not release any of the Collateral Agent’s Liens without
the prior written authorization of the Applicable Lenders. Upon request by any
Agent or any Loan Party at any time, the Lenders will confirm in writing the
Collateral Agent’s authority to release any Liens upon particular types or
items of Collateral pursuant to this SECTION 8.17.

 

(b)           Upon at least two (2) Business Days’
prior written request by the Lead Borrower, the Collateral Agent shall (and is
hereby irrevocably authorized by the Lenders to) execute such documents as may
be necessary to evidence the release of the Liens upon any Collateral described
in SECTION 8.17(a); provided, however, that (i) the Collateral
Agent shall not be required to execute any such document on terms which, in its
reasonable opinion, would, under Applicable Law, expose the Collateral Agent to
liability or create any obligation or entail any adverse consequence other than
the release of such Liens without recourse or warranty, and (ii) such release
shall not in any manner discharge, affect or impair the Obligations or any
Liens (other than those expressly being released) upon (or obligations of any
Loan Party in respect of) all interests retained by any Loan Party, including
(without limitation) the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.

 

SECTION
8.18       Syndication Agent, Co-Documentation Agents,
and Arrangers.

 

Notwithstanding
the provisions of this Agreement or any of the other Loan Documents, the
Syndication Agent, the Co-Documentation Agents and the Arrangers shall have no
powers, rights, duties, responsibilities or liabilities with respect to this
Agreement and the other Loan Documents.

 

154

 

ARTICLE IX

Miscellaneous

 

SECTION
9.01       Amendments, Etc.

 

Except
as otherwise set forth in this Agreement, no amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent to any
departure by the Lead Borrower or any other Loan Party therefrom, shall be
effective unless in writing signed by the Required Lenders and the Lead
Borrower or the applicable Loan Party, as the case may be, and each such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided that,
no such amendment, waiver or consent shall:

 

(a)           extend or increase the Commitment of any Lender without the written
consent of such Lender (it being understood that a waiver of any condition
precedent set forth in SECTION 4.02 or the waiver of any Default, mandatory
prepayment or mandatory reduction of the Commitments shall not constitute an
extension or increase of any Commitment of any Lender);

 

(b)           postpone any date scheduled for, or
reduce the amount of, any payment of principal, interest, fees or other amounts
payable under the Loan Documents or reduce the amount of, waive or excuse any
such payment or postpone the expiration of the Commitments or the Maturity
Date, without the prior written consent of all Lenders directly affected
thereby provided that, only the consent of the
Required Lenders shall be necessary to amend the definition of “Default Rate”
or to waive any obligation of the Borrowers to pay interest at the Default
Rate;

 

(c)           reduce the principal of, or the rate
of interest specified herein on, any Loan, or any fees or other amounts payable
hereunder or under any other Loan Document without the prior written consent of
all Lenders directly affected thereby; provided that,
only the consent of the Required Lenders shall be necessary to amend the
definition of “Default Rate” or to waive any obligation of the Borrowers to pay
interest at the Default Rate;

 

(d)           change any provision of this SECTION
9.01, the definition of “Required 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 determination or grant any consent
thereunder, without the prior written consent of all Lenders affected thereby;

 

(e)           other than in a transaction permitted
under SECTION 6.05, release all or substantially all of the Collateral in any
transaction or series of related transactions, without the prior written
Unanimous Consent of all Lenders; or

 

(f)            other than in connection with a
transaction permitted under SECTION 6.04 or SECTION 6.05, release any Loan
Party from its obligations under any Loan Document or limit its liability in
respect of such Loan Document, without the prior written Unanimous Consent of
all Lenders; or

 

155

 

(g)           except as provided in SECTION 2.02,
increase the Total Commitments without the prior written Unanimous Consent of
all Lenders; or

 

(h)           without the prior written Unanimous
Consent of all Lenders, change the definition of the terms “Availability” or “Tranche
A Borrowing Base” or “Tranche A-1 Borrowing Base” or any component definition
of any such terms if as a result thereof the amounts available to be borrowed
by the Borrowers would be increased, provided that the foregoing shall
not limit the discretion of the Administrative Agent to change, establish or
eliminate any Reserves or to add Inventory and Accounts acquired in a Permitted
Acquisition to the Borrowing Base as provided herein; or

 

(i)            without the prior written Unanimous
Consent of all Lenders, modify the definition of Permitted Overadvance so as to
increase the amount thereof, or to cause the aggregate Commitments (or the
Commitment of any Lender) to be exceeded as a result thereof, or, except as
provided in such definition, the time period for a Permitted Overadvance;

 

(j)            without the prior written Unanimous
Consent of all Lenders, change SECTION 2.17, SECTION 2.18, SECTION 7.04, or
SECTION 8.04;

 

(k)           without the prior written Unanimous
Consent of all Lenders, (i) subordinate the Obligations hereunder to any other
Indebtedness, or (ii) except as provided by operation of Applicable Law or in
the Intercreditor Agreement, subordinate the Liens granted hereunder or under
the other Loan Documents to any other Lien; or

 

(l)            without the prior written Unanimous
Consent of all Lenders, modify the definition of Excess Swingline Loans.

 

and
provided further that (i) no amendment,
waiver or consent shall, unless in writing and signed by each Issuing Bank in
addition to the Lenders required above, affect the rights or duties of an
Issuing Bank under this Agreement or any Letter of Credit application relating
to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver
or consent shall, unless in writing and signed by the Swingline Lender in
addition to the Lenders required above, affect the rights or duties of the
Swingline Lender under this Agreement; and (iii) no amendment, waiver or
consent shall, unless in writing and signed by the Administrative Agent and the
Collateral Agent in addition to the Lenders required above, affect the rights
or duties of, or any fees or other amounts payable to, the Administrative Agent
or the Collateral Agent under this Agreement or any other Loan Document. Notwithstanding
anything to the contrary herein, no Delinquent Lender shall have any right to
approve or disapprove any amendment, waiver or consent hereunder, except that
the Commitment of such Lender may not be increased or extended without the
consent of such Lender (it being understood that any Commitments or Loans held
or deemed held by any Delinquent Lender shall be excluded for a vote of the
Lenders hereunder requiring any consent of the Lenders).

 

Notwithstanding anything to
the contrary contained in this SECTION 9.01, in the event that the Lead
Borrower shall request that this Agreement or any other Loan Document be
modified, amended or waived in a manner which would require the Unanimous
Consent of the Lenders or of all Lenders affected thereby and such amendment is
approved by the Required

 

156

 

Lenders, but not by all the Lenders, the Lead
Borrower and the Administrative Agent 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 Lead Borrower (such Lender or
Lenders, collectively the “Minority Lenders”) subject to their providing
for (i) the termination of the Commitment of each of the Minority Lenders, (ii)
the addition to this Agreement of one or more other financial institutions
which would qualify as an Eligible Assignee, subject to the reasonable approval
of the Administrative Agent, or an increase in the Commitment of one or more of
the Required Lenders, so that the Total Commitments after giving effect to such
amendment shall be in the same amount as the aggregate Commitments immediately
before giving effect to such amendment, (iii) if any Revolving Credit Loans are
outstanding at the time of such amendment, the making of such additional
Revolving Credit Loans by such new or increasing Lender or Lenders, as the case
may be, as may be necessary to repay in full the outstanding Revolving Credit
Loans (including principal, interest, fees and other amounts due and owing
under the Loan Documents) of the Minority Lenders immediately before giving
effect to such amendment and (iv) such other modifications to this Agreement or
the Loan Documents as may be appropriate and incidental to the foregoing.

 

SECTION
9.02       Notices and Other Communications; Facsimile
Copies.

 

(a)           General. Unless otherwise expressly provided herein,
all notices and other communications provided for hereunder or under any other
Loan Document shall be in writing (including by facsimile transmission). All
such written notices shall be mailed, faxed or delivered to the applicable
address, facsimile number or electronic mail address, and all notices and other
communications expressly permitted hereunder to be given by telephone shall be
made to the applicable telephone number, as follows:

 

(i)                    if to any Loan Party, to it at 8000 Bent Branch Drive, Irving, Texas
75063, Attention: Lisa Klinger, Vice President and Treasurer (Telecopy No.
(972) 409-1556) (E-Mail: klingerl@michaels.com), with a copy to the attention
of General Counsel (Telecopy No. (972) 409-1965, and with copies to Bain
Capital Partners, LLC, 111 Huntington Avenue, Boston, Massachusetts 02199,
Attention: Josh Bekenstein, Matthew Levin and Todd Cook (Telecopy No. (617)
516-2010), (E-Mail: jbekenstein@baincapital.com, mlevin@baincapital.com, and
tcook@baincapital.com), and Blackstone Management Associates V LLC, 345 Park
Avenue, New York, New York 10154, Attention: Michael Chae and Matthew Kabaker
(Telecopy No.(212) 583-5717), (E-Mail: chae@blackstone.com and
kabaker@blackstone.com),with a copy to Ropes & Gray LLP, One International
Place, Boston, Massachusetts 02110, Attention: Byung W. Choi, Esquire (Telecopy
No. (617) 951-7050), (E-Mail: byung.choi@ropesgray.com); and

 

(ii)                   if to the Administrative Agent, the Collateral Agent or the Swingline
Lender to Bank of America, N.A., 40 Broad Street, Boston, Massachusetts 02109,
Attention Keith Vercauteren (Telecopy No. (617) 434-4339), (E-Mail:
Keith.Vercauteren@bankofamerica.com), David C. Storer (Telecopy No. (617)
434-4339), (E-Mail: David.Storer@bankofamerica.com), and Sally Sheehan
(Telecopy No. (617) 434-4339), (E-Mail: Sally.Sheehan@bankofamerica.com), with
a copy to Riemer

 

157

 

&
Braunstein, LLP, Three Center Plaza, Boston, Massachusetts 02108, Attention:
David S. Berman, Esquire (Telecopy No. (617) 880-3456), (E-Mail:
dberman@riemerlaw.com);

 

(iii)                  if
to any other Credit Party, to it at its address (or telecopy number or
electronic mail address) set forth on the signature pages hereto or on any
Assignment and Acceptance.

 

All
such notices and other communications shall be deemed to be given or made upon
the earlier to occur of (i) actual receipt by the relevant party hereto and
(ii) (A) if delivered by hand or by courier, when signed for by or on behalf of
the relevant party hereto; (B) if delivered by mail, four (4) Business Days
after deposit in the mails, postage prepaid; (C) if delivered by facsimile,
when sent and receipt has been confirmed by telephone; and (D) if delivered by
electronic mail (which form of delivery is subject to the provisions of SECTION
5.02), when delivered; provided that
notices and other communications to the Administrative Agent, the Issuing Banks
and the Swingline Lender pursuant to Article 2 shall not be effective until
actually received by such Person. In no event shall a voice mail message be
effective as a notice, communication or confirmation hereunder.

 

Notwithstanding
the foregoing, any notice hereunder sent by e-mail shall be solely for the
distribution of (i) routine communications such as financial statements and
(ii) documents and signature pages for execution by the parties hereto, and for
no other purpose. Any party hereto may change its address or telecopy number
for notices and other communications hereunder by notice to the other parties
hereto.

 

(b)         Effectiveness of Facsimile Documents and Signatures. Loan Documents may be transmitted and/or
signed by facsimile or by electronic pdf copy. The effectiveness of any such
documents and signatures shall, subject to Applicable Law, have the same force
and effect as manually signed originals and shall be binding on all Loan
Parties, the Administrative Agent, the Collateral Agent, the Issuing Banks, and
the Lenders.

 

(c)          Reliance by Agents and Lenders. The Administrative Agent, the Collateral Agent, the Issuing Banks and
the Lenders shall be entitled to rely and act upon any notices (including
telephonic Borrowing Requests) purportedly given by or on behalf of any Borrower
even if (i) such notices were not made in a manner specified herein, were
incomplete or were not preceded or followed by any other form of notice
specified herein, or (ii) the terms thereof, as understood by the
recipient, varied from any confirmation thereof. The Borrowers shall indemnify
the Credit Parties and each Related Person from all losses, costs, expenses and
liabilities resulting from the reliance by such Person on each notice
purportedly given by or on behalf of the Borrowers in the absence of gross
negligence or willful misconduct. All telephonic notices to the Administrative
Agent may be recorded by the Administrative Agent, and each of the parties
hereto hereby consents to such recording.

 

SECTION
9.03       No Waiver; Cumulative Remedies.

 

No failure or delay by any
Credit Party 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

 

158

 

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 Credit Parties hereunder and under the other Loan
Documents are cumulative and are not exclusive of any other 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 SECTION 9.01, 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 Revolving Credit Loan or issuance of a Letter of Credit shall not
be construed as a waiver of any Default or Event of Default, regardless of
whether any Credit Party may have had notice or knowledge of such Default or
Event of Default at the time.

 

SECTION
9.04       Attorney Costs and Expenses.

 

The Lead Borrower agrees (a)
if the Closing Date occurs, to pay or reimburse the Agents, the Syndication
Agent, the Co-Documentation Agents and the Arrangers for all Credit Party
Expenses incurred in connection with (i) the preparation, negotiation,
syndication and execution of this Agreement and the other Loan Documents, and
(ii) any amendment, waiver, consent or other modification of the provisions
hereof and thereof (whether or not the transactions contemplated thereby are
consummated), and (iii) the consummation and administration of the transactions
contemplated hereby and thereby, including, in each case, all reasonable fees
and expenses of Riemer & Braunstein LLP and Ogilvy Renault, LLP, and (b) to
pay or reimburse the Agents, the Syndication Agent, the Co-Documentation
Agents, the Arrangers and each Lender for all Credit Party Expenses incurred in
connection with the enforcement of any rights or remedies under this Agreement
or the other Loan Documents (including, without limitation, all such costs and
expenses incurred during any legal proceeding, including any proceeding under
the Bankruptcy Code, and including all fees and expenses of counsel to the
Agents and, to the extent constituting Credit Party Expenses, the other Credit Parties).
The agreements in this SECTION 9.04 shall survive the termination of the
Commitments and repayment of all other Obligations. All amounts due under this
SECTION 9.04 for Credit Party Expenses incurred after the Closing Date shall be
paid within ten (10) Business Days of receipt by the Lead Borrower of an
invoice relating thereto setting forth such Credit Party Expenses in reasonable
detail. If any Loan Party fails to pay when due any Credit Party Expenses
payable by it hereunder or under any Loan Document, such amount may be paid on
behalf of such Loan Party by the Administrative Agent in its sole discretion,
without notice to or consent from the Loan Parties, and any amounts so paid
shall constitute Revolving Credit Loans hereunder.

 

SECTION
9.05       Indemnification by the Lead Borrower.

 

Whether or not the
transactions contemplated hereby are consummated, the Lead Borrower shall
indemnify and hold harmless each Credit Party, their respective Related Persons
and their respective Affiliates, directors, officers, employees, counsel,
agents, trustees, investment advisors and attorneys-in-fact (collectively the “Indemnitees”)
from and against any and all liabilities, obligations, losses, damages,
penalties, claims, demands, actions, judgments, suits, costs, expenses and
disbursements (including fees and expenses of counsel) of any kind or nature
whatsoever which may at any time be imposed on, incurred by or asserted against
any such Indemnitee in any way relating to or arising out of or in connection
with (a) the execution, delivery, enforcement, performance or administration of
any Loan Document or any other

 

159

 

agreement, letter or instrument delivered in
connection with the transactions contemplated thereby or the consummation of
the transactions contemplated thereby, (b) any Commitment, Revolving Credit
Loan (including Swingline Loans) or Letter of Credit or the use or proposed use
of the proceeds therefrom (including any refusal by an 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), or (c) any actual or alleged presence or release of Hazardous
Materials on or from any property currently or formerly owned or operated by
the Lead Borrower, any Subsidiary or any other Loan Party, or any Environmental
Liability related in any way to the Lead Borrower, any Subsidiary or any other
Loan Party, or (d) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory (including any investigation of, preparation for, or
defense of any pending or threatened claim, investigation, litigation or
proceeding) and regardless of whether any Indemnitee is a party thereto and, in
each case, whether or not caused by or arising, in whole or in part, out of the
negligence of the Indemnitee; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such liabilities, obligations,
losses, damages, penalties, claims, demands, actions, judgments, suits, costs,
expenses or disbursements (i) resulted from the gross negligence, bad faith, or
willful misconduct of such Indemnitee or of any affiliate, director, officer,
employee, counsel, agent or attorney-in-fact of such Indemnitee, or (ii) are
relating to disputes amongst Indemnitees. No Indemnitee shall be liable for any
damages arising from the use by others of any information or other materials
obtained through IntraLinks or other similar information transmission systems
in connection with this Agreement, nor shall any Indemnitee or any Loan Party
have any liability and each party hereby waives, any claim against any other party
to this Agreement or any Indemnitee, for any special, punitive, indirect or
consequential damages relating to this Agreement or any other Loan Document or
arising out of its activities in connection herewith or therewith (whether
before or after the Closing Date). In the case of an investigation, litigation
or other proceeding to which the indemnity in this SECTION 9.05 applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, stockholders or
creditors or an Indemnitee or any other Person, whether or not any Indemnitee
is otherwise a party thereto and whether or not any of the transactions
contemplated hereunder or under any of the other Loan Documents is consummated.
All amounts due under this SECTION 9.05 shall be paid within ten (10) Business
Days after demand therefor; provided, however, that such Indemnitee shall
promptly refund such amount to the extent that there is a final judicial or
arbitral determination that such Indemnitee was not entitled to indemnification
or contribution rights with respect to such payment pursuant to the express
terms of this SECTION 9.05. The agreements in this SECTION 9.05 shall survive
the resignation of the Administrative Agent or the Collateral Agent, the
replacement of any Lender, the termination of the Commitments and the
repayment, satisfaction or discharge of all the other Obligations.

 

SECTION
9.06       Payments Set Aside.

 

To
the extent that any payment by or on behalf of the Lead Borrower is made to any
Credit Party, or any Credit Party exercises its right of setoff, and such
payment or the proceeds of such setoff or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by such Credit Party in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection

 

160

 

with any proceeding under the Bankruptcy Code
or any other debtor relief law or otherwise, then (a) to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied
shall be revived and continued in full force and effect as if such payment had
not been made or such setoff had not occurred, and (b) each Lender severally
agrees to pay to the Administrative Agent upon demand its applicable share of
any amount so recovered from or repaid by the Administrative Agent or the
Collateral Agent, plus interest thereon from the date of such demand to the
date such payment is made at a rate per annum equal to the Federal Funds
Effective Rate from time to time in effect.

 

SECTION
9.07       Successors and Assigns.

 

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, 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 no Lender may
assign or otherwise transfer any of its rights or obligations hereunder except
(i) to an Eligible Assignee, (ii) by way of participation in accordance with
the provisions of SECTION 9.07(d) or SECTION 9.07(e), or (iii) by way of pledge
or assignment of a security interest subject to the restrictions of SECTION
9.07(f) or SECTION 9.07(g) (and any other attempted assignment or transfer by
any party hereto 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,
Participants to the extent provided in SECTION 9.07(e) and, to the extent
expressly contemplated hereby, the Indemnitees) any legal or equitable right,
remedy or claim under or by reason of this Agreement.

 

(a)           (i)            Subject to the conditions set forth in
paragraph (a)(ii) below, 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 Revolving Credit Loans
(including for purposes of this SECTION 9.07(a), participations in Letters of
Credit and in Swingline Loans) at the time owing to it) with the prior written
consent (such consent not to be unreasonably withheld) of:

 

(A)          the Lead Borrower, provided that no consent of the Lead Borrower shall be
required for an assignment to a Lender, an Affiliate of a Lender, a Related
Fund or, if a Specified Default has occurred and is continuing, any Eligible
Assignee;

 

(B)           the Administrative
Agent, provided that no consent of the
Administrative Agent shall be required for an assignment to a Lender, an
Affiliate of a Lender, or a Related Fund;

 

(C)           each Issuing Bank at
the time of such assignment; and

 

(D)          the Swingline Lender.

 

(ii)   Assignments
shall be subject to the following additional conditions:

 

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(A)          except in the case of an
assignment to a Lender or an Affiliate of a Lender or a Related Fund or an
assignment of the entire remaining amount of the assigning Lender’s Commitment,
the amount of the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and Assumption with
respect to such assignment is delivered to the Administrative Agent) shall not
be less than $5,000,000 unless each of the Lead Borrower and the Administrative
Agent otherwise consents, provided that
(1) no such consent of the Lead Borrower shall be required if a Specified
Default has occurred and is continuing and (2) such amounts shall be aggregated
in respect of each Lender and its Affiliates or Related Funds, if any;

 

(B)           the parties to each
assignment shall execute and deliver to the Administrative Agent an Assignment
and Acceptance, together with a processing and recordation fee of $3,500
(unless such fee is waived by the Administrative Agent); and

 

(C)           the Assignee, if it
shall not be a Lender, shall deliver to the Administrative Agent an
administrative questionnaire satisfactory in form and content to the
Administrative Agent.

 

(b)           Subject to acceptance and recording thereof by the Administrative Agent
pursuant to SECTION 9.07(c), from and after the effective date specified in
each Assignment and Acceptance, the Eligible Assignee thereunder shall be a
party to this Agreement 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 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 9.05 with respect to facts and
circumstances occurring prior to the effective date of such assignment). Upon
request, and the surrender by the assigning Lender of its Note, the Borrowers
(at their expense) shall execute and deliver a Note to the assignee Lender. Any
assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with this clause (b) 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 SECTION 9.07(d).

 

(c)           The Administrative Agent, acting solely for this purpose as an agent of
the Borrowers, shall maintain at the Administrative Agent’s Office 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 Commitments of,
and principal amounts (and related interest amounts) of the Revolving Credit Loans
(including Swingline Loans) and Obligations with respect to Letters of Credit
owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).
The entries in the Register shall be conclusive, absent manifest error, and the
Borrowers, the Credit Parties shall 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

 

162

 

the contrary. The Register shall be available
for inspection by any Borrower and any Credit Party, at any reasonable time and
from time to time upon reasonable prior notice.

 

(d)           Any Lender may at any time, without the consent of, or notice to, the
Borrowers or the Administrative Agent, sell participations to any Person (other
than a natural person) (each, a “Participant”) in all or a portion of
such Lender’s rights and/or obligations under this Agreement (including all or
a portion of its Commitment and/or the Revolving Credit Loans (including such
Lender’s participations in Letters of Credit and/or Swingline 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 Borrowers and the other Credit Parties
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 shall provide
that such Lender shall retain the sole right to enforce this Agreement and the
other Loan Documents and to approve any amendment, modification or waiver of
any provision of this Agreement or the other 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, waiver or other modification described in SECTION 9.01(b), (c), (e)
or (f) that directly affects such Participant. Subject to SECTION 9.07(e), the
Borrowers agree that each Participant shall be entitled to the benefits of
SECTION 2.14 and SECTION 2.23 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to SECTION 9.07(b). To the extent
permitted by Applicable Law, each Participant also shall be entitled to the
benefits of SECTION 9.09 as though it were a Lender; provided
that such Participant agrees to be subject to SECTION 8.04 as though it were a
Lender.

 

(e)           A Participant shall not be entitled to receive any greater payment
under SECTION 2.14 or SECTION 2.23 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 Lead
Borrower’s prior written consent.

 

(f)            Any Lender may at any time pledge or
assign a security interest in all or any portion of its rights under this Agreement
(including under its Note, if any) to secure obligations of such Lender,
including any pledge or assignment to secure obligations to a Federal Reserve
Bank; provided that no such pledge or
assignment shall release such Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.

 

(g)           Notwithstanding anything to the
contrary contained herein, (1) any Lender may in accordance with Applicable Law
create a security interest in all or any portion of the Revolving Credit Loans
owing to it and the Note, if any, held by it and (2) any Lender that is a fund
that invests in loans may create a security interest in all or any portion of
the Revolving Credit Loans owing to it and the Note, if any, held by it to the
trustee for holders of obligations owed, or securities issued, by such fund as
security for such obligations or securities; provided
that unless and until such trustee actually becomes a Lender in compliance with
the other provisions of this SECTION 9.07, (i) no such pledge shall
release the pledging Lender from any of its obligations under the Loan
Documents and (ii) such trustee shall not be entitled to exercise

 

163

 

any of the rights of a Lender under the Loan
Documents even though such trustee may have acquired ownership rights with
respect to the pledged interest through foreclosure or otherwise.

 

(h)           Notwithstanding anything to the
contrary contained herein, any Issuing Bank or the Swingline Lender may, upon
thirty (30) days’ notice to the Lead Borrower and the Lenders, resign as an
Issuing Bank or the Swingline Lender, respectively; provided
that on or prior to the expiration of such 30-day period with respect to such
resignation, the relevant Issuing Bank or the Swingline Lender shall have
identified a successor Issuing Bank or Swingline Lender reasonably acceptable
to the Lead Borrower willing to accept its appointment as successor Issuing
Bank or Swingline Lender, as applicable. In the event of any such resignation
of an Issuing Bank or the Swingline Lender, the Lead Borrower shall be entitled
to appoint from among the Lenders willing to accept such appointment a
successor Issuing Bank or Swingline Lender hereunder; provided
that no failure by the Lead Borrower to appoint any such successor shall affect
the resignation of the relevant Issuing Bank or the Swingline Lender, as the
case may be, except as expressly provided above. If an Issuing Bank resigns as
an Issuing Bank, it shall retain all the rights and obligations of an Issuing
Bank hereunder with respect to all Letters of Credit outstanding as of the
effective date of its resignation as an Issuing Bank and all Obligations with
respect thereto (including the right to require the Lenders to make Prime Rate
Loans or fund risk participations in Letters of Credit). If the Swingline
Lender resigns as Swingline Lender, it shall retain all the rights of the
Swingline Lender provided for hereunder with respect to Swingline Loans made by
it and outstanding as of the effective date of such resignation, including the
right to require the Lenders to make Prime Rate Loans or fund risk
participations in outstanding Swingline Loans.

 

SECTION
9.08       Confidentiality.

 

Each of the Agents and the
Lenders agrees to maintain the confidentiality of the Information, except that
Information may be disclosed (a) to its Affiliates and its Affiliates’
directors, officers, employees, trustees, investment advisors and agents,
including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and shall agree to keep such
Information confidential); (b) to the extent requested by any Governmental
Authority; (c) to the extent required by Applicable Law or regulations or by
any subpoena or similar legal process; (d) to any other party to this
Agreement; (e) subject to an agreement containing provisions substantially the
same as those of this SECTION 9.08 (or as may otherwise be reasonably
acceptable to the Lead Borrower), to any pledgee referred to in SECTION
9.07(f), counterparty to a Swap Contract, Eligible Assignee of or Participant
in, or any prospective Eligible Assignee of or Participant in, any of its
rights or obligations under this Agreement; (f) with the written consent
of the Lead Borrower; (g) to the extent such Information becomes publicly
available other than as a result of a breach of this SECTION 9.08; (h) to
any Governmental Authority or examiner (including the National Association of
Insurance Commissioners or any other similar organization) regulating any
Lender; (i) to any rating agency when required by it (it being understood
that, prior to any such disclosure, such rating agency shall undertake to
preserve the confidentiality of any Information relating to the Loan Parties
received by it from such Lender); (j) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or any other Loan Document or the enforcement of rights hereunder or
thereunder; (k) to the extent such Information becomes

 

164

 

available to any Credit Party on a
nonconfidential basis from a source other than the Loan Parties; and (l) to the
extent that such Information is independently developed by such Credit Party. In
addition, the Credit Parties may disclose the existence of this Agreement and
information about this Agreement to market data collectors, similar service
providers to the lending industry, and service providers to the Credit Parties
in connection with the administration and management of this Agreement, the
other Loan Documents, the Commitments, and the Credit Extensions. For the
purposes of this SECTION 9.08, “Information” means all information
received from any Loan Party relating to any Loan Party or its business, other
than any such information that is publicly available to any Credit Party prior
to disclosure by any Loan Party other than as a result of a breach of this
SECTION 9.08; provided that, in the case of information received from a Loan
Party after the date hereof, such information is clearly identified at the time
of delivery as confidential or (ii) is delivered pursuant to SECTION 5.01, SECTION
5.02 or  SECTION 5.03 hereof.

 

SECTION
9.09       Setoff.

 

In addition to any rights
and remedies of the Lenders provided by Applicable Law, upon the occurrence and
during the continuance of any Event of Default, each Lender and its Affiliates
is authorized at any time and from time to time, without prior notice to the
Lead Borrower or any other Loan Party, any such notice being waived by the Lead
Borrower (on its own behalf and on behalf of each Loan Party and its
Subsidiaries) to the fullest extent permitted by Applicable Law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held by, and other Indebtedness at any time owing by, such
Lender and its Affiliates to or for the credit or the account of the respective
Loan Parties against any and all Obligations owing to such Lender and its
Affiliates hereunder or under any other Loan Document, now or hereafter
existing, irrespective of whether or not such Credit Party or Affiliate shall
have made demand under this Agreement or any other Loan Document and although
such Obligations may be contingent or unmatured or denominated in a currency
different from that of the applicable deposit or Indebtedness. Each Lender
agrees promptly to notify the Lead Borrower and the Administrative Agent after
any such set off and application made by such Lender; provided,
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of the Administrative Agent and each Lender
under this SECTION 9.09 are in addition to other rights and remedies (including
other rights of setoff) that the Agents and such Lender may have.

 

SECTION
9.10       Interest Rate Limitation.

 

Notwithstanding
anything to the contrary contained in any Loan Document, the interest paid or
agreed to be paid under the Loan Documents shall not exceed the maximum rate of
non-usurious interest permitted by Applicable Law (the “Maximum Rate”). If
any Credit Party shall receive interest in an amount that exceeds the Maximum
Rate, the excess interest shall be applied to the principal of the Revolving
Credit Loans (including Swingline Loans) or, if it exceeds such unpaid
principal, refunded to the Borrowers. In determining whether the interest
contracted for, charged, or received by a Credit Party exceeds the Maximum
Rate, such Person may, to the extent permitted by Applicable Law, (a)
characterize any payment that is not principal as an expense, fee, or premium
rather than interest, (b) exclude voluntary prepayments and the effects

 

165

 

thereof, and (c) amortize, prorate, allocate,
and spread in equal or unequal parts the total amount of interest throughout
the contemplated term of the Obligations hereunder.

 

SECTION
9.11       Counterparts.

 

This
Agreement and each other Loan Document may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery by telecopier
or by electronic pdf copy of an executed counterpart of a signature page to
this Agreement and each other Loan Document shall be effective as delivery of
an original executed counterpart of this Agreement and such other Loan Document.
The Administrative Agent and the Collateral Agent may also require that any
such documents and signatures delivered by telecopier be confirmed by a
manually signed original thereof; provided that the failure to request or
deliver the same shall not limit the effectiveness of any document or signature
delivered by telecopier.

 

SECTION
9.12       Integration.

 

This
Agreement, together with the other Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and thereof
and supersedes all prior agreements, written or oral, on such subject matter. In
the event of any conflict between the provisions of this Agreement and those of
any other Loan Document, the provisions of this Agreement shall control;
provided that the inclusion of supplemental rights or remedies in favor of the
Credit Parties in any other Loan Document shall not be deemed a conflict with
this Agreement. Each Loan Document was drafted with the joint participation of
the respective parties thereto and shall be construed neither against nor in favor
of any party, but rather in accordance with the fair meaning thereof.

 

SECTION
9.13       Severability.

 

If
any provision of this Agreement or the other Loan Documents is held to be
illegal, invalid or unenforceable, the legality, validity and enforceability of
the remaining provisions of this Agreement and the other Loan Documents shall
not be affected or impaired thereby. The invalidity of a provision in a
particular jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.

 

SECTION
9.14       GOVERNING LAW.

 

(a)           THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED,
HOWEVER, THAT IF THE LAWS OF ANY JURISDICTION OTHER THAN NEW YORK SHALL GOVERN
IN REGARD TO THE VALIDITY, PERFECTION OR EFFECT OF PERFECTION OF ANY LIEN OR IN
REGARD TO PROCEDURAL MATTERS AFFECTING ENFORCEMENT OF ANY LIENS IN COLLATERAL,
SUCH LAWS OF SUCH OTHER JURISDICTIONS SHALL CONTINUE TO APPLY TO THAT EXTENT.

 

(b)         ANY LEGAL ACTION OR PROCEEDING ARISING UNDER ANY LOAN DOCUMENT OR IN
ANY WAY CONNECTED WITH OR RELATED OR

 

166

 

INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS
RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF
THE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY AND EACH CREDIT PARTY CONSENTS, FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF
THOSE COURTS. EACH BORROWER, EACH FACILITY GUARANTOR AND EACH CREDIT PARTY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS,
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING
IN SUCH JURISDICTION OR OTHER JURISDICTION CHOSEN BY THE AGENTS IN RESPECT OF
ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO.

 

SECTION
9.15       WAIVER OF RIGHT TO TRIAL BY JURY.

 

EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT
OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART
OR A COPY OF THIS SECTION 9.15 WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.

 

SECTION
9.16       Binding Effect.

 

This
Agreement shall become effective when it shall have been executed by the
Borrowers and the Administrative Agent shall have been notified by each Lender,
Swingline Lender and Issuing Bank that each such Lender, Swingline Lender and
Issuing Bank has executed it and thereafter shall be binding upon and inure to
the benefit of each Borrower and each Credit Party and their respective
successors and assigns, except that no Borrower shall have the right to assign
its rights hereunder or any interest herein without the prior written consent
of the Lenders except as otherwise permitted hereby .

 

SECTION
9.17       Judgment Currency.

 

If,
for the purposes of obtaining judgment in any court, it is necessary to convert
a sum due hereunder or any other Loan Document in one currency into another
currency, the rate of exchange used shall be that at which in accordance with
normal banking procedures the

 

167

 

Administrative Agent could purchase the first
currency with such other currency on the Business Day preceding that on which
final judgment is given. The obligation of each Borrower in respect of any such
sum due from it to the Administrative Agent or the Lenders hereunder or under
the other Loan Documents shall, notwithstanding any judgment in a currency (the
“Judgment Currency”) other than that in which such sum is denominated in
accordance with the applicable provisions of this Agreement (the “Agreement
Currency”), be discharged only to the extent that on the Business Day
following receipt by the Administrative Agent of any sum adjudged to be so due
in the Judgment Currency, the Administrative Agent may in accordance with
normal banking procedures purchase the Agreement Currency with the Judgment
Currency. If the amount of the Agreement Currency so purchased is less than the
sum originally due to the Administrative Agent from any Borrower in the
Agreement Currency, such Borrower agrees, as a separate obligation and
notwithstanding any such judgment, to indemnify the Administrative Agent or the
Person to whom such obligation was owing against such loss. If the amount of
the Agreement Currency so purchased is greater than the sum originally due to
the Administrative Agent in such currency, the Administrative Agent agrees to
return the amount of any excess to such Borrower (or to any other Person who
may be entitled thereto under Applicable Law).

 

SECTION
9.18       Lender Action.

 

Each Lender agrees that it
shall not take or institute any actions or proceedings, judicial or otherwise,
for any right or remedy against any Loan Party or any other obligor under any
of the Loan Documents (including the exercise of any right of setoff, rights on
account of any banker’s lien or similar claim or other rights of self-help), or
institute any actions or proceedings, or otherwise commence any remedial
procedures, with respect to any Collateral or any other property of any such
Loan Party, without the prior written consent of the Administrative Agent. The
provision of this SECTION 9.18 are for the sole benefit of the Lenders and
shall not afford any right to, or constitute a defense available to, any Loan
Party.

 

SECTION
9.19       USA PATRIOT ACT; PROCEEDS OF CRIME ACT.

 

Each
Lender hereby notifies the Loan Parties that pursuant to the requirements of
the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)) (the “Act”), it is required to obtain, verify and record
information that identifies the Loan Parties, which information includes the
name and address of each Loan Party and other information that will allow such
Lender to identify such Loan Party in accordance with the Act. Each Loan Party
is in compliance, in all material respects, with the Act and the Proceeds of
Crime Act. No part of the proceeds of the Revolving Credit Loans will be used
by the Loan Parties, directly or indirectly, for any payments to any
governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official
capacity, in order to obtain, retain or direct business or obtain any improper
advantage, in violation of the United States Foreign Corrupt Practices Act of
1977, as amended.

 

SECTION
9.20       Foreign Asset Control Regulations.

 

Neither
of the advance of the Revolving Credit Loans nor the use of the proceeds of any
thereof will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as
amended) (the “Trading With the Enemy Act”) or any of the foreign assets
control regulations of the United

 

168

 

States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or
any enabling legislation or executive order relating thereto (which for the
avoidance of doubt shall include, but shall not be limited to (a) Executive
Order 13224 of September 21, 2001 Blocking Property and Prohibiting
Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism
(66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001 (Public Law 107-56)). Furthermore, none of
the Borrowers or their Subsidiaries (a) is or will become a “blocked person” as
described in the Executive Order, the Trading With the Enemy Act or the Foreign
Assets Control Regulations or (b) knowingly engages or will engage in any
dealings or transactions, or be otherwise associated, with any such “blocked
person” or in any manner violative of any such order.

 

SECTION
9.21       Survival.

 

All
covenants, agreements, indemnities, 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 Revolving Credit 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 any Credit Party may have had notice or knowledge of
any Default or Event of Default or incorrect representation or warranty at the
time any credit is extended hereunder, and shall continue in full force and
effect until (i) the Commitments have expired or been terminated, (ii) the
principal of and interest on each Revolving Credit Loan (including Swingline
Loans) and all fees and other Obligations (other than contingent indemnity
obligations with respect to then unasserted claims) shall have been paid in
full, (iii) all Letters of Credit shall have expired or terminated (or been
cash collateralized or backstopped in a manner satisfactory to the applicable
Issuing Bank) and (iv) all Letter of Credit Outstandings have been reduced to
zero (or cash collateralized in a manner satisfactory to the applicable Issuing
Bank). In connection with the termination of this Agreement and the release and
termination of the security interests in the Collateral, the Agents, on behalf
of themselves and the other Credit Parties, may require such indemnities as
they shall reasonably deem necessary or appropriate to protect the Credit
Parties against (x) loss on account of credits previously applied to the
Obligations that may subsequently be reversed or revoked, and (y) any
obligations that may thereafter arise with respect to the Other Liabilities.

 

SECTION
9.22       Press Releases and Related Matters.

 

Each
Borrower consents to the publication by the Administrative Agent of customary
trade advertising material in tombstone format relating to the financing
transactions contemplated by this Agreement using any Borrower’s name, and with
the consent of the Lead Borrower, logo or trademark. The Administrative Agent
shall provide a draft reasonably in advance of any advertising material to the
Lead Borrower for review and comment prior to the publication thereof. The
Administrative Agent and the Lenders reserve the right to provide to industry
trade organizations information necessary and customary for inclusion in league
table measurements.

 

169

 

SECTION
9.23       Additional Waivers. 

 

(a)           The Obligations are the joint and several obligation 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
Credit 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 under Applicable Law, (ii) any rescission, waiver,
amendment or modification of, or any release of any Loan Party from, any of the
terms or provisions of, this Agreement, any other Loan Document, or (iii) the
failure to perfect any security interest in, or the release of, any of the
Collateral or other security held by or on behalf of the Collateral Agent or
any other Credit Party.

 

(b)           To the fullest extent permitted by Applicable Law, the obligations of
each Loan Party to pay the Obligations in full hereunder shall not be subject
to any reduction, limitation, impairment or termination for any reason (other
than the payment in full in cash of the Obligations after the termination of
all Commitments to any Loan Party under any Loan Document), including any claim
of waiver, release, surrender, alteration or compromise of any of the
Obligations, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of any of the Obligations or otherwise. Without limiting the
generality of the foregoing, to the fullest extent permitted by Applicable Law,
the obligations of each Loan Party hereunder shall not be discharged or
impaired or otherwise affected by the failure of the Administrative Agent or
any other Credit Party to assert any claim or demand or to enforce any remedy
under this Agreement, any other Loan Document or any other agreement, by any
waiver or modification of any provision of any thereof, any default, failure or
delay, willful or otherwise, in the performance of any 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 payment in full
in cash of all the Obligations after termination of all Commitments to any Loan
Party under any Loan Document).

 

(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 payment in full in cash of all the Obligations after the
termination of all Commitments to any Loan Party under any Loan Document. To
the fullest extent permitted by Applicable Law, the Collateral Agent and the
other Credit 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 and performed in full after the
termination of Commitments to any Loan Party under any Loan Document. Pursuant
to, and to the fullest extent permitted by, 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

 

170

 

right or remedy of such Loan Party against
any other Loan Party, as the case may be, or any security.

 

(d)           Except as otherwise specifically provided herein, each Borrower is
obligated to repay the Obligations as joint and several obligors under this
Agreement. 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
payment in full in cash of all the Obligations (other than contingent indemnity
obligations for then unasserted claims) and the termination of all Commitments
to any Loan Party under any Loan Document. If any amount shall erroneously be
paid to any Loan Party on account of (i) such subrogation, contribution,
reimbursement, indemnity or similar right or (ii) any such indebtedness of any
Loan Party, such amount shall be held in trust for the benefit of the Credit
Parties and shall forthwith be paid to the Administrative Agent to be credited
against the payment of the Obligations, whether matured or unmatured, in
accordance with the terms of this Agreement and the other Loan Documents. Subject
to the foregoing, to the extent that any Loan Party shall, under this Agreement
as a joint and several obligor, repay any of the Obligations constituting
Revolving Credit Loans made to another Loan Party hereunder (an “Accommodation
Payment”), then the Loan Party making such Accommodation Payment shall be
entitled to contribution and indemnification from, and be reimbursed by, each
of the other Loan Parties in an amount equal to a fraction of such
Accommodation Payment, the numerator of which fraction is such other Loan Party’s
Allocable Amount and the denominator of which is the sum of the Allocable
Amounts of all of the Loan Parties. As of any date of determination, the “Allocable
Amount” of each Loan Party shall be equal to the maximum amount of
liability for Accommodation Payments which could be asserted against such Loan
Party hereunder without (a) rendering such Loan Party “insolvent” within the
meaning of Section 101 (31) of the Bankruptcy Code, Section 2 of the Uniform
Fraudulent Transfer Act (“UFTA”) or Section 2 of the Uniform Fraudulent
Conveyance Act (“UFCA”), (b) leaving such Loan Party with unreasonably
small capital or assets, within the meaning of Section 548 of the Bankruptcy
Code, Section 4 of the UFTA, or Section 5 of the UFCA, or (c) leaving such Loan
Party unable to pay its debts as they become due within the meaning of Section
548 of the Bankruptcy Code or Section 4 of the UFTA, or Section 5 of the UFCA.

 

(e)           Without limiting the generality of the foregoing, or of any other
waiver or other provision set forth in this Agreement, to the fullest extent
permitted by Applicable Law, each Loan Party waives all rights and defenses
arising out of an election of remedies by any Credit Party, even though that
election of remedies, such as a nonjudicial foreclosure with respect to
security for a guaranteed obligation, has destroyed such Credit Party’s rights
of subrogation and reimbursement against such Loan Party. Each Loan Party
waives all rights and defenses that such Loan Party may have because the
Obligations are secured by Real Estate which means, among other things: (i) a
Credit Party may collect from any Loan Party without first foreclosing on any
Real Estate or personal property Collateral pledged by a Loan Party; (ii) if
any Credit Party forecloses on any Real Estate pledged by any Loan Party, the
amount of the Obligations may be reduced only by the price for which that Real
Estate is sold at the foreclosure sale, even if the Real Estate is worth more
than the sale price; and (iii) the Credit Parties may collect Obligations from
a Loan Party even if a Credit Party, by foreclosing on any such Real Estate,
has destroyed any right any Loan Party may have to collect from the other Loan
Parties.

 

171

 

This is an unconditional and irrevocable
waiver of any rights and defenses any Loan Party may have because the
Obligations are secured by Real Estate.

 

(f)            Each Loan Party hereby agrees to keep each
other Loan Party fully apprised at all times as to the status of its business,
affairs, finances, and financial condition, and its ability to perform its
Obligations under the Loan Documents, and in particular as to any adverse
developments with respect thereto. Each Loan Party hereby agrees to undertake
to keep itself apprised at all times as to the status of the business, affairs,
finances, and financial condition of each other Loan Party, and of the ability
of each other Loan Party to perform its Obligations under the Loan Documents,
and in particular as to any adverse developments with respect to any thereof. Each
Loan Party hereby agrees, in light of the foregoing mutual covenants to inform
each other, and to keep themselves and each other informed as to such matters,
that the Credit Parties shall have no duty to inform any Loan Party of any
information pertaining to the business, affairs, finances, or financial
condition of any other Loan Party, or pertaining to the ability of any other
Loan Party to perform its Obligations under the Loan Documents, even if such
information is adverse, and even if such information might influence the
decision of one or more of the Loan Parties to continue to be jointly and
severally liable for, or to provide Collateral for, the Obligations of one or
more of the other Loan Parties. To the fullest extent permitted by applicable
law, each Loan Party hereby expressly waives any duty of the Credit Parties to
inform any Loan Party of any such information.

 

SECTION
9.24       Intercreditor Agreement.

 

The
Loan Parties, the Agents, the Lenders and the other Credit Parties acknowledge
that the exercise of certain of the Agents’ rights and remedies hereunder may
be subject to, and restricted by, the provisions of the Intercreditor Agreement.
Except as specified herein, nothing contained in the Intercreditor Agreement
shall be deemed to modify any of the provisions of this Agreement and the other
Loan Documents, which, as among the Loan Parties, the Agents, the Lenders and
the other Credit Parties shall remain in full force and effect.

 

[SIGNATURE PAGES FOLLOW]

 

172

 

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.

 

 

	
   

  	
  MICHAELS
  STORES, INC., as
  Lead

  Borrower

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey N. Boyer

  
	
   

  	
   

  	
  Name:

  	
  Jeffrey
  N. Boyer

  
	
   

  	
   

  	
  Title:

  	
  President
  and Chief Financial

  
	
   

  	
   

  	
  Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS
  STORES PROCUREMENT

  COMPANY, INC., as
  Borrower

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jeffrey N. Boyer

  
	
   

  	
   

  	
  Name:

  	
  Jeffrey
  N. Boyer

  
	
   

  	
   

  	
  Title:

  	
  President
  and Chief Financial

  
	
   

  	
   

  	
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  AARON
  BROTHERS, INC., as
  Borrower

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Lisa K. Klinger

  
	
   

  	
   

  	
  Name:

  	
  Lisa
  K. Klinger

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President and Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTISTREE,
  INC., as Borrower

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Lisa K. Klinger

  
	
   

  	
   

  	
  Name:

  	
  Lisa
  K. Klinger

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President and Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS
  FINANCE COMPANY,

  INC., as a Facility
  Guarantor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jeffrey N. Boyer

  
	
   

  	
   

  	
  Name:

  	
  Jeffrey
  N. Boyer

  
	
   

  	
   

  	
  Title:

  	
  President
  and Chief Financial

  
	
   

  	
   

  	
  Officer

  

 

S-1

 

	
   

  	
  MICHAELS
  STORES CARD

  SERVICES, LLC, as a
  Facility Guarantor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jeffrey N. Boyer

  
	
   

  	
   

  	
  Name:

  	
  Jeffrey
  N. Boyer

  
	
   

  	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MICHAELS
  OF CANADA, ULC, as

  Facility Guarantor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jeffrey N. Boyer

  
	
   

  	
   

  	
  Name:

  	
  Jeffrey
  N. Boyer

  
	
   

  	
   

  	
  Title:

  	
  President

  

 

S-2

 

	
   

  	
  BANK
  OF AMERICA, N.A.,
  as Administrative Agent, as Collateral Agent,

  and as Issuing Bank

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Keith Vercauteren

  
	
   

  	
   

  	
  Name:

  	
  Keith
  Vercauteren

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  40
  Broad Street, 10th Floor

  
	
   

  	
  Boston,
  Massachusetts 02109

  
	
   

  	
  Attn:
  Keith Vercauteren

  
	
   

  	
  Telephone:
  (617) 434-4045

  
	
   

  	
  Telecopy:
  (617) 434-4312

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  BANK
  OF AMERICA, N.A.,
  as Swingline

  Lender, and as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Keith Vercauteren

  
	
   

  	
   

  	
  Name:

  	
  Keith
  Vercauteren

  
	
   

  	
   

  	
  Title:

  	
  Managing
  Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  40
  Broad Street, 10th Floor

  
	
   

  	
  Boston,
  Massachusetts 02109

  
	
   

  	
  Attn:
  Keith Vercauteren

  
	
   

  	
  Telephone:
  (617) 434-4045

  
	
   

  	
  Telecopy:
  (617) 434-4312

  

 

S-3

 

	
   

  	
  DEUTSCHE BANK SECURITIES INC.,

  as Syndication
  Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mark E. Funk

  
	
   

  	
   

  	
  Name:
  Mark E. Funk

  
	
   

  	
   

  	
  Title:  
  Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stephen R. Lapidus

  
	
   

  	
   

  	
  Name:
  Stephen R. Lapidus

  
	
   

  	
   

  	
  Title:  
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  60
  Wall Street, 2nd Floor

  
	
   

  	
  New
  York, New York 10005

  
	
   

  	
  Attn:
  Meg Sutton

  
	
   

  	
  Telephone:
  (212) 250-3358

  
	
   

  	
  Telecopy:
  (212) 797-4655

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEUTSCHE
  BANKAG NEW YORK

  BRANCH, as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Marguerite Sutton

  
	
   

  	
   

  	
  Name:
  Marguerite Sutton

  
	
   

  	
   

  	
  Title:  
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Evelyn Thierry

  
	
   

  	
   

  	
  Name:
  Evelyn Thierry

  
	
   

  	
   

  	
  Title:  
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  60
  Wall Street, 2nd Floor

  
	
   

  	
  New
  York, New York 10005

  
	
   

  	
  Attn:
  Meg Sutton

  
	
   

  	
  Telephone:
  (212) 250-3358

  
	
   

  	
  Telecopy:
  (212) 797-4655

  

 

S-4

 

	
   

  	
  JPMORGAN
  CHASE BANK, N.A.,
  as

  Co-Documentation Agent and as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Barry Bergman

  
	
   

  	
   

  	
  Name:
  Barry Bergman

  
	
   

  	
   

  	
  Title:  
  Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  270
  Park Avenue, Floor 4

  
	
   

  	
  New
  York, New York 10017

  
	
   

  	
  Attn:
  Barry Bergman

  
	
   

  	
  Telephone:
  (212) 270-0203

  
	
   

  	
  Telecopy:
  (212) 270-6637

  

 

S-5

 

	
   

  	
  CREDIT
  SUISSE, as
  Co-Documentation

  Agent and as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James Moran

  
	
   

  	
   

  	
  Name:
  James Moran

  
	
   

  	
   

  	
  Title:   Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Ian Nalitt

  
	
   

  	
   

  	
  Name:
  Ian Nalitt

  
	
   

  	
   

  	
  Title:
   Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  Eleven
  Madison Avenue

  
	
   

  	
  New
  York, New York 10010

  
	
   

  	
  Attn:
  Ian Nalitt

  
	
   

  	
  Telephone:
  (212) 325-5741

  
	
   

  	
  Telecopy:
  (212) 325-8615

  

 

S-6

 

	
   

  	
  WELLS
  FARGO RETAIL FINANCE,

  LLC, as
  Co-Documentation Agent and as a

  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  David Molinario

  
	
   

  	
   

  	
  Name:
  David Molinario

  
	
   

  	
   

  	
  Title:   Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  One
  Boston Place, 18th Floor

  
	
   

  	
  Boston,
  Massachusetts 02108

  
	
   

  	
  Attn:
  Emily Abrahamson

  
	
   

  	
  Telephone:
  (617) 854-7243

  
	
   

  	
  Telecopy:
  (671) 523-4032

  

 

S-7

 

	
   

  	
  GMAC
  COMMERCIAL FINANCE

  LLC, as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Robert F. McIntyre

  
	
   

  	
   

  	
  Name:
  Robert F. McIntyre

  
	
   

  	
   

  	
  Title:
    Director

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  1290
  Avenue of the Americas, 3rd Floor

  
	
   

  	
  New
  York, New York 10104

  
	
   

  	
  Attn:
  Robert McIntyre

  
	
   

  	
  Telephone:
  (212) 884-7128

  
	
   

  	
  Telecopy:
  (212) 884-7692

  

 

S-8

 

	
   

  	
  NATIONAL
  CITY BUSINESS CREDIT,

  INC., as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Kathryn C. Ellero

  
	
   

  	
   

  	
  Name:
  Kathryn C. Ellero

  
	
   

  	
   

  	
  Title:  
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  1965
  East Sixth Street

  
	
   

  	
  Suite
  400 Locator 01-3049

  
	
   

  	
  Cleveland,
  Ohio 44114

  
	
   

  	
  Attn:
  Kathryn Ellero

  
	
   

  	
  Telephone:
  (216) 222-3261

  
	
   

  	
  Telecopy:
  (216) 222-9555

  

 

S-9

 

	
   

  	
  BURDALE
  FINANCIAL LIMITED,
  as a

  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Steven Chait

  
	
   

  	
   

  	
  Name:
  Steven Chait

  
	
   

  	
   

  	
  Title:  
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  N. B. Hogg

  
	
   

  	
   

  	
  Name:
  N. B. Hogg

  
	
   

  	
   

  	
  Title:  
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  300
  First Stamford Place

  
	
   

  	
  Stamford,
  Connecticut 06902

  
	
   

  	
  Attn:
  David Grende

  
	
   

  	
  Telephone:
  (203) 391-5900

  
	
   

  	
  Telecopy:
  (203) 391-5901

  

 

S-10

 

	
   

  	
  CITICORP
  U.S.A., INC., as a
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Thomas M. Halsch

  
	
   

  	
   

  	
  Name:
  Thomas M. Halsch

  
	
   

  	
   

  	
  Title:  
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  388
  Greenwich Street, 20th Floor

  
	
   

  	
  New
  York, New York 10013

  
	
   

  	
  Attn:
  Marcus Wunderlich

  
	
   

  	
  Telephone:
  (212) 816-2039

  
	
   

  	
  Telecopy:
  (212) 816-2613

  

 

S-11

 

	
   

  	
  THE
  CIT GROUP/BUSINESS CREDIT,

  INC., as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Andrew Loughlin

  
	
   

  	
   

  	
  Name:
  Andrew Loughlin

  
	
   

  	
   

  	
  Title:  Assistant
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  11
  West 42nd Street, 13th Floor

  
	
   

  	
  New
  York, New York 10036

  
	
   

  	
  Attn:
  Kim Nguyen

  
	
   

  	
  Telephone:
  (212) 461-7741

  
	
   

  	
  Telecopy:
  (212) 461-7762

  

 

S-12

 

	
   

  	
  UNION
  BANK OF CALIFORNIA, N.A.,

  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Michele Mojabi

  
	
   

  	
   

  	
  Name:
  Michele Mojabi

  
	
   

  	
   

  	
  Title:  
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  400
  California Street, 8th Floor

  
	
   

  	
  San
  Francisco, California

  
	
   

  	
  Attn:
  Ian Ritchie

  
	
   

  	
  Telephone:
  (415) 765-2031

  
	
   

  	
  Telecopy:
  (415) 765-2170

  

 

S-13

 

	
   

  	
  UBS
  LOAN FINANCE LLC,
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Irja R. Ctsa

  
	
   

  	
  Name:

  	
  Irja
  R. Ctsa

  
	
   

  	
  Title:

  	
  Associate
  Director, Banking Products

  Services, US

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Barbara Ezell-McMichael

  
	
   

  	
   

  	
  Name:
  Barbara Ezell-McMichael

  
	
   

  	
   

  	
  Title:  
  Associate Director, Banking Products

  Services, US

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  677
  Washington Boulevard

  
	
   

  	
  Stamford,
  Connecticut 06901

  
	
   

  	
  Attn:
  Mary Evans

  
	
   

  	
  Telephone:
  (203) 719-7217

  
	
   

  	
  Telecopy:
  (203) 719-3092

  

 

S-14

 

	
   

  	
  UPS
  CAPITAL CORPORATION,
  as a

  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John P. Holloway

  
	
   

  	
   

  	
  Name:
  John P. Holloway

  
	
   

  	
   

  	
  Title:  
  Director of Portfolio Management

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  35
  Glendale Parkway NE

  
	
   

  	
  Atlanta,
  Georgia 30328

  
	
   

  	
  Attn:
  Ernesto Moran

  
	
   

  	
  Telephone:
  (404) 828-6576

  
	
   

  	
  Telecopy:
  (404) 828-3775

  

 

S-15

 

	
   

  	
  SUNTRUST
  BANK, as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mark Pickering

  
	
   

  	
   

  	
  Name:
  Mark Pickering

  
	
   

  	
   

  	
  Title:  
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  303
  Peachtree Street, MC-1981-2nd Floor

  
	
   

  	
  Atlanta,
  Georgia 30303

  
	
   

  	
  Attn:
  Mark Pickering

  
	
   

  	
  Telephone:
  (404) 575-2580

  
	
   

  	
  Telecopy:
  (404) 588-7061

  

 

S-16

 

	
   

  	
  BAYERISCHE
  LANDESBANK - NEW

  YORK BRANCH, as a
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stuart Schulman

  
	
   

  	
   

  	
  Name:
  Stuart Schulman

  
	
   

  	
   

  	
  Title:  
  Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  George J. Schnepf

  
	
   

  	
   

  	
  Name:
  George J. Schnepf

  
	
   

  	
   

  	
  Title:  
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  560
  Lexington Avenue

  
	
   

  	
  New
  York, New York 10022

  
	
   

  	
  Attn:
  Stuart Schulman

  
	
   

  	
  Telephone:
  (212) 230-9132

  
	
   

  	
  Telecopy:
  (212) 310-9995

  

 

S-17

 

	
   

  	
  WACHOVIA
  BANK, NATIONAL

  ASSOCIATION, as a
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Thomas P. Floyd

  
	
   

  	
   

  	
  Name:
  Thomas P. Floyd

  
	
   

  	
   

  	
  Title:  
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  5001
  LBJ Freeway, Suite 1050

  
	
   

  	
  Dallas,
  Texas 75244

  
	
   

  	
  Attn:
  Tom Floyd

  
	
   

  	
  Telephone:
  (214) 712-3546

  
	
   

  	
  Telecopy:
  (214) 748-9118

  

 

S-18

 

	
   

  	
  GENERAL
  ELECTRIC CAPITAL

  CORPORATION, as a
  Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Amanda J. Van Heyst

  
	
   

  	
   

  	
  Name:
  Amanda J. Van Heyst

  
	
   

  	
   

  	
  Title:  
  Duly Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
  General
  Electric Capital Corporation

  
	
   

  	
  Corporate
  Financial Services

  
	
   

  	
  201
  Merritt 7, P.O. Box 5201

  
	
   

  	
  Norwalk,
  Connecticut 06856-5201

  
	
   

  	
  Attn:
  Esther Goodge

  
	
   

  	
  Telephone:
  (203) 956-3818

  
	
   

  	
  Telecopy:
  (203) 956-4006

  

 

S-19

 

	
   

  	
  PNC
  BANK, NATIONAL

  ASSOCIATION, as a
  Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stephen P. Kanarian

  
	
   

  	
   

  	
  Name:

  	
  Stephen
  P. Kanarian

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  99
  High Street-27th Floor

  
	
   

  	
   

  	
  Boston,
  MA 02110

  
					

 

S-20

 

	
   

  	
  MERRILL
  LYNCH CAPITAL, A

  DIVISION OF MERRILL LYNCH

  BUSINESS FINANCIAL SERVICES

  INC., as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Andrew C. Sepe

  
	
   

  	
   

  	
  Name:

  	
  Andrew
  C. Sepe

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  225
  Liberty Street, 5th Floor

  
	
   

  	
   

  	
  New
  York, New York 10281

  
	
   

  	
  Attn:
  Tara Wrobel

  
	
   

  	
  Telephone:
  (212) 236-3257

  
	
   

  	
  Telecopy:
  (212) 236-0048

  
							

 

S-21

 

	
   

  	
  CITIZENS
  BANK OF

  MASSACHUSETTS, A DIVISION OF

  CITIZENS LEASING CORP.,
  as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Cyril A. Prince

  
	
   

  	
   

  	
  Name:

  	
  Cyril
  A. Prince

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  101
  Park Avenue, 11th Floor

  
	
   

  	
   

  	
  New
  York, New York 10178

  
	
   

  	
  Attn:
  Cyril A. Prince

  
	
   

  	
  Telephone:
  (212) 401-3888

  
	
   

  	
  Telecopy:
  (212) 401-3885

  
						

 

S-22

 

	
   

  	
  AMSOUTH
  BANK, as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Barry S. Renow

  
	
   

  	
   

  	
  Name:

  	
  Barry
  Renow

  
	
   

  	
   

  	
  Title:

  	
  Senior
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  599
  Lexington Avenue, 45th Floor

  
	
   

  	
   

  	
  New
  York, New York 10022

  
	
   

  	
  Attn:
  Barry Renow

  
	
   

  	
  Telephone:
  (212) 935-0751

  
	
   

  	
  Telecopy:
  (212) 935-7458

  
							

 

S-23

 

	
   

  	
  ISRAEL
  DISCOUNT BANK OF NEW

  YORK, as a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Andy Ballta

  
	
   

  	
   

  	
  Name:

  	
  Andy
  Ballta

  
	
   

  	
   

  	
  Title:

  	
  First
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Roy Grossman

  
	
   

  	
   

  	
  Name:

  	
  Roy
  Grossman

  
	
   

  	
   

  	
  Title:

  	
  Senior
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  511
  Fifth Avenue

  
	
   

  	
   

  	
   

  	
  New
  York, New York 10017

  
	
   

  	
  Attn:
  Andy Ballta

  
	
   

  	
  Telephone:
  (212) 551-8207

  
	
   

  	
  Telecopy:
  (212) 599-4276

  
					

 

S-24

 

	
   

  	
  WEBSTER
  BUSINESS CREDIT

  CORPORATION, as a
  Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Walter K. Stockhecker

  
	
   

  	
   

  	
  Name:

  	
  Walter
  K. Stockhecker

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  
	
   

  	
  Address: 1
  State Street, 7th Floor

  
	
   

  	
  New
  York, NY 10004

  
	
   

  	
  Attn:
  Cyndy Tonucci

  
	
   

  	
  Telephone:
  (508) 513-1253

  
	
   

  	
  Telecopy:
  (508) 513-1339

  
	
   

  	
   

  
	
   

  	
  Webster
  Retail Finance

  
	
   

  	
  73
  Belmont, 2nd Floor

  
	
   

  	
  South
  Easton, MA 02375

  
					

 

S-25Exhibit 10.5

 

CONFORMED AS EXECUTED

 

 

CREDIT AGREEMENT

 

Dated as of October 31, 2006

 

among

 

MICHAELS STORES, INC.,

 

as Borrower,

 

DEUTSCHE BANK AG NEW YORK BRANCH,

 

as Administrative Agent,

 

THE OTHER LENDERS PARTY HERETO,

 

JPMORGAN CHASE BANK, N.A.,

 

as Syndication Agent,

 

and

 

BANK OF AMERICA, N.A. and

 

CREDIT SUISSE,

 

as Co-Documentation Agents

 

 

DEUTSCHE BANK SECURITIES INC.,

J.P. MORGAN SECURITIES INC. and

BANC OF AMERICA SECURITIES LLC,

as Co-Lead Arrangers and Joint Bookrunners

 

 

Table of Contents

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I Definitions and Accounting Terms

  	
   

  	
  1

  
	
  SECTION 1.01. Defined Terms

  	
   

  	
  1

  
	
  SECTION 1.02. Other Interpretive Provisions

  	
   

  	
  58

  
	
  SECTION 1.03. Accounting Terms

  	
   

  	
  59

  
	
  SECTION 1.04. Rounding

  	
   

  	
  60

  
	
  SECTION 1.05. References to Agreements,
  Laws, Etc

  	
   

  	
  60

  
	
  SECTION 1.06. Times of Day

  	
   

  	
  61

  
	
  SECTION 1.07. Timing of Payment or
  Performance

  	
   

  	
  61

  
	
  SECTION 1.08. Currency Equivalents
  Generally

  	
   

  	
  61

  
	
  SECTION 1.09. Change of Currency

  	
   

  	
  61

  
	
  ARTICLE II The Commitments and Credit Extensions

  	
   

  	
  61

  
	
  SECTION 2.01. The Loans

  	
   

  	
  61

  
	
  SECTION 2.02. Borrowings, Conversions and
  Continuations of Loans

  	
   

  	
  61

  
	
  SECTION 2.03. [Reserved]

  	
   

  	
  63

  
	
  SECTION 2.04. [Reserved]

  	
   

  	
  63

  
	
  SECTION 2.05. Prepayments

  	
   

  	
  63

  
	
  SECTION 2.06. Termination of Commitments

  	
   

  	
  67

  
	
  SECTION 2.07. Amortization of Loans

  	
   

  	
  67

  
	
  SECTION 2.08. Interest

  	
   

  	
  67

  
	
  SECTION 2.09. Fees

  	
   

  	
  67

  
	
  SECTION 2.10. Computation of Interest and
  Fees

  	
   

  	
  67

  
	
  SECTION 2.11. Evidence of Indebtedness

  	
   

  	
  68

  
	
  SECTION 2.12. Payments Generally

  	
   

  	
  68

  
	
  SECTION 2.13. Sharing of Payments

  	
   

  	
  70

  
	
  SECTION 2.14. Provisions Applicable to
  Canadian Loan Parties

  	
   

  	
  71

  
	
  ARTICLE III Taxes, Increased Costs Protection and Illegality

  	
   

  	
  71

  
	
  SECTION 3.01. Taxes

  	
   

  	
  71

  
	
  SECTION 3.02. Illegality

  	
   

  	
  74

  
	
  SECTION 3.03. Inability to Determine Rates

  	
   

  	
  74

  
	
  SECTION 3.04. Increased Cost and Reduced
  Return; Capital Adequacy; Reserves on Eurocurrency Rate Loans

  	
   

  	
  74

  
	
  SECTION 3.05. Funding Losses

  	
   

  	
  76

  
	
  SECTION 3.06. Matters Applicable to All
  Requests for Compensation

  	
   

  	
  76

  
	
  SECTION 3.07. Replacement of Lenders under
  Certain Circumstances

  	
   

  	
  77

  
	
  SECTION 3.08. Survival

  	
   

  	
  78

  
	
  ARTICLE IV Conditions Precedent to Credit Extensions

  	
   

  	
  78

  
	
  SECTION 4.01. Conditions of Making of Loans

  	
   

  	
  78

  
	
  ARTICLE V Representations and Warranties

  	
   

  	
  81

  
	
  SECTION 5.01. Existence, Qualification and
  Power; Compliance with Laws

  	
   

  	
  81

  
	
  SECTION 5.02. Authorization; No
  Contravention

  	
   

  	
  81

  
	
  SECTION 5.03. Governmental Authorization;
  Other Consents

  	
   

  	
  82

  

 

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 5.04. Binding Effect

  	
   

  	
  82

  
	
  SECTION 5.05. Financial Statements; No
  Material Adverse Effect

  	
   

  	
  82

  
	
  SECTION 5.06. Litigation

  	
   

  	
  83

  
	
  SECTION 5.07. No Default

  	
   

  	
  83

  
	
  SECTION 5.08. Ownership of Property; Liens

  	
   

  	
  84

  
	
  SECTION 5.09. Environmental Compliance

  	
   

  	
  84

  
	
  SECTION 5.10. Taxes

  	
   

  	
  85

  
	
  SECTION 5.11. ERISA Compliance

  	
   

  	
  85

  
	
  SECTION 5.12. Subsidiaries; Equity
  Interests

  	
   

  	
  86

  
	
  SECTION 5.13. Margin Regulations;
  Investment Company Act

  	
   

  	
  86

  
	
  SECTION 5.14. Disclosure

  	
   

  	
  86

  
	
  SECTION 5.15. Intellectual Property;
  Licenses, Etc

  	
   

  	
  86

  
	
  SECTION 5.16. Solvency

  	
   

  	
  87

  
	
  SECTION 5.17. Subordination of Junior
  Financing

  	
   

  	
  87

  
	
  SECTION 5.18. Labor Matters

  	
   

  	
  87

  
	
  ARTICLE VI Affirmative Covenants

  	
   

  	
  87

  
	
  SECTION 6.01. Financial Statements

  	
   

  	
  87

  
	
  SECTION 6.02. Certificates; Other
  Information

  	
   

  	
  89

  
	
  SECTION 6.03. Notices

  	
   

  	
  91

  
	
  SECTION 6.04. Payment of Obligations

  	
   

  	
  91

  
	
  SECTION 6.05. Preservation of Existence,
  Etc

  	
   

  	
  91

  
	
  SECTION 6.06. Maintenance of Properties

  	
   

  	
  92

  
	
  SECTION 6.07. Maintenance of Insurance

  	
   

  	
  92

  
	
  SECTION 6.08. Compliance with Laws

  	
   

  	
  93

  
	
  SECTION 6.09. Books and Records

  	
   

  	
  93

  
	
  SECTION 6.10. Inspection Rights

  	
   

  	
  93

  
	
  SECTION 6.11. Covenant to Guarantee
  Obligations and Give Security

  	
   

  	
  93

  
	
  SECTION 6.12. Compliance with Environmental
  Laws

  	
   

  	
  96

  
	
  SECTION 6.13. Further Assurances and
  Post-Closing Conditions

  	
   

  	
  96

  
	
  SECTION 6.14. Corporate Separateness

  	
   

  	
  97

  
	
  SECTION 6.15. Pension Plans

  	
   

  	
  98

  
	
  ARTICLE VII Negative Covenants

  	
   

  	
  98

  
	
  SECTION 7.01. Asset Sales

  	
   

  	
  98

  
	
  SECTION 7.02. Limitation on Restricted
  Payments

  	
   

  	
  99

  
	
  SECTION 7.03. Limitation on Incurrence of
  Indebtedness and Issuance of Disqualified Stock and Preferred Stock

  	
   

  	
  107

  
	
  SECTION 7.04. Liens

  	
   

  	
  112

  
	
  SECTION 7.05. Consolidated Secured Debt
  Ratio

  	
   

  	
  112

  
	
  SECTION 7.06. Merger, Amalgamation,
  Consolidation or Sale of All or Substantially All Assets

  	
   

  	
  113

  
	
  SECTION 7.07. Transactions with Affiliates

  	
   

  	
  115

  
	
  SECTION 7.08. Dividend and Other Payment
  Restrictions Affecting Restricted Subsidiaries

  	
   

  	
  117

  
	
  SECTION 7.09. Limitation on Guarantees of
  Indebtedness by Restricted Subsidiaries

  	
   

  	
  118

  

 

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 7.10. Change in Nature of Business

  	
   

  	
  119

  
	
  SECTION 7.11. [Reserved]

  	
   

  	
  119

  
	
  SECTION 7.12. Use of Proceeds

  	
   

  	
  119

  
	
  SECTION 7.13. Accounting Changes

  	
   

  	
  119

  
	
  SECTION 7.14. Amendments of Indebtedness,
  Etc

  	
   

  	
  120

  
	
  ARTICLE VIII Events Of Default and Remedies

  	
   

  	
  120

  
	
  SECTION 8.01. Events of Default

  	
   

  	
  120

  
	
  SECTION 8.02. Remedies Upon Event of
  Default

  	
   

  	
  123

  
	
  SECTION 8.03. Exclusion of Immaterial
  Subsidiaries

  	
   

  	
  124

  
	
  SECTION 8.04. Application of Funds

  	
   

  	
  124

  
	
  SECTION 8.05. Company’s Right to Cure

  	
   

  	
  125

  
	
  ARTICLE IX Administrative Agent and Other
  Agents

  	
   

  	
  125

  
	
  SECTION 9.01. Appointment and Authorization
  of Agents

  	
   

  	
  125

  
	
  SECTION 9.02. Delegation of Duties

  	
   

  	
  126

  
	
  SECTION 9.03. Liability of Agents

  	
   

  	
  126

  
	
  SECTION 9.04. Reliance by Agents

  	
   

  	
  126

  
	
  SECTION 9.05. Notice of Default

  	
   

  	
  127

  
	
  SECTION 9.06. Credit Decision; Disclosure
  of Information by Agents

  	
   

  	
  127

  
	
  SECTION 9.07. Indemnification of Agents

  	
   

  	
  128

  
	
  SECTION 9.08. Agents in their Individual
  Capacities

  	
   

  	
  128

  
	
  SECTION 9.09. Successor Agents

  	
   

  	
  128

  
	
  SECTION 9.10. Administrative Agent May File
  Proofs of Claim

  	
   

  	
  129

  
	
  SECTION 9.11. Collateral and Guaranty
  Matters

  	
   

  	
  130

  
	
  SECTION 9.12. Other Agents; Arrangers and
  Managers

  	
   

  	
  131

  
	
  SECTION 9.13. Appointment of Supplemental
  Administrative Agents

  	
   

  	
  131

  
	
  SECTION 9.14. Solidary Interests/Quebec
  Liens (Hypothecs)

  	
   

  	
  132

  
	
  ARTICLE X Miscellaneous

  	
   

  	
  133

  
	
  SECTION 10.01. Amendments, Etc

  	
   

  	
  133

  
	
  SECTION 10.02. Notices and Other
  Communications; Facsimile Copies

  	
   

  	
  134

  
	
  SECTION 10.03. No Waiver; Cumulative
  Remedies

  	
   

  	
  135

  
	
  SECTION 10.04. Attorney Costs and Expenses

  	
   

  	
  136

  
	
  SECTION 10.05. Indemnification by the
  Borrower

  	
   

  	
  136

  
	
  SECTION 10.06. Payments Set Aside

  	
   

  	
  137

  
	
  SECTION 10.07. Successors and Assigns

  	
   

  	
  137

  
	
  SECTION 10.08. Confidentiality

  	
   

  	
  141

  
	
  SECTION 10.09. Setoff

  	
   

  	
  141

  
	
  SECTION 10.10. Interest Rate Limitation

  	
   

  	
  142

  
	
  SECTION 10.11. Counterparts

  	
   

  	
  142

  
	
  SECTION 10.12. Integration

  	
   

  	
  142

  
	
  SECTION 10.13. Survival of Representations
  and Warranties

  	
   

  	
  142

  
	
  SECTION 10.14. Severability

  	
   

  	
  143

  
	
  SECTION 10.15. Tax Forms

  	
   

  	
  143

  
	
  SECTION 10.16. GOVERNING LAW

  	
   

  	
  145

  

 

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  SECTION 10.17. WAIVER OF RIGHT TO TRIAL BY
  JURY

  	
   

  	
  145

  
	
  SECTION 10.18. Binding Effect

  	
   

  	
  146

  
	
  SECTION 10.19. Lender Action

  	
   

  	
  146

  
	
  SECTION 10.20. USA PATRIOT Act; Proceeds of
  Crime Act

  	
   

  	
  146

  
	
  SECTION 10.21. Judgment Currency

  	
   

  	
  146

  
	
  SECTION 10.22. Other Liens on Collateral;
  Terms of Intercreditor Agreement; Etc.

  	
   

  	
  147

  
	
  SECTION 10.23. Assignment of Obligations

  	
   

  	
  147

  

 

 

	
  SCHEDULES

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.01A

  	
  [Reserved]

  	
   

  	
   

  
	
  1.01B

  	
  Collateral Documents

  	
   

  	
   

  
	
  1.01C

  	
  [Reserved]

  	
   

  	
   

  
	
  1.01D

  	
  Mortgaged Properties

  	
   

  	
   

  
	
  1.01E

  	
  Excluded Subsidiary

  	
   

  	
   

  
	
  1.01F

  	
  Foreign Subsidiary

  	
   

  	
   

  
	
  2.01

  	
  Commitments

  	
   

  	
   

  
	
  5.05

  	
  Financial Statement Exceptions

  	
   

  	
   

  
	
  5.10

  	
  Taxes

  	
   

  	
   

  
	
  5.11

  	
  ERISA and other Pension Plan Compliance

  	
   

  	
   

  
	
  5.12

  	
  Subsidiaries and Other Equity Investments

  	
   

  	
   

  
	
  6.07

  	
  Insurance

  	
   

  	
   

  
	
  7.03

  	
  Existing Indebtedness

  	
   

  	
   

  
	
  7.04

  	
  Existing Liens

  	
   

  	
   

  
	
  10.02

  	
  Administrative Agent’s Office, Certain Addresses for Notices

  	
   

  	
   

  

 

 

	
  EXHIBITS

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Form of

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  A

  	
  Committed Loan Notice

  	
   

  	
   

  
	
  B

  	
  [Reserved]

  	
   

  	
   

  
	
  C

  	
  Note

  	
   

  	
   

  
	
  D

  	
  Compliance Certificate

  	
   

  	
   

  
	
  E

  	
  Assignment and Assumption

  	
   

  	
   

  
	
  F-1

  	
  Domestic Guaranty

  	
   

  	
   

  
	
  F-2

  	
  Canadian Guarantee

  	
   

  	
   

  
	
  G-1

  	
  Security Agreement

  	
   

  	
   

  
	
  G-2

  	
  Canadian Security Agreement

  	
   

  	
   

  
	
  H

  	
  Intercreditor Agreement

  	
   

  	
   

  
	
  I

  	
  Opinion Matters — Counsel to Loan Parties

  	
   

  	
   

  
	
  J

  	
  Intercompany Note

  	
   

  	
   

  

 

 

CREDIT AGREEMENT

 

This CREDIT AGREEMENT (“Agreement”)
is entered into as of October 31, 2006, among MICHAELS STORES, INC., a Delaware
corporation (the “Borrower”),
DEUTSCHE BANK AG NEW YORK BRANCH, as Administrative Agent, each lender from
time to time party hereto (collectively, the “Lenders”
and individually, a “Lender”),
JPMORGAN CHASE BANK, N.A., as Syndication Agent, and BANK OF AMERICA, N.A. and
CREDIT SUISSE, as Co-Documentation Agents.

 

PRELIMINARY STATEMENTS

 

Pursuant to the Recapitalization Agreement (as this and other
capitalized terms used in these preliminary statements are defined in Section
1.01 below), Bain Paste Mergerco, Inc. and Blackstone Paste Mergerco, Inc.
(collectively, the “MergerCos”)
shall be merged with the Borrower, with the Borrower as the surviving
corporation (the “Recapitalization”).

 

The Borrower has requested that simultaneously with the consummation of
the Recapitalization, the Lenders make Loans to the Borrower in an initial
aggregate principal amount of $2,400,000,000.

 

The proceeds of the Loans made on the Closing Date, together with the
proceeds of (i) the issuance of the New Notes, (ii) the funding of $400,000,000
under the ABL Credit Agreement on the Closing Date and (iii) the Equity
Contribution, will be used to finance the Debt Prepayment and pay the Merger
Consideration and the Transaction Expenses.

 

The Lenders have indicated their willingness to lend on the terms and
subject to the conditions set forth herein.

 

In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:

 

ARTICLE I

 

Definitions and Accounting Terms

 

SECTION 1.01.  Defined Terms.  As used in this Agreement, the following
terms shall have the meanings set forth below:

 

“ABL Collateral Agent”
shall mean the “Collateral Agent” as defined in the ABL Credit Agreement.

 

“ABL Collateral Documents”
shall mean the “Security Documents” as defined in the ABL Credit Agreement.

 

“ABL Credit Agreement”
shall mean the Credit Agreement, dated as of October 31, 2006, among the
Borrower, as the lead borrower, the other borrowers named therein, the facility
guarantors identified therein, Bank of America, N.A., as administrative agent
and as collateral agent, and the lenders identified therein, as the same may be
amended, restated, 

 

 

modified, supplemented,
extended, renewed, refunded, replaced or refinanced from time to time in one or
more agreements or indentures (in each case with the same or new lenders,
institutional investors or agents), including any agreement or indenture
extending the maturity thereof or otherwise restructuring all or any portion of
the Indebtedness thereunder or increasing the amount loaned or issued
thereunder or altering the maturity thereof (so long as, in the case of any
replacement or refinancing, all commitments under the agreements or indentures
so replaced or refinanced shall have been terminated, all unpaid amounts
thereunder (other than indemnities) shall have been paid in full and all
parties to any replacement or refinancing agreements or indentures, or a trustee
or agent on their behalf, shall have become party to the Intercreditor
Agreement as of the applicable date of replacement or refinancing, as the case
may be).

 

“ABL Lenders” shall mean
the “Lenders” as defined in the ABL Credit Agreement.

 

“ABL Loan Documents” shall
mean the ABL Credit Agreement and the related guaranties, pledge agreements,
security agreements, mortgages, notes and other agreements and instruments
entered into in connection with the ABL Credit Agreement.

 

“ABL Loans” shall mean the
“Revolving Credit Loans” as defined in the ABL Credit Agreement.

 

“ABL Priority Collateral”
means, collectively, all “ABL Priority Collateral” as defined in the
Intercreditor Agreement.

 

“ACH” means automated
clearing house transfers.

 

“Acquired Indebtedness”
means, with respect to any specified Person, (a) Indebtedness of any other
Person existing at the time such other Person is merged or amalgamated with or
into or became a Restricted Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging or amalgamating with or into or becoming a Restricted Subsidiary
of such specified Person, and (b) Indebtedness secured by a Lien encumbering
any asset acquired by such specified Person.

 

“Acquisition” means, with
respect to a specified Person, (a) an Investment in or a purchase of a 50% or
greater interest in the Capital Stock of any other Person, (b) a purchase or
acquisition of all or substantially all of the assets of any other Person, (c)
a purchase or acquisition of a real estate portfolio or Stores from any other
Person or assets constituting a business unit, line of business or division of
any other Person, or (d) any merger, amalgamation or consolidation of such
Person with any other Person or other transaction or series of transactions
resulting in the acquisition of all or substantially all of the assets, or a
50% or greater interest in the Capital Stock of, any Person, in each case in
any transaction or group of transactions which are part of a common plan.

 

“Act” has the meaning set
forth in Section 10.20.

 

“Additional Assets” means
(a) any asset used or useful in a Similar Business, including any such asset
acquired through any capital expenditure, (b) the Capital Stock of a Person
that becomes a Restricted Subsidiary as a result of the acquisition of such
Capital Stock 

 

2

 

by the Borrower or another
Restricted Subsidiary or is merged or amalgamated with or into the Borrower or
another Restricted Subsidiary and that is primarily engaged in a Similar
Business, (c) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary that is primarily engaged in a Similar
Business, (d) all or substantially all of the assets of a Similar Business or
(e) any other asset that replaces an asset that is the subject of an Asset
Sale.

 

“Additional Interest”
means all additional interest then owing with respect to any New Notes pursuant
to the relevant Registration Rights Agreement.

 

“Administrative Agent”
means Deutsche Bank AG New York Branch, in its capacity as administrative agent
under any of the Loan Documents, or any successor administrative agent.  Unless the context otherwise requires, the
term “Administrative Agent” as used herein and in the other Loan Documents
shall include the Collateral Agent.

 

“Administrative Agent’s Office”
means the Administrative Agent’s address and account as set forth on Schedule
10.02, or such other address or account as the Administrative Agent may from
time to time notify the Borrower and the Lenders.

 

“Administrative Questionnaire”
means an Administrative Questionnaire in a form supplied by the Administrative
Agent.

 

“Affiliate” of any
specified Person means any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified
Person.  For purposes of this definition,
“control” (including, with correlative meanings, the terms “controlling,” “controlled
by” and “under common control with”), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.

 

“Affiliate Transaction”
has the meaning set forth in Section 7.07(a).

 

“Agent-Related Persons”
means the Agents, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.

 

“Agents” means,
collectively, the Administrative Agent, the Collateral Agent, the Syndication
Agent, the Co-Documentation Agents and the Supplemental Administrative Agents
(if any).

 

“Aggregate Commitments”
means the Commitments of all the Lenders.

 

“Agreement” means this
Credit Agreement.

 

“Agreement Currency” has
the meaning provided in Section 10.21.

 

“Alternative Average Monthly Balance”
means, with respect to any Indebtedness incurred by the Borrower or its
Restricted Subsidiaries under a revolving credit 

 

3

 

facility, the quotient of (x)
the sum of each Alternative Individual Monthly Balance for each fiscal month
ended on or prior to such date of determination and included in the Relevant
Reference Period divided by (y) 12.

 

“Alternative Individual Monthly
Balance” means, with respect to any Indebtedness incurred by the
Borrower or its Restricted Subsidiaries under a revolving credit facility
during any fiscal month of the Borrower, the quotient of (x) the sum of the
aggregate outstanding principal amount of all such Indebtedness at the end of
each day of such fiscal month divided by (y) the number of days in such fiscal
month.

 

“Applicable Rate” means a
percentage per annum equal to (i) in the case of Eurocurrency Rate Loans, 3.00%
and (ii) in the case of Base Rate Loans, 2.00%, less, in each case the sum of (i) if (but only if) the
Consolidated Total Leverage Ratio as set forth in the most recent Compliance
Certificate received by the Administrative Agent pursuant to
Section 6.02(b) is less than 5.50 to 1.00, 0.25% and (ii) if (but only if) the Moody’s
Applicable Corporate Rating then most recently published is B1 or higher (with
at least a stable outlook), 0.25%.  Any increase
or decrease in the Applicable Rate resulting from a change in the Consolidated
Total Leverage Ratio or the Moody’s Applicable Corporate Rating shall become
effective as of the first Business Day immediately following the date a
Compliance Certificate is delivered pursuant to Section 6.02(b) or the
then most recent Moody’s Applicable Corporate Rating is published, as the case
may be; provided that at the
option of the Administrative Agent or the Required Lenders, no deduction shall
apply (x) in the case of clause (i) above, as of the first Business Day after
the date on which a Compliance Certificate was required to have been delivered
but was not delivered, and shall continue not to apply to and including the
date on which a subsequent Compliance Certificate is actually delivered (with
any deduction as otherwise determined in accordance with this definition to
apply thereafter), (y) in the case of clause (ii) above, as of the first
Business Day after the date on which Moody’s ceases to maintain or publish a
Moody’s Applicable Corporate Rating (of any level), and shall continue not to
apply to and including the date on which a new Moody’s Applicable Corporate
Rating is so published (with any deduction as otherwise determined in
accordance with this definition to apply thereafter), and (z) in the case of
clauses (i) and (ii) above, as of the first Business Day after an Event of
Default under Section 8.01(a), (f) or (g) shall have occurred and be
continuing, and shall continue not to apply to but excluding the date on which
such Event of Default is cured or waived (with any deduction as otherwise
determined in accordance with this definition to apply thereafter).

 

“Approved Fund” means any
Fund that is administered, advised or managed by (a) a Lender, (b) an Affiliate
of a Lender or (c) an entity or an Affiliate of an entity that administers,
advises or manages a Lender.

 

“Arrangers” means Deutsche
Bank Securities Inc., J.P. Morgan Securities Inc. and Banc of America
Securities LLC, each in its capacity as a Joint Bookrunner and a Co-Lead
Arranger under this Agreement.

 

“Asset Sale” means (a) the
sale, conveyance, transfer or other disposition, whether in a single
transaction or a series of related transactions, of property or assets
(including by way of a Sale and Lease-Back Transaction) of the Borrower or any
of its Restricted Subsidiaries (each referred to in this definition as a “disposition”)
or (b) the issuance or sale of 

 

4

 

Equity Interests of any Restricted
Subsidiary, whether in a single transaction or a series of related transactions
(other than directors’ qualifying shares and shares issued to foreign nationals
as required under applicable law); in each case, other than:

 

(i)            any disposition of Cash Equivalents or
Investment Grade Securities or obsolete or worn out property or equipment in
the ordinary course of business or any disposition of inventory or goods (or
other assets) held for sale in the ordinary course of business (it being
understood that the sale of inventory or goods (or other assets) in bulk in
connection with the closing of any number of Stores in the ordinary course of
business shall be considered a sale in the ordinary course of business);

 

(ii)           the disposition of all or substantially all
of the assets of the Borrower in a manner permitted pursuant to Section 7.06 or
any disposition that constitutes a Change of Control;

 

(iii)          the making of any Restricted Payment that is
permitted to be made, and is made, under Section 7.02 or the making of any
Permitted Investment;

 

(iv)          (x) any disposition of assets or issuance or
sale of Equity Interests of any Restricted Subsidiary, in each case that do not
or would not upon disposition or issuance constitute TL Priority Collateral, in
any transaction or series of transactions with an aggregate fair market value
of less than $25,000,000 and (y) any disposition of assets or issuance or sale
of Equity Interests of any Restricted Subsidiary, in each case that
constitutes, or upon disposition or issuance would constitute, TL Priority
Collateral in any transaction or series of transactions with an aggregate fair
market value of less than $10,000,000;

 

(v)           any disposition of property or assets or
issuance of securities by a Restricted Subsidiary of the Borrower to the
Borrower or by the Borrower or a Restricted Subsidiary of the Borrower to
another Restricted Subsidiary of the Borrower;

 

(vi)          to the extent allowable under Section 1031 of
the Code, any exchange of like property (excluding any boot thereon) for use in
a Similar Business;

 

(vii)         the lease, assignment, sublease, license or
sublicense of any real or personal property in the ordinary course of business;

 

(viii)        any issuance or sale of Equity Interests in, or
Indebtedness or other securities of, an Unrestricted Subsidiary;

 

(ix)           foreclosures on or expropriations of assets;

 

(x)            (A) sales of accounts receivable, or
participations therein, in connection with any Receivables Facility, or (B) the
disposition of an account 

 

5

 

receivable in connection with the collection or compromise thereof in
the ordinary course of business and not as part of a financing transaction;

 

(xi)           the granting of a Lien that is a Permitted
Lien or a Permitted Collateral Lien;

 

(xii)          the issuance by a Restricted Subsidiary of
Preferred Stock or Disqualified Stock that is permitted by Section 7.03; and

 

(xiii)         any financing transaction with respect to
property built or acquired by the Borrower or any Restricted Subsidiary after
the Closing Date, including asset securitizations permitted by this Agreement
but excluding any Sale and Lease-Back Transaction.

 

“Asset Sale/Casualty Event Offer”
has the meaning set forth in Section 2.05(c)(iii).

 

“Assignees” has the
meaning specified in Section 10.07(b).

 

“Assignment and Assumption”
means an Assignment and Assumption substantially in the form of Exhibit E.

 

“Attorney Costs” means and
includes all reasonable fees, expenses and disbursements of any law firm or
other external legal counsel.

 

“Audited Financial Statements”
means the audited consolidated balance sheets of the Borrower and its
Subsidiaries as of each of January 28, 2006 and January 29, 2005, and the
related audited consolidated statements of income, stockholders’ equity and
cash flows for the Borrower and its Subsidiaries for the fiscal years ended
January 28, 2006, January 29, 2005 and January 31, 2004, respectively.

 

“Average Monthly Balance”
means, as of any date of determination, with respect to any Indebtedness of the
Borrower and/or its Restricted Subsidiaries under a revolving credit facility,
the quotient of (a) the sum of each Individual Monthly Balance for each fiscal
month ended on or prior to such date of determination and included in the
Relevant Reference Period divided by (b) 12; provided
that (i) if any Indebtedness under a revolving credit facility is incurred
during the Relevant Reference Period ended on or prior to such date of
determination to finance an Acquisition, an Investment or any other Restricted
Payment (which incurrence shall be notified to the Administrative Agent as
required by Section 6.02(h)), each Individual Monthly Balance for a fiscal
month included in such Relevant Reference Period and ended prior to the date of
the respective incurrence of such Indebtedness shall be increased by the
aggregate principal amount of all such Indebtedness incurred to finance such
Acquisition, Investment or Restricted Payment, as the case may be, and the
Average Monthly Balance shall be calculated using each such Individual Monthly
Balance as so increased and (ii) if any Indebtedness under a revolving credit
facility is repaid with the net cash proceeds of a Material Disposition during
the Relevant Reference Period ended on or prior to such date of determination
(and is notified to the Administrative Agent pursuant to a certificate
delivered pursuant to Section 6.02(h)), each Individual Monthly Balance for a
fiscal month included in such Relevant Reference Period and 

 

6

 

ended prior to the date of the
respective repayment of such Indebtedness shall be decreased by the aggregate
principal amount of such Indebtedness so repaid (it being understood that a
notice delivered in good faith by a Responsible Officer of the Borrower pursuant
to Section 6.02(h), and any judgment made in good faith by a Responsible
Officer of the Borrower that no notice is required to be delivered pursuant to
the terms of Section 6.02(h) in connection with a given incurrence or repayment
of Indebtedness under a revolving credit facility (e.g., because proceeds of a
revolving credit facility are not then being applied to finance an Acquisition,
Investment or other Restricted Payment), shall be conclusive for purposes of
any determination of an increase or decrease of the Average Monthly Balance
pursuant to this proviso). 
Notwithstanding the foregoing, the Individual Monthly Balance for each
fiscal month occurring prior to the Closing Date and used in determining the Average
Monthly Balance in respect of a Relevant Reference Period ending on or prior to
October 31, 2007 shall be deemed to be the following:

 

	
  Fiscal Month Ended

  	
   

  	
  Individual Monthly Balance ($ million)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  November 30,
  2005

  	
   

  	
  316.7

  	
   

  
	
  December 31,
  2005

  	
   

  	
  194.6

  	
   

  
	
  January 31,
  2006

  	
   

  	
  170.8

  	
   

  
	
  February 28,
  2006

  	
   

  	
  154.4

  	
   

  
	
  March 31,
  2006

  	
   

  	
  197.6

  	
   

  
	
  April 30,
  2006

  	
   

  	
  154.1

  	
   

  
	
  May 31, 2006

  	
   

  	
  190.0

  	
   

  
	
  June 30,
  2006

  	
   

  	
  235.5

  	
   

  
	
  July 31,
  2006

  	
   

  	
  221.3

  	
   

  
	
  August 31,
  2006

  	
   

  	
  273.0

  	
   

  
	
  September
  30, 2006

  	
   

  	
  315.5

  	
   

  
	
  October 31,
  2006

  	
   

  	
  308.4

  	
   

  

 

“Base Rate” means for any
day a fluctuating rate per annum equal to the higher of (a) the Federal Funds
Rate plus 1/2 of 1% and (b) the
rate of interest in effect for such day as publicly announced from time to time
by DBNY as its “prime rate.”  The “prime
rate” is a rate set by DBNY based upon various factors including DBNY costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate.  Any change in such
rate 

 

7

 

announced by DBNY shall take
effect at the opening of business on the day specified in the public
announcement of such change.

 

“Base Rate Loan” means a
Loan that bears interest based on the Base Rate.

 

“Board of Directors” means
(a) with respect to a corporation, the board of directors of the corporation,
(b) with respect to a partnership, the board of directors of the general
partner of the partnership and (c) with respect to any other Person, the board
or committee of such Person serving a similar function.

 

“Borrower” has the meaning
provided in the introductory paragraph of this Agreement; provided that when used in the context of
determining the fair market value of an asset or liability under this
Agreement, “Borrower” shall, unless otherwise expressly stated, be deemed to
mean the Board of Directors of the Borrower when the fair market value of such
asset or liability is equal to or in excess of $100,000,000 (unless otherwise
expressly stated).

 

“Borrower Guaranty” means
the Borrower Guaranty made by the Borrower in favor of the Administrative Agent
on behalf of the Secured Parties, substantially in the form of Exhibit F-1.

 

“Borrowing” means a
borrowing consisting of simultaneous Loans of the same Type and, in the case of
Eurocurrency Rate Loans, having the same Interest Period made by each of the
Lenders pursuant to Section 2.01.

 

“Business Day” means any
day other than a Saturday, Sunday or other day on which commercial banks are
authorized to close under the Laws of, or are in fact closed in, the state
where the Administrative Agent’s Office is located and if such day relates to
any interest rate settings as to a Eurocurrency Rate Loan, any fundings,
disbursements, settlements and payments in respect of any such Eurocurrency
Rate Loan, or any other dealings to be carried out pursuant to this Agreement
in respect of any such Eurocurrency Rate Loan, means any such day on which
dealings in deposits in Dollars are conducted by and between banks in the
London interbank eurodollar market.

 

“Canadian Guarantee”
means, collectively, (a) the Canadian Guarantee made by the Canadian Subsidiary
Guarantors in favor of the Administrative Agent on behalf of the Secured
Parties, substantially in the form of Exhibit F-2 and (b) each other guaranty
and Guaranty Supplement delivered by a Canadian Subsidiary Guarantor pursuant
to Section 6.11.

 

“Canadian Security Agreement”
means, collectively, (a) the Security Agreement executed by the Canadian
Subsidiary Guarantors, substantially in the form of Exhibit G-2, and (b) any
Deed of Immovable and Moveable Hypothec, together with, in each case, each
other security agreement supplement executed and delivered by a Canadian
Subsidiary Guarantor pursuant to Section 6.11.

 

“Canadian Subsidiary”
means any Subsidiary that is organized under the laws of Canada or any province
thereof.

 

8

 

“Canadian Subsidiary Guarantors”
means, collectively, (i) Michaels of Canada ULC and (ii) each other Canadian
Subsidiary of the Borrower that, in the sole discretion of the Borrower, shall
have entered into the Canadian Guarantee and complied with the requirements of
clause (b) of the definition of “Collateral and Guarantee Requirement”.

 

“Capital Expenditures”
means, for any period, the aggregate of (a) all expenditures (whether paid in
cash or accrued as liabilities) by the Borrower and the Restricted Subsidiaries
during such period that, in conformity with GAAP, are or are required to be
included as additions during such period to property, plant or equipment
reflected in the consolidated balance sheet of the Borrower and the Restricted
Subsidiaries and (b) the value of all assets under (or subject to) Capitalized
Lease Obligations incurred by the Borrower and the Restricted Subsidiaries
during such period; provided that
the term “Capital Expenditures” shall not include (i) expenditures made in
connection with the replacement, substitution, restoration or repair of assets
to the extent financed with (x) insurance proceeds paid on account of the loss
of or damage to the assets being replaced, restored or repaired or (y) awards
of compensation arising from the taking by eminent domain or condemnation of
the assets being replaced, (ii) the purchase price of equipment that is
purchased simultaneously with the trade-in of existing equipment to the extent
that the gross amount of such purchase price is reduced by the credit granted
by the seller of such equipment for the equipment being traded in at such time,
(iii) the purchase of plant, property or equipment or software to the extent
financed with the proceeds of Asset Sales that are not required to be applied
to prepay Loans pursuant to Section 2.05(c), (iv) expenditures that are
accounted for as capital expenditures by the Borrower or any Restricted
Subsidiary and that actually are paid for by a Person other than the Borrower
or any Restricted Subsidiary, to the extent neither the Borrower nor any
Restricted Subsidiary has provided or is required to provide or incur, directly
or indirectly, any consideration or obligation to such Person or any other
Person (whether before, during or after such period), (v) the book value of any
asset owned by the Borrower or any Restricted Subsidiary prior to or during
such period to the extent that such book value is included as a capital
expenditure during such period as a result of such Person reusing or beginning
to reuse such asset during such period without a corresponding expenditure
actually having been made in such period, provided
that (A) any expenditure necessary in order to permit such asset to be reused
shall be included as a Capital Expenditure during the period in which such
expenditure actually is made and (B) such book value shall have been included
in Capital Expenditures when such asset was originally acquired, (vi)
expenditures that constitute Acquisitions permitted hereunder, (vii) any
expenditure which but for this clause (vii) would otherwise constitute a “Capital
Expenditure”, to the extent financed with the proceeds of the sale or issuance
of any Equity Interests of the Borrower or (viii) that portion of interest on
Indebtedness incurred for Capital Expenditures which is paid in cash and
capitalized in accordance with GAAP during such period.

 

“Capital Stock” means (a)
in the case of a corporation, shares in the capital of such corporation; (b) in
the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of capital
stock; (c) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and (d) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.

 

9

 

“Capitalized Lease Obligation”
means, at the time any determination thereof is to be made, the amount of the
liability in respect of a capital lease that would at such time be required to
be capitalized and reflected as a liability on a balance sheet (excluding the
footnotes thereto) prepared in accordance with GAAP.

 

“Cash Collateral Account”
means a blocked account at DBNY (or another commercial bank selected in
compliance with Section 9.09) in the name of the Administrative Agent and under
the sole dominion and control of the Administrative Agent, and otherwise
established in a manner reasonably satisfactory to the Administrative Agent.

 

“Cash Equivalents” means:

 

(a)           United
States dollars and Canadian dollars;

 

(b)           (i)  euro, or any national currency of any
participating member state of the EMU; or

 

(ii)           in the case of any Foreign Subsidiary that
is a Restricted Subsidiary, such local currencies held by them from time to
time in the ordinary course of business;

 

(c)           securities
issued or directly and fully and unconditionally guaranteed or insured by the
U.S. government or any agency or instrumentality thereof the securities of
which are unconditionally guaranteed as a full faith and credit obligation of
such government with maturities of 24 months or less from the date of
acquisition;

 

(d)           certificates
of deposit, time deposits and eurodollar time deposits with maturities of one
year or less from the date of acquisition, bankers’ acceptances with maturities
not exceeding one year and overnight bank deposits, in each case with any
commercial bank having capital and surplus of not less than $250,000,000 in the
case of U.S. banks and, in the case of any Foreign Subsidiary that is a
Restricted Subsidiary, $100,000,000 (or the U.S. dollar equivalent as of the
date of determination) in the case of non-U.S. banks, and in each case in a
currency permitted under clauses (a) or (b) above;

 

(e)           repurchase
obligations for underlying securities of the types described in clauses (c) and
(d) entered into with any financial institution meeting the qualifications
specified in clause (d) above and in each case in a currency permitted under
clauses (a) or (b) above;

 

(f)            commercial
paper rated at least P-2 by Moody’s or at least A-2 by S&P and in each case
maturing within 24 months after the date of creation thereof and in each case
in a currency permitted under clauses (a) or (b) above;

 

(g)           marketable
short term money market and similar securities having a rating of at least P-2
or A-2 from either Moody’s or S&P, respectively (or, if at any time neither
Moody’s nor S&P shall be rating such obligations, an equivalent rating from
another Rating Agency) and in each case maturing within 24 months after the
date of creation thereof and in each case in a currency permitted under clauses
(a) or (b) above;

 

10

 

(h)           readily
marketable direct obligations issued by any state, commonwealth or territory of
the United States or any political subdivision or taxing authority thereof
having an Investment Grade Rating from either Moody’s or S&P with
maturities of 24 months or less from the date of acquisition;

 

(i)            Indebtedness
or Preferred Stock issued by Persons with a rating of A or higher from S&P
or A2 or higher from Moody’s with maturities of 24 months or less from the date
of acquisition and in each case in a currency permitted under clauses (a) or
(b) above;

 

(j)            Investments
with average maturities of 12 months or less from the date of acquisition in
money market funds rated AAA- (or the equivalent thereof) or better by S&P
or Aaa3 (or the equivalent thereof) or better by Moody’s and in each case in a
currency permitted under clauses (a) or (b) above;

 

(k)           investment
funds investing substantially all of their assets in securities of the type
described in clauses (a) through (j) above; and

 

(l)            credit
card receivables and debit card receivables so long as same are payable by a
financial institution and are considered “cash equivalents” in accordance with
GAAP and are so reflected on the Borrower’s balance sheet.

 

Notwithstanding the foregoing, Cash Equivalents shall include amounts
denominated in currencies other than those set forth in clauses (a) and (b)
above, provided that such amounts
are converted into any currency listed in clauses (a) and (b) as promptly as
practicable and in any event within ten Business Days following the receipt of
such amounts.

 

“Cash Management Services”
means any of the following to the extent not constituting a line of credit: ACH
transactions, treasury and/or cash management services, including, without
limitation, controlled disbursement services, foreign exchange facilities,
deposit and other accounts and merchant services.

 

“Casualty Event” means any
event that gives rise to the receipt by the Borrower or any Restricted
Subsidiary of any insurance proceeds or condemnation awards in respect of any
equipment, fixed assets or real property (including any improvements thereon)
to replace or repair such equipment, fixed assets or real property.

 

“CERCLA” means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as subsequently amended.

 

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

 

“Change of Control” means
the occurrence of any of the following after the Closing Date:

 

(a)           the
sale, lease or transfer, in one or a series of related transactions (other than
by way of merger or consolidation), of all or substantially all of the assets
of the 

 

11

 

Borrower and its Subsidiaries, taken as a whole, to any Person other
than one or more Permitted Holders; or

 

(b)           the
Borrower becomes aware of (by way of a report or any other filing pursuant to
Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise)
the acquisition by (i) any Person (other than one or more Permitted Holders) or
(ii) Persons (other than one or more Permitted Holders) that together are (1) a
group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act, or any successor provision), or (2) acting for the purpose of
acquiring, holding or disposing of securities (within the meaning of Rule
13d-5(b)(1) under the Exchange Act) as a group in a single transaction or in a
related series of transactions, by way of merger, consolidation or other
business combination or purchase of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or any successor provision) of 50% or more
of the total voting power of the Voting Stock of the Borrower or any of its
direct or indirect parent companies holding directly or indirectly 100% of the
total voting power of the Voting Stock of the Borrower; or

 

(c)           any
“Change of Control” (or any comparable term) in any document pertaining to (i)
the ABL Credit Agreement, (ii) the Senior Notes, the Senior Subordinated Notes,
the Subordinated Discount Notes or any Refinancing Indebtedness in respect of
the foregoing with an aggregate outstanding principal amount in excess of the
Threshold Amount or (iii) any Disqualified Stock with an aggregate liquidation
preference in excess of the Threshold Amount.

 

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

 

“Closing Date” means the
first date on which all the conditions precedent in Section 4.01 are satisfied
or waived in accordance with Section 4.01.

 

“Code” means the U.S.
Internal Revenue Code of 1986, as amended, and rules and regulations related
thereto.

 

“Co-Documentation Agent”
means Bank of America, N.A. and Credit Suisse, as Co-Documentation Agents under
this Agreement.

 

“Collateral” means all the
“Collateral” as defined in any Collateral Document and shall include the
Mortgaged Properties.

 

“Collateral Access Agreement”
means an agreement reasonably satisfactory in form and substance to the
Collateral Agent executed by (a) a bailee or other Person in possession of
Collateral, and (b) each landlord of real property leased by any Loan Party,
pursuant to which such Person (i) acknowledges the Collateral Agent’s Lien on
the Collateral, (ii) releases or subordinates such Person’s Liens in the
Collateral held by such Person or located on such real property, (iii) agrees
to furnish the Collateral Agent with access to the Collateral in such Person’s
possession or on the real property for the purposes of conducting a liquidation
and (iv) makes such other agreements with the Collateral Agent as the
Collateral Agent may reasonably require.

 

12

 

“Collateral Agent” means
the Administrative Agent, in its capacity as collateral agent under any of the
Loan Documents, or any successor collateral agent.

 

“Collateral and Guarantee Requirement”
means, at any time, the requirement that:

 

(a)           the
Administrative Agent shall have received (x) each Collateral Document required
to be delivered on the Closing Date pursuant to Section 4.01(a)(iii) or
pursuant to Section 6.11 at such time, and (y) the Intercreditor Agreement, in
each case duly executed by each Loan Party thereto;

 

(b)           all
Obligations shall have been unconditionally guaranteed by the Borrower (in the
case of Obligations under clause (y) of the first sentence of the definition
thereof), each Restricted Subsidiary that is a Domestic Subsidiary and not an
Excluded Subsidiary and, after the formation thereof, Holdco;

 

(c)           all
guarantees issued or to be issued in respect of the Senior Subordinated Notes
and the Subordinated Discount Notes shall be subordinated to the Guaranties to
the same extent that the Senior Subordinated Notes or the Subordinated Discount
Notes, as the case may be, are subordinated to the Obligations;

 

(d)           the
Obligations and the Guaranties shall have been secured by a first priority
security interest (subject to the terms of the Intercreditor Agreement) in all
Equity Interests (other than Equity Interests of Unrestricted Subsidiaries and
any Equity Interest of any Restricted Subsidiary pledged to secure Indebtedness
permitted under Section 7.03(b)(xix)) of each Wholly Owned Subsidiary directly
owned by any Guarantor; provided that pledges of voting Equity Interests of each
Foreign Subsidiary (including each Foreign Subsidiary held by a Canadian
Subsidiary Guarantor) shall be limited to 65% of the total combined voting
power of all Equity Interests of such Foreign Subsidiary at any time; provided further that in the case of
Canadian Subsidiary Guarantor that owns Equity Interests in a Foreign
Subsidiary, the pledge of voting Equity Interests of such Canadian Subsidiary
Guarantor shall be limited to 65% of the total combined voting power of all
Equity Interests of such Canadian Subsidiary Guarantor (or, if such Canadian
Subsidiary Guarantor is an unlimited liability company, such lesser percentage
as is acceptable to the Collateral Agent);

 

(e)           except
to the extent otherwise permitted hereunder or under any Collateral Document,
the Obligations and the Guaranties shall have been secured by a security
interest in, and mortgages on, substantially all tangible and intangible assets
of the Borrower and each other Guarantor (including accounts, inventory,
equipment, investment property, contract rights, intellectual property, other
general intangibles, owned real property and proceeds of the foregoing), in
each case, with the priority required by the Collateral Documents and the
Intercreditor Agreement; provided
that security interests in real property shall be limited to the Mortgaged
Properties;

 

(f)            none
of the Collateral shall be subject to any Liens other than Liens permitted by
Section 7.04; and

 

13

 

(g)           the
Collateral Agent shall have received (i) counterparts of a Mortgage with
respect to each owned property required to be delivered pursuant to Section
6.11 (the “Mortgaged Properties”) duly executed and delivered by the record
owner of such property, (ii) a policy or policies of title insurance issued by
a nationally recognized title insurance company insuring the Lien of each such
Mortgage as a valid first priority Lien on the property described therein
(subject to the applicable provisions of the Intercreditor Agreement), free of any
other Liens except as expressly permitted by Section 7.04, together with such
endorsements, coinsurance and reinsurance as the Administrative Agent may
reasonably request, (iii) such existing surveys, existing abstracts, existing
appraisals and other documents as the Administrative Agent may reasonably
request with respect to any such Mortgaged Property and (iv) to the extent
required by applicable law, flood certificates covering each Mortgaged Property
in form and substance reasonably acceptable to the Collateral Agent, certified
to the Collateral Agent in its capacity as such and certifying whether or not
such Mortgaged Property is located in a flood hazard zone by reference to the
applicable FEMA map.

 

The foregoing definition shall not require the creation or perfection
of pledges of or security interests in, or the obtaining of title insurance or
surveys with respect to, particular assets if and for so long as, in the
reasonable judgment of the Collateral Agent (confirmed in writing by notice to
the Borrower), the cost of creating or perfecting such pledges or security
interests in such assets or obtaining title insurance or surveys in respect of
such assets shall be excessive in view of the benefits to be obtained by the
Lenders therefrom.  The Collateral Agent
may grant extensions of time for the perfection of security interests in or the
obtaining of title insurance with respect to particular assets (including
extensions beyond the Closing Date for the perfection of security interests in
the assets of the Loan Parties on such date) where it reasonably determines, in
consultation with the Borrower, that perfection cannot be accomplished without
undue effort or expense by the time or times at which it would otherwise be
required by this Agreement or the Collateral Documents.

 

Notwithstanding the foregoing provisions of this definition or anything
in this Agreement or any other Loan Document to the contrary, Liens required to
be granted from time to time pursuant to the Collateral and Guarantee Requirement
shall be subject to exceptions and limitations set forth in the Collateral
Documents as in effect on the Closing Date and, to the extent appropriate in
the applicable jurisdiction, as agreed between the Collateral Agent and the
Borrower.

 

“Collateral Documents”
means, collectively, the Security Agreement, the Mortgages, the Canadian
Security Agreement, each of the mortgages, collateral assignments, Security
Agreement Supplements, security agreements, pledge agreements or other similar
agreements delivered to the Collateral Agent and the Lenders pursuant to
Section 6.11 or Section 6.13 and each of the other agreements, instruments or
documents that creates or purports to create a Lien in favor of the Collateral
Agent for the benefit of the Secured Parties.

 

“Commitment” means, as to
each Lender, its obligation to make a Loan to the Borrower pursuant to Section
2.01 in an aggregate principal amount not to exceed the amount set forth
opposite such Lender’s name on Schedule 2.01 under the caption “Commitment” or
in the Assignment and Assumption pursuant to which such Lender becomes a party
hereto, as 

 

14

 

applicable, as such amount may
be adjusted from time to time in accordance with this Agreement.  The initial aggregate amount of the
Commitments is $2,400,000,000.

 

“Committed Loan Notice”
means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to
the other, or (c) a continuation of Eurocurrency Rate Loans, pursuant to
Section 2.02(a), which, if in writing, shall be substantially in the form of
Exhibit A.

 

“Compensation Period” has
the meaning specified in Section 2.12(c)(ii).

 

“Compliance Certificate”
means a certificate substantially in the form of Exhibit D.

 

“Consolidated Depreciation and Amortization
Expense” means with respect to any Person for any period, the total
amount of depreciation and amortization expense, including the amortization of
deferred financing fees of such Person and its Restricted Subsidiaries for such
period on a consolidated basis and otherwise determined in accordance with
GAAP.

 

“Consolidated Interest Expense”
means, with respect to any Person for any period, without duplication, the sum
of:

 

(a)           consolidated
interest expense of such Person and its Restricted Subsidiaries for such
period, to the extent such expense was deducted (and not added back) in
computing Consolidated Net Income (including (i) amortization of original issue
discount resulting from the issuance of Indebtedness at less than par, (ii) all
commissions, discounts and other fees and charges owed with respect to letters
of credit or bankers acceptances, (iii) non-cash interest payments (but
excluding any non cash interest expense attributable to the movement in the
mark to market valuation of Hedging Obligations or other derivative instruments
pursuant to GAAP), (iv) the interest component of Capitalized Lease
Obligations, and (v) net payments, if any, made (less net payments, if any,
received) pursuant to interest rate Hedging Obligations with respect to
Indebtedness, and excluding (v) penalties and interest related to taxes, (w)
any Additional Interest with respect to the New Notes, (x) amortization of
deferred financing fees, debt issuance costs, discounted liabilities,
commissions, fees and expenses, (y) any expensing of bridge, commitment and
other financing fees and (z) commissions, discounts, yield and other fees and
charges (including any interest expense) related to any Receivables Facility); plus

 

(b)           consolidated
capitalized interest of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued; less

 

(c)           interest
income for such period.

 

For purposes of this definition, interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by such Person to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP.  For
purposes of determining Consolidated Interest Expense for any period ending
prior to the first anniversary of the Closing Date, Consolidated Interest
Expense shall be $92.5 million for the fiscal quarter ended January 28, 2006,
$91.4 million for the fiscal quarter ended April 29, 2006 and $92.5

 

15

 

million for the fiscal quarter
ended July 29, 2006; provided
that the foregoing amounts shall be subject to pro forma adjustment as
contemplated by the definition of “Fixed Charge Coverage Ratio” for relevant
Specified Transactions occurring after the Closing Date.

 

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

 

(a)           any
after-tax effect of extraordinary, non–recurring or unusual gains or losses
(less all fees and expenses relating thereto) or expenses, Transaction Expenses
to the extent incurred on or prior to December 31, 2007, severance, relocation
costs, costs related to the Perfect Store Initiative, Hybrid Distribution
Network Costs, Public Company Costs, integration costs, pre-opening, opening,
consolidation and closing costs for facilities (including Stores), signing,
retention or completion bonuses, transition costs, costs incurred in connection
with acquisitions after the Closing Date, restructuring costs, Specified Legal
Expenses and curtailments or modifications to pension and post–retirement
employee benefit plans shall be excluded,

 

(b)           the
Net Income for such period shall not include the cumulative effect of a change
in accounting principles during such period,

 

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

 

(d)           any
after–tax effect of gains or losses (less all fees and expenses relating
thereto) attributable to asset dispositions other than in the ordinary course
of business, as determined in good faith by the Borrower, shall be excluded,

 

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

 

(f)            [Reserved],

 

(g)           effects
of adjustments (including the effects of such adjustments pushed down to the
Borrower and its Restricted Subsidiaries) in the merchandise inventory,
property and equipment, intangible assets, goodwill, deferred revenue and debt
line items in such Person’s consolidated financial statements pursuant to GAAP
resulting from the application of purchase accounting in relation to the
Transaction or any consummated acquisition or the amortization or write-off of
any amounts thereof, net of taxes, shall be excluded,

 

16

 

(h)           any
after–tax effect of income (loss) from the early extinguishment or conversion
of Indebtedness or Hedging Obligations or other derivative instruments shall be
excluded,

 

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

 

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

 

(k)           any
fees and expenses incurred during such period, or any amortization thereof for
such period, in connection with any acquisition, Investment, Asset Sale,
issuance or repayment of Indebtedness, issuance of Equity Interests,
refinancing transaction or amendment or modification of any debt instrument (in
each case, including any such transaction consummated prior to the Closing Date
and any such transaction undertaken but not completed) and any charges or
non-recurring merger costs incurred during such period as a result of any such
transaction shall be excluded,

 

(l)            accruals
and reserves that are established within twelve months after the Closing Date
that are so required to be established as a result of the Transaction in
accordance with GAAP shall be excluded,

 

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

 

(n)           any
unrealized net gains and losses resulting from Hedging Obligations and the
application of Statement of Financial Accounting Standards No. 133 shall be
excluded.

 

In addition, to the extent not already included in the Net Income of
such Person and its Restricted Subsidiaries, notwithstanding anything to the
contrary in the foregoing, Consolidated Net Income shall include the amount of
proceeds received from business interruption insurance and reimbursements of
any expenses and charges that are covered by indemnification or other
reimbursement provisions in connection with any Permitted Investment or any
sale, conveyance, transfer or other disposition of assets permitted hereunder.

 

Notwithstanding the foregoing, for the purpose of Section 7.02 only
(other than Section 7.02(a)(iii)(D)), there shall be excluded from Consolidated
Net Income any income arising from any sale or other disposition of Restricted
Investments made by the Borrower and its Restricted Subsidiaries, any
repurchases and redemptions of Restricted Investments from the Borrower and its
Restricted Subsidiaries, any repayments of loans and advances which constitute
Restricted Investments by the Borrower or any of its Restricted Subsidiaries,
any sale of the stock of an Unrestricted Subsidiary or any distribution or
dividend from an Unrestricted 

 

17

 

Subsidiary, in each case only
to the extent such amounts increase the amount of Restricted Payments permitted
pursuant to Section 7.02(a)(iii)(D).

 

“Consolidated Secured Debt Ratio”
means, as of any date of determination, the ratio of (a) Consolidated Total
Indebtedness of the Borrower and its Restricted Subsidiaries that is secured by
Liens as at the last day of the Relevant Reference Period to (b) the Borrower’s
EBITDA for the Relevant Reference Period, in each case with such pro  forma
adjustments to Consolidated Total Indebtedness (other than Indebtedness under a
revolving credit facility) and EBITDA as are appropriate and consistent with
the pro  forma adjustment provisions set forth in the definition
of “Fixed Charge Coverage Ratio”; provided
that (x) in the event that any Indebtedness under a revolving credit facility
is incurred after the last day of the Relevant Reference Period ended prior to
such date of determination to finance an Acquisition, an Investment or any
other Restricted Payment (which incurrence shall be notified to the
Administrative Agent as required by Section 6.02(h)), (i) each Individual
Monthly Balance for a fiscal month included in such Relevant Reference Period
and ended prior to the date of the respective incurrence of such Indebtedness
shall be increased by the aggregate principal amount of all such Indebtedness
incurred to finance such Acquisition, Investment or Restricted Payment, as the
case may be, (ii) the Average Monthly Balance included in the determination of
Consolidated Total Indebtedness as at the last day of such Relevant Reference
Period shall be calculated using each such Individual Monthly Balance as so
increased, and (iii) Consolidated Total Indebtedness as at the last day of such
Relevant Reference Period shall be recalculated to give pro  forma
effect to the adjustments contemplated by preceding clauses (i) and (ii), and
(y) in the event that any Indebtedness under a revolving credit facility is
repaid after the last day of the Relevant Reference Period ended prior to such
date of determination with the net cash proceeds of a Material Disposition (and
is notified to the Administrative Agent pursuant to a certificate delivered
pursuant to Section 6.02(h)), (i) each Individual Monthly Balance for a fiscal
month included in such Relevant Reference Period and ended prior to the date of
the respective repayment of such Indebtedness shall be decreased by the
aggregate principal amount of all such Indebtedness so repaid with the net cash
proceeds of such Material Disposition, (ii) the Average Monthly Balance
included in the determination of Consolidated Total Indebtedness as at the last
day of such Relevant Reference Period shall be calculated using each such
Individual Monthly Balance as so decreased, and (iii) Consolidated Total
Indebtedness as at the last day of such Relevant Reference Period shall be
recalculated to give pro  forma effect to the adjustments
contemplated by preceding clauses (i) and (ii) (it being understood that a
notice delivered in good faith by a Responsible Officer of the Borrower
pursuant to Section 6.02(h), and any judgment made in good faith by a
Responsible Officer of the Borrower that no notice is required to be delivered
pursuant to the terms of Section 6.02(h) in connection with a given incurrence
or repayment of Indebtedness under a revolving credit facility (e.g.,
because proceeds of a revolving credit facility are not then being applied to
finance an Acquisition, Investment or other Restricted Payment), shall be
conclusive for purposes of any determination of an increase or decrease of the
Average Monthly Balance pursuant to this proviso).

 

“Consolidated Total Indebtedness”
means, as at any date of determination, an amount equal to the remainder of (i)
the sum of (a) the aggregate amount of all outstanding Indebtedness of the
Borrower and its Restricted Subsidiaries on a consolidated basis consisting of
Indebtedness for borrowed money, Obligations in respect of Capitalized Lease
Obligations and debt obligations evidenced by promissory notes, bonds,
debentures, letters of credit, bankers’ 

 

18

 

acceptances and similar
instruments (and excluding, for the avoidance of doubt, (x) any undrawn letters
of credit and bankers’ acceptances and reimbursement obligations in respect of
commercial and trade letters of credit and (y) all obligations relating to
Receivables Facilities), (b) the aggregate amount of all outstanding
Disqualified Stock of the Borrower and all Preferred Stock of its Restricted
Subsidiaries on a consolidated basis, with the amount of such Disqualified
Stock and Preferred Stock equal to the greater of their respective voluntary or
involuntary liquidation preferences and maximum fixed repurchase prices, in
each case determined on a consolidated basis in accordance with GAAP, and (c)
any Contingent Obligations of the Borrower and its Restricted Subsidiaries in
respect of the obligations described in clauses (a) and (b) above, less (ii) the aggregate amount of
Unrestricted cash and Cash Equivalents included on the consolidated balance
sheet of the Borrower and any Restricted Subsidiaries as of such date; provided that Indebtedness of the Borrower
and its Restricted Subsidiaries under any revolving credit facility as at any
date of determination included in the calculation of Consolidated Total
Indebtedness shall be determined using the Average Monthly Balance of such
Indebtedness for the Relevant Reference Period (or, in the case of any
determination of the Consolidated Total Leverage Ratio (other than as used in
the definitions of “Applicable Rate” and “Required Percentage”), the
Alternative Average Monthly Balance of such Indebtedness for the Relevant
Reference Period).  For purposes hereof,
the “maximum fixed repurchase price”
of any Disqualified Stock or Preferred Stock that does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock or Preferred Stock as if such Disqualified Stock or
Preferred Stock were purchased on any date on which Consolidated Total
Indebtedness shall be required to be determined pursuant to this Agreement, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Stock or Preferred Stock, such fair market value shall be determined
reasonably and in good faith by the Borrower.

 

“Consolidated Total Leverage Ratio”
means, as of any date of determination, the ratio of (a) Consolidated Total
Indebtedness of the Borrower and its Restricted Subsidiaries as at the last day
of the Relevant Reference Period to (b) the Borrower’s EBITDA for the Relevant
Reference Period, in each case with such pro  forma adjustments to
Consolidated Total Indebtedness (other than a calculation thereof pursuant to
the definitions of “Applicable Rate” and “Required Percentage”) and EBITDA as
are appropriate and consistent with the pro  forma adjustment
provisions set forth in the definition of “Fixed Charge Coverage Ratio”.

 

“Consolidated Working Capital”
means, at any date, the excess of (a) the sum of all amounts (other than cash
and Cash Equivalents) that would, in conformity with GAAP, be set forth
opposite the caption “total current assets” (or any like caption) on a
consolidated balance sheet of the Borrower and the Restricted Subsidiaries at
such date over (b) the sum of all amounts that would, in conformity with GAAP,
be set forth opposite the caption “total current liabilities” (or any like
caption) on a consolidated balance sheet of the Borrower and the Restricted
Subsidiaries on such date, including deferred revenue but excluding, without
duplication, (i) the current portion of any Funded Debt, (ii) all Indebtedness
consisting of Loans, ABL Loans and Capitalized Lease Obligations, to the extent
otherwise included therein, (iii) the current portion of interest and (iv) the
current portion of current and deferred income taxes.

 

“Contingent Obligations”
means, with respect to any Person, any obligation of such Person guaranteeing
any leases, dividends or other obligations that do not constitute Indebtedness
(“primary obligations”) of any
other Person (the “primary obligor”)
in any 

 

19

 

manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation, or
(ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, or (c)         to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation against loss in respect thereof.

 

“Contract Consideration”
has the meaning set forth in the definition of “Excess Cash Flow”.

 

“Contractual Obligation”
means, as to any Person, any provision of any security issued by such Person or
of any agreement, instrument or other undertaking to which such Person is a
party or by which it or any of its property is bound.

 

“Control” has the meaning
specified in the definition of “Affiliate.”

 

“Cumulative Retained Excess Cash Flow
Amount” shall mean, at any date, an amount equal to the sum of the
Retained Percentage of Excess Cash Flow (which may not be less than zero for
any Excess Cash Flow Period) for all Excess Cash Flow Periods ending after the
Closing Date and prior to such date.

 

“Customs Broker Agreement”
means an agreement in substantially the form attached as Exhibit B to the ABL
Credit Agreement (as in effect on the Closing Date) among a Loan Party, a
customs broker or other carrier, and the Collateral Agent, in which the customs
broker or other carrier acknowledges that it has control over and holds the
documents evidencing ownership of the subject inventory or other property for
the benefit of the Collateral Agent, and agrees, upon notice from the
Collateral Agent (which notice shall be delivered only upon the occurrence and
during the continuance of an Event of Default), to hold and dispose of the
subject inventory and other property solely as directed by the Collateral
Agent.

 

“DBNY” means Deutsche Bank
AG New York Branch and any successor thereto by merger, consolidation or
otherwise.

 

“DBSI” means Deutsche Bank
Securities Inc. and any successor thereto by merger, consolidation or
otherwise.

 

“Debt Prepayment” means
the prepayment by the Borrower on the Closing Date of any and all Indebtedness
outstanding under the Existing Credit Agreement.

 

“Debtor Relief Laws” means
the Bankruptcy Code of the United States, the Companies’ Creditors Arrangement
Act of Canada, the Bankruptcy and Insolvency Act of Canada, and all other
liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief Laws of the United States, Canada or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.

 

20

 

“Default” means any event
or condition that constitutes an Event of Default or that, with the giving of
any notice, the passage of time, or both, would be an Event of Default.

 

“Default Rate” means an
interest rate equal to (a) the Base Rate plus
(b) the Applicable Rate, if any, applicable to Base Rate Loans plus (c) 2.0% per annum; provided that with respect to a Eurocurrency
Rate Loan, the Default Rate shall be an interest rate equal to the interest
rate (including any Applicable Rate) otherwise applicable to such Loan plus 2.0% per annum, in each case, to the
fullest extent permitted by applicable Laws.

 

“Defaulting Lender” means
any Lender that (a) has failed to fund any portion of the Loans required to be
funded by it hereunder within one (1) Business Day of the date required to be
funded by it hereunder, unless the subject of a good faith dispute or
subsequently cured, (b) has otherwise failed to pay over to the Administrative
Agent or any other Lender any other amount required to be paid by it hereunder
within one (1) Business Day of the date when due, unless the subject of a good
faith dispute or subsequently cured, or (c) has been deemed insolvent or become
the subject of a bankruptcy or insolvency proceeding.

 

“Designated Non-cash Consideration”
means the fair market value of non-cash consideration received by the Borrower
or a Restricted Subsidiary in connection with an Asset Sale that is so
designated as Designated Non-cash Consideration pursuant to an Officer’s
Certificate, setting forth the basis of such valuation, executed by the
principal financial officer of the Borrower, less the amount of Cash Equivalents
received in connection with a subsequent sale, redemption, repurchase of or
collection or payment on, such Designated Non-cash Consideration.

 

“Designated Preferred Stock”
means Preferred Stock of the Borrower or any parent company thereof (in each
case other than Disqualified Stock) that is issued for cash (other than to a
Restricted Subsidiary or an employee stock ownership plan or trust established
by the Borrower or any of its Subsidiaries) and is so designated as Designated
Preferred Stock, pursuant to an Officer’s Certificate executed by the principal
financial officer of the Borrower or the applicable parent company thereof, as
the case may be, on the issuance date thereof, the cash proceeds of which are
excluded from the calculation set forth in Section 7.02(a)(iii).

 

“Disqualified Stock”
means, with respect to any Person, any Capital Stock of such Person which, by
its terms, or by the terms of any security into which it is convertible or for
which it is putable or exchangeable, or upon the happening of any event, (a)
matures or is mandatorily redeemable (other than solely as a result of a change
of control or asset sale, so long as any rights of the holders thereof upon the
occurrence of a change of control or asset sale event shall be subject to the
prior repayment in full of the Loans and all other Obligations that are accrued
and payable) pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof (other than solely as a result
of a change of control or asset sale, so long as any rights of the holders
thereof upon the occurrence of a change of control or asset sale event shall be
subject to the prior repayment in full of the Loans and all other Obligations
that are accrued and payable), in whole or in part, or (b) provides for the
scheduled payments of dividends in cash, in each case prior to the date 91 days
after the earlier of the Maturity Date or the date Loans are no longer
outstanding; provided, however,
that if such Capital Stock is issued to any plan for the benefit of employees
of the Borrower or its Subsidiaries or by any such plan 

 

21

 

to such employees, such Capital
Stock shall not constitute Disqualified Stock solely because it may be required
to be repurchased by the Borrower or its Subsidiaries in order to satisfy
applicable statutory or regulatory obligations.

 

“Disposition” has the
meaning set forth in the definition of “Excess Cash Flow”.

 

“Dollar” and “$” mean lawful money of the United States.

 

“Domestic Subsidiary”
means (i) any Subsidiary that is organized under the Laws of the United States,
any state thereof or the District of Columbia and (ii) unless otherwise
expressly provided herein, each Canadian Subsidiary that, in the sole discretion
of the Borrower, elects to become (and, upon such election, becomes) a Canadian
Subsidiary Guarantor.

 

“Domestic Subsidiary Guarantors”
means, collectively, each Domestic Subsidiary of the Borrower that is not a
Canadian Subsidiary and that shall have entered into the Subsidiary Guaranty
and complied with the requirements of clause (b) of the definition of “Collateral
and Guarantee Requirement”.

 

“EBITDA” means, with
respect to any Person for any period, the Consolidated Net Income of such
Person for such period

 

(a)           increased
(without duplication) by:

 

(i)            provision for taxes based on income or
profits or capital, including, without limitation, state, franchise and similar
taxes (such as the Pennsylvania capital tax and Texas margin tax) and foreign withholding
taxes of such Person paid or accrued during such period deducted (and not added
back) in computing Consolidated Net Income; plus

 

(ii)           Fixed Charges of such Person for such period
plus bank fees and costs of
surety bonds in connection with financing activities, plus amounts excluded from Consolidated
Interest Expense as set forth in clauses (v), (w), (x), (y) and (z) in the
definition thereof, to the extent the same were deducted (and not added back)
in calculating such Consolidated Net Income; plus

 

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

 

(iv)          any expenses or charges (other than
depreciation or amortization expense) related to any Equity Offering, Permitted
Investment, acquisition, disposition, recapitalization or the incurrence of
Indebtedness permitted to be incurred by this Agreement (including a
refinancing thereof) (whether or not successful), including (A) such fees,
expenses or charges related to the offering of the New Notes, this Agreement
and the ABL Credit Agreement and (B) any amendment or other modification of the
New Notes, this Agreement and the ABL Credit Agreement in each case, deducted
(and not added back) in computing Consolidated Net Income; plus

 

22

 

(v)           the amount of any restructuring charge or
reserve deducted (and not added back) in such period in computing Consolidated
Net Income; plus

 

(vi)          any other non cash charges, including (v) any
write offs or write downs, (w) equity-based awards compensation expense, (x)
losses on sales, disposals or abandonment of, or any impairment charge or asset
write off related to, intangible assets, long-lived assets and investments in
debt and equity securities, (y) all losses from investments recorded using the
equity method, and (z) other non-cash charges, non-cash expenses or non-cash
losses, in each case reducing Consolidated Net Income for such period (provided that if any such non-cash charges
represent an accrual or reserve for potential cash items in any future period,
the cash payment in respect thereof in such future period shall be subtracted
from EBITDA to such extent, and excluding amortization of a prepaid cash item
that was paid in a prior period); plus

 

(vii)         the amount of any minority interest expense
consisting of Subsidiary income attributable to minority equity interests of
third parties in any non-Wholly Owned Subsidiary deducted (and not added back)
in such period in calculating Consolidated Net Income; plus

 

(viii)        the amount of management, monitoring,
consulting and advisory fees (including termination fees) and related
indemnities and expenses paid or accrued in such period to the Investors to the
extent otherwise permitted under Section 7.07 and to the extent deducted (and
not added back) in such period in computing Consolidated Net Income; plus

 

(ix)           the amount of net cost savings projected by
the Borrower in good faith to be realized as a result of specified actions
taken during such period (calculated on a pro forma basis as though such cost
savings had been realized on the first day of such period), net of the amount
of actual benefits realized during such period from such actions; provided that (x) such cost savings are
reasonably identifiable and factually supportable, (y) such actions are taken
within 36 months after the Closing Date and (z) the aggregate amount of cost
savings added pursuant to this clause (ix) shall not exceed $25,000,000 for any
four consecutive quarter period (which adjustments may be incremental to pro
forma adjustments made pursuant to the definition of “Fixed Charge Coverage
Ratio”); plus

 

(x)            the amount of loss on sale of receivables
and related assets to the Receivables Subsidiary in connection with a
Receivables Facility; plus

 

(xi)           any costs or expense incurred by the
Borrower or a Restricted Subsidiary pursuant to any management equity plan or
stock option plan or any other management or employee benefit plan or agreement
or any stock subscription or shareholder agreement, to the extent that such
cost or expenses are funded with cash proceeds contributed to the capital of
the Borrower or net cash proceeds of an issuance of Equity Interests of the Borrower
(other than 

 

23

 

Disqualified Stock) solely to the extent that such net cash proceeds
are excluded from the calculation set forth in Section 7.02(a)(iii); plus

 

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

 

(xiii)         cash receipts (or any netting arrangements
resulting in reduced cash expenditures) not representing EBITDA or Net Income
in any period to the extent non-cash gains relating to such income were
deducted in the calculation of EBITDA pursuant to clause (b) below for any
previous period and not added back; and

 

(b)           decreased
(without duplication) by:  (i) non–cash
gains increasing Consolidated Net Income of such Person for such period,
excluding any non-cash gains to the extent they represent the reversal of an
accrual or reserve for a potential cash item that reduced EBITDA in any prior
period and any non-cash gains with respect to cash actually received in a prior
period so long as such cash did not increase EBITDA in such prior period, plus

 

(ii)           any
net income from disposed or discontinued operations; and

 

(c)           increased
or decreased by (without duplication), as applicable, any adjustments resulting
from the application of FASB Interpretation No. 45 (Guarantees).

 

For purposes of calculating EBITDA for any period, the impact of
changes in estimates for inventory cost capitalization and the initial adoption
of an accounting policy for gift card breakage made in the fourth quarter of
fiscal year 2005 shall be excluded.

 

“Eligible Assignee” means
any Assignee permitted by and consented to in accordance with Section 10.07(b);
provided that in any event, “Eligible
Assignee” shall not include any natural person.

 

“EMU” means the economic
and monetary union as contemplated in the Treaty on European Union.

 

“Environmental Laws” means
any and all Federal, state, provincial, local, and foreign statutes, Laws,
regulations, ordinances, rules, judgments, orders, decrees, permits,
concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution, the protection of the environment, natural
resources, or, to the extent relating to exposure to Hazardous Materials, human
health or to the release of any materials into the environment, including those
related to Hazardous Materials, air emissions and discharges to waste or public
systems.

 

“Environmental Liability”
means any liability, contingent or otherwise (including any liability for
damages, costs of environmental remediation, fines, penalties or indemnities),
of the Borrower, any other Loan Party or any of their respective Subsidiaries
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

 

24

 

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.

 

“Environmental Permit”
means any permit, approval, identification number, license or other
authorization required under any Environmental Law.

 

“Equity Contributions”
means the contribution of cash in an aggregate amount of not less than
$1,630,000,000 to the MergerCos as common equity and/or preferred equity having
terms reasonably satisfactory to the Arrangers.

 

“Equity Interests” means
Capital Stock and all warrants, options or other rights to acquire Capital
Stock, but excluding any debt security that is convertible into, or
exchangeable for, Capital Stock.

 

“Equity Offering” means
any public or private sale of common stock or Preferred Stock of the Borrower
or any of its direct or indirect parent companies (excluding Disqualified
Stock), other than (a) public offerings with respect to the Borrower’s or any
direct or indirect parent company’s common stock registered on Form S-8; (b)
issuances to any Subsidiary of the Borrower; and (c) any such public or private
sale that constitutes an Excluded Contribution.

 

“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended from time to time.

 

“ERISA Affiliate” means
any trade or business (whether or not incorporated) that is under common
control with any Loan Party within the meaning of Section 414 of the Code or
Section 4001 of ERISA.

 

“ERISA Event” means, in
the case of a Plan or Multiemployer Plan subject to ERISA, (a) a Reportable
Event with respect to a Pension Plan; (b) a withdrawal by any Loan Party or any
ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a cessation of operations that is treated as such a
withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal
by any Loan Party or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the filing of
a notice of intent to terminate, the treatment of a Pension Plan amendment as a
termination under Sections 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e)
an event or condition which constitutes grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Pension
Plan or Multiemployer Plan; (f) the imposition of any liability under Title IV
of ERISA, other than for PBGC premiums due but not delinquent under Section
4007 of ERISA, upon any Loan Party or any ERISA Affiliate or (g) the failure of
any Pension Plan to satisfy the minimum funding standard required for any plan
year or part thereof under Section 412 of the Code or Section 302 of ERISA or a
waiver of such standard or extension of any amortization period is sought or
granted under Section 412 of the Code or Section 303 or 304 of ERISA.

 

25

 

“euro” means the
single currency of participating member states of the EMU.

 

“Eurocurrency Rate”
means (a) the offered quotation to first-class banks in the New York
interbank Eurodollar market by the Administrative Agent for Dollar deposits of
amounts in immediately available funds comparable to the outstanding principal
amount of the Eurocurrency Rate Loan of the Administrative Agent (in its
capacity as a Lender) (or, if the Administrative Agent is not a Lender with
respect thereto, taking the average principal amount of the Eurocurrency Rate
Loans then being made by the various Lenders pursuant thereto)) with maturities
comparable to the Interest Period applicable to such Eurocurrency Rate Loan
commencing two Business Days thereafter as of 10:00 A.M. (New York City
time) on the applicable date of determination, divided (and rounded upward to
the nearest 1/16 of 1%) by (b) a percentage equal to 100% minus the then stated maximum rate of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves required by applicable law) applicable
to any member bank of the Federal Reserve System in respect of Eurocurrency
funding or liabilities as defined in Regulation D (or any successor category of
liabilities under Regulation D).

 

“Eurocurrency Rate Loan”
means a Loan that bears interest at a rate based on the Eurocurrency Rate.

 

“Event of Default”
has the meaning specified in Section 8.01.

 

“Excess Cash Flow”
means, for any period, an amount equal to the excess of:

 

(a)           the
sum, without duplication, of:

 

(i)            Consolidated
Net Income for such period,

 

(ii)           an
amount equal to the amount of all non-cash charges incurred during such period,
to the extent deducted in arriving at such Consolidated Net Income,

 

(iii)          decreases
in Consolidated Working Capital and long-term account receivables for such
period (other than any such decreases arising from Acquisitions by the Borrower
and the Restricted Subsidiaries completed during such period), and

 

(iv)          an
amount equal to the aggregate net non-cash loss on the sale, lease, transfer or
other disposition (each, a “Disposition”)
of assets by the Borrower and its Restricted Subsidiaries during such period
(other than Dispositions in the ordinary course of business) to the extent
deducted in arriving at such Consolidated Net Income; over

 

(b)           the
sum, without duplication, of:

 

(i)            an
amount equal to the amount of all non-cash credits included in arriving at such
Consolidated Net Income and cash charges added back to

 

26

 

Consolidated
Net Income pursuant to clauses (a) through (n) of the definition thereof,

 

(ii)           without
duplication of amounts deducted pursuant to clause (xi) below in prior fiscal
years, the amount of Capital Expenditures made in cash during such period,
except to the extent that such Capital Expenditures were financed with the
proceeds of Indebtedness of the Borrower or the Restricted Subsidiaries,

 

(iii)          the
aggregate amount of all principal payments of Indebtedness of the Borrower and
the Restricted Subsidiaries (including (A) the principal component of
payments in respect of Capitalized Lease Obligations and (B) the amount of
any mandatory prepayment of Loans pursuant to Section 2.05(c) with
the proceeds of an Asset Sale, to the extent such Asset Sale resulted in an
increase to Consolidated Net Income and not in excess of the amount of such
increase, but excluding all other prepayments of Loans) made during such period
(other than in respect of any revolving credit facility to the extent there is
not an equivalent permanent reduction in commitments thereunder), except to the
extent financed with the proceeds of other Indebtedness of the Borrower or the
Restricted Subsidiaries,

 

(iv)          an
amount equal to the aggregate net non-cash gain on the Disposition of assets by
the Borrower and the Restricted Subsidiaries during such period (other than
Dispositions in the ordinary course of business) to the extent included in
arriving at such Consolidated Net Income,

 

(v)           increases
in Consolidated Working Capital and long-term account receivables for such
period (other than any such increases arising from Acquisitions by the Borrower
and the Restricted Subsidiaries during such period),

 

(vi)          cash
payments by the Borrower and the Restricted Subsidiaries during such period in
respect of long-term liabilities of the Borrower and the Restricted
Subsidiaries other than Indebtedness,

 

(vii)         [Reserved],

 

(viii)        the
amount of Restricted Payments paid during such period pursuant to Section 7.02(b)(xi),
to the extent such Restricted Payments were financed with internally generated
cash flow of the Borrower and the Restricted Subsidiaries,

 

(ix)           the
aggregate amount of expenditures actually made by the Borrower and the
Restricted Subsidiaries in cash during such period (including expenditures for
the payment of financing fees), to the extent that such expenditures are not
expensed during such period,

 

(x)            the
aggregate amount of any premium, make-whole or penalty payments actually paid
in cash by the Borrower and the Restricted Subsidiaries

 

27

 

during such
period that are required to be made in connection with any prepayment of
Indebtedness,

 

(xi)           without
duplication of amounts deducted from Excess Cash Flow in prior periods, the
aggregate consideration (to the extent to be funded by internally generated
cash) required to be paid in cash by the Borrower or any of the Restricted
Subsidiaries pursuant to binding contracts (the “Contract Consideration”) entered into prior to or during such
period relating to Acquisitions or Capital Expenditures to be consummated or
made during the period of four consecutive fiscal quarters of the Borrower
following the end of such period, provided that
to the extent the aggregate amount of internally generated cash actually
utilized to finance such Acquisitions or Capital Expenditures during such
period of four consecutive fiscal quarters is less than the Contract
Consideration, the amount of such shortfall shall be added to the calculation
of Excess Cash Flow at the end of such period of four consecutive fiscal
quarters, and

 

(xii)          the
amount of cash taxes paid in such period, to the extent they exceed the amount
of tax expense deducted in determining Consolidated Net Income for such period.

 

“Excess Cash Flow Period”
shall mean each fiscal year of the Borrower, commencing with the fiscal year of
the Borrower ending on February 2, 2008.

 

“Excess Proceeds”
has the meaning set forth in Section 2.05(c)(ii).

 

“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC promulgated thereunder.

 

“Excluded Contribution”
means net cash proceeds, marketable securities or Qualified Proceeds received
by the Borrower from (a) contributions to its common equity capital, and (b) the
sale (other than to a Subsidiary of the Borrower or to any management equity
plan or stock option plan or any other management or employee benefit plan or
agreement of the Borrower) of Capital Stock (other than Disqualified Stock and
Designated Preferred Stock) of the Borrower, in each case designated as
Excluded Contributions pursuant to an Officer’s Certificate executed by the
principal financial officer of the Borrower on the date such capital contributions
are made or the date such Equity Interests are sold, as the case may be,
which are excluded from the calculation set forth in Section 7.02(a)(iii) provided that the term “Excluded Contribution” shall not
include the net cash proceeds from any Permitted Cure Issuance.

 

“Excluded Subsidiary”
means (a) any Subsidiary that is not a Wholly-Owned Subsidiary, (b) any
Receivables Subsidiary, (c) each Subsidiary listed on Schedule 1.01E
hereto, (d) any Subsidiary that is prohibited by applicable Law from
guaranteeing the Obligations, (e) any Domestic Subsidiary that is a
Subsidiary of a Foreign Subsidiary, (f) any Restricted Subsidiary acquired
pursuant to an Acquisition permitted hereunder financed with Secured
Indebtedness incurred pursuant to Section 7.03(b)(xix) and each Restricted
Subsidiary thereof that guarantees such Indebtedness; provided
that each such Restricted Subsidiary shall cease to

 

28

 

be an Excluded Subsidiary under this clause (f) if
such Secured Indebtedness is repaid or becomes unsecured or if such Restricted
Subsidiary ceases to guarantee such Secured Indebtedness, as applicable, (g) any
Immaterial Subsidiary and (h) any other Subsidiary with respect to which,
in the reasonable judgment of the Administrative Agent (confirmed in writing by
notice to the Borrower), the cost or other consequences (including any adverse
tax consequences) of providing a Guaranty shall be excessive in view of the
benefits to be obtained by the Lenders therefrom.

 

“Existing Credit Agreement”
means that certain Credit Agreement, dated as of, November 18, 2005, among
the Borrower, the lenders referred to therein, and Bank of America, N.A. as
Administrative Agent.

 

“Fair Market Value”
means, with respect to any asset or liability, the fair market value of such
asset or liability as determined by the Borrower in good faith; provided that if the fair market value is equal to or
exceeds $100.0 million, such determination shall be made by the Board of
Directors of the Borrower.

 

“Federal Funds Rate”
means, for any period, a fluctuating interest rate equal for each day during
such period to the weighted average of the rates on overnight Federal Funds
transactions with members of the Federal Reserve System arranged by Federal
Funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal Funds brokers of recognized standing
selected by the Administrative Agent.

 

“Fixed Charge Coverage
Ratio” means, with respect to any Person for any Relevant Reference
Period, the ratio of EBITDA of such Person for such Relevant Reference Period
to the Fixed Charges of such Person for such Relevant Reference Period. In the
event that the Borrower or any Restricted Subsidiary incurs, assumes,
guarantees, redeems, retires or extinguishes any Indebtedness (other than
Indebtedness incurred or repaid under any revolving credit facility in the
ordinary course of business for working capital purposes) or issues or redeems
Disqualified Stock or Preferred Stock subsequent to the commencement of the
Relevant Reference Period for which the Fixed Charge Coverage Ratio is being
calculated but prior to or simultaneously with the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the “Fixed Charge Coverage Ratio Calculation Date”), then the
Fixed Charge Coverage Ratio shall be calculated giving pro  forma
effect to such incurrence, assumption, guarantee, redemption, retirement or
extinguishment of Indebtedness, or such issuance or redemption of Disqualified
Stock or Preferred Stock, as if the same had occurred at the beginning of the
applicable Relevant Reference Period.

 

For purposes of making the computation referred to
above, Investments, acquisitions, dispositions, amalgamations, mergers, and
consolidations (as determined in accordance with GAAP) that have been made by
the Borrower or any of its Restricted Subsidiaries during the Relevant
Reference Period or subsequent to such Relevant Reference Period and on or
prior to or simultaneously with the Fixed Charge Coverage Ratio Calculation
Date shall be calculated on a pro  forma basis assuming that all
such Investments, acquisitions,

 

29

 

dispositions, amalgamations, mergers and
consolidations (and the change in any associated fixed charge obligations and
the change in EBITDA resulting therefrom) had occurred on the first day of the
Relevant Reference Period. If since the beginning of such Relevant Reference
Period any Person that subsequently became a Restricted Subsidiary or was
merged, amalgamated or consolidated with or into the Borrower or any of its
Restricted Subsidiaries since the beginning of such Relevant Reference Period
shall have made any Investment, acquisition, disposition, amalgamation, merger
or consolidation that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto for such Relevant Reference Period as if such Investment,
acquisition, disposition, merger and consolidation had occurred at the
beginning of the applicable Relevant Reference Period.

 

For purposes of this definition, whenever pro  forma
effect is to be given to an Investment, acquisition, disposition, amalgamation,
merger or consolidation (including the Transaction) and the amount of income or
earnings relating thereto, the pro  forma calculations shall be
made in good faith by a responsible financial or accounting officer of the
Borrower (and may include, for the avoidance of doubt, cost savings and
operating expense reductions resulting from such Investment, acquisition,
disposition, amalgamation, merger or consolidation (including the Transaction)
which is being given pro  forma effect that have been or are
expected to be realized). If any Indebtedness bears a floating rate of interest
and is being given pro  forma effect, the interest on such
Indebtedness shall be calculated as if the rate in effect on the Fixed Charge
Coverage Ratio Calculation Date had been the applicable rate for the Relevant
Reference Period (taking into account any Hedging Obligations applicable to
such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed
to accrue at an interest rate reasonably determined by a responsible financial
or accounting officer of the Borrower to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP. Interest on
Indebtedness that may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as the Borrower may designate.

 

“Fixed Charge Coverage
Ratio Calculation Date” has the meaning specified in the definition
of “Fixed Charge Coverage Ratio”.

 

“Fixed Charge Coverage
Ratio Incurrence Test” means, at a given date of determination, that
the Fixed Charge Coverage Ratio for the Relevant Reference Period would have
been at least 2.00 to 1.00, determined on a pro  forma basis after
giving effect to the incurrence of $1.00 of additional Indebtedness or the
issuance of Disqualified Stock or Preferred Stock with a liquidation preference
of $1.00 (including a pro  forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, and the
application of the proceeds therefrom had occurred at the beginning of such
Relevant Reference Period.

 

“Fixed Charges”
means, with respect to any Person for any period, the sum, without duplication,
of (a) Consolidated Interest Expense of such Person for such period; (b) all
cash dividends or other distributions paid (excluding items eliminated in
consolidation) on any series of Preferred Stock during such period; and (c) all
cash dividends or other distributions paid 

 

30

 

(excluding items eliminated in consolidation) on any series of
Disqualified Stock during such period.

 

“Foreign Lender”
has the meaning specified in Section 10.15(a).

 

“Foreign Subsidiary”
means any direct or indirect Restricted Subsidiary of the Borrower which (a) is
not a Domestic Subsidiary or (b) is set forth on Schedule 1.01F.

 

“FRB” means the
Board of Governors of the Federal Reserve System of the United States or any
successor thereto.

 

“Fund” means any
Person (other than a natural person) that is engaged in making, purchasing,
holding or otherwise investing in commercial loans and similar extensions of
credit in the ordinary course.

 

“Funded Debt”
means all Indebtedness of the Borrower and the Restricted Subsidiaries for
borrowed money that matures more than one year from the date of its creation or
matures within one year from such date that is renewable or extendable, at the
option of such Person, to a date more than one year from such date or arises
under a revolving credit or similar agreement that obligates the lender or
lenders to extend credit during a period of more than one year from such date,
including Indebtedness in respect of the Loans.

 

“GAAP” means
generally accepted accounting principles in the United States which are in
effect (a) for purposes of Sections 5.05(a)(i), 6.01 and 6.09 only, for
the accounting period in respect of which reference to GAAP is being made, and (b) for
all other purposes, on the Closing Date.

 

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

 

“Granting Lender”
has the meaning specified in Section 10.07(h).

 

“guarantee”
means a guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, in any
manner (including letters of credit and reimbursement agreements in respect
thereof), of all or any part of any Indebtedness or other obligations.

 

“Guarantors”
means the Borrower, each Subsidiary Guarantor and, on and after the execution
and delivery of the Holdco Guaranty, Holdco.

 

“Guaranty”
means, collectively, the Borrower Guaranty, the Subsidiary Guaranty, the
Canadian Guarantee and, on and after the execution and delivery thereof, the
Holdco Guaranty.

 

“Guaranty Supplement”
has the meaning provided in the respective Guaranty.

 

31

 

“Hazardous Materials”
means all explosive or radioactive substances or wastes and all hazardous or
toxic substances, wastes or pollutants, including petroleum or petroleum
distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls,
radon gas, infectious or medical wastes and all other substances or wastes of
any nature regulated pursuant to any Environmental Law.

 

“Hedge Bank”
means any Person that is a Lender or an Affiliate of a Lender at the time it
enters into a Secured Hedge Agreement, in its capacity as a party thereto, and
such Person’s successors and assigns.

 

“Hedging Obligations”
means, with respect to any Person, the obligations of such Person under any
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, commodity swap agreement, commodity cap agreement, commodity collar
agreement, foreign exchange contract, currency swap agreement or similar
agreement providing for the transfer or mitigation of interest rate, commodity
price or currency risks either generally or under specific contingencies.

 

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

 

“Holdco” means a
holding company to be formed as the direct parent company of the Borrower, the
primary purpose of which is to own the Capital Stock of the Borrower.

 

“Holdco Guaranty”
means  the guaranty to be made (or, after
execution and delivery, made) by Holdco in favor of the Administrative Agent on
behalf of the Secured Parties substantially in the form of Exhibit F-1
(with appropriate modifications to reference Holdco) and otherwise in a form and
substance reasonably satisfactory to the Administrative Agent.

 

“Hybrid Distribution
Network Costs” shall mean costs associated with the implementation
of enhancements to the Borrower’s and its Restricted Subsidiaries’ distribution
network intended to increase the Borrower’s and its Restricted Subsidiaries’
basic merchandise inventories that are shipped through distribution centers.

 

“incur” has the
meaning set forth in Section 7.03.

 

“Immaterial Subsidiary”
means a Subsidiary of the Borrower for which (a) the assets of such
Subsidiary constitute less than or equal to 1% of the total assets of the
Borrower and its Restricted Subsidiaries on a consolidated basis and
collectively with all Immaterial Subsidiaries, less than or equal to 5% of the
total assets of the Borrower and its Restricted Subsidiaries on a consolidated
basis, and (b) the revenues of such Subsidiary account for less than or
equal to 1% of the total revenues of the Borrower and its Restricted
Subsidiaries on a consolidated basis and collectively with all Immaterial
Subsidiaries, less than or equal to 5% of the total revenues of the Borrower
and its Restricted Subsidiaries on a consolidated basis.

 

“Indebtedness”
means, with respect to any Person at a particular time, without duplication:

 

32

 

(a)           any
indebtedness (including principal and premium) of such Person, whether or not
contingent:

 

(i)            in
respect of borrowed money;

 

(ii)           evidenced
by bonds, notes, debentures or similar instruments or letters of credit or
bankers’ acceptances (or, without duplication, reimbursement agreements in
respect thereof);

 

(iii)          representing
the balance deferred and unpaid of the purchase price of any property or
services (including Capitalized Lease Obligations), except (A) any such
balance that constitutes an obligation in respect of a commercial letter of
credit, a trade payable or similar obligation to a trade creditor, in each case
accrued in the ordinary course of business and (B) any earn-out
obligations until such obligation becomes a liability on the balance sheet of
such Person in accordance with GAAP and is not paid after becoming due and
payable; or

 

(iv)          representing
any Hedging Obligations;

 

if and to the
extent that any of the foregoing Indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet
(excluding the footnotes thereto) of such Person prepared in accordance with
GAAP;

 

(b)           to
the extent not otherwise included, any obligation by such Person to be liable
for, or to pay, as obligor, guarantor or otherwise, on the obligations of the
type referred to in clause (a) of a third Person (whether or not such
items would appear upon the balance sheet of the such obligor or guarantor),
other than by endorsement of negotiable instruments for collection in the
ordinary course of business;

 

(c)           to
the extent not otherwise included, the obligations of the type referred to in
clause (a) of a third Person secured by a Lien on any asset owned by such
first Person, whether or not such Indebtedness is assumed by such first Person
and whether or not such obligations would appear upon the balance sheet of such
Person; provided that the amount of such
Indebtedness will be the lesser of the fair market value of such asset at the
date of determination and the amount of Indebtedness so secured;

 

(d)           the
maximum amount (after giving effect to any prior drawings or reductions which may have
been reimbursed) of all letters of credit (other than commercial letters of
credit), bankers’ acceptances, bank guaranties, surety bonds, performance bonds
and similar instruments issued or created by or for the account of such Person;
and

 

(e)           all
obligations of such Person in respect of Disqualified Capital Stock;

 

provided, however, that notwithstanding the foregoing, Indebtedness
shall be deemed not to include (x) Contingent Obligations incurred in the
ordinary course of business, (y) obligations under or in respect of Receivables
Facilities or (z) obligations under or in respect of commercial letters of
credit.

 

33

 

“Indemnified Liabilities”
has the meaning set forth in Section 10.05.

 

“Indemnitees”
has the meaning set forth in Section 10.05.

 

“Independent Financial
Advisor” means an accounting, appraisal, investment banking firm or
consultant to Persons engaged in Similar Businesses of nationally recognized
standing that is, in the good faith judgment of the Borrower, qualified to perform the
task for which it has been engaged.

 

“Individual Monthly Balance”
means, with respect to any Indebtedness incurred by the Borrower and/or its
Restricted Subsidiaries under a revolving credit facility during any fiscal
month of the Borrower, the quotient of (a) the sum of the aggregate
outstanding principal amount of all such Indebtedness at the end of each day of
such fiscal month divided by (b) the number of days in such fiscal month.

 

“Information”
has the meaning specified in Section 10.08.

 

“Intercompany Note”
means the Intercompany Note, substantially in the form attached as Exhibit J.

 

“Intercreditor Agreement”
means the Intercreditor Agreement executed by the Collateral Agent, the ABL
Collateral Agent and the Loan Parties, substantially in the form of Exhibit H.

 

“Interest Payment Date”
means, (a) as to any Loan other than a Base Rate Loan, the last day of each
Interest Period applicable to such Loan and the Maturity Date; provided that if any Interest Period for a Eurocurrency Rate
Loan exceeds three months, the respective dates that fall every three months
after the beginning of such Interest Period shall also be Interest Payment
Dates; and (b) as to any Base Rate Loan, the last Business Day of each
January, April, July and October and the Maturity Date.

 

“Interest Period”
means, as to each Eurocurrency Rate Loan, the period commencing on the date
such Eurocurrency Rate Loan is disbursed or converted to or continued as a
Eurocurrency Rate Loan and ending on the date one, two, three or six months
thereafter, or to the extent agreed to by each Lender of such Eurocurrency Rate
Loan, nine or twelve months or less than one month thereafter, as selected by
the Borrower in its Committed Loan Notice; provided that:

 

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

 

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

 

34

 

(c)           no Interest Period shall extend beyond the
Maturity Date.

 

“Investment Grade Rating”
means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and
BBB– (or the equivalent) by S&P, or, in either case, an equivalent rating
by any other Rating Agency.

 

“Investment Grade
Securities” means (a) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof (other than Cash Equivalents), (b) debt securities
or debt instruments with an Investment Grade Rating, but excluding any debt
securities or instruments constituting loans or advances among the Borrower and
its Subsidiaries, (c) investments in any fund that invests exclusively in
investments of the type described in clauses (a) and (b) which fund may also
hold immaterial amounts of cash pending investment or distribution, and (d) corresponding
instruments in countries other than the United States customarily utilized for
high quality investments.

 

“Investments”
means, with respect to any Person, all investments by such Person in other
Persons (including Affiliates) in the form of loans (including
guarantees), advances or capital contributions (excluding accounts receivable,
credit card and debit card receivables constituting Cash Equivalents, trade
credit, advances to customers, commission, travel and similar advances to
officers and employees, in each case made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities issued by any other Person and investments that
are required by GAAP to be classified on the balance sheet (excluding the
footnotes) of the Borrower in the same manner as the other investments included
in this definition to the extent such transactions involve the transfer of cash
or other property. For purposes of the definition of “Unrestricted Subsidiary”
and Section 7.02, (a) “Investments” shall include the portion
(proportionate to the Borrower’s equity interest in such Subsidiary) of the
fair market value of the net assets of a Subsidiary of the Borrower at the time
that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Borrower shall be deemed to continue
to have a permanent “Investment” in an Unrestricted Subsidiary in an amount (if
positive) equal to (i) the Borrower’s “Investment” in such Subsidiary at
the time of such redesignation less (ii) the portion (proportionate to the
Borrower’s equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (b) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Borrower.

 

“Investors”
means Bain Capital, LLC and The Blackstone Group LP, each of their respective
Affiliates and any investment funds advised or managed by any of the foregoing,
but not including, however, any portfolio companies of any of the foregoing;
provided, that, for purposes of Section 4.01(e) and the definitions
of “EBITDA” and “Sponsor Management Agreement” only, the term “Investors” shall
include Highfields.

 

“IP Rights” has
the meaning set forth in Section 5.15.

 

“IRS” means the
United States Internal Revenue Service.

 

35

 

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

 

“Judgment Currency”
has the meaning provided in Section 10.21.

 

“Junior Financing
Documentation” shall mean the Senior Subordinated Notes, the Senior
Subordinated Notes Indenture, the Subordinated Discount Notes, the Subordinated
Discount Notes Indenture and the documentation governing any other Subordinated
Indebtedness of the Borrower or any of its Restricted Subsidiaries.

 

“Laws” means,
collectively, all international, foreign, Federal, state, provincial, municipal
and local statutes, treaties, rules, guidelines, regulations, ordinances, codes
and administrative or judicial precedents or authorities, including the
interpretation or administration thereof by any Governmental Authority charged
with the enforcement, interpretation or administration thereof, and all applicable
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authority, in each case
whether or not having the force of law.

 

“Lender” has the
meaning specified in the introductory paragraph to this Agreement and includes
their respective successors and assigns as permitted hereunder, each of which
is referred to herein as a “Lender”.

 

“Lending Office”
means, as to any Lender, the office or offices of such Lender described as such
in such Lender’s Administrative Questionnaire, or such other office or offices
as a Lender may from time to time notify the Borrower and the
Administrative Agent.

 

“Lien” means,
with respect to any asset, any mortgage, lien (statutory or otherwise), pledge,
hypothecation, charge, security interest, preference, priority or encumbrance
of any kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law, including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell or give a security interest in and any filing of or
agreement to give any financing statement under the Uniform Commercial
Code or registration statement under the PPSA (or equivalent statutes) of any
jurisdiction, including the Civil Code; provided that
in no event shall an operating lease be deemed to constitute a Lien.

 

“Loan” means the
making of a term loan by a Lender to a Borrower pursuant to Section 2.01.

 

“Loan Documents”
means, collectively, (a) this Agreement, (b) the Notes, (c) the
Guaranty, (d) the Intercreditor Agreement, and (e) the Collateral
Documents.

 

“Loan Parties”
means, collectively, the Borrower and each Guarantor.

 

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

 

“Material Adverse Change”
means any change, effect, event, occurrence or state of facts that (a) is
materially adverse to the business, financial condition or results of
operations

 

36

 

of the Borrower and its Subsidiaries, taken as a whole
or (b) prevents or materially impedes, interferes with, hinders or delays
beyond the Outside Date (as defined in the Recapitalization Agreement) the
consummation by the Borrower of the Recapitalization or the other transactions
contemplated by the Recapitalization Agreement, in each case, other than any
change, effect, event, occurrence or state of facts (i) relating to
economic, financial market or geopolitical conditions in general, (ii) relating
to changes in Law or applicable accounting regulations or principles or
interpretations thereof, (iii) relating to the specialty retail industry
generally, to the extent such change, effect, event, occurrence or state of
fact does not materially, disproportionately impact the Borrower and its
Subsidiaries, taken as a whole, (iv) consisting of any change in the
Borrower’s stock price or trading volume, in and of itself, or any failure, in
and of itself, by the Borrower to meet published revenue or earnings
projections (it being understood that the facts or occurrences giving rise or
contributing to such change or failure may be deemed to constitute, or be
taken into account in determining whether there has been or would reasonably be
expected to be, a Material Adverse Effect, and it being further understood that
any such change or failure may be taken into account in determining
whether the facts or occurrences giving rise or contributing to such change or
failure are materially adverse to the business, financial condition or results
of operations of the Borrower and its Subsidiaries, taken as a whole), (v) relating
to any outbreak or escalation of hostilities or war or any act of terrorism,
and (vi) relating to the announcement of the Recapitalization Agreement
and the transactions contemplated hereby and performance of and compliance with
the terms of the Recapitalization Agreement.

 

“Material Adverse Effect”
means (a) a material adverse effect on the business, operations, assets,
liabilities (actual or contingent) or financial condition of the Borrower and
its Restricted Subsidiaries, taken as a whole, (b) a material adverse
effect on the validity or enforceability of this Agreement or any other Loan
Document, taken as a whole, or (c) a material adverse effect on the rights
and remedies of the Lenders under any Loan Document.

 

“Material Disposition”
means, with respect to a specified Person, a sale, divestiture, spin-off,
transfer or other disposition (whether through a single transaction or series of
transactions which are part of a common plan and whether pursuant to any
Debtor Relief Law or otherwise) of (a) a 50% or greater interest in the
Capital Stock of any other Person, (b) all or substantially all of the
assets of such Person, (c) a real estate portfolio or Stores to any other
Person or (d) assets constituting a business unit, line of business or
division to any other Person.

 

“Maturity Date”
means October 31, 2013.

 

“Maximum Rate”
has the meaning specified in Section 10.10.

 

“Merger Consideration”
means the total funds required to consummate the Recapitalization.

 

“MergerCos” has
the meaning set forth in the preliminary statements to this Agreement.

 

“Moody’s” means
Moody’s Investors Service, Inc. and any successor to its rating agency
business.

 

37

 

“Moody’s Applicable
Corporate Rating” shall mean the corporate family rating assigned to
the Borrower by Moody’s.

 

“Mortgage”
means, collectively, the deeds of trust, trust deeds, hypothecs, charges and
mortgages of real property or interests therein made by the Loan Parties in
favor or for the benefit of the Collateral Agent on behalf of the Secured
Parties in form and substance reasonably satisfactory to the Collateral
Agent (taking account of relevant local Law matters), and any other mortgages
executed and delivered pursuant to Section 6.11.

 

“Mortgage Policies”
has the meaning specified in Section 6.13(b)(ii).

 

“Mortgaged Properties”
has the meaning specified in paragraph (g) of the definition of “Collateral
and Guarantee Requirement”.

 

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

 

“Net Income”
means, with respect to any Person, the net income (loss) of such Person,
determined in accordance with GAAP and before any reduction in respect of
Preferred Stock dividends.

 

“Net Proceeds”
means:

 

(a)           with
respect to any Asset Sale or Casualty Event, the aggregate cash proceeds
received by the Borrower or any of its Restricted Subsidiaries in respect of
such Asset Sale or Casualty Event, including any cash received upon the sale or
other disposition of any Designated Non-cash Consideration received in respect
of such Asset Sale or Casualty Event, net of the direct costs relating to such
Asset Sale or Casualty Event and the sale or disposition of such Designated
Non-cash Consideration, including legal, accounting and investment banking
fees, and brokerage and sales commissions, any relocation expenses incurred as
a result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of principal,
premium, if any, and interest on Indebtedness that is secured by the asset
subject to such Asset Sale or Casualty Event and that is required to be repaid
(and is timely repaid) in connection with such Asset Sale or Casualty Event
(other than as required by Section 2.05(c)) and any deduction of
appropriate amounts to be provided by the Borrower or any of its Restricted
Subsidiaries as a reserve in accordance with GAAP against any liabilities
associated with the asset disposed of in such transaction and retained by the
Borrower or any of its Restricted Subsidiaries after such sale or other
disposition thereof, including pension and other post–employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with such transaction provided, however, that, upon the reversal (without the
satisfaction of any applicable liabilities in cash in a corresponding amount)
of any reserve described above, or if such liabilities have not been satisfied
in cash and such reserve is not reversed within three hundred and

 

38

 

sixty five
(365) days after such Asset Sale or Casualty Event, “Net Proceeds” shall
include the amount of such reserve; and

 

(b)           with
respect to the incurrence or issuance of any Indebtedness or Capital Stock by
the Borrower or any Restricted Subsidiary, the excess, if any, of (i) the
sum of the cash received in connection with such incurrence or issuance over (ii) the
investment banking fees, underwriting discounts, commissions, costs and other
out-of-pocket expenses and other customary expenses, incurred by the Borrower
or such Restricted Subsidiary in connection with such incurrence or issuance.

 

“New Notes”
means the Senior Notes, the Senior Subordinated Notes and the Subordinated
Discount Notes.

 

“New Notes Documentation”
means the New Notes, and all documents executed and delivered with respect to
the New Notes, including the Senior Notes Indenture, the Senior Subordinated
Notes Indenture and the Subordinated Discount Notes Indenture.

 

“Non-Consenting Lenders”
has the meaning specified in Section 3.07(c).

 

“Note” means a
promissory note of the Borrower payable to any Lender or its registered
assigns, in substantially the form of Exhibit C hereto, evidencing
the aggregate Indebtedness of the Borrower to such Lender resulting from the
Loans made by such Lender.

 

“Notice of Intent to Cure”
has the meaning specified in Section 6.02(b).

 

“NPL” means the
National Priorities List under CERCLA.

 

“Obligations”
means all (x) advances to, and debts, liabilities, obligations, covenants and
duties of, any Loan Party and its Subsidiaries arising under any Loan Document
or otherwise with respect to any Loan, whether direct or indirect (including
those acquired by assumption), absolute or contingent, due or to become due,
now existing or hereafter arising, and (y) obligations of any Loan Party and its
Subsidiaries arising under any Secured Hedge Agreement, in each of clauses (x)
and (y) including interest and fees that accrue after the commencement by or
against any Loan Party or Subsidiary of any proceeding under any Debtor Relief
Laws naming such Person as the debtor in such proceeding, regardless of whether
such interest and fees are allowed claims in such proceeding. Without limiting
the generality of the foregoing, the Obligations of the Loan Parties under the
Loan Documents (and of their Subsidiaries to the extent they have obligations
under the Loan Documents) include (a) the obligation (including guarantee
obligations) to pay principal, interest, reimbursement obligations, charges,
expenses, fees, Attorney Costs, indemnities and other amounts payable by any
Loan Party or its Subsidiaries under any Loan Document and (b) the
obligation of any Loan Party or any of its Subsidiaries to reimburse any amount
in respect of any of the foregoing that any Lender, in its sole discretion, may elect
to pay or advance on behalf of such Loan Party or such Subsidiary.

 

“Officer” means
the Chairman of the Board, the Chief Executive Officer, the President, any
Executive Vice President, Senior Vice President or Vice President, the
Treasurer or the Secretary of the Borrower.

 

39

 

“Officer’s Certificate”
means a certificate signed on behalf of the Borrower by an Officer of the
Borrower, who must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of the Borrower,
that meets any applicable requirements set forth in this Agreement.

 

“Opinion of Counsel”
means a written opinion from legal counsel who is reasonably acceptable to the
Administrative Agent. The counsel may be an employee of or counsel to the
Borrower or the Administrative Agent.

 

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

 

“Other Pari  Passu
Lien Obligations” means (i) any Indebtedness constituting debt
securities incurred pursuant to an indenture with an institutional trustee or
loans incurred in the bank credit market (including institutional investor participation
therein) and (ii) all obligations with respect to such Indebtedness, in
each case incurred in compliance with Section 7.03(b) and not
constituting Subordinated Indebtedness, which Indebtedness and other
obligations are secured on an equal and ratable basis with the Obligations
pursuant to intercreditor arrangements reasonably satisfactory to the
Collateral Agent.

 

“Other Taxes”
has the meaning specified in Section 3.01(b).

 

“Outstanding Amount”
means with respect to the Loans, on any date, the outstanding principal amount
thereof after giving effect to any borrowings and prepayments or repayments of
Loans occurring on such date.

 

“Participant”
has the meaning specified in Section 10.07(e).

 

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

 

“PBGC” means the
Pension Benefit Guaranty Corporation or any Governmental Authority of another
jurisdiction exercising similar functions in respect of any Pension Plan of a
Loan Party (including the Pension Benefit Guarantee Fund of Ontario).

 

“Pension Event”
means (a) the whole or partial withdrawal of a Loan Party or any
Subsidiary from a Pension Plan during a Pension Plan year; or (b) the
filing of a notice of interest to terminate in whole or in part a Pension
Plan or the treatment of a Pension Plan

 

40

 

amendment as a termination or partial termination; or (c) the
institution of proceedings by any Governmental Authority to terminate in whole
or in part or have a trustee appointed to administer a Pension Plan; or (d) any
other event or condition which might constitute grounds for the termination of,
winding up or partial termination or winding up or the appointment of trustee
to administer, any Pension Plan.

 

“Pension Plan”
means (a) any “employee pension benefit plan” (as such term is defined in Section 3(2) of
ERISA), other than a Multiemployer Plan, that is subject to Section 412 of
the Code or Section 302 or Title IV of ERISA, or (b) Pension Plan
covered by any other Laws (including the PBA and the ITA) and is sponsored or
maintained by any Loan Party or any ERISA Affiliate or to which any Loan Party
or any ERISA Affiliate contributes or has an obligation to contribute, or in
the case of a multiple employer or other plan described in Section 4064(a) of
ERISA, has made contributions at any time during the immediately preceding five
(5) plan years.

 

“Perfect Store Initiative”
shall mean the initiative related to the Borrower’s and its Restricted
Subsidiaries’ store standardization and remodeling program, pursuant to which
retail store layouts will be modified into a configuration intended to enhance
the customer in-store experience.

 

“Permitted Asset Swap”
means the concurrent purchase and sale or exchange of Related Business Assets
or a combination of Related Business Assets and Cash Equivalents between the
Borrower or any of its Restricted Subsidiaries and another Person; provided that any Net Proceeds received must be applied in
accordance with Section 2.05(c).

 

“Permitted Collateral Liens”
means:

 

(a)           Liens
securing any Other Pari Passu Lien Obligations; provided,
however, that, at the time of incurrence and after giving pro forma
effect thereto, the Consolidated Secured Debt Ratio would be no greater than
4.25 to 1.00 (or, if less, the covenant level then required to be maintained
pursuant to Section 7.05);

 

(b)           Liens existing on the Closing Date;

 

(c)           Liens
described in clauses (a), (b), (c), (d), (e), (f) (but only with respect
to Section 7.03(b)(iv) referred to therein), (h), (i), (k), (l) (as
to assets other than inventory), (m), (n), (p), (r) (but only with respect to
clauses (f) (but only with respect to Section 7.03(b)(iv) referred
to therein), (g), (h) and (i) referred to therein), (s), (u), (v),
(w), (x), (y), (z), (aa), (bb), (cc), (dd), (ee), (ff), (gg) (as to assets
other than inventory), (ii) (as to assets other than inventory), (jj),
(kk) and (ll) of the definition of “Permitted Liens”; and

 

(d)           Liens
on the TL Priority Collateral in favor of the Collateral Agent relating to the
Collateral Agent’s administrative expenses with respect to the TL Priority
Collateral.

 

“Permitted Cure Issuance”
has the meaning provided in Section 8.05

 

“Permitted Debt”
has the meaning set forth in Section 7.03(b).

 

41

 

“Permitted Holders”
means each of the Investors and members of management of the Borrower (or its
direct parent) who are holders of Equity Interests of the Borrower (or any of
its direct or indirect parent companies) on the Closing Date.

 

“Permitted Investments”
means:

 

(a)           any
Investment in the Borrower or any of its Restricted Subsidiaries;

 

(b)           any
Investment in cash and Cash Equivalents or Investment Grade Securities;

 

(c)           any
Investment by the Borrower or any of its Restricted Subsidiaries in a Person
that is engaged in a Similar Business if as a result of such Investment:

 

(i)            such
Person becomes a Restricted Subsidiary; or

 

(ii)           such
Person, in one transaction or a series of related transactions, is merged,
amalgamated or consolidated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Borrower or a Restricted Subsidiary,

 

and, in each case,
any Investment held by such Person; provided that
such Investment was not acquired by such Person in contemplation of such
acquisition, merger, consolidation or transfer;

 

(d)           any
Investment in securities or other assets not constituting cash, Cash
Equivalents or Investment Grade Securities and received in connection with an
Asset Sale made pursuant to Section 7.01 or any other disposition of
assets not constituting an Asset Sale;

 

(e)           any
Investment existing on the Closing Date and any extension, modification,
replacement or renewal of any such Investment, but only to the extent not
involving additional advances, contributions or other Investments of cash or
other assets or other increases thereof other than as a result of the accrual
or accretion of interest or original issue discount or the issuance of
pay-in-kind securities, in each case, pursuant to the terms of such Investment
as in effect on the Closing Date (or as subsequently amended or otherwise
modified in a manner not disadvantageous to the Lenders in any material
respect);

 

(f)            any
Investment acquired by the Borrower or any of its Restricted Subsidiaries (i) in
exchange for any other Investment or accounts receivable held by the Borrower
or any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable, or (ii) as a result of a
foreclosure by the Borrower or any of its Restricted Subsidiaries with respect
to any secured Investment or other transfer of title with respect to any
secured Investment in default;

 

(g)           Hedging
Obligations permitted under Section 7.03(b)(x);

 

42

 

(h)           any
Investment in a Similar Business having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (h) that
are at that time outstanding, not to exceed $75,000,000 (with the fair market
value of each Investment being measured at the time made and without giving
effect to subsequent changes in value);

 

(i)            Investments
the payment for which consists of Equity Interests (exclusive of Disqualified
Stock) of the Borrower, or any of its direct or indirect parent companies; provided, however, that such Equity Interests will not
increase the amount available for Restricted Payments under Section 7.02(a)(iii);

 

(j)            guarantees
of Indebtedness of the Borrower or any Restricted Subsidiary permitted under Section 7.03,
performance guarantees and Contingent Obligations in the ordinary course of
business and the creation of liens on the assets of the Borrower or any of its
Restricted Subsidiaries in compliance with the covenant described in Section 7.04;

 

(k)           any
transaction to the extent it constitutes an Investment that is permitted and
made in accordance with the provisions of Section 7.07(b) (except
transactions described in clauses (ii), (v) and (ix) thereof);

 

(l)            Investments
consisting of purchases and acquisitions of inventory, supplies, material or
equipment;

 

(m)          additional
Investments having an aggregate fair market value, taken together with all
other Investments made pursuant to this clause (m) that are at that time
outstanding (without giving effect to the sale of an Unrestricted Subsidiary to
the extent the proceeds of such sale do not consist of, or have not been
subsequently sold or transferred for cash or marketable securities), not to
exceed $100,000,000 (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes in
value); provided that no Investment may be
made in reliance on this clause (m) unless immediately after giving pro forma
effect to such Investment and any related financing transaction, the
Consolidated Total Leverage Ratio is less than 6.00 to 1.00;

 

(n)           Investments
relating to a Receivables Subsidiary that, in the good faith determination of
the Borrower are necessary or advisable to effect any Receivables Facility;

 

(o)           advances
to, or guarantees of Indebtedness of, employees not in excess of $15,000,000
outstanding at any one time, in the aggregate;

 

(p)           loans
and advances to officers, directors and employees for business-related travel
expenses, moving expenses and other similar expenses, in each case incurred in
the ordinary course of business or consistent with past practices or to fund
such Person’s purchase of Equity Interests of the Borrower or any direct or
indirect parent company thereof; and

 

43

 

(q)           Investments
consisting of licensing of intellectual property pursuant to joint marketing
arrangements with other Persons.

 

“Permitted Liens”
means, with respect to any Person:

 

(a)           pledges,
deposits or security by such Person under workmen’s compensation laws,
unemployment insurance, employers’ health tax and other social security or
statutory laws or similar legislation, or good faith deposits in connection
with bids, tenders, contracts (other than for the payment of Indebtedness) or
leases to which such Person is a party, or deposits to secure public or
statutory obligations of such Person or deposits of cash or U.S. government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or import duties or for the payment of
rent or deposits, in each case incurred in the ordinary course of business;

 

(b)           Liens
imposed by law, such as landlords’, carriers’, warehousemen’s, materialmen’s,
repairmen’s and mechanics’ Liens, in each case for sums not yet overdue for a
period of more than 30 days or being contested in good faith by appropriate
actions or other Liens arising out of judgments or awards against such Person
with respect to which such Person shall then be proceeding with an appeal or
other proceedings for review if adequate reserves with respect thereto are
maintained on the books of such Person in accordance with GAAP; provided that any such Liens granted in favor of landlords
in the Providence of Quebec securing the payment of rent shall be consensual
and subordinated to the Lien of the Collateral Agent;

 

(c)           Liens
for taxes, assessments or other governmental charges not yet overdue for a
period of more than 30 days or which are being contested in good faith by
appropriate actions diligently conducted, if adequate reserves with respect
thereto are maintained on the books of such Person in accordance with GAAP, or
for property taxes on property that the Borrower or one of its Subsidiaries has
determined to abandon if the sole recourse for such tax, assessment, charge,
levy or claim is to such property;

 

(d)           Liens
in favor of issuers of performance, surety, bid, indemnity, warranty, release,
appeal or similar bonds or with respect to other regulatory requirements or
letters of credit or bankers’ acceptances issued, and completion guarantees
provided for, in each case pursuant to the request of and for the account of
such Person in the ordinary course of its business or consistent with past
practice prior to the Closing Date;

 

(e)           minor
survey exceptions, minor encumbrances, ground leases, easements or reservations
of, or rights of others for, licenses, rights–of–way, servitudes, sewers,
electric lines, drains, telegraph and telephone and cable television lines, gas
and oil pipelines and other similar purposes, or zoning, building codes or
other restrictions (including, without limitation, minor defects or
irregularities in title and similar encumbrances) as to the use of real
properties or Liens incidental, to the conduct of the business of such Person or
to the ownership of its properties which were not incurred in connection with
Indebtedness and which do not in the aggregate materially impair their use in
the operation of the business of such Person;

 

44

 

(f)            Liens
securing Indebtedness permitted to be incurred pursuant to Section 7.03(b)(iv),
(xviii) or (xix); provided that Liens securing
Indebtedness permitted to be incurred pursuant to Section 7.03(b)(xviii)
extend only to the assets of Foreign Subsidiaries and Liens securing
Indebtedness permitted to be incurred pursuant to Section 7.03(b)(xix) are
solely on acquired property or the assets of the acquired entity, as the case may be;

 

(g)           Liens
existing on the Closing Date and set forth in Schedule 7.04;

 

(h)           Liens
existing on property or shares of stock of a Person at the time such Person
becomes a Subsidiary; provided, however,
such Liens are not created or incurred in connection with, or in contemplation
of, such other Person becoming such a Subsidiary; provided, further, however,
that such Liens may not extend to any other property owned by the Borrower
or any of its Restricted Subsidiaries;

 

(i)            Liens
existing on property at the time the Borrower or a Restricted Subsidiary
acquired the property, including any acquisition by means of a merger,
amalgamation or consolidation with or into the Borrower or any of its
Restricted Subsidiaries; provided, however,
that such Liens are not created or incurred in connection with, or in
contemplation of, such acquisition, merger, amalgamation or consolidation;
provided, further, however, that the Liens may not extend to any other
property owned by the Borrower or any of its Restricted Subsidiaries;

 

(j)            Liens
securing Indebtedness or other obligations of a Restricted Subsidiary owing to
the Borrower or another Restricted Subsidiary permitted to be incurred in
accordance with Section 7.03;

 

(k)           Liens
securing Hedging Obligations so long as the related Indebtedness is permitted
to be incurred under this Agreement;

 

(l)            Liens
on specific items of inventory or other goods and proceeds of any Person
securing such Person’s obligations in respect of bankers’ acceptances or
letters of credit issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other goods;

 

(m)          leases,
subleases, licenses or sublicenses granted to others in the ordinary course of
business which do not materially interfere with the ordinary conduct of the
business of the Borrower or any of its Restricted Subsidiaries and do not
secure any Indebtedness;

 

(n)           Liens
arising from Uniform Commercial Code (or equivalent statutes) financing
statements or PPSA registration statements or recordation filings regarding
operating leases or consignments entered into by the Borrower and its
Restricted Subsidiaries in the ordinary course of business;

 

(o)           Liens
in favor of the Borrower or any Subsidiary Guarantor;

 

45

 

(p)           Liens
on equipment of the Borrower or any of its Restricted Subsidiaries granted in
the ordinary course of business to the Borrower’s clients at which such
equipment is located;

 

(q)           Liens
on accounts receivable and related assets incurred in connection with a
Receivables Facility;

 

(r)            Liens
to secure any refinancing, refunding, extension, renewal or replacement (or
successive refinancing, refunding, extensions, renewals or replacements) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clauses (f), (g), (h) and (i); provided,
however, that (i) such new Lien shall be limited to all or part of
the same property that secured the original Lien (plus
improvements on such property), and (ii) the Indebtedness secured by such
Lien at such time is not increased to any amount greater than the sum of (A) the
outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (f), (g), (h) and (i) at the
time the original Lien became a Permitted Lien under this Agreement, and (B) an
amount necessary to pay any fees and expenses, including premiums, related to
such refinancing, refunding, extension, renewal or replacement;

 

(s)           deposits
made or other security provided to secure liabilities to insurance carriers
under insurance or self-insurance arrangements in the ordinary course of
business;

 

(t)            other
Liens securing obligations not exceeding $50,000,000 at any one time
outstanding;

 

(u)           Liens
securing judgments for the payment of money not constituting an Event of
Default under Section 8.01(h), so long as such Liens are adequately bonded
and any appropriate legal proceedings that may have been duly initiated
for the review of such judgment have not been finally terminated or the period
within which such proceedings may be initiated has not expired;

 

(v)           Liens
in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods in
the ordinary course of business;

 

(w)          Liens
(i) of a collection bank arising under Section 4–210 of the Uniform Commercial
Code on items in the course of collection, (ii) attaching to commodity
trading accounts or other commodity brokerage accounts incurred in the ordinary
course of business, and (iii) in favor of banking institutions arising as
a matter of law encumbering deposits (including the right of set-off) and which
are within the general parameters customary in the banking industry;

 

(x)            Liens
deemed to exist in connection with Investments in repurchase agreements or
other Cash Equivalents permitted under Section 7.03; provided
that such Liens do not extend to any assets other than those that are the
subject of such repurchase agreement or other Cash Equivalent;

 

46

 

(y)           Liens
encumbering reasonable customary initial deposits and margin deposits and
similar Liens attaching to commodity trading accounts or other brokerage
accounts incurred in the ordinary course of business and not for speculative
purposes;

 

(z)            Liens
that are contractual rights of set-off (i) relating to the establishment
of depository relations with banks not given in connection with the issuance of
Indebtedness, (ii) relating to pooled deposit or sweep accounts of the
Borrower or any of its Restricted Subsidiaries to permit satisfaction of
overdraft or similar obligations incurred in the ordinary course of business of
the Borrower and its Restricted Subsidiaries or (iii) relating to purchase
orders and other agreements entered into with customers of the Borrower or any
of its Restricted Subsidiaries in the ordinary course of business;

 

(aa)         Liens
securing the Obligations and Liens securing Cash Management Services (as
defined in the ABL Credit Agreement);

 

(bb)         Liens
solely on any cash earnest money deposits made by the Borrower or any of its
Restricted Subsidiaries in connection with any letter of intent or purchase
agreement permitted under this Agreement;

 

(cc)         the
rights reserved or vested in any Person by the terms of any lease, license,
franchise, grant or permit held by the Borrower or any of its Restricted
Subsidiaries or by a statutory provision, to terminate any such lease, license,
franchise, grant or permit, or to require annual or periodic payments as a
condition to the continuance thereof;

 

(dd)         restrictive
covenants affecting the use to which real property may be put, provided, however, that the covenants are complied with;

 

(ee)         security
given to a public utility or any municipality or Governmental Authority when
required by such utility or authority in connection with the operations of that
Person in the ordinary course of business;

 

(ff)           zoning
by-laws and other land use restrictions, including, without limitation, site
plan agreements, development agreements and contract zoning agreements;

 

(gg)         Liens
arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods entered into by the Borrower or any Restricted
Subsidiary in the ordinary course of business;

 

(hh)         [Reserved];

 

(ii)           rights
of a seller of unpaid goods in respect of such goods at common law or under the
Bankruptcy and Insolvency Act (Canada) and other applicable legislation;

 

47

 

(jj)           the
reservations, limitations, provisos and conditions, if any, expressed in any
original grants from the crown under Canadian law and any statutory exceptions
to title under Canadian law;

 

(kk)         customary
transfer restrictions and purchase options in joint venture and similar
agreements;

 

(ll)           Liens
created pursuant to the ABL Collateral Documents, securing Indebtedness
incurred pursuant to Section 7.03(b)(i)(x) in favor of the ABL Collateral
Agent, so long as same is at all times subject to the Intercreditor Agreement;
and

 

(mm)       Liens
incurred to secure obligations in respect of any Indebtedness permitted to be
incurred pursuant to Section 7.03; provided that,
with respect to Liens securing obligations permitted under this clause (mm), at
the time of incurrence and after giving pro forma effect thereto, the
Consolidated Secured Debt Ratio would be no greater than 4.50 to 1.0 (or, if
less, the covenant level then required to be maintained pursuant to Section 7.05).

 

For purposes of this definition, the term “Indebtedness”
shall be deemed to include interest on such Indebtedness.

 

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

 

“Plan” means any
“employee benefit plan” (as such term is defined in Section 3(3) of
ERISA) established by any Loan Party or, with respect to any such plan that is
subject to Section 412 of the Code or Section 302 or Title IV of
ERISA, any ERISA Affiliate.

 

“Pledged Debt”
has the meaning specified in the Security Agreement.

 

“Pledged Equity”
has the meaning specified in the Security Agreement.

 

“PPSA” means the
Personal Property Security Act of Ontario (or any successor statute) or similar
legislation of any other Canadian jurisdiction, including, without limitation,
the Civil Code of Quebec, the laws of which are required by such legislation to
be applied in connection with the issue, perfection, enforcement, opposability,
validity or effect of security interests.

 

“Preferred Stock”
means any Equity Interest with preferential rights of payment of dividends or
upon liquidation, dissolution, or winding up.

 

“Pro  Forma
Balance Sheet” has the meaning set forth in Section 5.05(a)(ii).

 

“Pro  Forma
Compliance” means, at any date of determination, that the Borrower and its
Restricted Subsidiaries shall be in compliance, on a pro  forma
basis after giving effect on a pro  forma basis to the relevant
Specified Transactions in the manner contemplated by the definition of “Consolidated
Secured Debt Ratio”, with the financial performance covenant set

 

48

 

forth in Section 7.05 recomputed as at the last
day of the Relevant Reference Period, and the Borrower shall have delivered to
the Administrative Agent a certificate of a Responsible Officer of the Borrower
to such effect, together with all relevant financial information. In the event
any covenant or provision of this Agreement requires Pro  Forma
Compliance with Section 7.05 prior to the last day of the Test Period
ended closest to January 31, 2008, such Pro  Forma Compliance
shall be tested using the ratio specified in the table in Section 7.05 for
the Test Period ended closest to January 31, 2008.

 

“Pro  Forma
Financial Statements” has the meaning set forth in Section 5.05(a)(ii).

 

“Pro  Forma
Statements of Operations” has the meaning set forth in Section 5.05(a)(ii).

 

“Pro  Rata
Share” means, with respect to each Lender, (i) at or prior to the
funding on the Closing Date, a fraction (expressed as a percentage, carried out
to the ninth decimal place), the numerator of which is the amount of the
Commitment of such Lender at such time and the denominator of which is the
amount of the Aggregate Commitments of all Lenders at such time and (ii) at
any time thereafter, a fraction (expressed as a percentage, carried out to the
ninth decimal place), the numerator of which is the principal amount of the
Loans of such Lender at such time and the denominator of which is the aggregate
principal amount of the Loans of all Lenders at such time.

 

“Proceeds of Crime Act”
means the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
(Canada) and the regulations promulgated thereunder, as amended from time to
time.

 

“Projections” shall
have the meaning set forth in Section 6.01(c).

 

“Public Company Costs”
shall mean costs relating to compliance with the Sarbanes-Oxley Act of 2002, as
amended, and other expenses arising out of or incidental to the Borrower’s
status as a public company, including costs, fees and expenses (including
legal, accounting and other professional fees) relating to compliance with
provisions of the Securities Act of 1933, as amended, as applicable to
companies with equity securities held by the public, the Securities Exchange
Act of 1934, as amended, the rules of national securities exchange
companies with listed equity securities, directors’ compensation, fees and
expense reimbursement; costs of shareholder meetings and reports to
shareholders; directors and officers’ insurance and other executive costs;
legal and other professional fees; and listing fees, in each case incurred or
accrued prior to the Closing Date and that will not continue to be incurred
immediately after the Closing Date.

 

“Qualified Proceeds”
means assets that are used or useful in, or Capital Stock of any Person engaged
in, a Similar Business; provided that
the fair market value of any such assets or Capital Stock shall be determined
by the Borrower in good faith.

 

“Rating Agencies”
means Moody’s and S&P or if Moody’s or S&P or both shall not make a
rating on the Loans publicly available, a nationally recognized statistical
rating

 

49

 

agency or agencies, as the case may be, selected
by the Borrower which shall be substituted for Moody’s or S&P or both, as
the case may be.

 

“Recapitalization”
has the meaning set forth in the preliminary statements to this Agreement.

 

“Recapitalization Agreement”
means the Agreement and Plan of Merger, dated as of June 30, 2006, between
the MergerCos, Bain Paste Finco, LLC, Blackstone Paste Finco, LLC, and the
Borrower, as amended by that certain First Amendment to Agreement and Plan of
Merger, dated as of September 1, 2006.

 

“Receivables Facility”
means any of one or more receivables financing facilities as amended,
supplemented, modified, extended, renewed, restated or refunded from time to
time, the Obligations of which are non-recourse (except for customary
representations, warranties, covenants and indemnities made in connection with
such facilities) to the Borrower or any of its Restricted Subsidiaries (other
than a Receivables Subsidiary) pursuant to which the Borrower or any of its
Restricted Subsidiaries sells its accounts receivable to either (a) a
Person that is not a Restricted Subsidiary or (b) a Receivables Subsidiary
that in turn sells its accounts receivable to a Person that is not a Restricted
Subsidiary.

 

“Receivables Fees”
means distributions or payments made directly or by means of discounts with respect
to any accounts receivable or participation interest therein issued or sold in
connection with, and other fees paid to a Person that is not a Restricted
Subsidiary in connection with, any Receivables Facility.

 

“Receivables Subsidiary”
means any Subsidiary formed for the purpose of, and that solely engages only in
one or more Receivables Facilities and other activities reasonably related
thereto.

 

“Refinanced Term Loans”
has the meaning specified in Section 10.01.

 

“Refinancing Indebtedness”
has the meaning set forth in Section 7.03(b)(xiii).

 

“Refunding Capital Stock”
has the meaning set forth in Section 7.02(b)(ii)(A).

 

“Register” has
the meaning set forth in Section 10.07(d).

 

“Registration Rights
Agreement” means, collectively, the Registration Rights Agreements
related to the Senior Notes, the Senior Subordinated Notes and the Subordinated
Discount Notes, dated as of the Closing Date, among the Borrower, the
Subsidiary Guarantors and the initial purchasers of the respective New Notes
specified therein.

 

“Regulation D”
shall mean Regulation D of the FRB as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.

 

“Related Business Assets”
means assets (other than cash or Cash Equivalents) used or useful in a Similar
Business, provided that any assets received by the
Borrower or a Restricted Subsidiary in exchange for assets transferred by the
Borrower or a Restricted

 

50

 

Subsidiary shall not be deemed to be Related Business
Assets if they consist of securities of a Person, unless upon receipt of the
securities of such Person, such Person would become a Restricted Subsidiary.

 

“Relevant Reference Period” means (i) in
the case of (x) any determination of EBITDA and Consolidated Total Indebtedness
(and any component definitions used therein) for purposes of computing
quarterly compliance with Section 7.05 and (y) any determination of the
Consolidated Total Leverage Ratio (and the component definition thereof) as
used in the definition of “Applicable Rate”, the Test Period then most recently
ended, (ii) in the case of any determination of EBITDA and Consolidated
Total Indebtedness (and any component definitions used therein) for purposes of
computing the Consolidated Total Leverage Ratio as used in the definition of “Required
Percentage”, the Excess Cash Flow Period then most recently ended, and (iii) in
the case of any determination of (1) the Fixed Charge Coverage Ratio, (2) the
Fixed Charge Coverage Ratio Incurrence Test, (3) the Consolidated Secured
Debt Ratio, (4) the Consolidated Total Leverage Ratio (other than as used
in the definitions of “Applicable Rate” and “Required Percentage”), or (5) Pro
Forma Compliance with Section 7.05 for purposes of Sections
7.02(a)(ii), 7.02(b)(vi), 7.02(b)(vii) and 7.06(a)(iv) and the
definition of “Unrestricted Subsidiary” (and the component definitions used in
any of the foregoing), the Test Period then most recently ended for which
internal financial statements are available immediately preceding the date on
which the Specified Transaction for which such calculation is being made shall
occur.

 

“Replacement Term Loans”
has the meaning specified in Section 10.01.

 

“Reportable Event”
means any of the events set forth in Section 4043(c) of ERISA or the
regulations issued thereunder, other than events for which the thirty (30) day
notice period has been waived, and includes a Pension Event.

 

“Required Lenders”
means, as of any date of determination, Lenders having more than 50% of the sum
of the (a) Total Outstandings and (b) aggregate unused Commitments; provided that the unused Commitment of, and the portion of
the Total Outstandings held or deemed held by, any Defaulting Lender shall be
excluded for purposes of making a determination of Required Lenders.

 

“Required Percentage”
shall mean, with respect to any Excess Cash Flow Period, 50%; provided, that (a) if
the Consolidated Total Leverage Ratio at the end of the applicable Excess Cash
Flow Period is less than 6.00:1.00 but greater than or equal to 5.00:1.00, such
percentage shall be 25%, and (b) if the Consolidated Total Leverage Ratio
at the end of the applicable Excess Cash Flow Period is less than 5.00:1.00,
such percentage shall be 0%.

 

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

 

51

“Restricted”
shall mean, when referring to cash or Cash Equivalents of the Borrower or any
of its Subsidiaries, that such cash or Cash Equivalents (i) appears (or
would be required to appear) as “restricted” on a consolidated balance sheet of
the Borrower or of any such Subsidiary (unless such appearance is related to
the Loan Documents or Liens created thereunder), (ii) are subject to any
Lien in favor of any Person other than the Collateral Agent for the benefit of
the Secured Parties (except for those Liens in favor of the ABL Collateral
Agent for the benefit of the ABL Lenders and Liens securing Other Pari  Passu
Lien Obligations) or (iii) are not otherwise generally available for use
by the Borrower or such Subsidiary.

 

“Restricted Investment”
means an Investment other than a Permitted Investment.

 

“Restricted Payments”
has the meaning specified in Section 7.02(a).

 

“Restricted Subsidiary”
means, at any time, any direct or indirect Subsidiary of the Borrower
(including any Foreign Subsidiary) that is not then an Unrestricted Subsidiary;
provided, however, that upon the
occurrence of an Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of “Restricted
Subsidiary”.

 

“Retained Percentage”
shall mean, with respect to any Excess Cash Flow Period, (a) 100% minus (b) the Required Percentage with respect to such
Excess Cash Flow Period.

 

“S&P” means
Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.,
and any successor to its rating agency business.

 

“Sale and Lease-Back
Transaction” means any arrangement providing for the leasing by the
Borrower or any of its Restricted Subsidiaries of any real or tangible personal
property, which property has been or is to be sold or transferred by the
Borrower or such Restricted Subsidiary to a third Person in contemplation of
such leasing.

 

“Same Day Funds”
means, with respect to disbursements and payments, immediately available funds
in Dollars.

 

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

 

“Secured Hedge Agreement”
means any Swap Contract permitted under Article 7 that is entered into by
and between any Loan Party or any Restricted Subsidiary and any Hedge Bank and
with respect to which, at or prior to the time that such Swap Contract is
entered into, the Borrower (or another Loan Party) and the Hedge Bank party
thereto (except in the case of the Administrative Agent) shall have delivered
written notice to the Administrative Agent that such Swap Contract has been
entered into and that it constitutes a “Secured Hedge Agreement” entitled to
the benefits of the Collateral Documents and the Intercreditor Agreement.

 

“Secured Indebtedness”
means any Indebtedness of the Borrower or any of its Restricted Subsidiaries
secured by a Lien.

 

52

 

“Secured Obligations”
has the meaning specified in the Security Agreement.

 

“Secured Parties”
means, collectively, the Administrative Agent, the Collateral Agent, the
Lenders, the Hedge Banks, the Supplemental Administrative Agent and each Supplemental
Administrative Agent appointed by the Administrative Agent from time to time
pursuant to Section 9.13.

 

“Securities Act”
means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.

 

“Security Agreement”
means, collectively, the Security Agreement executed by the Loan Parties,
substantially in the form of Exhibit G-1, together with each other security
agreement supplement executed and delivered pursuant to Section 6.11.

 

“Security Agreement
Supplement” has the meaning specified in the Security Agreement or
the Canadian Security Agreement, as applicable.

 

“Senior Notes”
means $750,000,000 in aggregate principal amount of the Borrower’s 10% senior
unsecured notes due 2014.

 

“Senior Notes Indenture”
means the Indenture for the Senior Notes, dated as of October 31, 2006.

 

“Senior Subordinated Notes”
means $400,000,000 in aggregate principal amount of the Borrower’s 11-3/8%
senior subordinated notes due 2016.

 

“Senior Subordinated Notes
Indenture” means the Indenture for the Senior Subordinated Notes,
dated as of October 31, 2006.

 

“Similar Business”
means any business conducted or proposed to be conducted by the Borrower and
its Restricted Subsidiaries on the Closing Date or any business that is a
reasonable extension, development or expansion of any of the foregoing or is
similar, reasonably related, incidental or ancillary thereto (including, for avoidance
of doubt, any sourcing companies created in connection with any of the
foregoing).

 

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

 

53

 

“SPC” has the
meaning specified in Section 10.07(h).

 

“Specified Legal Expenses”
means all attorneys’ and experts’ fees and expenses and all other costs and
expenses paid or payable in connection with investigating or defending or
preparing to investigate or defend any threatened, pending, completed or future
claim, demand, action, suit, proceeding, inquiry or investigation (whether
civil, criminal, administrative or investigative) arising out of or related to (i) the
Borrower’s compensation practices (including option grants) prior to the Closing
Date, (ii) any disclosure or alleged lack of disclosure on the part of
the Borrower or any of its directors or officers regarding the beneficial
ownership of any securities of the Borrower prior to the Closing Date by any
such director or officer (or any trust established for the benefit of any such
director or officer or any family member thereof), (iii) any transaction
prior to the Closing Date involving any securities of the Borrower alleged to
have been engaged in by any such Person, (iv) any alleged deficiencies in
the Borrower’s financial reporting, internal control over financial reporting
or disclosure controls prior to the Closing Date and procedures relating to any
of the foregoing, and (v) any alleged bad faith, breach of fiduciary duty
or other act or omission on the part of any director or officer of the
Borrower relating to any of the foregoing, together in each case with all
damages, losses, liabilities, judgments, fines, penalties and amounts paid in
settlement arising out of or incurred in connection with any of the foregoing
(including all amounts paid to or on behalf of other Persons in connection with
any of the foregoing pursuant to any indemnification agreements, arrangements
or obligations).

 

“Specified Transaction”
means, with respect to any period, any Investment, Disposition, incurrence or
repayment of Indebtedness, Restricted Payment, Subsidiary designation or other
transaction that by the terms of this Agreement requires “Pro Forma Compliance”
with a test or covenant hereunder or requires such test or covenant to be
calculated on a “pro  forma basis”.

 

“Sponsor Management
Agreement” means the management agreements between certain of the
management companies associated with the Investors and the Borrower, as in
effect on the Closing Date and as amended, supplemented, amended and restated,
replaced or otherwise modified from time to time, provided,
however, that the terms of any such amendment, supplement, amendment
and restatement or replacement agreement are not, taken as a whole, less
favorable to the Lenders in any material respect than the original agreement in
effect on the Closing Date.

 

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

 

“Subordinated Discount
Notes” means the $469,449,000 aggregate principal amount at maturity
of the Borrower’s 13% Subordinated Discount Notes due 2016 issued on the
Closing Date.

 

“Subordinated Discount
Notes Indenture” means the Indenture for the Subordinated Discount
Notes, dated as of October 31, 2006.

 

54

 

“Subordinated Indebtedness”
means, with respect to the Obligations, any Indebtedness of the Borrower or any
Guarantor which is by its terms subordinated in right of payment to the
Obligations (including, in the case of a Guarantor, Obligations of such
Guarantor under its Guaranty).

 

“Subsidiary”
means, with respect to any Person (a)               any corporation, association, unlimited liability company, or other
business entity (other than a partnership, joint venture, limited liability
company or similar entity) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time of determination owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person or a
combination thereof or is consolidated under GAAP with such Person at such
time; and (b) any partnership, joint venture, limited liability company or
similar entity of which (x) more than 50% of the capital accounts, distribution
rights, total equity and voting interests or general or limited partnership
interests, as applicable, are owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person or a
combination thereof whether in the form of membership, general, special or
limited partnership or otherwise, and (y) such Person or any Subsidiary of such
Person is a controlling general partner or otherwise controls such entity. Unless
otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries”
shall refer to a Subsidiary or Subsidiaries of the Borrower.

 

“Subsidiary Guarantors”
means, collectively, the Domestic Subsidiary Guarantors and the Canadian
Subsidiary Guarantors.

 

“Subsidiary Guaranty”
means, collectively, (a) the Subsidiary Guaranty made by the Domestic
Subsidiary Guarantors in favor of the Administrative Agent on behalf of the
Secured Parties, substantially in the form of Exhibit F-1 and (b) each
other guaranty and Guaranty Supplement delivered pursuant to Section 6.11.

 

“Successor Borrower”
has the meaning set forth in Section 7.06(a)(i).

 

“Successor Guarantor”
has the meaning set forth in Section 7.06(c)(i)(A).

 

“Supplemental
Administrative Agent” has the meaning specified in Section 9.13
and “Supplemental Administrative Agents” shall have the corresponding meaning.

 

“Swap Contract”
means (a) any and all rate swap transactions, basis swaps, credit
derivative transactions, forward rate transactions, commodity swaps, commodity
options, forward commodity contracts, equity or equity index swaps or options,
bond or bond price or bond index swaps or options or forward bond or forward
bond price or forward bond index transactions, interest rate options, forward
foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all
transactions of any kind, and the related confirmations, which are subject to
the terms and conditions of, or governed by, any form of master agreement
published by the International

 

55

 

Swaps and Derivatives Association, Inc., any
International Foreign Exchange Master Agreement, or any other master agreement
(any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or
liabilities under any Master Agreement.

 

“Syndication Agent”
means JPMorgan Chase Bank, N.A., as Syndication Agent under this Agreement.

 

“Taxes” has the
meaning specified in Section 3.01(a).

 

“Test Period”
shall mean, on any date of determination, the period of four consecutive fiscal
quarters of the Borrower then most recently ended (taken as one accounting
period).

 

“Threshold Amount”
means $50,000,000.

 

“TL Priority Collateral”
means all “Term Loan Priority Collateral” as defined in the Intercreditor
Agreement.

 

“Total Assets”
means the total assets of the Borrower and its Restricted Subsidiaries on a
consolidated basis, as shown on the most recent balance sheet of the Borrower
or such other Person as may be expressly stated.

 

“Total Outstandings”
means the aggregate Outstanding Amount of all Loans.

 

“Transaction”
means, collectively, (a) the execution, delivery and performance of the
Recapitalization Agreement and all other material documents, instruments and
certificates contemplated by the Recapitalization Agreement and the
consummation of the Recapitalization and the other transactions contemplated
thereby, including the rollover of any Equity Interests in the Borrower, (b) the
execution, delivery and performance by the Loan Parties of the Loan Documents
to which they are a party and the making of the Borrowings hereunder, (c) the
execution, delivery and performance by the Borrower and the Subsidiaries of the
Borrower party thereto of the New Notes Documentation and the issuance of the
New Notes, (d) the execution, delivery and performance of the ABL Credit
Agreement and the other ABL Loan Documents and the making of borrowings
thereunder, (e) the execution, delivery and performance by all parties thereto
of the Intercreditor Agreement, (f) the Debt Prepayment, (g) the
consummation of the Equity Contribution and (h) the payment of the
Transaction Expenses.

 

“Transaction Expenses”
means any fees or expenses incurred or paid by the Borrower or any Restricted
Subsidiary in connection with the Transaction, including payments to officers,
employees and directors as change of control payments, severance payments,
special or retention bonuses and charges for repurchase or rollover of, or
modifications to, stock options in connection therewith.

 

“Treasury Capital Stock”
has the meaning set forth in Section 7.02(b)(ii)(A).

 

“Type” means,
with respect to a Loan, its character as a Base Rate Loan or a Eurocurrency
Rate Loan.

 

56

 

“Unaudited Financial
Statements” has the meaning set forth in Section 4.01(f).

 

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

 

“Uniform Commercial
Code” means the Uniform Commercial Code as the same may from
time to time be in effect in the State of New York or the Uniform Commercial
Code (or similar code or statute) of another jurisdiction, to the extent it may be
required to apply to any item or items of Collateral.

 

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

 

“Unrestricted”
shall mean, when referring to cash or Cash Equivalents of the Borrower or any
of its Subsidiaries, that such cash or Cash Equivalents are not Restricted.

 

“Unrestricted Subsidiary”
means (a) any Subsidiary of the Borrower which at the time of
determination is an Unrestricted Subsidiary (as designated by the Borrower, as
provided below) and (b) any Subsidiary of an Unrestricted Subsidiary. The
Borrower may designate any Subsidiary of the Borrower (including any
existing Subsidiary and any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Equity Interests or Indebtedness of, or owns or holds any Lien on, any
property of, the Borrower or any Subsidiary of the Borrower (other than solely
any Subsidiary of the Subsidiary to be so designated); provided
that

 

(i)                                     any
Unrestricted Subsidiary must be an entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors or
Persons performing a similar function are owned, directly or indirectly, by the
Borrower;

 

(ii)                                  such
designation complies with the covenants described under Section 7.02;

 

(iii)                               each
of (A) the Subsidiary to be so designated and (B) its Subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable with
respect to any Indebtedness pursuant to which the lender has recourse to any of
the assets of the Borrower or any Restricted Subsidiary; and

 

(iv)                              immediately
after giving effect to such designation, (I) no Default shall have occurred and
be continuing, and (II) the Borrower is in Pro  Forma Compliance
with Section 7.05 (determined on a pro  forma basis taking
into account such designation).

 

The Borrower may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that,
immediately after giving effect to such designation, (I) no Default shall have
occurred and be continuing, (II) either (A) the Borrower could satisfy the
Fixed

 

57

 

Charge Coverage Ratio Incurrence Test, on a pro
forma basis taking into account such designation or (B) immediately
after giving pro  forma effect to such designation, as if such
designation had occurred at the beginning of the applicable four-quarter
period, the Fixed Charge Coverage Ratio for the Borrower and its Restricted
Subsidiaries would be greater than the Fixed Charge Coverage Ratio for the
Borrower and its Restricted Subsidiaries immediately prior to such transaction
and (III) the Borrower is in Pro  Forma Compliance with Section 7.05
(determined on a pro  forma basis taking into account such
designation).

 

Any such designation by the Borrower shall be notified
by the Borrower to the Administrative Agent by promptly filing with the
Administrative Agent a copy of the resolution of the Board of Directors of the
Borrower or any committee thereof giving effect to such designation and an
Officer’s Certificate certifying that such designation complied with the
foregoing provisions.

 

“Voting Stock”
of any Person as of any date means the Capital Stock of such Person that is at
the time entitled to vote in the election of the Board of Directors of such
Person.

 

“Weighted Average Life to
Maturity” means, when applied to any Indebtedness, Disqualified
Stock or Preferred Stock, as the case may be, at any date, the quotient
obtained by dividing (a) the sum of the products of the number of years
from the date of determination to the date of each successive scheduled
principal payment of such Indebtedness or redemption or similar payment with
respect to such Disqualified Stock or Preferred Stock multiplied by the amount
of such payment; by (b) the sum of all such payments.

 

“Wholly–Owned Subsidiary”
of any Person means a Subsidiary of such Person, 100% of the outstanding Equity
Interests of which (other than directors’ qualifying shares and shares issued
to foreign nationals as required under applicable law) shall at the time be
owned by such Person or by one or more Wholly–Owned Subsidiaries of such Person
or by such Person and one or more Wholly–Owned Subsidiaries of such Person.

 

SECTION 1.02. Other Interpretive
Provisions. With reference to this Agreement and each other Loan Document,
unless otherwise specified herein or in such other Loan Document:

 

(a)                                  The
meanings of defined terms are equally applicable to the singular and plural
forms of the defined terms.

 

(b)                                 (i)                                     The
words “herein”, “hereto”, “hereof” and “hereunder” and words of similar import
when used in any Loan Document shall refer to such Loan Document as a whole and
not to any particular provision thereof.

 

(ii)                                  Article,
Section, Exhibit and Schedule references are to the Loan Document in
which such reference appears.

 

(iii)                               The
term “including” is by way of example and not limitation.

 

58

 

(iv)                              The
term “documents” includes any and all instruments, documents, agreements,
certificates, notices, reports, financial statements and other writings,
however evidenced, whether in physical or electronic form.

 

(c)                                  In
the computation of periods of time from a specified date to a later specified
date, the word “from” means “from and including”; the words “to” and “until”
each mean “to but excluding”; and the word “through” means “to and including”.

 

(d)                                 Section headings
herein and in the other Loan Documents are included for convenience of
reference only and shall not affect the interpretation of this Agreement or any
other Loan Document.

 

(e)                                  For
purposes of any Collateral located in the Province of Quebec or charged by any
deed of hypothec (or any other Loan Document) and for all other purposes
pursuant to which the interpretation or construction of a Loan Document may be
subject to the laws of the Province of Quebec or a court or tribunal exercising
jurisdiction in the Province of Québec, (q) “personal property” shall be deemed
to include “movable property”, (r) “real property” shall be deemed to include “immovable
property”, (s) “tangible property” shall be deemed to include “corporeal
property”, (t) “intangible property” shall be deemed to include “incorporeal
property”, (u) “security interest” and “mortgage” shall be deemed to include a “hypothec”,
(v) all references to filing, registering or recording under the UCC or
the PPSA shall be deemed to include publication under the Civil Code of Québec,
(w) all references to “perfection” of or “perfected” Liens shall be deemed to
include a reference to the “opposability” of such Liens to third parties, (x)
any “right of offset”, “right of setoff” or similar expression shall be deemed
to include a “right of compensation”, (y) “goods” shall be deemed to include “corporeal
movable property” other than chattel paper, documents of title, instruments,
money and securities, and (z) an “agent” shall be deemed to include a “mandatary”.

 

SECTION 1.03. Accounting Terms . (a) 
All accounting terms not specifically or completely defined herein shall be
construed in conformity with, and all financial data (including financial
ratios and other financial calculations) required to be submitted pursuant to
this Agreement shall be prepared in conformity with, GAAP, except as otherwise
specifically prescribed herein.

 

(b)                                 Notwithstanding anything to the contrary
herein, for purposes of determining compliance with any test or covenant
contained in this Agreement with respect to any period during which any
Specified Transaction occurs, the Consolidated Secured Debt Ratio, the
Consolidated Total Leverage Ratio, Fixed Charge Coverage Ratio and compliance
with Section 7.05 shall be calculated with respect to such period and such
Specified Transaction in a manner consistent with the pro  forma
adjustments contemplated by the respective definition of Consolidated Secured
Debt Ratio, the Consolidated Total Leverage Ratio, Fixed Charge Coverage Ratio
or Section 7.05, as the case may be.

 

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

 

59

 

SECTION 1.04. Rounding. Any
financial ratios required to be maintained by the Borrower pursuant to this
Agreement (or required to be satisfied in order for a specific action to be
permitted under this Agreement) shall be calculated by dividing the appropriate
component by the other component, carrying the result to one place more than
the number of places by which such ratio is expressed herein and rounding the
result up or down to the nearest number (with a rounding-up if there is no
nearest number).

 

SECTION 1.05. References to
Agreements, Laws, Etc.   Unless otherwise expressly provided
herein, (a) references to Organization Documents, agreements (including
the Loan Documents) and other contractual instruments shall be deemed to
include all subsequent amendments, restatements, extensions, supplements and
other modifications thereto, but only to the extent that such amendments,
restatements, extensions, supplements and other modifications are permitted by any
Loan Document; and (b) references to any Law shall include all statutory
and regulatory provisions consolidating, amending, replacing, supplementing or
interpreting such Law.

 

60

 

SECTION 1.06. Times of Day. Unless
otherwise specified, all references herein to times of day shall be references
to Eastern time (daylight or standard, as applicable).

 

SECTION 1.07. Timing of Payment or
Performance. When the payment of any obligation or the performance of any covenant,
duty or obligation is stated to be due or performance required on a day which
is not a Business Day, the date of such payment (other than as described in the
definition of Interest Period) or performance shall extend to the immediately
succeeding Business Day.

 

SECTION 1.08. Currency Equivalents
Generally. Any amount specified in this Agreement (other than in Articles
2, 9 and 10) or any of the other Loan Documents to be in Dollars shall also
include the equivalent of such amount in any currency other than Dollars, such
equivalent amount to be determined at the rate of exchange quoted by the
Reuters World Currency Page for the applicable currency at 11:00 a.m.
(London time) on such day (or, in the event such rate does not appear on any
Reuters World Currency Page, by reference to such other publicly available
service for displaying exchange rates as may be agreed upon by the
Administrative Agent and the Borrower, or, in the absence of such agreement,
such rate shall instead be the arithmetic average of the spot rates of exchange
of the Administrative Agent in the market where its foreign currency exchange
operations in respect of such currency are then being conducted, at or about
10:00 a.m. (New York City time) on such date for the purchase of Dollars
for delivery two Business Days later). For purposes of determining compliance
with Section 7.05 and the Consolidated Secured Debt Ratio, the equivalent
in Dollars of any Indebtedness denominated in a currency other than Dollars
will reflect the currency translation effects, determined in accordance with
GAAP, of Swap Contracts for currency exchange risks with respect to the
applicable currency in effect on the date of determination of the Dollar
equivalent of such other Indebtedness.

 

SECTION 1.09. Change of Currency.
Each provision of this Agreement shall be subject to such reasonable changes of
construction as the Administrative Agent may from time to time specify
with the Borrower’s consent to appropriately reflect a change in currency of
any country and any relevant market conventions or practices relating to such
change in currency.

 

ARTICLE II

 

The Commitments and Credit Extensions

 

SECTION 2.01. The Loans. Subject
to the terms and conditions set forth herein, each Lender severally agrees to
make to the Borrower a single loan denominated in Dollars in a principal amount
equal to such Lender’s Commitment on the Closing Date. Amounts borrowed under
this Section 2.01 and repaid or prepaid may not be reborrowed. Loans may be
Base Rate Loans or Eurocurrency Rate Loans, as further provided herein.

 

SECTION 2.02. Borrowings,
Conversions and Continuations of Loans. (a)  Each Borrowing, each conversion of Loans from
one Type to the other, and each continuation of Eurocurrency Rate Loans shall
be made upon the Borrower’s irrevocable notice to the Administrative Agent,
which may be given by telephone. Each such notice must be received by the
Administrative Agent not later than 12:30 p.m. (New York, New York time) (i) three
(3)

 

61

 

Business
Days prior to the requested date of any Borrowing or continuation of
Eurocurrency Rate Loans or any conversion of Base Rate Loans to Eurocurrency
Rate Loans, and (ii) one (1) Business Day before the requested date
of any Borrowing of Base Rate Loans or conversion of any Eurocurrency Rate
Loans to Base Rate Loans. Each telephonic notice by the Borrower pursuant to
this Section 2.02(a) must be confirmed promptly by delivery to the
Administrative Agent of a written Committed Loan Notice, appropriately
completed and signed by a Responsible Officer of the Borrower. Each Borrowing
of, conversion to or continuation of Eurocurrency Rate Loans shall be in a
principal amount of $2,500,000 or a whole multiple of $500,000 in excess
thereof. Each Borrowing of or conversion to Base Rate Loans shall be in a
principal amount of $500,000 or a whole multiple of $100,000 in excess thereof.
Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether
the Borrower is requesting a Borrowing a conversion of Loans from one Type to
the other, or a continuation of Eurocurrency Rate Loans, (ii) the
requested date of the Borrowing, conversion or continuation, as the case may be
(which shall be a Business Day), (iii) the principal amount of Loans to be
borrowed, converted or continued, (iv) the Type of Loans to be borrowed or
to which existing Loans are to be converted, and (v) if applicable, the
duration of the Interest Period with respect thereto. If the Borrower fails to
specify a Type of Loan in a Committed Loan Notice or fails to give a timely
notice requesting a conversion or continuation, then the applicable Loans shall
be made as, or converted to, Base Rate Loans. Any such automatic conversion to
Base Rate Loans shall be effective as of the last day of the Interest Period
then in effect with respect to the applicable Eurocurrency Rate Loans. If the
Borrower requests a Borrowing of, conversion to, or continuation of
Eurocurrency Rate Loans in any such Committed Loan Notice, but fails to specify
an Interest Period, it will be deemed to have specified an Interest Period of
one (1) month.

 

(b)                                 Following receipt of a
Committed Loan Notice, the Administrative Agent shall promptly notify each
Lender of the amount of its Pro  Rata Share of the Loans, and if
no timely notice of a conversion or continuation is provided by the Borrower,
the Administrative Agent shall notify each Lender of the details of any
automatic conversion to Base Rate Loans or continuation described in Section 2.02(a).
In the case of each Borrowing, each Lender shall make the amount of its Loan
available to the Administrative Agent in Same Day Funds at the Administrative
Agent’s Office not later than 1:00 p.m. on the Business Day specified in
the applicable Committed Loan Notice. Upon satisfaction of the applicable
conditions set forth in Section 4.01, the Administrative Agent shall make
all funds so received available to the Borrower in like funds as received by
the Administrative Agent either by (i) crediting the account of the
Borrower on the books of DBNY with the amount of such funds or (ii) wire
transfer of such funds, in each case in accordance with instructions provided
to (and reasonably acceptable to) the Administrative Agent by the Borrower.

 

(c)                                  Except as otherwise
provided herein, a Eurocurrency Rate Loan may be continued or converted
only on the last day of an Interest Period for such Eurocurrency Rate Loan
unless the Borrower pays the amount due, if any, under Section 3.05 in
connection therewith. During the existence of an Event of Default, the
Administrative Agent or the Required Lenders may require that no Loans may be
converted to or continued as Eurocurrency Rate Loans.

 

62

 

(d)                                 The Administrative
Agent shall promptly notify the Borrower and the Lenders of the interest rate
applicable to any Interest Period for Eurocurrency Rate Loans upon
determination of such interest rate. The determination of the Eurocurrency Rate
by the Administrative Agent shall be conclusive in the absence of manifest
error. At any time that Base Rate Loans are outstanding, the Administrative
Agent shall notify the Borrower and the Lenders of any change in DBNY’s prime
rate used in determining the Base Rate promptly following the public announcement
of such change.

 

(e)                                  After giving effect
to all Borrowings, all conversions of Loans from one Type to the other, and all
continuations of Loans as the same Type, there shall not be more than five (5) Interest
Periods in effect.

 

(f)                                    The failure of any
Lender to make the Loan to be made by it as part of any Borrowing shall
not relieve any other Lender of its obligation, if any, hereunder to make its
Loan on the date of such Borrowing, but no Lender shall be responsible for the
failure of any other Lender to make the Loan to be made by such other Lender on
the date of any Borrowing.

 

SECTION 2.03. [Reserved].

 

SECTION 2.04. [Reserved].

 

SECTION 2.05. Prepayments. (a)  Optional.
(i)  The Borrower may, upon notice to the Administrative Agent, at any
time or from time to time voluntarily prepay Loans in whole or in part without
premium or penalty; provided that (1) such
notice must be received by the Administrative Agent not later than 12:30 p.m.
(New York, New York time) (A) three (3) Business Days prior to any
date of prepayment of Eurocurrency Rate Loans and (B) one (1) Business
Day prior to any date of prepayment of Base Rate Loans; (2) any prepayment
of Eurocurrency Rate Loans shall be in a principal amount of $2,500,000 or a
whole multiple of $500,000 in excess thereof; and (3) any prepayment of
Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple
of $100,000 in excess thereof or, in each case, if less, the entire principal
amount thereof then outstanding. Each such notice shall specify the date and
amount of such prepayment, the Type(s) of Loans to be prepaid and the manner in
which such prepayment shall be applied to scheduled repayments of Loans
required pursuant to Section 2.07; provided that
in the event such notice fails to specify the manner in which the respective
prepayment shall be applied to scheduled repayments of Loans required pursuant
to Section 2.07, such prepayment of Loans shall be applied in direct order
of maturity to scheduled repayments required pursuant to Section 2.07. The
Administrative Agent will promptly notify each Lender of its receipt of each
such notice, and of the amount of such Lender’s Pro  Rata Share of
such prepayment. If such notice is given by the Borrower, the Borrower shall
make such prepayment and the payment amount specified in such notice shall be
due and payable on the date specified therein. Any prepayment of a Eurocurrency
Rate Loan shall be accompanied by all accrued interest thereon, together with
any additional amounts required pursuant to Section 3.05. Each prepayment
of the Loans pursuant to this Section 2.05(a) shall be paid to the
Lenders in accordance with their respective Pro  Rata Shares.

 

(ii)                                  Notwithstanding anything to the contrary
contained in this Agreement, the Borrower may rescind any notice of
prepayment under Section 2.05(a)(i) if such prepayment

 

63

 

would have resulted from a refinancing of all of the
outstanding Loans, which refinancing shall not be consummated or shall otherwise
be delayed.

 

(b)                                 Mandatory.
(i)  Within five (5) Business Days after financial statements have
been delivered pursuant to Section 6.01(a) and the related Compliance
Certificate has been delivered pursuant to Section 6.02(b), the Borrower
shall cause to be prepaid an aggregate principal amount of Loans in an amount
equal to (A) the Required Percentage of Excess Cash Flow, if any, for the
Excess Cash Flow Period covered by such financial statements minus (B) the aggregate amount of all voluntary prepayments
of Loans during such Excess Cash Flow Period to the extent such prepayments are
not funded with the proceeds of Indebtedness.

 

(ii)                                  If the Borrower or
any Restricted Subsidiary incurs or issues any Indebtedness not expressly
permitted to be incurred or issued pursuant to Section 7.03, the Borrower
shall cause to be prepaid an aggregate principal amount of Loans in an amount
equal to 100% of all Net Proceeds received therefrom on or prior to the date
which is five (5) Business Days after the receipt of such Net Proceeds.

 

(iii)                               Each prepayment of Loans
pursuant to this Section 2.05(b) shall be applied in direct order of
maturity to scheduled repayments of Loans required pursuant to Section 2.07
and each such prepayment shall be paid to the Lenders in accordance with their
respective Pro  Rata Shares.

 

(iv)                              The Borrower shall notify
the Administrative Agent in writing of any mandatory prepayment of Loans
required to be made pursuant to clauses (i) and (ii) of this Section 2.05(b) at
least three (3) Business Days prior to the date of such prepayment. Each
such notice shall specify the date of such prepayment and provide a reasonably
detailed calculation of the amount of such prepayment. The Administrative Agent
will promptly notify each Lender of the contents of the Borrower’s prepayment
notice and of such Lender’s Pro  Rata Share of the prepayment.

 

(c)                                  Asset
Sale/Casualty Event Offer to Purchase. (i)  Within 450 days
after the receipt of any Net Proceeds of any Asset Sale or Casualty Event, the
Borrower or the applicable Restricted Subsidiary, at its option, may apply
cash in an amount equal to the Net Proceeds from such Asset Sale or Casualty
Event (A) (I) if the assets subject to the respective Asset Sale or
Casualty Event constituted TL Priority Collateral (x) to make an offer to the
Lenders to prepay Loans in accordance with the procedures set forth below for
an Asset Sale/Casualty Event Offer, or (y) to make an offer to purchase, prepay
or permanently reduce Other Pari  Passu Lien Obligations incurred
after the Closing Date secured by a Permitted Collateral Lien; provided, however, that in connection with any prepayment,
repayment or purchase of Indebtedness pursuant to clause (I)(y), (1) the
Borrower or such Restricted Subsidiary shall permanently retire such
Indebtedness and, in the case of obligations under revolving credit facilities
or other similar Indebtedness, shall correspondingly permanently reduce
commitments with respect thereto (other than obligations owed to the Borrower
or a Restricted Subsidiary) and (2) the Borrower or such Restricted
Subsidiary will equally and ratably reduce the amount of Indebtedness
outstanding under this Agreement by, at its option, prepaying Loans in
accordance with Section 2.05(a) or making an offer to all Lenders to prepay
their Loans in accordance with the 
procedures set forth below for an Asset Sale/Casualty Event

 

64

 

Offer, or (II) if the assets subject to the respective Asset Sale or
Casualty Event constituted ABL Priority Collateral, to repay outstanding ABL
Loans as, and to the extent, required by any “cash sweep” provisions in the ABL
Credit Agreement, or (B) so long as no Event of Default then exists, to
acquire Additional Assets; provided, however,
that, if the assets subject to the respective Asset Sale or Casualty Event
constituted TL Priority Collateral, any such Additional Assets so acquired
shall constitute TL Priority Collateral and concurrently with their acquisition
shall be added to the Collateral securing the Secured Obligations in accordance
with the provisions of Section 6.11 and the Collateral Documents, and
provided, further, that to the extent such Additional Assets constitute the
Capital Stock of any Person that is required to become a Guarantor pursuant to
the Collateral and Guarantee Requirement and Section 6.11, the assets of
such Person that may be used or useful in a Similar Business are, in
accordance with the provisions of Section 6.11 and the Collateral
Documents, concurrently with the acquisition added to the Collateral securing
the Secured Obligations. Notwithstanding the foregoing, if during such 450-day
period the Borrower or a Restricted Subsidiary enters into a definitive binding
agreement committing it to apply such Net Proceeds of any Asset Sale or
Casualty Event to acquire Additional Assets pursuant to clause (B) of this
Section 2.05(c), then, so long as no Event of Default then exists, such
450-day period will be extended with respect to the amount of Net Proceeds so
committed until such Net Proceeds are required to be applied in accordance with
such agreement (but such extension will in no event be for a period longer than
180 days) (or, if earlier, the date of termination of such agreement).

 

(ii)                                  Any Net Proceeds from
the Asset Sale or the Casualty Event, as the case may be, that are not
invested or applied as provided and within the time period set forth in Section 2.05(c)(i) will
be deemed to constitute “Excess Proceeds”.
When the aggregate amount of Excess Proceeds exceeds $50,000,000, the Borrower
shall (x) make an offer within ten (10) Business Days after the date that
Excess Proceeds exceed $50,000,000 to all Lenders in accordance with the
procedures set forth below for an Asset Sale/Casualty Event Offer, to prepay
the maximum aggregate principal amount of Loans that is an integral multiple of
$1,000 that may be purchased out of the Excess Proceeds at a prepayment
price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of prepayment
in accordance with the terms contemplated in this Section 2.05(c); and (y)
prepay all the Loans of Lenders properly accepting such offer of prepayment in
accordance with such Asset Sale/Casualty Event Offer (subject to the proration
provisions set forth in paragraph (v) of this Section 2.05(c)). The
Borrower may satisfy the foregoing obligations with respect to any Net
Proceeds from an Asset Sale or a Casualty Event, as the case may be, by
making an Asset Sale/Casualty Event Offer with respect to such Net Proceeds
prior to the expiration of the relevant 450-day period or with respect to
Excess Proceeds of $50,000,000 or less.

 

(iii)                               An “Asset Sale/Casualty Event Offer” means a
notice delivered to the Administrative Agent (which will promptly furnish such
notice to the Lenders) stating:

 

(I)                                    that an Asset Sale/Casualty Event Offer
is being made pursuant to this Section 2.05(c) and that such Lender
has the right to require the Borrower to prepay all or a portion of such Lender’s
Loans (subject to the proration provisions set forth in paragraph (v) of
this Section 2.05(c)) at a purchase price in cash equal to 100% of the
principal amount thereof, plus accrued
and unpaid interest to the date of prepayment; and

 

65

 

(II)                                the prepayment date (which shall be no
earlier than thirty (30) days nor later than sixty (60) days from the date such
notice is mailed).

 

(iv)                              On the prepayment date,
the Borrower (subject to the proration provisions set forth in paragraph (v) of
this Section 2.05(c)) shall prepay the Loans of all Lenders who accept the
Asset Sale/Casualty Event Offer at a purchase price in cash equal to 100% of
the principal amount thereof, plus accrued
and unpaid interest to the date of prepayment. If at the time of any prepayment
pursuant to this Section 2.05(c) there shall be outstanding
Borrowings of different Types or Eurocurrency Rate Loans with different
Interest Periods, and if some but not all Lenders shall have accepted such
Asset Sale/Casualty Event Offer, then the aggregate amount of such prepayment
shall be allocated ratably to each outstanding Borrowing that comprises the
Loans of the accepting Lenders. All prepayments of Loans under this Section 2.05(c) shall
be subject to Section 2.05(d).

 

(v)                                 To the extent that the
aggregate amount of the Loans accepted pursuant to an Asset Sale/Casualty Event
Offer is less than the Excess Proceeds, the Borrower may use any remaining
Excess Proceeds for general corporate purposes, subject to the terms of this
Agreement. If the aggregate principal amount of the Loans accepted in an Asset
Sale/Casualty Event Offer exceeds the amount of Excess Proceeds, the prepayment
shall be applied against such Loans on a pro  rata basis based on
the principal amount of the Loans tendered for acceptance. Upon completion of
any such Asset Sale/Casualty Event Offer, the amount of Excess Proceeds related
to such Asset Sale/Casualty Event Offer shall be reset to zero (regardless of
whether or not there are any remaining Excess Proceeds upon such completion).

 

(vi)                              Pending the final
application of any Net Proceeds pursuant to this Section 2.05(c), the
Borrower or the applicable Restricted Subsidiary may apply such Net
Proceeds temporarily to reduce Indebtedness outstanding under a revolving credit
facility or otherwise invest such Net Proceeds in any manner not prohibited by
this Agreement.

 

(vii)                           Each prepayment of Loans
pursuant to this Section 2.05(c) shall be applied in direct order of
maturity to scheduled repayments of Loans required pursuant to Section 2.07.

 

(d)                                 Funding Losses, Etc. All
prepayments under this Section 2.05 shall be made together with, in the
case of any such prepayment of a Eurocurrency Rate Loan on a date prior to the
last day of an Interest Period therefor, any amounts owing in respect of such
Eurocurrency Rate Loan pursuant to Section 3.05. Notwithstanding any of
the other provisions of Section 2.05, so long as no Event of Default shall
have occurred and be continuing, if any prepayment of Eurocurrency Rate Loans
is required to be made under this Section 2.05, prior to the last day of
the Interest Period therefor, in lieu of making any payment pursuant to this Section 2.05
in respect of any such Eurocurrency Rate Loan prior to the last day of the
Interest Period therefor, the Borrower may, in its sole discretion, deposit the
amount of any such prepayment otherwise required to be made thereunder into a
Cash Collateral Account until the last day of such Interest Period, at which
time the Administrative Agent shall be authorized (without any further action
by or notice to or from the Borrower or any other Loan Party) to apply such
amount to the prepayment of such Loans in accordance with this Section 2.05.
Upon the occurrence and during the continuance of any Event of Default, the
Administrative Agent

 

66

 

shall also be authorized (without any further action by or notice to or
from the Borrower or any other Loan Party) to apply such amount to the
prepayment of the outstanding Loans in accordance with the relevant provisions
of this Section 2.05.

 

SECTION 2.06. Termination of
Commitments. The Commitment of each Lender shall be automatically and
permanently reduced to $0 upon the making of such Lender’s Loans pursuant to Section 2.01.

 

SECTION 2.07. Amortization of Loans.
The Borrower shall repay to the Administrative Agent for the ratable account of
the Lenders (i) on the last Business Day of each April, July, October and
January, commencing with the last Business Day of January, 2007, an aggregate
principal amount equal to 0.25% of the aggregate principal amount of all Loans
outstanding on the Closing Date (which payments shall be reduced as a result of
the application of prepayments in accordance with the order of priority set forth
in Section 2.05) and (ii) on the Maturity Date, the aggregate
principal amount of all Loans outstanding on such date.

 

SECTION 2.08. Interest. (a)  Subject to
the provisions of Section 2.08(b), (i) each Eurocurrency Rate Loan
shall bear interest on the outstanding principal amount thereof for each
Interest Period at a rate per annum equal to the Eurocurrency Rate for such
Interest Period plus the Applicable Rate; and (ii) each
Base Rate Loan shall bear interest on the outstanding principal amount thereof
from the applicable Borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

 

(b)                                 The Borrower shall pay
interest on past due amounts hereunder at a fluctuating interest rate per annum
at all times equal to the Default Rate to the fullest extent permitted by
applicable Laws. Accrued and unpaid interest on past due amounts (including
interest on past due interest) shall be due and payable upon demand.

 

(c)                                  Interest on each Loan
shall be due and payable in arrears on each Interest Payment Date applicable
thereto and at such other times as may be specified herein. Interest
hereunder shall be due and payable in accordance with the terms hereof before
and after judgment, and before and after the commencement of any proceeding
under any Debtor Relief Law.

 

(d)                                 All computations of
interest hereunder shall be made in accordance with Section 2.10.

 

SECTION 2.09. Fees. The Borrower
shall pay to the Agents such fees as shall have been separately agreed upon in
writing in the amounts and at the times so specified. Such fees shall be fully
earned when paid and shall not be refundable for any reason whatsoever (except
as expressly agreed between the Borrower and the applicable Agent).

 

SECTION 2.10. Computation of Interest
and Fees. All computations of interest for Base Rate Loans when the Base
Rate is determined by DBNY’s “prime rate” shall be made on the basis of a year
of three hundred and sixty-five (365) days or three hundred and sixty-six (366)
days, as applicable, and actual days elapsed. All other computations of fees
and interest shall be made on the basis of a three hundred and sixty (360) day
year and actual days elapsed. Interest shall accrue on each Loan for the day on
which the Loan is made, and shall not accrue on

 

67

 

a Loan, or any portion thereof, for the day on which the Loan or such
portion is paid; provided that any Loan that is
repaid on the same day on which it is made shall, subject to Section 2.12(a),
bear interest for one (1) day. Each determination by the Administrative
Agent of an interest rate or fee hereunder shall be conclusive and binding for
all purposes, absent manifest error.

 

SECTION 2.11. Evidence of
Indebtedness. (a) 
The Loans made by each Lender shall be evidenced by one or more accounts or
records maintained by such Lender and evidenced by one or more entries in the
Register maintained by the Administrative Agent, acting solely for purposes of
Treasury Regulation Section 5f.103-1(c), as agent for the Borrower, in
each case in the ordinary course of business. The accounts or records
maintained by the Administrative Agent and each Lender shall be prima facie evidence absent manifest error of the amount of
the Loans made by the Lenders to the Borrower and the interest and payments
thereon. Any failure to so record or any error in doing so shall not, however,
limit or otherwise affect the obligation of the Borrower hereunder to pay any
amount owing with respect to the Obligations. In the event of any conflict
between the accounts and records maintained by any Lender and the accounts and
records of the Administrative Agent in respect of such matters, the accounts
and records of the Administrative Agent shall control in the absence of
manifest error. Upon the request of any Lender made through the Administrative
Agent, the Borrower shall execute and deliver to such Lender (through the
Administrative Agent) a Note payable to such Lender, which shall evidence such
Lender’s Loans in addition to such accounts or records. Each Lender may attach
schedules to its Note and endorse thereon the date, Type (if applicable),
amount and maturity of its Loans and payments with respect thereto.

 

(b)                                 Entries made in good
faith by the Administrative Agent in the Register pursuant to Section 2.11(a),
and by each Lender in its account or accounts pursuant to Sections 2.11(a),
shall be prima facie evidence of the amount of
principal and interest due and payable or to become due and payable from the
Borrower to, in the case of the Register, each Lender and, in the case of such
account or accounts, such Lender, under this Agreement and the other Loan
Documents, absent manifest error; provided that
the failure of the Administrative Agent or such Lender to make an entry, or any
finding that an entry is incorrect, in the Register or such account or accounts
shall not limit or otherwise affect the obligations of the Borrower under this
Agreement and the other Loan Documents.

 

SECTION 2.12. Payments Generally. (a)  All payments
to be made by the Borrower shall be made without condition or deduction for any
counterclaim, defense, recoupment or setoff. Except as otherwise expressly
provided herein, all payments by the Borrower hereunder shall be made to the
Administrative Agent, for the account of the respective Lenders to which such
payment is owed, at the applicable Administrative Agent’s Office in Dollars and
in Same Day Funds not later than 2:00 p.m. on the date specified herein. The
Administrative Agent will promptly distribute to each Lender its Pro Rata Share
(or other applicable share as provided herein) of such payment in like funds as
received by wire transfer to such Lender’s Lending Office. All payments
received by the Administrative Agent after 2:00 p.m. on the relevant date
shall be deemed received on the next succeeding Business Day and any applicable
interest or fee shall continue to accrue.

 

(b)                                 If any payment to be
made by the Borrower shall come due on a day other than a Business Day, payment
shall be made on the next following Business Day, and such

 

68

 

extension of time shall be reflected in computing interest or fees, as
the case may be; provided that,
if such extension would cause payment of interest on or principal of
Eurocurrency Rate Loans to be made in the next succeeding calendar month, such
payment shall be made on the immediately preceding Business Day.

 

(c)                                  Unless the Borrower
or any Lender has notified the Administrative Agent, prior to the date any
payment is required to be made by it to the Administrative Agent hereunder,
that the Borrower or such Lender, as the case may be, will not make such
payment, the Administrative Agent may assume that the Borrower or such
Lender, as the case may be, has timely made such payment and may (but
shall not be so required to), in reliance thereon, make available a
corresponding amount to the Person entitled thereto. If and to the extent that
such payment was not in fact made to the Administrative Agent in Same Day
Funds, then:

 

(i)                                     if
the Borrower failed to make such payment, each Lender shall forthwith on demand
repay to the Administrative Agent the portion of such assumed payment that was
made available to such Lender in Same Day Funds, together with interest thereon
in respect of each day from and including the date such amount was made
available by the Administrative Agent to such Lender to the date such amount is
repaid to the Administrative Agent in Same Day Funds at the Federal Funds Rate
from time to time in effect; and

 

(ii)                                  if
any Lender failed to make such payment, such Lender shall forthwith on demand
pay to the Administrative Agent the amount thereof in Same Day Funds, together
with interest thereon for the period from the date such amount was made
available by the Administrative Agent to the Borrower to the date such amount
is recovered by the Administrative Agent (the “Compensation Period”) at a rate per annum equal to the Federal
Funds Rate from time to time in effect. When such Lender makes payment to the
Administrative Agent (together with all accrued interest thereon), then such
payment amount (excluding the amount of any interest which may have
accrued and been paid in respect of such late payment) shall constitute such
Lender’s Loan included in the applicable Borrowing. If such Lender does not pay
such amount forthwith upon the Administrative Agent’s demand therefor, the
Administrative Agent may make a demand therefor upon the Borrower, and the
Borrower shall pay such amount to the Administrative Agent, together with
interest thereon for the Compensation Period at a rate per annum equal to the
rate of interest applicable to the applicable Borrowing. Nothing herein shall
be deemed to relieve any Lender from its obligation to fulfill its Commitment
or to prejudice any rights which the Administrative Agent or the Borrower may have
against any Lender as a result of any default by such Lender hereunder.

 

A notice of the Administrative Agent to any Lender or
the Borrower with respect to any amount owing under this Section 2.12(c) shall
be conclusive, absent manifest error.

 

(d)                                 If any Lender makes
available to the Administrative Agent funds for any Loan to be made by such
Lender as provided in the foregoing provisions of this Article 2, and such
funds are not made available to the Borrower by the Administrative Agent
because the conditions to the applicable Borrowing set forth in Article 4
are not satisfied or waived in

 

69

 

accordance with the terms hereof, the Administrative Agent shall return
such funds (in like funds as received from such Lender) to such Lender, without
interest.

 

(e)                                  The obligations of
the Lenders hereunder to make Loans are several and not joint. The failure of
any Lender to make any Loan on any date required hereunder shall not relieve
any other Lender of its corresponding obligation to do so on such date, and no
Lender shall be responsible for the failure of any other Lender to so make its
Loan.

 

(f)                                    Nothing herein
shall be deemed to obligate any Lender to obtain the funds for any Loan in any
particular place or manner or to constitute a representation by any Lender that
it has obtained or will obtain the funds for any Loan in any particular place
or manner.

 

(g)                                 Whenever any payment
received by the Administrative Agent under this Agreement or any of the other
Loan Documents is insufficient to pay in full all amounts due and payable to
the Administrative Agent and the Lenders under or in respect of this Agreement
and the other Loan Documents on any date, such payment shall be distributed by
the Administrative Agent and applied by the Administrative Agent and the
Lenders in the order of priority set forth in Section 8.04. If the
Administrative Agent receives funds for application to the Obligations of the
Loan Parties under or in respect of the Loan Documents under circumstances for
which the Loan Documents do not specify the manner in which such funds are to
be applied, the Administrative Agent may, but shall not be obligated to, elect
to distribute such funds to each of the Lenders in accordance with such Lender’s
Pro  Rata Share of the Outstanding Amount of all Loans outstanding
at such time, in repayment or prepayment of such of the outstanding Loans or
other Obligations then owing to such Lender.

 

SECTION 2.13. Sharing of Payments.
If, other than as expressly provided elsewhere herein, any Lender shall obtain
on account of the Loans made by it, any payment (whether voluntary,
involuntary, through the exercise of any right of setoff, or otherwise) in
excess of its ratable share (or other share contemplated hereunder) thereof,
such Lender shall immediately (a) notify the Administrative Agent of such
fact, and (b) purchase from the other Lenders such participations in the
Loans made by them as shall be necessary to cause such purchasing Lender to
share the excess payment in respect of such Loans pro  rata with
each of them; provided that if all or any
portion of such excess payment is thereafter recovered from the purchasing
Lender under any of the circumstances described in Section 10.06
(including pursuant to any settlement entered into by the purchasing Lender in
its discretion), such purchase shall to that extent be rescinded and each other
Lender shall repay to the purchasing Lender the purchase price paid therefor,
together with an amount equal to such paying Lender’s ratable share (according
to the proportion of (i) the amount of such paying Lender’s required
repayment to (ii) the total amount so recovered from the purchasing
Lender) of any interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered, without further interest
thereon. The Borrower agrees that any Lender so purchasing a participation from
another Lender may, to the fullest extent permitted by applicable Law, exercise
all its rights of payment (including the right of setoff, but subject to Section 10.09)
with respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation. The
Administrative Agent will keep records (which shall be conclusive and binding
in the absence of manifest error) of participations purchased under this Section 2.13
and will in each case notify the Lenders following any such purchases or
repayments. Each Lender

 

70

 

that purchases a participation pursuant to this Section 2.13 shall
from and after such purchase have the right to give all notices, requests,
demands, directions and other communications under this Agreement with respect
to the portion of the Obligations purchased to the same extent as though the
purchasing Lender were the original owner of the Obligations purchased.

 

SECTION 2.14. Provisions Applicable
to Canadian Loan Parties. (a) For the purposes of the Interest Act (Canada), to the extent
applicable, whenever any interest payable by a Canadian Subsidiary Guarantor is
calculated on the basis of a period of time other than a year of 365 or 366
days, as applicable, the annual rate of interest to which each rate of interest
utilized pursuant to such calculation is equivalent is such rate so utilized
multiplied by the actual number of days in the calendar year in which the same
is to be ascertained and divided by the number of days in such calculation.

 

(b)                                 Notwithstanding any
provision herein to the contrary, in no event will the aggregate “interest” (as
defined in section 347 of the Criminal Code (Canada)) payable by a
Canadian Loan Party under any Loan Document exceed the maximum effective annual
rate of interest on the “credit advanced” (as defined in that section 347)
permitted under that section and, if any payment, collection or demand
pursuant to such Loan Document in respect of “interest” (as defined in that section 347)
is determined to be contrary to the provisions of such section 347, such
payment, collection or demand will be deemed to have been made by mutual
mistake of such Canadian Loan Party, the Administrative Agent and the
applicable Lender or Lenders and the amount of such payment or collection will
be refunded to such Canadian Loan Party only to the extent of the amount which
is greater than the maximum effective annual rate permitted by such laws. For
purposes of determining compliance with such section 347, the effective
annual rate of interest will be determined in accordance with generally
accepted actuarial practices and principles over the term of this Agreement
and, in the event of dispute, a certificate of a Fellow of the Canadian
Institute of Actuaries appointed by the Administrative Agent will be prima facie evidence for the purposes of such determination.

 

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

 

ARTICLE III

 

Taxes, Increased Costs Protection and Illegality

 

SECTION 3.01. Taxes. (a)  Except as
provided in this Section 3.01, any and all payments by the Loan Parties to
or for the account of any Agent or any Lender under any Loan Document shall be
made free and clear of and without deduction or withholding for any and all
present or future taxes, duties, levies, imposts, deductions, assessments,
fees, withholdings or similar charges, and all liabilities (including additions
to tax, penalties and interest) with respect thereto, excluding, in the case of
each Agent and each Lender, taxes imposed on or measured by its net income or net
profits (including branch profits), and franchise (and similar) taxes imposed
on it in lieu of net income taxes, by the jurisdiction (or any political
subdivision thereof) under the Laws of which such Agent or such Lender, as the
case may be, is organized or maintains a

 

71

 

Lending
Office, and all liabilities (including additions to tax, penalties and
interest) with respect thereto (all such non-excluded taxes, duties, levies,
imposts, deductions, assessments, fees, withholdings or similar charges, and
liabilities with respect thereto being hereinafter referred to as “Taxes”). If any Loan Party shall be required by any Laws to
deduct or withhold any Taxes or Other Taxes from or in respect of any sum
payable under any Loan Document to any Agent or any Lender, (i) the sum
payable shall be increased as necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable
to additional sums payable under this Section 3.01), each of such Agent
and such Lender receives an amount equal to the sum it would have received had
no such deductions and withholdings been made, (ii) such Loan Party shall
make such deductions and withholdings, (iii) such Loan Party shall pay the
full amount deducted and withheld to the relevant taxation authority or other
authority in accordance with applicable Laws, and (iv) within thirty (30)
days after the date of such payment (or, if receipts or evidence are not
available within thirty (30) days, as soon as reasonably possible thereafter),
such Loan Party shall furnish to such Agent or Lender (as the case may be)
the original or a certified copy of a receipt evidencing payment thereof to the
extent such a receipt is issued therefor, or other written proof of payment
thereof that is reasonably satisfactory to the Administrative Agent. If any
Loan Party fails to pay any Taxes or Other Taxes when due to the appropriate
taxing authority or fails to remit to any Agent or any Lender the required receipts
or other required documentary evidence, such Loan Party shall indemnify such
Agent and such Lender for any incremental taxes, interest or penalties that may become
payable by such Agent or such Lender arising out of such failure.

 

(b)                                 In addition, each Loan
Party agrees to pay any and all present or future stamp, court or documentary
taxes and any other excise, property, intangible or mortgage recording taxes or
charges or similar levies which arise from any payment made under any Loan
Document or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, any Loan Document other than,
for the avoidance of doubt, any excluded taxes or other similar excluded
amounts described in Section 3.01(a) above (hereinafter referred to
as “Other Taxes”).

 

(c)                                  Each Loan Party
agrees to indemnify each Agent and each Lender for (i) the full amount of
Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted
by any jurisdiction on amounts payable under this Section 3.01) paid by
such Agent and such Lender and (ii) any liability (including additions to
tax, penalties, interest and expenses) arising therefrom or with respect
thereto, in each case whether or not such Taxes or Other Taxes were correctly
or legally imposed or asserted by the relevant Governmental Authority; provided
such Agent or Lender, as the case may be, provides such Loan Party with a
written statement thereof setting forth in reasonable detail the basis and
calculation of such amounts. Payment under this Section 3.01(c) shall
be made within thirty (30) days after the date such Lender or such Agent makes
a demand therefor. The obligations of the Loan Parties under this Section 3.01(c) shall
be joint and several. Notwithstanding anything to the contrary in this
Agreement, the obligations of the Loan Parties under this Section 3.01(c) shall
survive the payment in full of principal, interest, fees and any other amounts
payable hereunder and the termination of this Agreement.

 

(d)                                 No Loan Party shall be
required pursuant to this Section 3.01 to pay any additional amount to, or
to indemnify, any Lender or Agent, as the case may be, to the extent that

 

72

 

such Lender or such Agent becomes subject to Taxes subsequent to the
Closing Date (or, if later, the date such Lender or Agent becomes a party to
this Agreement) as a result of a change in the place of organization of such
Lender or Agent or a change in the lending office of such Lender, except to the
extent that any such change is requested or required in writing by the Borrower
(and provided that nothing in this clause (d) shall
be construed as relieving the Borrower from any obligation to make such
payments or indemnification in the event of a change in lending office or place
of organization that precedes a change in Law to the extent such Taxes result
from a change in Law).

 

(e)                                  If at the date of the
Assignment and Assumption pursuant to which a Lender becomes a party to this
Agreement, the Lender assignor was entitled to payments under clause (a) of
this Section 3.01 in respect of withholding tax with respect to interest
paid at such date, then, to such extent, the term Taxes shall include (in
addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) withholding tax, if any, applicable with
respect to the Lender assignee on such date.

 

(f)                                    If any Lender or
Agent determines, in its reasonable discretion, that it has received a refund
in respect of any Taxes or Other Taxes as to which indemnification or
additional amounts have been paid to it by any Loan Party pursuant to this Section 3.01,
it shall promptly remit such refund (but only to the extent of indemnity
payments made, or additional amounts paid, by such Loan Party under this Section 3.01
with respect to the Taxes or Other Taxes giving rise to such refund plus any interest included in such refund by the relevant
taxing authority attributable thereto) to such Loan Party, net of all
out-of-pocket expenses of the Lender or Agent, as the case may be and
without interest (other than any interest paid by the relevant taxing authority
with respect to such refund); provided that
such Loan Party, upon the request of the Lender or Agent, as the case may be,
agrees promptly to return such refund to such party in the event such party is
required to repay such refund to the relevant taxing authority. Such Lender or
Agent, as the case may be, shall, at such Loan Party’s request, provide
such Loan Party with a copy of any notice of assessment or other evidence of
the requirement to repay such refund received from the relevant taxing
authority (provided that such Lender or Agent may delete
any information therein that such Lender or Agent deems confidential). Nothing
herein contained shall interfere with the right of a Lender or Agent to arrange
its tax affairs in whatever manner it thinks fit nor oblige any Lender or Agent
to claim any tax refund or to make available its tax returns or disclose any
information relating to its tax affairs or any computations in respect thereof
or require any Lender or Agent to do anything that would prejudice its ability
to benefit from any other refunds, credits, reliefs, remissions or repayments
to which it may be entitled.

 

(g)                                 Each Lender agrees
that, upon the occurrence of any event giving rise to the operation of Section 3.01(a) or
(c) with respect to such Lender it will, if requested by the Borrower, use
commercially reasonable efforts (subject to such Lender’s overall internal
policies of general application and legal and regulatory restrictions) to
designate another Lending Office for any Loan affected by such event; provided that such efforts are made on terms that, in the
sole judgment of such Lender, cause such Lender and its Lending Office(s) to
suffer no economic, legal or regulatory disadvantage, and provided
further, that nothing in this Section 3.01(g) shall affect
or postpone any of the Obligations of any Loan Party or the rights of such
Lender pursuant to Section 3.01(a) or (c).

 

73

 

(h)                                 In addition to the
provisions of Section 3.01(a), in respect of amounts paid or credited by a
Loan Party that is resident in Canada for purposes of the ITA to or for the
benefit of a Lender or Agent that is an “authorized foreign bank” for purposes
of the ITA, the obligations under Section 3.01 to pay an additional amount
shall apply where the particular Lender or Agent is liable for Taxes under Part XIII
of the ITA in respect of such payment, even if such Loan Party is not required
under the ITA to deduct or withhold an amount in respect of Indemnified Taxes
on such payment and Section 3.01 shall apply, mutatis mutandis, as if such
Loan Party was required to deduct or withhold an amount in respect of such
Taxes.

 

SECTION 3.02. Illegality. If any
Lender determines that any Law has made it unlawful, or that any Governmental
Authority has asserted that it is unlawful, for any Lender or its applicable
Lending Office to make, maintain or fund Eurocurrency Rate Loans, or to
determine or charge interest rates based upon the Eurocurrency Rate, then, on
notice thereof by such Lender to the Borrower through the Administrative Agent,
any obligation of such Lender to make or continue Eurocurrency Rate Loans or to
convert Base Rate Loans to Eurocurrency Rate Loans shall be suspended until
such Lender notifies the Administrative Agent and the Borrower that the
circumstances giving rise to such determination no longer exist. Upon receipt
of such notice, the Borrower shall upon demand from such Lender (with a copy to
the Administrative Agent), prepay or, if applicable, convert all Eurocurrency
Rate Loans of such Lender to Base Rate Loans, either on the last day of the
Interest Period therefor, if such Lender may lawfully continue to maintain
such Eurocurrency Rate Loans to such day, or promptly, if such Lender may not
lawfully continue to maintain such Eurocurrency Rate Loans. Upon any such
prepayment or conversion, the Borrower shall also pay accrued interest on the
amount so prepaid or converted and all amounts due, if any, in connection with
such prepayment or conversion under Section 3.05. Each Lender agrees to
designate a different Lending Office if such designation will avoid the need
for such notice and will not, in the good faith judgment of such Lender,
otherwise be materially disadvantageous to such Lender.

 

SECTION 3.03. Inability to Determine
Rates. If the Required Lenders determine that for any reason adequate and
reasonable means do not exist for determining the Eurocurrency Rate for any
requested Interest Period with respect to a proposed Eurocurrency Rate Loan, or
that the Eurocurrency Rate for any requested Interest Period with respect to a
proposed Eurocurrency Rate Loan does not adequately and fairly reflect the cost
to such Lenders of funding such Loan, or that Dollar deposits are not being
offered to banks in the London interbank eurodollar market for the applicable
amount and the Interest Period of such Eurocurrency Rate Loan, the Administrative
Agent will promptly so notify the Borrower and each Lender. Thereafter, the
obligation of the Lenders to make or maintain Eurocurrency Rate Loans shall be
suspended until the Administrative Agent (upon the instruction of the Required
Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke
any pending request for a Borrowing of, conversion to or continuation of
Eurocurrency Rate Loans or, failing that, will be deemed to have converted such
request into a request for a Borrowing of Base Rate Loans in the amount
specified therein.

 

SECTION 3.04. Increased Cost and
Reduced Return; Capital Adequacy; Reserves on Eurocurrency Rate Loans. (a)  If any Lender
determines that as a result of the introduction of or any change in or in the
interpretation of any Law, in each case after the date hereof, or such Lender’s
compliance therewith, there shall be any increase in the cost to such

 

74

 

Lender of
agreeing to make or making, funding or maintaining Eurocurrency Rate Loans, or
a reduction in the amount received or receivable by such Lender in connection
with any of the foregoing (excluding for purposes of this Section 3.04(a) any
such increased costs or reduction in amount resulting from (i) Taxes or
Other Taxes (as to which Section 3.01 shall govern), (ii) changes in
taxation of overall net income or overall gross income (including branch
profits), and franchise (and similar) taxes imposed in lieu of net income
taxes, by the United States or any foreign jurisdiction or any political
subdivision of either thereof under the Laws of which such Lender is organized
or maintains a Lending Office and (iii) reserve requirements contemplated
by Section 3.04(c)), then from time to time within fifteen (15) days after
demand by such Lender setting forth in reasonable detail such increased costs
(with a copy of such demand to the Administrative Agent given in accordance
with Section 3.06), the Borrower shall pay to such Lender such additional
amounts as will compensate such Lender for such increased cost or reduction. 

 

(b)                                 If any Lender
determines that the introduction of any Law regarding capital adequacy or any
change therein or in the interpretation thereof, in each case after the date
hereof, or compliance by such Lender (or its Lending Office) therewith, has the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of such Lender’s
obligations hereunder (taking into consideration its policies with respect to
capital adequacy and such Lender’s desired return on capital), then from time
to time upon demand of such Lender setting forth in reasonable detail the
charge and the calculation of such reduced rate of return (with a copy of such
demand to the Administrative Agent given in accordance with Section 3.06),
the Borrower shall pay to such Lender such additional amounts as will
compensate such Lender for such reduction within fifteen (15) days after
receipt of such demand.

 

(c)                                  The Borrower shall
pay to each Lender, (i) as long as such Lender shall be required to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency funds or deposits, additional interest on the unpaid
principal amount of each Eurocurrency Rate Loan equal to the actual costs of
such reserves allocated to such Loan by such Lender (as determined by such
Lender in good faith, which determination shall be conclusive in the absence of
manifest error), and (ii) as long as such Lender shall be required to
comply with any reserve ratio requirement or analogous requirement of any other
central banking or financial regulatory authority imposed in respect of the
maintenance of the Commitments or the funding of the Eurocurrency Rate Loans,
such additional costs (expressed as a percentage per annum and rounded upwards,
if necessary, to the nearest five decimal places) equal to the actual costs
allocated to such Commitment or Loan by such Lender (as determined by such
Lender in good faith, which determination shall be conclusive absent manifest
error) which in each case shall be due and payable on each date on which
interest is payable on such Loan, provided the Borrower shall have received at
least fifteen (15) days’ prior notice (with a copy to the Administrative Agent)
of such additional interest or cost from such Lender. If a Lender fails to give
notice fifteen (15) days prior to the relevant Interest Payment Date, such
additional interest or cost shall be due and payable fifteen (15) days from
receipt of such notice. Notwithstanding anything to the contrary contained
above in this clause (c), the Borrower shall not be obligated to pay any
additional amounts pursuant to this clause (c) to the extent such amounts
are already included in the calculation of the Eurocurrency Rate pursuant to
clause (b) of the definition thereof.

 

75

 

(d)                                 Failure or delay on
the part of any Lender to demand compensation pursuant to this Section 3.04
shall not constitute a waiver of such Lender’s right to demand such
compensation, provided that the Borrower shall
not be required to compensate a Lender pursuant to Section 3.04(a), (b) or
(c) for any such increased cost or reduction incurred more than one
hundred and eighty (180) days prior to the date that such Lender demands, or
notifies the Borrower of its intention to demand, compensation therefor, provided further, that, if the circumstance giving rise to
such increased cost or reduction is retroactive, then such 180-day period
referred to above shall be extended to include the period of retroactive effect
thereof.

 

(e)                                  If any Lender
requests compensation under this Section 3.04, then such Lender will, if
requested by the Borrower, use commercially reasonable efforts to designate
another Lending Office for any Loan affected by such event; provided that such efforts are made on terms that, in the
reasonable judgment of such Lender, cause such Lender and its Lending Office(s)
to suffer no material economic, legal or regulatory disadvantage, and provided further, that nothing in this Section 3.04(e) shall
affect or postpone any of the Obligations of the Borrower or the rights of such
Lender pursuant to Section 3.04(a), (b), (c) or (d).

 

SECTION 3.05. Funding Losses. Upon
demand of any Lender (with a copy to the Administrative Agent) from time to
time, the Borrower shall promptly compensate such Lender for and hold such
Lender harmless from any loss, cost or expense (but excluding any loss of
anticipated profit) incurred by it as a result of:

 

(a)                                  any
continuation, conversion, payment or prepayment of any Loan other than a Base
Rate Loan prior to the last day of the Interest Period for such Loan; or

 

(b)                                 any
failure by the Borrower (for a reason other than the failure of such Lender to
make a Loan) to prepay, borrow, continue or convert any Loan other than a Base
Rate Loan on the date or in the amount notified by the Borrower;

 

including any loss or expense arising from the
liquidation or reemployment of funds obtained by it to maintain such Loan or
from fees payable to terminate the deposits from which such funds were
obtained.

 

For purposes of calculating amounts payable by the
Borrower to the Lenders under this Section 3.05, each Lender shall be
deemed to have funded each Eurocurrency Rate Loan made by it at the
Eurocurrency Rate for such Loan by a matching deposit or other borrowing in the
London interbank eurodollar market for a comparable amount and for a comparable
period, whether or not such Eurocurrency Rate Loan was in fact so funded.

 

SECTION 3.06. Matters Applicable to
All Requests for Compensation. (a)  Any Agent or any Lender claiming compensation under this Article 3
shall deliver a certificate to the Borrower setting forth the additional amount
or amounts to be paid to it hereunder which shall be conclusive in the absence
of manifest error. In determining such amount, such Agent or such Lender may use
any reasonable averaging and attribution methods.

 

(b)                                 With respect to any
Lender’s claim for compensation under Section 3.01, 3.02, 3.03 or 3.04,
the Borrower shall not be required to compensate such Lender for any amount
incurred more than one hundred and eighty (180) days prior to the date that
such Lender notifies

 

76

 

the Borrower of the event that gives rise to such claim; provided that, if the circumstance giving rise to such claim
is retroactive, then such 180-day period referred to above shall be extended to
include the period of retroactive effect thereof. If any Lender requests
compensation by the Borrower under Section 3.04, the Borrower may, by
notice to such Lender (with a copy to the Administrative Agent), suspend the
obligation of such Lender to make or continue from one Interest Period to
another Eurocurrency Rate Loans, or to convert Base Rate Loans into
Eurocurrency Rate Loans, until the event or condition giving rise to such
request ceases to be in effect (in which case the provisions of Section 3.06(c) shall
be applicable); provided that such suspension
shall not affect the right of such Lender to receive the compensation so
requested.

 

(c)                                  If the obligation of
any Lender to make or continue from one Interest Period to another any
Eurocurrency Rate Loan, or to convert Base Rate Loans into Eurocurrency Rate
Loans shall be suspended pursuant to Section 3.06(c) hereof, such
Lender’s Eurocurrency Rate Loans shall be automatically converted into Base
Rate Loans on the last day(s) of the then current Interest Period(s) for such
Eurocurrency Rate Loans (or, in the case of an immediate conversion required by
Section 3.02, on such earlier date as required by Law) and, unless and
until such Lender gives notice as provided below that the circumstances
specified in Section 3.01, 3.02, 3.03 or 3.04 hereof that gave rise to
such conversion no longer exist:

 

(i)                                     to
the extent that such Lender’s Eurocurrency Rate Loans have been so converted,
all payments and prepayments of principal that would otherwise be applied to
such Lender’s Eurocurrency Rate Loans shall be applied instead to its Base Rate
Loans; and

 

(ii)                                  all
Loans that would otherwise be made or continued from one Interest Period to
another by such Lender as Eurocurrency Rate Loans shall be made or continued
instead as Base Rate Loans, and all Base Rate Loans of such Lender that would
otherwise be converted into Eurocurrency Rate Loans shall remain as Base Rate
Loans.

 

(d)                                 If any Lender gives
notice to the Borrower (with a copy to the Administrative Agent) that the
circumstances specified in Section 3.01, 3.02, 3.03 or 3.04 hereof that
gave rise to the conversion of such Lender’s Eurocurrency Rate Loans pursuant
to this Section 3.06 no longer exist (which such Lender agrees to do
promptly upon such circumstances ceasing to exist) at a time when Eurocurrency
Rate Loans made by other Lenders are outstanding, such Lender’s Base Rate Loans
shall be automatically converted, on the first day(s) of the next succeeding
Interest Period(s) for such outstanding Eurocurrency Rate Loans, to the extent
necessary so that, after giving effect thereto, all Loans held by the Lenders
holding Eurocurrency Rate Loans and by such Lender are held pro rata (as to
principal amounts, interest rate basis, and Interest Periods) in accordance
with their respective Commitments.

 

SECTION 3.07. Replacement of
Lenders under Certain Circumstances. (a)  If at any time (i) the
Borrower becomes obligated to pay additional amounts or indemnity payments
described in Section 3.01 or 3.04 as a result of any condition described
in such Sections or any Lender ceases to make Eurocurrency Rate Loans as a
result of any condition described in Section 3.02 or Section 3.04, (ii) any
Lender becomes a Defaulting Lender or (iii) any Lender becomes a
Non-Consenting Lender, then the Borrower may, on ten (10) Business Days’ prior
written notice to the Administrative Agent and such Lender, replace such Lender
by causing such Lender to

 

77

 

(and such
Lender shall be obligated to) assign pursuant to Section 10.07(b) (with
the assignment fee to be paid by the Borrower in such instance) all of its
rights and obligations under this Agreement to one or more Eligible Assignees; provided that neither the Administrative Agent nor any
Lender shall have any obligation to the Borrower to find a replacement Lender
or other such Person; provided further,
that (A) in the case of any such assignment resulting from a claim for
compensation under Section 3.04 or payments required to be made pursuant
to Section 3.01, such assignment will result in a reduction in such
compensation or payments and (B) in the case of any such assignment
resulting from a Lender becoming a Non-Consenting Lender, the applicable
Eligible Assignees shall have agreed to the applicable departure, waiver or
amendment of the Loan Documents; and provided further,
that a Non-Consenting Lender may not be replaced unless all Non-Consenting
Lenders in respect of the applicable departure, waiver or amendment are
replaced in accordance with the provisions of this Section at the same
time.

 

(b)                                 Any Lender being
replaced pursuant to Section 3.07(a) above shall (i) execute and
deliver an Assignment and Assumption with respect to such Lender’s Commitment
and outstanding Loans, and (ii) deliver any Notes evidencing such Loans to
the Borrower or Administrative Agent. Pursuant to such Assignment and
Assumption, (A) the assignee Lender shall acquire all or a portion, as the
case may be, of the assigning Lender’s Commitment and outstanding Loans, (B) all
obligations of the Borrower owing to the assigning Lender relating to the Loans
so assigned shall be paid in full by the assignee Lender to such assigning
Lender concurrently with such assignment and assumption and (C) upon such
payment and, if so requested by the assignee Lender, delivery to the assignee
Lender of the appropriate Note or Notes executed by the Borrower, the assignee
Lender shall become a Lender hereunder and the assigning Lender shall cease to
constitute a Lender hereunder with respect to such assigned Loans and
Commitments, except with respect to indemnification provisions under this
Agreement, which shall survive as to such assigning Lender.

 

(c)                                  In the event that (i) the
Borrower or the Administrative Agent has requested that the Lenders consent to
a departure or waiver of any provisions of the Loan Documents or agree to any
amendment thereto, (ii) the consent, waiver or amendment in question
requires the agreement of all affected Lenders or all Lenders in accordance
with the terms of Section 10.01 and (iii) the Required Lenders have
agreed to such consent, waiver or amendment, then any Lender who does not agree
to such consent, waiver or amendment shall be deemed a “Non-Consenting Lender”.

 

SECTION 3.08. Survival. All of
the Borrower’s obligations under this Article 3 shall survive termination
of the Aggregate Commitments and repayment of all other Obligations hereunder.

 

ARTICLE IV

 

Conditions Precedent to Credit Extensions

 

SECTION 4.01. Conditions of Making of
Loans. The obligation of each Lender to make its Loans hereunder is subject
to satisfaction of the following conditions precedent:

 

78

 

(a)                                  The Administrative
Agent’s receipt of the following, each of which shall be originals or
facsimiles (followed promptly by originals) unless otherwise specified, each
properly executed by a Responsible Officer of the signing Loan Party, each in form and
substance reasonably satisfactory to the Administrative Agent and its legal
counsel:

 

(i)                                     executed
counterparts of this Agreement, each Guaranty and the Intercreditor Agreement;

 

(ii)                                  a
Note executed by the Borrower in favor of each Lender that has requested a Note
at least two Business Days in advance of the Closing Date;

 

(iii)                               each
Collateral Document set forth on Schedule 1.01B, duly executed by each
Loan Party thereto, together with:

 

(A)                              certificates, if any, representing the
Pledged Equity referred to therein accompanied by undated stock powers executed
in blank and instruments evidencing the Pledged Debt indorsed in blank, and

 

(B)                                evidence that all other actions,
recordings and filings that the Administrative Agent may deem reasonably
necessary to satisfy the Collateral and Guarantee Requirement shall have been
taken, completed or otherwise provided for in a manner reasonably satisfactory
to the Administrative Agent;

 

(iv)                              such
certificates of resolutions or other action, incumbency certificates and/or
other certificates of Responsible Officers of each Loan Party as the
Administrative Agent may reasonably require evidencing the identity, authority
and capacity of each Responsible Officer thereof authorized to act as a
Responsible Officer in connection with this Agreement and the other Loan
Documents to which such Loan Party is a party or is to be a party on the
Closing Date;

 

(v)                                 opinion
from Ropes & Gray LLP, counsel to the Loan Parties substantially in
the form of Exhibit I;

 

(vi)                              a
certificate signed by a Responsible Officer of the Borrower certifying that
there has been no change, effect, event or occurrence since January 28,
2006, that has had or could reasonably be expected to result in a Material
Adverse Change;

 

(vii)                           a
certificate attesting to the Solvency of the Loan Parties (taken as a whole)
after giving effect to the Transaction, from the Chief Financial Officer of the
Borrower;

 

(viii)                        evidence
that all insurance (including title insurance) required to be maintained
pursuant to the Loan Documents has been obtained and is in effect and that the
Administrative Agent has been named as loss payee under each insurance policy
with respect to such insurance as to which the Administrative Agent shall have
reasonably requested to be so named; and

 

79

(ix)                                certified
copies of the Recapitalization Agreement and the ABL Credit Agreement, in each
case duly executed by the parties thereto, together with all material
agreements, instruments and other documents delivered in connection therewith
as the Administrative Agent shall reasonably request, each including
certification by a Responsible Officer of the Borrower that such documents are
in full force and effect as of the Closing Date.

 

(b)                                 All fees and expenses
required to be paid hereunder and invoiced before the Closing Date shall have
been paid in full in cash.

 

(c)                                  Prior to or
simultaneously with the initial Borrowing, (i) the Equity Contributions
shall have been funded in full in cash; and (ii) the Recapitalization
shall be consummated in accordance with the terms of the Recapitalization
Agreement (which shall not have been amended, modified or waived prior to the
Closing Date in a manner material and adverse to the interests of the Lenders
without the prior written consent of the Arrangers).

 

(d)                                 Prior to or
simultaneously with the initial Borrowing of Loans, the Borrower shall have
received (i) at least $1,400,000,000 in gross cash proceeds from the
issuance of the New Notes and (ii) at least $400,000,000 in gross cash
proceeds from the ABL Loans made pursuant to the ABL Credit Agreement.

 

(e)                                  Prior to or
simultaneously with the initial Borrowing of Loans, the Borrower shall have
terminated the Existing Credit Agreement and taken all other necessary actions
such that, after giving effect to the Transaction, (i) the Borrower and
its Subsidiaries shall have outstanding no Indebtedness or preferred Equity
Interests other than (A) the Loans, (B) the New Notes, (C) ABL
Loans outstanding under the ABL Credit Agreement, (D) Indebtedness listed
on Schedule 7.03, and (E) Indebtedness between Loan Parties and (ii) the
Borrower shall have outstanding no Equity Interests (or securities convertible
into or exchangeable for Equity Interests or rights or options to acquire
Equity Interests) other than common stock owned by the Investors or members of
management of the Borrower and other co-investors reasonably acceptable to the
Arrangers.

 

(f)                                    The Arrangers and
the Lenders shall have received (i) the Audited Financial Statements and
the audit report for such financial statements (which shall not be subject to
any qualification) and (ii) unaudited consolidated balance sheets and
related statements of income, stockholders’ equity and cash flows of the
Borrower and its Subsidiaries for (A) each subsequent fiscal quarter ended
at least forty-five (45) days before the Closing Date and (B) to the
extent reasonably available and, in any event, excluding footnotes, each fiscal
month after the most recent fiscal period for which financial statements were
received by the Arrangers and the Lenders as described above and ended at least
thirty (30) days before the Closing Date (collectively, the “Unaudited Financial Statements”), which
financial statements described in clauses (i) and (ii)(A) shall be
prepared in accordance with GAAP.

 

(g)                                 On or prior to the
date of the Borrowing of Loans, each Loan Party and each other Subsidiary of
the Borrower which is an obligee or obligor with respect to any intercompany
Indebtedness shall have duly authorized, executed and delivered the
Intercompany Note, and the Intercompany Note shall be in full force and effect.

 

80

 

(h)                                 The Arrangers and the
Lenders shall have received the Pro Forma Financial Statements.

 

(i)                                     The Arrangers and
the Lenders shall have received a certificate from a Responsible Officer of the
Borrower to the effect that those representations and warranties of the
Borrower and each other Loan Party contained in Article V (except
representations contained in Sections 5.01(d) and (e), 5.02(b) and
(c), 5.03, 5.05, 5.06, 5.07, 5.08, 5.09, 5.10, 5.11, 5.12, 5.14, 5.15, 5.16 and
5.18) are true and correct in all material respects on and as of the date of
the initial Borrowing of the Loans; provided that,
to the extent that such representations and warranties described in this clause
(i) specifically refer to an earlier date, they shall be true and correct
in all material respects as of such earlier date; provided
further, that, any representation and warranty described in this
clause (i) that is qualified as to “materiality,” “Material Adverse Effect”,
or similar language shall be true and correct in all respects on such
respective dates.

 

(j)                                     No Default shall
exist, or would result from the proposed initial Borrowing of Loans or from the
application of the proceeds therefrom.

 

(k)                                  The Administrative
Agent shall have received a Committed Loan Notice in accordance with the
requirements hereof.

 

The Committed Loan Notice delivered on the Closing
Date by the Borrower shall be deemed to be a representation and warranty that
the conditions specified in Sections 4.01(i) and (j) have been satisfied
on and as of the date of the initial Borrowing of Loans.

 

ARTICLE V

 

Representations and Warranties

 

The Borrower represents and warrants to the Agents and
the Lenders that:

 

SECTION 5.01. Existence,
Qualification and Power; Compliance with Laws. Each Loan Party and each of
its Subsidiaries (a) is a Person duly organized or formed, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation or organization, (b) has all requisite power and authority
to (i) own or lease its assets and carry on its business and (ii) execute,
deliver and perform its obligations under the Loan Documents to which it
is a party, (c) is duly qualified and in good standing under the Laws of
each jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification, (d) is in compliance
with all Laws, orders, writs, injunctions and orders and (e) has all
requisite governmental licenses, authorizations, consents and approvals to
operate its business as currently conducted; except in each case referred to in
clause (c), (d) or (e), to the extent that failure to do so could not
reasonably be expected to have a Material Adverse Effect.

 

SECTION 5.02. Authorization; No
Contravention. The execution, delivery and performance by each Loan Party
of each Loan Document to which such Person is a party, and the consummation of
the Transaction, are within such Loan Party’s corporate or other powers, have
been duly authorized by all necessary corporate or other organizational action,
and do not and will not (a) contravene the terms of any of such Person’s
Organization Documents; (b) conflict with or result in any breach or
contravention of, or the creation of any Lien under (other

 

81

 

than as permitted by Section 7.01), or require any payment to be
made under (i) (x) any New Notes Documentation and any other indenture, mortgage,
deed of trust or loan agreement evidencing Indebtedness in an aggregate
principal amount in excess of the Threshold Amount or (y) any other Contractual
Obligation to which such Person is a party or affecting such Person or the
properties of such Person or any of its Subsidiaries or (ii) any material
order, injunction, writ or decree of any Governmental Authority or any arbitral
award to which such Person or its property is subject; or (c) violate any
material Law; except with respect to any conflict, breach or contravention or
payment (but not creation of Liens) referred to in clause (b)(i), to the extent
that such conflict, breach, contravention or payment could not reasonably be
expected to have a Material Adverse Effect.

 

SECTION 5.03. Governmental
Authorization; Other Consents. No material approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person is necessary or required in
connection with (a) the execution, delivery or performance by, or
enforcement against, any Loan Party of this Agreement or any other Loan
Document, or for the consummation of the Transaction, (b) the grant by any
Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) the
perfection or maintenance of the Liens created under the Collateral Documents
(including the priority thereof) or (d) the exercise by the Administrative
Agent or any Lender of its rights under the Loan Documents or the remedies in
respect of the Collateral pursuant to the Collateral Documents, except for (i) filings
necessary to perfect the Liens on the Collateral granted by the Loan Parties in
favor of the Secured Parties, (ii) the approvals, consents, exemptions,
authorizations, actions, notices and filings which have been duly obtained,
taken, given or made and are in full force and effect and (iii) those
approvals, consents, exemptions, authorizations or other actions, notices or
filings, the failure of which to obtain or make could not reasonably be expected
to have a Material Adverse Effect.

 

SECTION 5.04. Binding Effect. This
Agreement and each other Loan Document has been duly executed and delivered by
each Loan Party that is party thereto. This Agreement and each other Loan
Document constitutes, a legal, valid and binding obligation of such Loan Party,
enforceable against each Loan Party that is party thereto in accordance with
its terms, except as such enforceability may be limited by Debtor Relief
Laws and by general principles of equity.

 

SECTION 5.05. Financial Statements;
No Material Adverse Effect.  (a)  (i) The Audited Financial Statements and the
Unaudited Financial Statements fairly present in all material respects the
financial position of the Borrower and its Subsidiaries as of the dates thereof
and their results of operations for the period covered thereby in accordance
with GAAP consistently applied throughout the periods covered thereby, except
as otherwise expressly noted therein or in Schedule 5.05 hereto. During
the period from January 28, 2006 to and including the Closing Date, there
has been (i) no sale, transfer or other disposition by the Borrower or any
of its Subsidiaries of any material part of the business or property of
the Borrower or any of its Subsidiaries, taken as a whole and (ii) no
purchase or other acquisition by the Borrower or any of its Subsidiaries of any
business or property (including any Equity Interests of any other Person)
material in relation to the consolidated financial condition of the Borrower
and its Subsidiaries, in each case, which is not reflected in the foregoing
financial statements or in the notes thereto or has not otherwise been
disclosed in writing to the Lenders prior to the Closing Date.

 

82

 

(ii)                                  The unaudited pro
forma condensed consolidated balance sheet of the Borrower and its Subsidiaries
as at July 29, 2006 (including the notes thereto) (the “Pro  Forma
Balance Sheet”) and the unaudited pro  forma condensed
consolidated statements of operations (the “Pro  Forma Statements of Operations”) of the
Borrower and its Subsidiaries for the most recent fiscal year, the six months
ended July 29, 2006 and the 12-month period ending on July 29, 2006
(together with the Pro  Forma Balance Sheet, the “Pro  Forma Financial Statements”),
copies of which have heretofore been furnished to the Administrative Agent,
have been prepared giving effect (as if such events had occurred on July 29,2006
with respect to the Pro  Forma Balance Sheet or on January 30,
2005 with respect to the Pro  Forma Statements of Operations) to
the Transaction. The Pro  Forma Financial Statements have been
prepared in good faith, based on assumptions believed by the Borrower to be
reasonable as of the date of delivery thereof, and present fairly in all
material respects the pro  forma financial position of the
Borrower and its Subsidiaries as at July 29, 2006 and their pro  forma
results of operations for the periods covered thereby, assuming that the events
specified in the preceding sentence had actually occurred on July 29, 2006
with respect to the Pro  Forma Balance Sheet or on January 30,
2005 with respect to the Pro  Forma Statements of Operations.

 

(iii)                               Since the Closing Date,
there has been no event or circumstance, either individually or in the
aggregate, that has had or could reasonably be expected to have a Material
Adverse Effect.

 

(iv)                              The forecasts of
consolidated balance sheets, income statements and cash flow statements of the
Borrower and its Subsidiaries for each fiscal year ending after the Closing
Date until the seventh anniversary of the Closing Date, copies of which have
been furnished to the Administrative Agent prior to the Closing Date in a form reasonably
satisfactory to it, have been prepared in good faith on the basis of the assumptions
stated therein, which assumptions were believed to be reasonable at the time of
preparation of such forecasts, it being understood that actual results may vary
from such forecasts and that such variations may be material.

 

(v)                                 As of the Closing Date,
neither the Borrower nor any Subsidiary has any Indebtedness or other
obligations or liabilities, direct or contingent (other than (i) such
liabilities as are set forth in the financial statements described in clause (a) of
this Section 5.05, (ii) obligations arising under this Agreement, the
ABL Loan Documents and the New Notes Documentation and (iii) liabilities
incurred in the ordinary course of business) that, either individually or in
the aggregate, have had or could reasonably be expected to have a Material
Adverse Effect.

 

SECTION 5.06. Litigation. There
are no actions, suits, proceedings, claims or disputes pending or, to the
knowledge of the Borrower, threatened in writing, at law, in equity, in
arbitration or before any Governmental Authority, by or against the Borrower or
any of its Subsidiaries or against any of their properties or revenues that
either individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

 

SECTION 5.07. No Default. Neither
the Borrower nor any Subsidiary is in default under or with respect to, or a
party to, any Contractual Obligation that could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

 

83

 

SECTION 5.08. Ownership of Property;
Liens. Each Loan Party and each of its Subsidiaries has good record and
marketable title in fee simple to, or valid leasehold interests in, or
easements or other limited property interests in, all real property necessary
in the ordinary conduct of its business, free and clear of all Liens except (i) for
minor defects in title that do not materially interfere with its ability to
conduct its business or to utilize such assets for their intended purposes, (ii) for
Liens permitted by Section 7.01 and (iii) where the failure to have
such title could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.

 

SECTION 5.09. Environmental
Compliance.  (a) 
There are no claims, actions, suits, or proceedings alleging potential
liability or responsibility for violation of, or otherwise relating to, any
Environmental Law that could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

(b)                                 Except as could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, (i) none of the properties currently or formerly owned,
leased or operated by any Loan Party or any of its Subsidiaries is listed or
proposed for listing on the NPL or on the CERCLIS or any analogous foreign,
state, provincial or local list or is adjacent to any such property; (ii) to
the knowledge of the Loan Parties or any of their Restricted Subsidiaries, there
are no and never have been any underground or aboveground storage tanks or any
surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous
Materials are being or have been treated, stored or disposed of on any property
currently owned, leased or operated by any Loan Party or any of its
Subsidiaries or, to its knowledge, on any property formerly owned or operated
by any Loan Party or any of its Subsidiaries; (iii) to the knowledge of
the Loan Parties or any of their Restricted Subsidiaries, there is no asbestos
or asbestos-containing material on any property currently owned or operated by
any Loan Party or any of its Subsidiaries; and (iv) Hazardous Materials
have not been released, discharged or disposed of by any Person on any property
currently or formerly owned, leased or operated by any Loan Party or any of its
Subsidiaries and Hazardous Materials have not otherwise been released,
discharged or disposed of by any of the Loan Parties and their Subsidiaries at
any other location.

 

(c)                                  The properties owned,
leased or operated by the Borrower and the Subsidiaries do not contain any
Hazardous Materials in amounts or concentrations which (i) constitute, or
constituted a violation of, (ii) require remedial action under, or (iii) could
give rise to liability under, Environmental Laws, which violations, remedial
actions and liabilities, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.

 

(d)                                 Neither the Borrower
nor any of its Subsidiaries is undertaking, and has not completed, either
individually or together with other potentially responsible parties, any
investigation or assessment or remedial or response action relating to any
actual or threatened release, discharge or disposal of Hazardous Materials at
any site, location or operation, either voluntarily or pursuant to the order of
any Governmental Authority or the requirements of any Environmental Law except
for such investigation or assessment or remedial or response action that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

 

84

 

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

 

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

 

SECTION 5.10. Taxes. Except as
set forth in Schedule 5.10, the Borrower and its Subsidiaries have filed
all Federal, state, provincial and other material tax returns and reports
required to be filed, and have paid all material Federal, state, provincial and
other taxes, assessments, fees and other governmental charges levied or imposed
upon them or their properties, income or assets otherwise due and payable,
except those (a) which are not overdue by more than thirty (30) days or (b) which
are being contested in good faith by appropriate actions diligently conducted
and for which adequate reserves have been provided in accordance with GAAP.

 

SECTION 5.11. ERISA Compliance.
  (a)    Except
as could not, either individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect, each Plan is in compliance with the
applicable provisions of ERISA, the Code, the PBA and other Federal, state or
provincial Laws.

 

(b)                                 No ERISA Event has
occurred during the five year period prior to the date on which this
representation is made or deemed made with respect to any Pension Plan; (ii) no
Pension Plan has an “accumulated funding deficiency” (as defined in Section 412
of the Code), whether or not waived; (iii) neither any Loan Party nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than premiums
due and not delinquent under Section 4007 of ERISA); (iv) neither any
Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither
any Loan Party nor any ERISA Affiliate has engaged in a transaction that could
be subject to Sections 4069 or 4212(c) of ERISA, except, with respect to
each of the foregoing clauses of this Section 5.11(b), as could not
reasonably be expected, individually or in the aggregate, to result in a Material
Adverse Effect.

 

(c)                                  Each Canadian
Subsidiary is in compliance with the requirements of the PBA and other federal,
provincial or state laws with respect to each Pension Plan, except where the
failure to so comply would not reasonably be expected to have a Material
Adverse Effect. No fact or situation that may reasonably be expected to
result in a Material Adverse Effect exists in connection with any Pension Plan.
No Canadian Subsidiary has any material withdrawal liability in connection with
a Pension Plan. No Pension Event has occurred which could reasonably be
expected to result in a Material Adverse Effect. No lien has arisen, choate or
inchoate, in respect of a Canadian Subsidiary or its property in connection
with any Pension Plan (save for contribution amounts not yet due).

 

85

 

SECTION 5.12. Subsidiaries; Equity
Interests. As of the Closing Date, no Loan Party has any Subsidiaries other
than those specifically disclosed in Schedule 5.12, and all of the
outstanding Equity Interests in their respective Subsidiaries have been validly
issued, are fully paid and nonassessable and all Equity Interests owned by a
Loan Party are owned free and clear of all Liens except (i) those created
under the Collateral Documents and (ii) any nonconsensual Lien that is
permitted under Section 7.04. As of the Closing Date, Schedule 5.12 (a) sets
forth the name and jurisdiction of each Subsidiary, (b) sets forth the
ownership interest of the Borrower and any other Subsidiary in each Subsidiary,
including the percentage of such ownership and (c) identifies each
Subsidiary the Equity Interests of which are required to be pledged on the
Closing Date pursuant to the Collateral and Guarantee Requirement.

 

SECTION 5.13. Margin Regulations;
Investment Company Act.   (i)    The Borrower is
not engaged nor will it engage, principally or as one of its important
activities, in the business of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the FRB), or extending credit for the purpose
of purchasing or carrying margin stock, and no proceeds of any Borrowings will
be used for the purpose of purchasing or carrying margin stock (other than
pursuant to, or in connection with, the Recapitalization) or any other purpose
that violates Regulation U. The value of the margin stock (within the meaning
of Regulation U) owned by the Borrower and its Subsidiaries at any time the
extensions of credit hereunder constitute “purpose” credit (within the meaning
of Regulation U) does not exceed 25% of the value of the assets of the Borrower
and its Subsidiaries taken as a whole.

 

(ii)                                  None of the Borrower, any Person
Controlling the Borrower, or any Subsidiary is or is required to be registered
as an “investment company” under the Investment Company Act of 1940.

 

SECTION 5.14. Disclosure. No
report, financial statement, certificate or other written information furnished
by or on behalf of any Loan Party to any Agent or any Lender in connection with
the transactions contemplated hereby and the negotiation of this Agreement or
delivered hereunder or any other Loan Document (as modified or supplemented by
other information so furnished) when taken as a whole 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 materially misleading; provided that,
with respect to projected financial information and pro forma financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed by the Borrower to be reasonable at
the time of preparation; it being understood that such projections may vary
from actual results and that such variances may be material.

 

SECTION 5.15. Intellectual Property;
Licenses, Etc. Each of the Loan Parties and their Subsidiaries own, license
or possess the right to use, all of the trademarks, service marks, trade names,
domain names, copyrights, patents, patent rights, licenses, technology,
software, know-how database rights, rights of privacy and publicity and other
intellectual property rights (collectively, “IP Rights”) that are
reasonably necessary for the operation of their respective businesses as
currently conducted, and, without conflict with the rights of any Person,
except to the extent such failure to own, license or possess or such conflicts,
either individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect. The operation of the businesses of any Loan
Party or Subsidiary as currently conducted does not

 

86

 

infringe upon, misuse, misappropriate or violate any rights held by any
Person except for such infringements, misuses, misappropriations or violations,
individually or in the aggregate, which could not reasonably be expected to
have a Material Adverse Effect. No claim or litigation regarding any IP Rights,
is pending or, to the knowledge of the Borrower, threatened against any Loan
Party or Subsidiary, which, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

 

SECTION 5.16. Solvency.  On
the Closing Date after giving effect to the Transaction, the Loan Parties, on a
consolidated basis, are Solvent.

 

SECTION 5.17. Subordination of Junior
Financing. The Obligations are “Senior Debt”, “Senior Indebtedness”, “Guarantor
Senior Debt” or “Senior Secured Financing” (or any comparable term) under, and
as defined in, each of the Senior Subordinated Notes Indenture and the Subordinated
Discount Notes Indenture and under any other Junior Financing Documentation. The
Obligations are “Designated Senior Indebtedness” under and as defined in each
of the Senior Subordinated Notes Indenture and the Subordinated Discount Notes
Indenture.

 

SECTION 5.18. Labor Matters. Except
as, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect:  (a) there are no
strikes or other labor disputes against any of the Borrower or its Subsidiaries
pending or, to the knowledge of the Borrower, threatened; (b) hours worked
by and payment made to employees of each of the Borrower or its Subsidiaries
have not been in violation of the Fair Labor Standards Act or any other
applicable Laws dealing with such matters; and (c) all payments due from
any of the Borrower or its Subsidiaries on account of employee health and
welfare insurance have been paid or accrued as a liability on the books of the
relevant party.

 

ARTICLE VI

 

Affirmative Covenants

 

So long as any Lender shall have any Commitment
hereunder, any Loan or other Obligation hereunder which is accrued and payable
shall remain unpaid or unsatisfied (other than contingent indemnity obligations
with respect to then unasserted claims), the Borrower shall, and shall (except
in the case of the covenants set forth in Sections 6.01, 6.02 and 6.03) cause
each Restricted Subsidiary (and, in the case of Sections 6.04 and 6.08 only,
each Unrestricted Subsidiary) to:

 

SECTION 6.01. Financial Statements.
Deliver to the Administrative Agent for prompt further distribution to each
Lender:

 

(a)                                  as
soon as available, but in any event within ninety (90) days after the end of
each fiscal year of the Borrower beginning with the 2007 fiscal year, a
consolidated balance sheet of the Borrower and its Subsidiaries as at the end
of such fiscal year, and the related consolidated statements of income or
operations, stockholders’ equity and cash flows for such fiscal year, setting
forth in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and prepared in accordance with

 

87

 

GAAP, audited
and accompanied by a report and opinion of Ernst & Young, LLP or any
other independent registered public accounting firm of nationally recognized
standing, which report and opinion shall be prepared in accordance with
generally accepted auditing standards and shall not be subject to any “going
concern” or like qualification or exception or any qualification or exception
as to the scope of such audit;

 

(b)                                 as
soon as available, but in any event within forty-five (45) days after the end
of each of the first three (3) fiscal quarters of each fiscal year of the
Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as
at the end of such fiscal quarter, and the related (i) consolidated
statements of income or operations for such fiscal quarter and for the portion
of the fiscal year then ended and (ii) consolidated statements of cash
flows for the portion of the fiscal year then ended, setting forth in each case
in comparative form the figures for the corresponding fiscal quarter of
the previous fiscal year and the corresponding portion of the previous fiscal
year, all in reasonable detail and certified by a Responsible Officer of the
Borrower as fairly presenting in all material respects the financial position,
results of operations, stockholders’ equity and cash flows of the Borrower and
its Subsidiaries in accordance with GAAP, subject only to normal year-end
adjustments and the absence of footnotes;

 

(c)                                  as
soon as available, and in any event no later than ninety (90) days after the
end of each fiscal year of the Borrower, a detailed consolidated budget for the
following fiscal year (including a projected consolidated balance sheet of the
Borrower and its Subsidiaries as of the end of the following fiscal year, the
related consolidated statements of projected cash flow and projected income and
a summary of the material underlying assumptions applicable thereto), and, as
soon as available, significant revisions, if any, of such budget and
projections with respect to such fiscal year (collectively, the “Projections”), which Projections shall in
each case be accompanied by a certificate of a Responsible Officer stating that
such Projections are based on estimates, information and assumptions believed
by the Borrower to be reasonable and that such Responsible Officer has no
reason to believe that such Projections are incorrect or misleading in any
material respect; and

 

(d)                                 simultaneously
with the delivery of each set of consolidated financial statements referred to
in Sections 6.01(a) and 6.01(b) above, the related consolidating
financial statements reflecting the adjustments necessary to eliminate the
accounts of Unrestricted Subsidiaries (if any) from such consolidated financial
statements.

 

Notwithstanding the foregoing, the obligations in
paragraphs (a) and (b) of this Section 6.01 may be
satisfied with respect to financial information of the Borrower and the
Restricted Subsidiaries by furnishing (A) the applicable financial
statements of any direct or indirect parent of the Borrower or (B) the
Borrower’s (or any direct or indirect parent thereof) Form 10-K or 10-Q,
as applicable, filed with the SEC; provided that
with respect to each of clauses (A) and (B), (i) to the extent such
information relates to a direct or indirect parent of the Borrower, such
information is accompanied by consolidating information that explains in
reasonable detail the differences between the information relating to such
parent of the Borrower, on the one hand, and the information relating to the
Borrower and the Restricted Subsidiaries on a stand-alone basis, on the other
hand and (ii) to the extent such information is in lieu of information
required

 

88

 

to be provided under Section 6.01(a), such
materials are accompanied by a report and opinion of Ernst & Young,
LLP or any other independent registered public accounting firm of nationally
recognized standing, which report and opinion shall be prepared in accordance
with generally accepted auditing standards and shall not be subject to any “going
concern” or like qualification or exception or any qualification or exception
as to the scope of such audit.

 

SECTION 6.02. Certificates; Other
Information. Deliver to the Administrative Agent for prompt further
distribution to each Lender:

 

(a)                                  no
later than five (5) days after the delivery of the financial statements
referred to in Section 6.01(a), a certificate of its independent
registered public accounting firm certifying such financial statements and
stating that in making the examination necessary therefor no knowledge was
obtained of any Event of Default under Section 7.05 or, if any such Event
of Default shall exist, stating the nature and status of such event (which
certificate may be limited to the extent required by accounting rules or
guidelines);

 

(b)                                 no
later than five (5) days after the delivery of the financial statements
referred to in Section 6.01(a) and (b), a duly completed Compliance
Certificate signed by a Responsible Officer of the Borrower, and if such
Compliance Certificate demonstrates an Event of Default of any covenant under Section 7.05,
any of the Investors may deliver, together with such Compliance
Certificate, notice of their intent to cure (a “Notice of Intent to Cure”) such Event of Default pursuant to Section 8.05;
provided that the delivery of a Notice
of Intent to Cure shall in no way affect or alter the occurrence, existence or
continuation of any such Event of Default or the rights, benefits powers and
remedies of the Administrative Agent and the Lenders under any Loan Document;

 

(c)                                  promptly
after the same are publicly available, copies of all annual, regular, periodic
and special reports and registration statements which the Borrower files with
the SEC or with any Governmental Authority that may be substituted
therefor (other than amendments to any registration statement (to the extent
such registration statement, in the form it became effective, is
delivered), exhibits to any registration statement and, if applicable, any
registration statement on Form S-8) and in any case not otherwise required
to be delivered to the Administrative Agent pursuant hereto;

 

(d)                                 promptly
after the furnishing thereof, copies of any material requests or material
notices received by any Loan Party (other than in the ordinary course of
business) or material statements or material reports furnished to any holder of
debt securities of any Loan Party or of any of its Restricted Subsidiaries
pursuant to the terms of any New Notes Documentation or any other Indebtedness
in a principal amount greater than the Threshold Amount (but excluding material
statements or material reports relating to the “borrowing base” or the
determination thereof (including appraisals and collateral audits) furnished to
any ABL Lender) and not otherwise required to be furnished to the Lenders
pursuant to any other clause of this Section 6.02;

 

(e)                                  together
with the delivery of each Compliance Certificate pursuant to Section 6.02(b),
(i) a report setting forth the information required by Section 3.03(c) of

 

89

 

the Security
Agreement or confirming that there has been no change in such information since
the Closing Date or the date of the last such report, (ii) a description
of each event, condition or circumstance during the last fiscal quarter covered
by such Compliance Certificate requiring a mandatory prepayment or offer to
purchase under Section 2.05(b) or (c) and (iii) a list of
each Subsidiary that identifies each Subsidiary as a Restricted Subsidiary or
an Unrestricted Subsidiary as of the date of delivery of such Compliance
Certificate;

 

(f)                                    promptly,
a copy of any final “management letter” received from the Borrower’s
independent public accountants to the extent such independent public
accountants have consented to the delivery of such management letter to the
Administrative Agent upon the request of the Borrower;

 

(g)                                 promptly
following the Administrative Agent’s request therefor, all documentation and
other information that the Administrative Agent reasonably requests on its
behalf or on behalf of any Lender in order to comply with its ongoing
obligations under applicable “know your customer” and anti-money laundering rules and
regulations, including the Act;

 

(h)                                 (x)
on the date of any incurrence of Indebtedness under a revolving credit facility
to finance an Acquisition, an Investment or any other Restricted Payment, a
certificate from a Responsible Officer certifying as to the aggregate principal
amount of such Indebtedness so incurred and the date of such incurrence and (y)
on the date of any repayment of Indebtedness under a revolving credit facility
with the net proceeds of a Material Disposition, a certificate from a
Responsible Officer certifying as to the aggregate principal amount of such
Indebtedness so repaid and the date of such repayment; and

 

(i)                                     promptly,
such additional information regarding the business, legal, financial or
corporate affairs of any Loan Party or any Subsidiary, or compliance with the
terms of the Loan Documents, as the Administrative Agent or any Lender through
the Administrative Agent may from time to time reasonably request.

 

Documents required to be delivered pursuant to Section 6.01(a) or
(b) or Section 6.02(d) (to the extent any such documents are
included in materials otherwise filed with the SEC) may be delivered
electronically and if so delivered, shall be deemed to have been delivered on
the date (i) on which the Borrower posts such documents, or provides a
link thereto on the Borrower’s website on the Internet at the website address
listed on Schedule 10.02; or (ii) on which such documents are posted
on the Borrower’s behalf on IntraLinks/IntraAgency or another relevant website,
if any, to which each Lender and the Administrative Agent have access (whether
a commercial, third-party website or whether sponsored by the Administrative
Agent); provided that:  (i) upon written request by the
Administrative Agent, the Borrower shall deliver paper copies of such documents
to the Administrative Agent for further distribution to each Lender until a
written request to cease delivering paper copies is given by the Administrative
Agent and (ii) the Borrower shall notify (which may be by facsimile
or electronic mail) the Administrative Agent of the posting of any such
documents and provide to the Administrative Agent by electronic mail electronic
versions (i.e., soft copies) of such documents.

 

90

 

Notwithstanding anything contained herein, in every
instance the Borrower shall be required to provide paper copies of the
Compliance Certificates required by Section 6.02(b) to the
Administrative Agent. Each Lender shall be solely responsible for timely
accessing posted documents or requesting delivery of paper copies of such
documents from the Administrative Agent and maintaining its copies of such
documents.

 

SECTION 6.03. Notices. (a) Promptly
after obtaining knowledge thereof, notify the Administrative Agent of:

 

(i)                                     the
occurrence of any Default;

 

(ii)                                  any
loss, damage, or destruction to the Collateral in the amount of $10,000,000 or
more, whether or not covered by insurance; and

 

(iii)                               any
matter that has resulted or could reasonably be expected to result in a
Material Adverse Effect, including arising out of or resulting from (A) breach
or non-performance of, or any default or event of default under, a Contractual
Obligation of any Loan Party or any Subsidiary, (B) any dispute,
litigation, investigation, proceeding or suspension between any Loan Party or
any Subsidiary and any Governmental Authority, (C) the commencement of, or
any material development in, any litigation or proceeding affecting any Loan
Party or any Subsidiary, including pursuant to any applicable Environmental
Laws or in respect of IP Rights or the assertion or occurrence of any noncompliance
by any Loan Party or as any of its Subsidiaries with, or liability under, any
Environmental Law or Environmental Permit, or (D) the occurrence of any
ERISA Event or any Pension Event;

 

(b)                                 Furnish
contemporaneously to the Administrative Agent, a copy of any notice sent to the
administrative agent or collateral agent under Sections 5.02(d), (g) and
5.03 of the ABL Credit Agreement, if such notice is not required to be
delivered hereunder.

 

Each notice pursuant to this Section shall be
accompanied by a written statement of a Responsible Officer of the Borrower (x)
that such notice is being delivered pursuant to Section 6.03(a)(i), (ii) or
(iii) or 6.03(b) (as applicable) and (y) setting forth details of the
occurrence referred to therein and stating what action the Borrower has taken
and proposes to take with respect thereto.

 

SECTION 6.04. Payment of Obligations.
Pay, discharge or otherwise satisfy as the same shall become due and payable,
all its material obligations and liabilities in respect of material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or in respect of its property; provided
that neither the Borrower nor any of the Restricted Subsidiaries shall be
required to pay any such taxes, assessments, governmental charges or levies
that are being contested in good faith and by proper actions if it has
maintained adequate reserves with respect thereto in accordance with GAAP.

 

SECTION 6.05. Preservation of
Existence, Etc. (a) Preserve, renew and maintain in full force and
effect its legal existence under the Laws of the jurisdiction of its
organization except in a transaction permitted by Section 7.01 or 7.06 and
(b) take all reasonable action to maintain all rights, privileges
(including its good standing), permits, licenses and franchises

 

91

 

necessary or desirable in the normal conduct of its business, except (i) to
the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect or (ii) pursuant to a transaction permitted by Section 7.01
or 7.06.

 

SECTION 6.06. Maintenance of
Properties. Except if the failure to do so could not reasonably be expected
to have a Material Adverse Effect, (a) maintain, preserve and protect all
of its material properties and equipment necessary in the operation of its
business in good working order, repair and condition, ordinary wear and tear
excepted and casualty or condemnation excepted, and (b) make all necessary
renewals, replacements, modifications, improvements, upgrades, extensions and
additions thereof or thereto in accordance with prudent industry practice.

 

SECTION 6.07. Maintenance of
Insurance. (a)  Maintain with financially sound and reputable
insurance companies, insurance with respect to its properties and business
against loss or damage of the kinds customarily insured against by Persons
engaged in the same or similar business, of such types and in such amounts
(after giving effect to any self-insurance reasonable and customary for
similarly situated Persons engaged in the same or similar businesses as the
Borrower and the Restricted Subsidiaries) as are customarily carried under
similar circumstances by such other Persons. The Loan Parties shall 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 a lenders’ loss payable clause (regarding
personal property), in form and substance reasonably satisfactory to the
Administrative 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 Administrative Agent, (ii) a provision to the
effect that none of the Loan Parties, Secured Parties (in their capacity as
such), or any other Affiliate of a Loan Party shall be a co-insurer (the
foregoing not being deemed to limit the amount of self-insured retention or
deductibles under such policies, which self-insured retention or deductibles
shall be consistent with business practices in effect on the Closing Date or as
otherwise determined by the Responsible Officers of the Loan Parties acting
reasonably in their business judgment), and (iii) such other provisions as
the Administrative Agent may reasonably require from time to time to
protect the interests of the Secured Parties. Commercial general liability
policies shall be endorsed to name the Administrative Agent as an additional
insured. Each endorsement to such casualty or liability policy referred to in
this Section 6.07(b) shall also provide that it shall not be
canceled, modified in any manner that would cause this Section 6.07 to be
violated, or not renewed (i) by reason of nonpayment of premium except
upon not less than ten (10) days’ prior written notice thereof by the
insurer to the Administrative Agent (giving the Administrative Agent the right
to cure defaults in the payment of premiums) or (ii) for any other reason
except upon not less than thirty (30) days’ prior written notice thereof by the
insurer to the Administrative Agent. The Borrower shall deliver to the
Administrative Agent, prior to the cancellation, modification or non-renewal 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
Administrative Agent, including an insurance binder) together with evidence
satisfactory to the Administrative Agent of payment of the premium therefor.

 

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(c)                                  The Agents
acknowledge that the insurance policies described on Schedule 6.07 are
satisfactory to them as of the Closing Date and are in compliance with the
provisions of this Section 6.07.

 

SECTION 6.08. Compliance with Laws.
Comply in all material respects with the requirements of all Laws and all
orders, writs, injunctions and decrees applicable to it or to its business or
property, except if the failure to comply therewith could not reasonably be
expected to have a Material Adverse Effect.

 

SECTION 6.09. Books and Records.   Maintain
proper books of record and account, in which entries that are full, true and
correct in all material respects and permit financial statements to be prepared
in conformity with GAAP consistently applied shall be made of all material
financial transactions and matters involving the assets and business of the
Borrower or such Subsidiary, as the case may be.

 

SECTION 6.10. Inspection Rights.   Permit
representatives and independent contractors of the Administrative Agent and
each Lender to visit and inspect any of its properties, to examine its
corporate, financial and operating records, and make copies thereof or
abstracts therefrom, and to discuss its affairs, finances and accounts with its
directors, officers, and (subject to customary access agreements) independent
public accountants all at the reasonable expense of the Borrower and at such
reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Borrower; provided that, excluding any such visits and inspections
during the continuation of an Event of Default, only the Administrative Agent
on behalf of the Lenders may exercise rights of the Administrative Agent
and the Lenders under this Section 6.10 and the Administrative Agent shall
not exercise such rights more often than two (2) times during any calendar
year absent the existence of an Event of Default and only one (1) such
time shall be at the Borrower’s expense; provided further,
that when an Event of Default exists, the Administrative Agent or any Lender
(or any of their respective representatives or independent contractors) may do
any of the foregoing at the expense of the Borrower at any time during normal
business hours and upon reasonable advance notice. The Administrative Agent and
the Lenders shall give the Borrower the opportunity to participate in any
discussions with the Borrower’s independent public accountants.

 

SECTION 6.11. Covenant to Guarantee
Obligations and Give Security. At the Borrower’s expense, take all action
necessary or reasonably requested by the Administrative Agent to ensure that
the Collateral and Guarantee Requirement continues to be satisfied, including:

 

(a)                                  (x) upon the
formation or acquisition of any new direct or indirect Wholly Owned Subsidiary
that is a Domestic Subsidiary (in each case, other than an Unrestricted
Subsidiary or an Excluded Subsidiary) by any Loan Party or the designation of
any “Unrestricted Subsidiary” as a Restricted Subsidiary in accordance with the
definition of “Unrestricted Subsidiary”, to the extent such Subsidiary is (or
will become) a Domestic Subsidiary and a Wholly-Owned Subsidiary (other than an
Excluded Subsidiary) or (y) the formation of Holdco:

 

93

 

(i)                                     in
the case of any such Restricted Subsidiary that is required (or has elected) to
become a Subsidiary Guarantor under the Collateral and Guaranty Requirement,
within thirty (30) days after such formation, acquisition or designation or
such longer period as the Administrative Agent may agree in its
discretion:

 

(A)  cause each such Restricted Subsidiary that is required (or
has elected) to become a Subsidiary Guarantor under the Collateral and
Guarantee Requirement to furnish to the Administrative Agent a description of
the real properties owned by such Restricted Subsidiary that have a Fair Market
Value in excess of $5,000,000 in detail reasonably satisfactory to the
Administrative Agent;

 

(B)  cause (x) each such Restricted Subsidiary that is required
(or has elected) to become a Subsidiary Guarantor pursuant to the Collateral
and Guarantee Requirement to duly execute and deliver to the Administrative
Agent or the Collateral Agent (as appropriate) Guaranty Supplements, Mortgages
with respect to the owned real properties which are identified to the
Administrative Agent pursuant to Section 6.11(a)(i)(A), Security Agreement
Supplements, a counterpart of the Intercompany Note, a counterpart of
the Intercreditor Agreement and other guaranties, security agreements and
documents (including, with respect to such Mortgages, the documents listed in Section 6.13(b)),
as reasonably requested by and in form and substance reasonably
satisfactory to the Administrative Agent (consistent, where applicable, with
the Mortgages, Security Agreement, Canadian Security Agreement, relevant
Guaranty and other security agreements in effect on the Closing Date), in each
case granting Liens required by the Collateral and Guarantee Requirement and
(y) each direct or indirect parent of each such Restricted Subsidiary that is
required (or has elected) to be a Subsidiary Guarantor pursuant to the
Collateral and Guarantee Requirement to duly execute and deliver to the
Administrative Agent such Security Agreement Supplements and other security
agreements as reasonably requested by and in form and substance reasonably
satisfactory to the Administrative Agent (consistent, where applicable, with
the Security Agreements and Canadian Security Agreement as in effect on the
Closing Date), in each case granting Liens required by the Collateral and
Guarantee Requirement;

 

(C)  (x) cause each such Restricted Subsidiary that is required
(or has elected) to become a Subsidiary Guarantor pursuant to the Collateral
and Guarantee Requirement to deliver any and all certificates representing
Equity Interests (to the extent certificated) that are required to be pledged
pursuant to the Collateral and Guarantee Requirement, accompanied by undated
stock powers or other appropriate instruments of transfer executed in blank and
instruments evidencing the intercompany Indebtedness held by such Restricted
Subsidiary and required to be pledged pursuant to the Collateral Documents,
indorsed in blank to the Collateral Agent and (y) cause each direct or indirect
parent of such Restricted Subsidiary that is required (or has elected) to be a
Subsidiary Guarantor pursuant to the Collateral and Guarantee Requirement to
deliver any and all certificates representing the outstanding Equity Interests
(to the extent certificated) of such

 

94

 

Restricted
Subsidiary that are required to be pledged pursuant to the Collateral and Guarantee
Requirement, accompanied by undated stock powers or other appropriate
instruments of transfer executed in blank and instruments evidencing the
intercompany Indebtedness issued by such Restricted Subsidiary and required to
be pledged in accordance with the Collateral Documents, indorsed in blank to
the Collateral Agent; and

 

(D)  take and cause such Restricted Subsidiary and each direct or
indirect parent of such Restricted Subsidiary that is required (or has elected)
to become a Subsidiary Guarantor pursuant to the Collateral and Guaranty
Requirement to take whatever action (including the recording of Mortgages, the
filing of Uniform Commercial Code financing statements or PPSA
registration statements or recordations and delivery of stock and membership
interest certificates) may be necessary in the reasonable opinion of the
Administrative Agent to vest in the Administrative Agent (or in any
representative of the Administrative Agent designated by it) valid Liens
required by the Collateral and Guarantee Requirement, enforceable against all
third parties in accordance with their terms, except as such enforceability may be
limited by Debtor Relief Laws and by general principles of equity,

 

(ii)                                  in
the case of Holdco, within thirty (30) days after such formation, cause Holdco
to enter into the Holdco Guaranty and cause Holdco to take all such actions
contemplated by subclauses (A), (B), (C) and (D) of Section 6.11(a)(i) above
as if Holdco were a “Restricted Subsidiary” and a “direct or indirect parent of
a Restricted Subsidiary”,

 

(iii)                               within
thirty (30) days after the request therefor by the Administrative Agent,
deliver to the Administrative Agent a signed copy of an opinion, addressed to
the Administrative Agent and the other Secured Parties, of counsel for the Loan
Parties reasonably acceptable to the Administrative Agent as to such matters
set forth in this Section 6.11(a) as the Administrative Agent may reasonably
request, and

 

(iv)                              as
promptly as practicable after the request therefor by the Administrative Agent,
deliver to the Administrative Agent any existing title reports, surveys or
environmental assessment reports with respect to each parcel of real property
that is owned by such Restricted Subsidiary and has a Fair Market Value in
excess of $5,000,000.

 

(b)                                 After the Closing
Date, concurrently with (x) the acquisition of any material personal property
by any Loan Party or (y) the acquisition of any owned real property by any Loan
Party with a Fair Market Value in excess of $5,000,000 if such personal
property or owned real property shall not already be subject to a perfected
Lien pursuant to the Collateral and Guarantee Requirement, the Borrower shall
give notice thereof to the Administrative Agent and promptly thereafter shall
cause such assets to be subjected to a Lien to the extent required by the
Collateral and Guarantee Requirement and will take, or cause the relevant Loan
Party to take, such actions as shall be necessary or reasonably requested by
the Administrative Agent to grant

 

95

 

and perfect or record such Lien, including, as applicable, the actions
referred to in Section 6.13(b) with respect to real property.

 

(c)                                  If, at any time and
from time to time after the Closing Date, any Domestic Subsidiary ceases to
constitute an Immaterial Subsidiary in accordance with the definition of “Immaterial
Subsidiary”, then the Borrower shall cause such Subsidiary to become an
additional Loan Party and take all the actions contemplated by Section 6.11(a) as
if such Subsidiary were a newly-formed Domestic Subsidiary of the Borrower.

 

(d)                                 If, at any time after
the Closing Date, any Restricted Subsidiary becomes an obligee or obligor of
any intercompany Indebtedness, then the Borrower shall cause such Restricted
Subsidiary to authorize, execute and deliver a counterpart of the
Intercompany Note.

 

(e)                                  (i) Use
commercially reasonable efforts to obtain a Collateral Access Agreement from
any Person from whom a Loan Party enters into a lease after the Closing Date
for a warehouse or distribution center prior to entering into such lease, to
the extent required by the ABL Collateral Agent pursuant to the terms of ABL
Credit Agreement, and (ii) use commercially reasonable efforts to cause
each of its customs brokers to deliver an agreement (including, without
limitation, a Customs Broker Agreement) to the Collateral Agent covering such
matters and in such form as the Collateral Agent may reasonably
require, to the extent required by the ABL Collateral Agent pursuant to the
terms of the ABL Credit Agreement.

 

SECTION 6.12. Compliance with
Environmental Laws. Except, in each case, to the extent that the failure to
do so could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, comply, and take all reasonable actions
to cause all lessees and other Persons operating or occupying its properties to
comply with all applicable Environmental Laws and Environmental Permits; obtain
and renew all Environmental Permits necessary for its operations and
properties; and, in each case to the extent required by Environmental Laws,
conduct any investigation, study, sampling and testing, and undertake any
cleanup, removal, remedial or other action necessary to remove and clean up all
Hazardous Materials from any of its properties, in accordance with the
requirements of all Environmental Laws.

 

SECTION 6.13. Further Assurances and
Post-Closing Conditions. (a)  Promptly upon reasonable request by the
Administrative Agent (i) correct any material defect or error that may be
discovered in the execution, acknowledgment, filing or recordation of any
Collateral Document or other document or instrument relating to any Collateral,
and (ii) do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register any and all such further acts, deeds,
certificates, assurances and other instruments as the Administrative Agent may reasonably
request from time to time in order to carry out more effectively the purposes
of the Collateral Documents.

 

(b)                     In the case of any real property
referred to in Section 6.11(a)(i)(A) or 6.11(b), provide the
Administrative Agent with Mortgages with respect to such owned real property
within thirty (30) days of the acquisition of such real property, in each case
together with:

 

96

 

(i)                                     evidence
that counterparts of the Mortgages have been duly executed, acknowledged and
delivered and are in form suitable for filing or recording in all filing
or recording offices that the Administrative Agent may deem reasonably
necessary or desirable in order to create a valid and subsisting perfected Lien
on the property and/or rights described therein in favor of the Administrative
Agent or the Collateral Agent (as appropriate) for the benefit of the Secured
Parties and that all filing and recording taxes and fees have been paid or
otherwise provided for in a manner reasonably satisfactory to the
Administrative Agent;

 

(ii)                                  fully
paid American Land Title Association Lender’s Extended Coverage title insurance
policies or the equivalent or other form available in each applicable
jurisdiction (the “Mortgage Policies”)
in form and substance, with endorsements and in amount, reasonably
acceptable to the Administrative Agent (not to exceed the value of the real
properties covered thereby), issued, coinsured and reinsured by title insurers
reasonably acceptable to the Administrative Agent, insuring the Mortgages to be
valid subsisting Liens on the property described therein, free and clear of all
defects and encumbrances, subject to Liens permitted by Section 7.04, and
providing for such other affirmative insurance (including endorsements for
future advances under the Loan Documents) and such coinsurance and direct
access reinsurance as the Administrative Agent may reasonably request;

 

(iii)                               opinions
of local counsel for the Loan Parties in states in which such real properties
are located, with respect to the enforceability and perfection of the Mortgages
and any related fixture filings in form and substance reasonably
satisfactory to the Administrative Agent;

 

(iv)                              to
the extent required by applicable law, flood certificates covering each
Mortgaged Property in form and substance reasonably acceptable to the
Collateral Agent, certified to the Collateral Agent in its capacity as such and
certifying whether or not each such Mortgaged Property is located in a flood
hazard zone by reference to the applicable FEMA map; and

 

(v)                                 such
other evidence that all other actions that the Administrative Agent may reasonably
deem necessary or desirable in order to create valid and subsisting Liens on
the property described in the Mortgages have been taken.

 

SECTION 6.14. Corporate Separateness.
  (a)    Satisfy, and cause each of its
Restricted Subsidiaries and Unrestricted Subsidiaries to satisfy, customary
corporate and other formalities, including, as applicable, the holding of
regular Board of Directors’ meetings or action by directors without a meeting
and the maintenance of corporate offices and records.

 

(b)                                 Ensure that (i) no
bank account of any Unrestricted Subsidiary shall be commingled with any bank
account of the Borrower or any of the Borrower’s Restricted Subsidiaries, and (ii) any
financial statements distributed to any creditors of any Unrestricted
Subsidiary shall clearly establish or indicate the corporate separateness of
such Unrestricted Subsidiary from the Borrower and the Borrower’s Restricted
Subsidiaries.

 

97

 

SECTION 6.15. Pension Plans. Each
Loan Party shall cause each of its Pension Plans to be duly qualified and
administered in all respects in compliance with, as applicable, the PBA and all
Laws (including regulations, orders and directives), and the terms of the
Pension Plans and any agreements relating thereto, except for such
non-compliance as would not reasonably be expected to have a Material Adverse
Effect. Each Loan Party and each of its Subsidiaries shall ensure that it,
except where failure to do so would not reasonably be expected to have a
Material Adverse Effect (a) has no Unfunded Pension Liability in respect
of any Pension Plan, including any Pension Plan to be established and
administered by it or them; and (b) does not engage in a prohibited
transaction or violation of the fiduciary responsibility rules with
respect to any Pension Plan that could reasonably be expected to result in
liability.

 

ARTICLE VII

 

Negative Covenants

 

So long as any Lender shall have any Commitment
hereunder, any Loan or other Obligation hereunder which is accrued and payable
shall remain unpaid or unsatisfied (other than contingent indemnity obligations
with respect to then unasserted claims):

 

SECTION 7.01. Asset Sales. The
Borrower shall not, and shall not permit any of its Restricted Subsidiaries to
consummate an Asset Sale, unless:

 

(a)                                  the
Borrower or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of; and

 

(b)                                 except
in the case of a Permitted Asset Swap, at least 75% of the consideration
therefor received by the Borrower or such Restricted Subsidiary, as the case may be,
is in the form of Cash Equivalents; provided that
the amount of (i) any liabilities (as shown on the Borrower’s or such
Restricted Subsidiary’s most recent balance sheet or in the footnotes thereto)
of the Borrower or such Restricted Subsidiary, other than liabilities that are
by their terms subordinated to the Obligations, that are assumed by the transferee
of any such assets and for which the Borrower and all of its Restricted
Subsidiaries have been validly released by all creditors in writing, (ii) any
securities received by the Borrower or such Restricted Subsidiary from such
transferee that are converted by the Borrower or such Restricted Subsidiary
into Cash Equivalents (to the extent of the Cash Equivalents received) within
180 days following the closing of such Asset Sale, and (iii) any
Designated Non-cash Consideration received by the Borrower or such Restricted
Subsidiary in such Asset Sale having an aggregate Fair Market Value, taken
together with all other Designated Non-cash Consideration received pursuant to
this clause (iii) that is at that time outstanding, not to exceed 7.5% of
Total Assets at the time of the receipt of such Designated Non-cash
Consideration, with the Fair Market Value of each item of Designated Non-cash
Consideration being measured at the time received and without giving effect to
subsequent changes in value, shall be deemed to be Cash Equivalents for
purposes of this provision and for no other purpose; and

 

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(c)                                  an
amount equal to 100% of the Net Proceeds of such Asset Sale are applied in
accordance with the requirements of (and to the extent required by) Section 2.05(c).

 

SECTION 7.02. Limitation on
Restricted Payments. (a)  The Borrower shall not, nor shall permit any of its
Restricted Subsidiaries to, directly or indirectly, (w) declare or pay any
dividend or make any payment having the effect thereof or any distribution on
account of the Borrower’s, or any Restricted Subsidiary’s, Equity Interests,
including any dividend or distribution payable in connection with any merger or
consolidation other than (A) dividends or distributions by the Borrower
payable solely in Equity Interests (other than Disqualified Stock) of the
Borrower or (B) dividends or distributions by a Restricted Subsidiary so
long as, in the case of any dividend or distribution payable on or in respect
of any class or series of securities issued by a Restricted
Subsidiary other than a Wholly-Owned Subsidiary, the Borrower or a Restricted
Subsidiary receives at least its pro rata share of such dividend or
distribution in accordance with its Equity Interests in such class or series of
securities, (x) purchase, redeem, defease or otherwise acquire or retire for
value any Equity Interests of the Borrower or any direct or indirect parent of
the Borrower, including in connection with any merger, amalgamation or
consolidation, (y) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value, in each case prior to any
scheduled repayment, sinking fund payment or maturity, any Subordinated
Indebtedness, other than:  (A) Indebtedness
permitted under Section 7.03(b)(vii) or (viii), except to the extent
prohibited by the subordination provisions contained in any Intercompany Note
or (B) the purchase, repurchase or other acquisition of Subordinated
Indebtedness purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of purchase, repurchase or acquisition, or (z) make any Restricted
Investment (all such payments and other actions set forth in clauses (w)
through (z) above being collectively referred to as “Restricted
Payments”), unless at the time of such Restricted Payment:

 

(i)                                     no
Default shall have occurred and be continuing or would occur as a consequence
thereof;

 

(ii)                                  immediately
after giving effect to such transaction on a pro forma basis, (x) the Borrower
could satisfy the Fixed Charge Coverage Ratio Incurrence Test and (y) the
Borrower is in Pro  Forma Compliance with Section 7.05; and

 

(iii)                               such
Restricted Payment, together with the aggregate amount of all other Restricted
Payments made by the Borrower and its Restricted Subsidiaries after the Closing
Date (including Restricted Payments permitted by Sections 7.02(b)(i),
7.02(b)(vi)(C), (ix) and (xiv), but excluding all other Restricted
Payments permitted by Section 7.02(b)), is less than the sum of (without
duplication):

 

(A)                              if, immediately after giving effect to
such Restricted Payment and any related financing transaction on a pro  forma
basis, the Consolidated Total Leverage Ratio is less than 6.00 to 1.00, the
Cumulative Retained Excess Cash Flow Amount at such time; plus

 

99

 

(B)                                100% of the aggregate net cash proceeds
and the Fair Market Value, as determined in good faith by the Borrower, of
marketable securities or other property received by the Borrower since
immediately after the Closing Date (other than net cash proceeds to the extent
such net cash proceeds have been used to incur Indebtedness, Disqualified Stock
or Preferred Stock pursuant to Section 7.03(b)(xii)(A)) from the issue or
sale of:

 

(I)  (1) Equity Interests of
the Borrower, including Treasury Capital Stock, but excluding cash proceeds and
the Fair Market Value of marketable securities or other property received from
the sale of:

 

(x)                                   Equity Interests to members of
management, directors or consultants of the Borrower, any direct or indirect
parent company of the Borrower and the Borrower’s Subsidiaries after the
Closing Date to the extent such amounts have been applied to Restricted
Payments made in accordance with Section 7.02(b)(iv); and

 

(y)                                 Designated Preferred Stock; and

 

(2)                                  to the extent such net cash proceeds are
actually contributed to the Borrower, Equity Interests of the Borrower’s direct
or indirect parent companies (excluding contributions of the proceeds from the
sale of Designated Preferred Stock of such companies or contributions to the
extent such amounts have been applied to Restricted Payments made in accordance
with Section 7.02(b)(iv)); or

 

(II)                                debt securities of the Borrower that have
been converted into or exchanged for Equity Interests of the Borrower;

 

provided,
however, that
this clause (B) shall not include the proceeds from (V) a Permitted Cure
Issuance, (W) Refunding Capital Stock (as defined below), (X) Equity Interests
or convertible debt securities of the Borrower sold to a Restricted Subsidiary,
(Y) Disqualified Stock or debt securities that have been converted into
Disqualified Stock or (Z) Excluded Contributions; plus

 

(C)                                100% of the aggregate amount of cash and
the Fair Market Value of marketable securities or other property contributed to
the capital of the Borrower following the Closing Date (other than (x) cash
contributed to the Borrower pursuant to a Permitted Cure Issuance, (y) by a
Restricted Subsidiary and (z) from any Excluded Contributions); plus

 

(D)                               100% of the aggregate amount received in
cash and the Fair Market Value of marketable securities or other property
received by means of:

 

(I)                                    the sale or other disposition (other than
to the Borrower or a Restricted Subsidiary) of Restricted Investments made by
the Borrower or its Restricted Subsidiaries and repurchases and redemptions of
such

 

100

 

Restricted
Investments from the Borrower or its Restricted Subsidiaries and repayments of
loans or advances, and releases of guarantees, which constitute Restricted
Investments by the Borrower or its Restricted Subsidiaries, in each case after
the Closing Date; or

 

(II)                                the sale (other than to the Borrower or a
Restricted Subsidiary) of the stock of an Unrestricted Subsidiary or a
distribution from an Unrestricted Subsidiary (other than in each case to the
extent the Investment in such Unrestricted Subsidiary was made by the Borrower
or a Restricted Subsidiary pursuant to Section 7.02(b)(vii) or to the
extent such Investment constituted a Permitted Investment) or a dividend from
an Unrestricted Subsidiary after the Closing Date; plus

 

(E)                                 in the case of the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary or the merger, amalgamation
or consolidation of an Unrestricted Subsidiary into the Borrower or a
Restricted Subsidiary or the transfer of all or substantially all of the assets
of an Unrestricted Subsidiary to the Borrower or a Restricted Subsidiary after
the Closing Date, the Fair Market Value of the Investment in such Unrestricted
Subsidiary (or the assets transferred), or if such Fair Market Value may exceed
$125,000,000, as determined in writing by an Independent Financial Advisor, at
the time of the redesignation of such Unrestricted Subsidiary as a Restricted
Subsidiary or at the time of such merger, amalgamation, consolidation or
transfer of assets to the extent the Investment in such Unrestricted Subsidiary
was made by the Borrower or a Restricted Subsidiary pursuant to Section 7.02(b)(vii) or
to the extent such Investment constituted a Permitted Investment.

 

(b)                                 The provisions of Section 7.02(a) will
not prohibit:

 

(i)                                     the
payment of any dividend within 60 days after the date of declaration thereof,
if at the date of declaration such payment would have complied with the
provisions of this Agreement;

 

(ii)                                  (A) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
(“Treasury Capital Stock”) of the
Borrower or any Equity Interests of any direct or indirect parent company of
the Borrower or any Subordinated Indebtedness of the Borrower or a Restricted
Subsidiary, in exchange for, or out of the proceeds of, the substantially
concurrent sale or issuance (other than to a Restricted Subsidiary) of, Equity
Interests of the Borrower or any direct or indirect parent company of the
Borrower to the extent contributed to the Borrower (in each case, other than
any Disqualified Stock) (“Refunding Capital
Stock”), (B) the declaration and payment of dividends on
Treasury Capital Stock out of the proceeds of the substantially concurrent sale
or issuance (other than to a Subsidiary of the Borrower or to an employee stock
ownership plan or any trust established by the Borrower or any of its
Subsidiaries) of Refunding Capital Stock, and (C) if immediately prior to
the retirement of Treasury Capital Stock, the declaration and payment of
dividends thereon was

 

101

 

permitted
under sub-clause (vi) of this Section 7.02(b), the declaration and
payment of dividends on the Refunding Capital Stock (other than Refunding
Capital Stock the proceeds of which were used to redeem, repurchase, retire or
otherwise acquire any Equity Interests of any direct or indirect parent company
of the Borrower) in an aggregate amount per year no greater than the aggregate
amount of dividends per annum that were declarable and payable on such Treasury
Capital Stock immediately prior to such retirement;

 

(iii)                               the
redemption, repurchase or other acquisition or retirement of Subordinated
Indebtedness of the Borrower or a Subsidiary Guarantor made by exchange for, or
out of the proceeds of the substantially concurrent sale of, new Indebtedness
of the Borrower or a Subsidiary Guarantor, as the case may be, which is
incurred in compliance with Section 7.03 so long as (A) the principal
amount (or accreted value, if applicable) of such new Indebtedness does not
exceed the principal amount of (or accreted value, if applicable), plus any accrued and unpaid interest on, the Subordinated
Indebtedness being so redeemed, repurchased, exchanged, acquired or retired for
value, plus the amount of any premium required
to be paid under the terms of the instrument governing the Subordinated
Indebtedness being so redeemed, repurchased, exchanged, acquired or retired and
any reasonable fees and expenses incurred in connection with such redemption,
repurchase, exchange, acquisition or retirement and the issuance of such new
Indebtedness, (B) such new Indebtedness is subordinated to the Obligations
at least to the same extent as such Subordinated Indebtedness so repurchased,
exchanged, redeemed, acquired or retired for value, (C) such new
Indebtedness has a final scheduled maturity date equal to or later than the
final scheduled maturity date of the Subordinated Indebtedness being so
redeemed, repurchased, exchanged, acquired or retired, and (D) such new
Indebtedness has a Weighted Average Life to Maturity equal to or greater than
the remaining Weighted Average Life to Maturity of the Subordinated
Indebtedness being so redeemed, repurchased, exchanged, acquired or retired;

 

(iv)                              a
Restricted Payment to pay for the repurchase, retirement or other acquisition
or retirement for value of Equity Interests (other than Disqualified Stock) of
the Borrower or any of its direct or indirect parent companies held by any
future, present or former employee, director or consultant of the Borrower, any
of its Subsidiaries or any of its direct or indirect parent companies, or any
of their respective estates, spouses or former spouses, pursuant to any
management equity plan or stock option plan or any other management or employee
benefit plan or agreement (including, for the avoidance of doubt, any principal
and interest payable on any notes issued by the Borrower or any direct or
indirect parent company in connection with any such repurchase, retirement or
other acquisition or retirement); provided, however,
that the aggregate Restricted Payments made under this clause (iv) do not
exceed in any calendar year $15,000,000 (which shall increase to $30,000,000
subsequent to the consummation of an underwritten public Equity Offering by the
Borrower or any direct or indirect parent company of the Borrower) with unused
amounts in any calendar year being carried over to succeeding calendar years
subject to a

 

102

 

maximum
(without giving effect to the following proviso) of $30,000,000 in any calendar
year (which shall increase to $60,000,000 subsequent to the consummation of an
underwritten public Equity Offering by the Borrower or any direct or indirect
parent company of the Borrower); provided further,
that such amount in any calendar year may be increased by an amount not to
exceed (A) the cash proceeds from the sale of Equity Interests (other than
Disqualified Stock) of the Borrower and, to the extent contributed to the
Borrower, Equity Interests of any of the Borrower’s direct or indirect parent companies,
in each case to members of management, directors or consultants of the
Borrower, any of its Subsidiaries or any of its direct or indirect parent
companies that occurs after the Closing Date, to the extent the cash proceeds
from the sale of such Equity Interests have not otherwise been applied to the
payment of Restricted Payments by virtue of Section 7.02(b)(iii), plus, in respect of any sale of Equity Interests in
connection with an exercise of stock options, an amount equal to the amount
required to be withheld by the Borrower or any of its direct or indirect parent
companies in connection with such exercise under applicable law to the extent
such amount is repaid to the Borrower or its direct or indirect parent company,
as applicable, constituted a Restricted Payment and has not otherwise been
applied to the payment of Restricted Payments by virtue of Section 7.02(b)(iii),
plus (B) the cash proceeds of key
man life insurance policies received by the Borrower or its Restricted
Subsidiaries after the Closing Date, less (C) the amount of any Restricted
Payments previously made with the cash proceeds described in clauses (A) and
(B) of this clause (iv); and provided further,
that cancellation of Indebtedness owing to the Borrower from employees, directors
or consultants of the Borrower, any of the Borrower’s direct or indirect parent
companies or any of the Borrower’s Restricted Subsidiaries in connection with a
repurchase of Equity Interests of the Borrower or any of its direct or indirect
parent companies will not be deemed to constitute a Restricted Payment for
purposes of this Section 7.02 or any other provision of this Agreement;

 

(v)                                 the
declaration and payment of dividends to holders of any class or series of
Disqualified Stock of the Borrower or any of its Restricted Subsidiaries issued
in accordance with Section 7.03 to the extent such dividends are included
in the definition of “Fixed Charges”;

 

(vi)                              (A) the
declaration and payment of dividends to holders of any class or series of
Designated Preferred Stock (other than Disqualified Stock) issued by the
Borrower after the Closing Date, (B) the declaration and payment of
dividends to a direct or indirect parent company of the Borrower, the proceeds
of which will be used to fund the payment of dividends to holders of any class or
series of Designated Preferred Stock (other than Disqualified Stock) of
such parent company issued after the Closing Date, provided
that the amount of dividends paid pursuant to this clause (B) shall not
exceed the aggregate amount of cash actually contributed to the Borrower from
the sale of such Designated Preferred Stock, or (C) the declaration and
payment of dividends on Refunding Capital Stock that is Preferred Stock in
excess of the dividends declarable and payable thereon pursuant to Section 7.02(b)(ii);
provided, however, in the case of

 

103

 

each of
Sections 7.02(b)(vi)(A), (B) and (C), that for the most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date of issuance of such Designated Preferred Stock
or the declaration of such dividends on Refunding Capital Stock that is
Preferred Stock, after giving effect to such issuance or declaration on a pro
forma basis, (x) the Borrower and its Restricted Subsidiaries on a
consolidated basis would have had a Fixed Charge Coverage Ratio of at least
2.00 to 1.00 and (y) the Borrower is in Pro  Forma Compliance with
Section 7.05;

 

(vii)                           Investments
in Unrestricted Subsidiaries having an aggregate Fair Market Value, taken
together with all other Investments made pursuant to this clause (vii) that
are at the time outstanding, without giving effect to the sale of an
Unrestricted Subsidiary to the extent the proceeds of such sale do not consist
of, or have not been subsequently sold or transferred for, cash or marketable
securities, not to exceed $75,000,000 (with the Fair Market Value of each
Investment being measured at the time made and without giving effect to subsequent
changes in value); provided that
immediately after giving effect to such Investment, (I) no Default shall have
occurred and be continuing, (II) the Borrower is in Pro  Forma
Compliance with Section 7.05 (determined on a pro  forma
basis taking into account such Investment) and (III)  the Consolidated Total Leverage Ratio is less
than 6.00 to 1.00 (determined on a pro forma basis after giving effect to such
Investment);

 

(viii)                        repurchases
of Equity Interests deemed to occur upon exercise of stock options or warrants
if such Equity Interests represent a portion of the exercise price of such
options or warrants;

 

(ix)                                the
declaration and payment of dividends on the Borrower’s common stock (or the
payment of dividends to any direct or indirect parent entity to fund a payment
of dividends on such entity’s common stock), following the first public
offering of the Borrower’s common stock or the common stock of any of its
direct or indirect parent companies after the Closing Date, of up to 6% per
annum of the net cash proceeds received by or contributed to the Borrower in or
from any public offering, other than public offerings with respect to the
Borrower’s common stock registered on Form S-8 and other than any public
sale constituting an Excluded Contribution;

 

(x)                                   Restricted
Payments that are made with Excluded Contributions;

 

(xi)                                other
Restricted Payments in an aggregate amount taken together with all other
Restricted Payments made pursuant to this clause (xi) that are at the time
outstanding, without giving effect to the sale of an Investment to the extent
the proceeds of such sale do not consist of, or have not been subsequently sold
or transferred for, cash or marketable securities, not to exceed $75,000,000
(with the Fair Market Value of each Investment being measured at the time made
and without giving effect to subsequent changes in value); provided
that immediately

 

104

 

after giving
pro forma effect to such Restricted Payment and any related financing transaction,
the Consolidated Total Leverage Ratio is less than 6.00 to 1.00;

 

(xii)                             distributions
or payments of Receivables Fees;

 

(xiii)                          any
Restricted Payment used to fund the Transaction and the fees and expenses
related thereto or owed to Affiliates, in each case with respect to any
Restricted Payment to or owed to an Affiliate to the extent permitted by the
covenant described under Section 7.07;

 

(xiv)                         the
repurchase, redemption or other acquisition or retirement for value of any
Subordinated Indebtedness pursuant to a “change of control” offer to purchase
or provisions similar to those described under Section 2.05(c); provided that, prior to such repurchase, redemption or other
acquisition, the Borrower (or a third party to the extent permitted by this
Agreement) shall have (x) in the case of a “change of control”, repaid in full
all then outstanding Loans or (y) in the case of an asset sale, made an Asset
Sale/Casualty Event Offer with respect to the outstanding Loans and repaid all
such Loans validly tendered for prepayment and not withdrawn in connection with
such Asset Sale/Casualty Event Offer;

 

(xv)                            the
declaration and payment of dividends or distributions by the Borrower to, or
the making of loans to, any direct or indirect parent company in amounts
required for any direct or indirect parent companies to pay, in each case
without duplication,

 

(A)  franchise taxes and other fees, taxes and expenses required
to maintain their corporate existence;

 

(B)  federal, state, provincial and local income taxes, to the
extent such income taxes are attributable to the income of the Borrower and its
Restricted Subsidiaries and, to the extent of the amount actually received from
its Unrestricted Subsidiaries, in amounts required to pay such taxes to the
extent attributable to the income of such Unrestricted Subsidiaries; provided that in each case the amount of such payments in
any fiscal year does not exceed the excess (if any) of (I) the amount that the
Borrower and its Restricted Subsidiaries would be required to pay in respect of
federal, state provincial, municipal and local income taxes for such fiscal
year were the Borrower, its Restricted Subsidiaries and its Unrestricted
Subsidiaries (to the extent described above) to pay such taxes separately from
any such parent company over (II) the aggregate federal, state, provincial,
municipal and local income taxes paid by the Borrower and its Restricted
Subsidiaries;

 

(C)  customary salary, bonus and other benefits payable to
officers and employees of any direct or indirect parent company of the Borrower
to the extent such salaries, bonuses and other benefits are attributable to the
ownership or operation of the Borrower and its Restricted Subsidiaries;

 

105

 

(D) 
general corporate operating and overhead costs and expenses of any direct or
indirect parent company of the Borrower to the extent such costs and expenses
are attributable to the ownership or operation of the Borrower and its
Restricted Subsidiaries; and

 

(E)  fees
and expenses other than to Affiliates of the Borrower related to any
unsuccessful equity or debt offering of such parent company;

 

(xvi)                         the distribution, by dividend
or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Borrower
or a Restricted Subsidiary by, Unrestricted Subsidiaries (other than
Unrestricted Subsidiaries, the primary assets of which are Cash Equivalents);

 

(xvii)                      cash payments in lieu of the
issuance of fractional shares in connection with the exercise of warrants,
options or other securities convertible into or exchangeable for Capital Stock
of the Borrower or any direct or indirect parent company of the Borrower;
provided, that any such cash payment shall not be for the purpose of evading
the limitation of this covenant;

 

(xviii)                   the payment of dividends and other
distributions in an amount equal to any reduction in taxes actually realized by
the Borrower and its Restricted Subsidiaries in the form of refunds or
credits or from deductions when applied to offset income or gain as a direct
result of (I) transaction fees and expenses, (II) commitment and other
financing fees or (III) severance, change in control and other compensation
expense incurred in connection with the exercise, repurchase, rollover or payout
of stock options or bonuses, in each case in connection with the Transaction;
and

 

(xix)                           mandatory redemptions of
Subordinated Discount Notes (and any exchange notes issued in respect thereof)
pursuant to the Subordinated Discount Notes Indenture due to the existence of
an AHYDO Amount (as defined in the 
Subordinated Discount Notes Indenture);

 

provided, however,
that at the time of, and after giving effect to, any Restricted Payment
permitted under Sections 7.02(b)(xi), (xvi), (xviii) and (xix), no Default
shall have occurred and be continuing or would occur as a consequence thereof.

 

(c)                                  The Borrower shall
not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except
pursuant to the penultimate sentence of the definition of “Unrestricted
Subsidiary”. For purposes of designating any Restricted Subsidiary as an
Unrestricted Subsidiary, all outstanding Investments by the Borrower and the
Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so
designated shall be deemed to be Investments in an amount determined as set
forth in the last sentence of the definition of “Investment”. Such designation
shall be permitted only if a Restricted Payment in such amount would be
permitted at such time, whether pursuant to Section 7.02(a) or under

 

106

 

Sections 7.02(b)(vii), (x), (xi) or (xvi), or pursuant to the
definition of “Permitted Investments,” and if such Subsidiary otherwise meets
the definition of an “Unrestricted Subsidiary”.

 

SECTION 7.03. Limitation on
Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred
Stock. (a)  The Borrower will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise (collectively, “incur”
and collectively, an “incurrence”)
with respect to any Indebtedness (including Acquired Indebtedness) and the
Borrower will not issue any shares of Disqualified Stock and will not permit
any Restricted Subsidiary to issue any shares of Disqualified Stock or
Preferred Stock.

 

(b)                                 The limitations set
forth in Section 7.03(a) shall not apply to any of the following
items (collectively, “Permitted Debt”):

 

(i)                                     (x) Indebtedness
incurred pursuant to the ABL Loan Documents by the Borrower or any Restricted
Subsidiary; provided that
immediately after giving effect to any such incurrence, the aggregate principal
amount of all Indebtedness incurred under this clause (x) and then outstanding
does not exceed the greater of (A) $1,200,000,000 less up to $150,000,000 in the aggregate
of all principal payments with respect to such Indebtedness made following the
Closing Date pursuant to Section 2.05(c)(i) (provided that commitments are
correspondingly reduced in connection therewith) less the aggregate principal amount of outstanding
obligations under or in respect of Receivables Facilities and (B) (i) 90.0%
of the eligible credit card and debit card receivables of the Borrower and its
Restricted Subsidiaries plus (ii) 90%
of the net appraised orderly liquidation value of the eligible inventory of the
Borrower and its Restricted Subsidiaries and (y) Indebtedness incurred pursuant
to the Loan Documents by the Borrower or any Restricted Subsidiary;

 

(ii)                                  the incurrence by the
Borrower or any Subsidiary Guarantor of Indebtedness represented by (a) the
Senior Notes issued on the Closing Date (including any guarantees thereof) and
the exchange notes and related guarantees to be issued in exchange for the
Senior Notes pursuant to the Registration Rights Agreement (other than any
Additional Notes (as defined in the Senior Notes Indenture)), (b) the
Senior Subordinated Notes issued on the Closing Date (including any guarantees
thereof) and the exchange notes and related guarantees to be issued in exchange
for the Senior Subordinated Notes pursuant to the Registration Rights Agreement
(other than any Additional Notes (as defined in the Senior Subordinated Notes
Indenture)) and (c) the Subordinated Discount Notes issued on the Closing
Date (including any guarantees thereof) and the exchange notes and related
guarantees to be issued in exchange for the Subordinated Discount Notes
pursuant to the Registration Rights Agreement (other than any Additional Notes
(as defined in the Subordinated Discount Notes Indenture));

 

(iii)                               Indebtedness existing on
the Closing Date and set forth in Schedule 7.03 (other than Indebtedness
described in clauses (i) and (ii) above of this Section 7.03);

 

(iv)                              (x) Indebtedness
(including Capitalized Lease Obligations) incurred, or Disqualified Stock and
Preferred Stock issued, by the Borrower or any of its Restricted

 

107

 

Subsidiaries, to finance the purchase, lease
or improvement of property (real or personal) or equipment that is used or
useful in a Similar Business, whether through the direct purchase of assets or
the Capital Stock of any Person owning such assets and (y) any Indebtedness
incurred or Disqualified Stock or Preferred Stock issued to refund, refinance
or replace any other Indebtedness incurred or Disqualified Stock or Preferred
Stock issued pursuant to this clause (iv); provided
that the aggregate amount of Indebtedness incurred and Disqualified Stock and
Preferred Stock issued pursuant to clauses (x) and (y) of this clause (iv) does
not exceed $125,000,000 at any one time outstanding;

 

(v)                                 Indebtedness incurred
by the Borrower or any of its Restricted Subsidiaries constituting
reimbursement obligations with respect to letters of credit issued in the
ordinary course of business, including letters of credit in respect of workers’
compensation claims, health, disability or other employee benefits or property,
casualty or liability insurance or self-insurance, or other Indebtedness with
respect to reimbursement type obligations regarding workers’ compensation
claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;

 

(vi)                              Indebtedness arising from
agreements of the Borrower or its Restricted Subsidiaries providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or a Subsidiary, other than guarantees of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or a Subsidiary
for the purpose of financing such acquisition; provided,
however, that

 

(A)  such
Indebtedness is not reflected on the balance sheet of the Borrower or any of
its Restricted Subsidiaries prepared in accordance with GAAP (contingent
obligations referred to in a footnote to financial statements and not otherwise
reflected on the balance sheet will not be deemed to be reflected on such
balance sheet for purposes of this clause (vi)(A)); and

 

(B)  the
maximum assumable liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds including non-cash proceeds (the Fair Market
Value of such non-cash proceeds being measured at the time received and without
giving effect to any subsequent changes in value) actually received by the
Borrower and its Restricted Subsidiaries in connection with such disposition;

 

(vii)                           Indebtedness of the Borrower
to a Restricted Subsidiary; provided
that any such Indebtedness owing to a Restricted Subsidiary that is not a
Subsidiary Guarantor is expressly subordinated in right of payment to the Obligations;
provided further, that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any other subsequent transfer of any such Indebtedness (except to the Borrower
or another Restricted Subsidiary or any pledge of such Indebtedness
constituting a Permitted Lien) shall be 

 

108

 

deemed, in each case, to be an incurrence of
such Indebtedness not permitted by this clause (vii);

 

(viii)                        Indebtedness of a Restricted
Subsidiary to the Borrower or another Restricted Subsidiary; provided that if a Subsidiary Guarantor
incurs such Indebtedness to a Restricted Subsidiary that is not a Subsidiary
Guarantor, such Indebtedness is expressly subordinated in right of payment to
the obligations of such Subsidiary Guarantor under its Guaranty; provided further, that any subsequent
issuance or transfer of any Capital Stock or any other event which results in
any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of any such Indebtedness (except to the Borrower or another
Restricted Subsidiary or any pledge of such Indebtedness constituting a
Permitted Lien) shall be deemed, in each case, to be an incurrence of such
Indebtedness not permitted by this clause (viii);

 

(ix)                                shares of Preferred
Stock of a Restricted Subsidiary issued to the Borrower or another Restricted
Subsidiary, provided that any
subsequent issuance or transfer of any Capital Stock or any other event which
results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary
or any other subsequent transfer of any such shares of Preferred Stock (except
to the Borrower or another of its Restricted Subsidiaries or any pledge of such
Capital Stock constituting a Permitted Lien) shall be deemed in each case to be
an issuance of such shares of Preferred Stock not permitted by this clause
(ix);

 

(x)                                   (x) Hedging
Obligations (excluding Hedging Obligations entered into for speculative
purposes) for the purpose of limiting interest rate risk, exchange rate risk or
commodity pricing risk and (y) Indebtedness in respect of Cash Management
Services provided by any Lender or any ABL Lender or any affiliate of any such
lender (or any Person that was a Lender, an ABL Lender or an affiliate of any
such lender at the time the applicable agreement pursuant to which such Cash
Management Services are provided was entered into);

 

(xi)                                obligations in respect
of performance, bid, appeal and surety bonds and performance and completion
guarantees or obligations in respect of letters of credit related thereto
provided by the Borrower or any of its Restricted Subsidiaries in the ordinary
course of business;

 

(xii)                             Indebtedness or
Disqualified Stock of the Borrower and Indebtedness, Disqualified Stock or
Preferred Stock of the Borrower or any Restricted Subsidiary not otherwise
permitted hereunder in an aggregate principal amount or liquidation preference,
which when aggregated with the principal amount and liquidation preference of
all other Indebtedness, Disqualified Stock and Preferred Stock then outstanding
and incurred pursuant to this clause (xii), does not at any one time
outstanding exceed $125,000,000;

 

(xiii)                          the incurrence by the Borrower
or any Restricted Subsidiary of Indebtedness or issuance by the Borrower or any
Restricted Subsidiary of Disqualified Stock or Preferred Stock which serves to
refund or refinance any Indebtedness incurred

 

109

 

or Disqualified Stock or Preferred Stock
issued as permitted under Sections 7.03(b)(ii) and (iii) above, this
clause (xiii) and Section 7.03(b)(xiv) below or any Indebtedness incurred
or Disqualified Stock or Preferred Stock issued to so refund or refinance such
Indebtedness, Disqualified Stock or Preferred Stock including additional
Indebtedness incurred or Disqualified Stock or Preferred Stock issued to pay
premiums (including tender premiums), defeasance costs and fees in connection
therewith (the “Refinancing Indebtedness”)
prior to its respective maturity; provided,
however, that such Refinancing Indebtedness (A) has a Weighted
Average Life to Maturity at the time such Refinancing Indebtedness is incurred
which is not less than the remaining Weighted Average Life to Maturity of the
Indebtedness, Disqualified Stock or Preferred Stock being refunded or
refinanced, (B) to the extent such Refinancing Indebtedness refinances (i) Indebtedness
subordinated or pari passu to the Obligations or the Guaranty of any Subsidiary
Guarantor, such Refinancing Indebtedness is subordinated or pari passu to the
Obligations or such Guaranty, as the case may be, at least to the same
extent as the Indebtedness being refinanced or refunded or (ii) Disqualified
Stock or Preferred Stock, such Refinancing Indebtedness must be Disqualified
Stock or Preferred Stock, respectively, and (C) shall not include (I)
Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary of the
Borrower that is not a Subsidiary Guarantor that refinances Indebtedness,
Disqualified Stock or Preferred Stock of the Borrower, (II) Indebtedness,
Disqualified Stock or Preferred Stock of a Subsidiary of the Borrower that is
not a Subsidiary Guarantor that refinances Indebtedness, Disqualified Stock or
Preferred Stock of a Subsidiary Guarantor, or (III) Indebtedness, Disqualified
Stock or Preferred Stock of the Borrower or a Restricted Subsidiary that
refinances Indebtedness, Disqualified Stock or Preferred Stock of an
Unrestricted Subsidiary, and provided
further, that subclause (A) of this clause (xiii) will not
apply to any refunding or refinancing of any Indebtedness outstanding under the
ABL Credit Agreement;

 

(xiv)                         Indebtedness, Disqualified
Stock or Preferred Stock of (x) the Borrower or a Restricted Subsidiary
incurred or issued to finance an acquisition or (y) Persons that are acquired
by the Borrower or any Restricted Subsidiary or merged into or amalgamated or
consolidated with the Borrower or a Restricted Subsidiary in accordance with the
terms of this Agreement; provided
that after giving effect to such acquisition, merger, amalgamation or
consolidation, either (A) the Borrower could satisfy the Fixed Charge
Coverage Ratio Incurrence Test, or (B) the Fixed Charge Coverage Ratio of
the Borrower and its Restricted Subsidiaries is greater than immediately prior
to such acquisition, merger, amalgamation or consolidation;

 

(xv)                            Indebtedness arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument drawn against insufficient funds in the ordinary course of
business; provided that such
Indebtedness is extinguished within five Business Days of its incurrence;

 

(xvi)                         Indebtedness of the Borrower
or any of its Restricted Subsidiaries supported by a letter of credit issued
pursuant to the ABL Credit Agreement, in a principal amount not in excess of
the stated amount of such letter of credit;

 

110

 

(xvii)                      (A) any guarantee by the
Borrower or a Restricted Subsidiary of Indebtedness or other obligations of any
Restricted Subsidiary, so long as the incurrence of such Indebtedness by such
Restricted Subsidiary is permitted under the terms of this Agreement or (B) any
guarantee by a Restricted Subsidiary of Indebtedness of the Borrower permitted
to be incurred under the terms of this Agreement; provided that such guarantee is incurred in accordance with Section 7.09;

 

(xviii)                   Indebtedness of Foreign Subsidiaries
of the Borrower incurred not to exceed, together with any other Indebtedness
incurred under this clause (xviii), at any time outstanding the greater of (x)
$75,000,000 and (y) 10.0% of Total Assets of Foreign Subsidiaries;

 

(xix)                           Indebtedness, Disqualified
Stock or Preferred Stock of a Restricted Subsidiary incurred or issued to
finance or assumed in connection with an acquisition, and (B) Indebtedness
incurred to refund, refinance or replace any other Indebtedness, Disqualified
Stock or Preferred Stock permitted under this clause (xix), in each case in an
aggregate principal amount not to exceed, together with all other Indebtedness,
Disqualified Stock and/or Preferred Stock issued under this clause (xix),
$100,000,000 in the aggregate at any one time outstanding; provided that any Indebtedness incurred
pursuant to preceding clause (B) shall satisfy the requirements of “Refinancing
Indebtedness” set forth in the proviso appearing in Section 7.03(b)(xiii)
to the same extent as if such proviso were set forth in its entirety in this
clause (xix);

 

(xx)                              Indebtedness of the
Borrower or any of its Restricted Subsidiaries consisting of (x) the financing
of insurance premiums or (y) take-or-pay obligations contained in supply
arrangements in each case, incurred in the ordinary course of business; and

 

(xxi)                           Indebtedness consisting of
Indebtedness issued by the Borrower or any of its Restricted Subsidiaries to
current or former officers, directors, employees and consultants thereof, their
respective estates, spouses or former spouses, in each case to finance the
purchase or redemption of Equity Interests of the Borrower or any direct or
indirect parent company of the Borrower to the extent described in Section 7.02(b)(iv).

 

(c)                                  For purposes of
determining compliance with this covenant:

 

(i)                                     in the event that
an item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion
thereof) meets the criteria of more than one of the categories of permitted
Indebtedness, Disqualified Stock or Preferred Stock described in Sections
7.03(b)(i) through (xxi) above, the Borrower, in its sole discretion, will
classify or reclassify such item of Indebtedness, Disqualified Stock or
Preferred Stock (or any portion thereof) and will only be required to include
the amount and type of such Indebtedness, Disqualified Stock or Preferred Stock
in one of the above clauses; provided
that all Indebtedness outstanding under the ABL Loan Documents and the Loan
Documents on the Closing Date will at all times be deemed to be outstanding in
reliance on Section 7.03(b)(i); and

 

111

 

(ii)                                  at the time of
incurrence, the Borrower will be entitled to divide and classify an item of
Indebtedness in more than one of the types of Indebtedness described in Section 7.03(b) above.

 

(d)                                 The accrual of
interest, the accretion of accreted value and the payment of interest in the form of
additional Indebtedness, Disqualified Stock or Preferred Stock will not be
deemed to be an incurrence of Indebtedness, Disqualified Stock or Preferred
Stock for purposes of this Section 7.03.

 

(e)                                  For purposes of
determining compliance with any Dollar-denominated restriction on the
incurrence of Indebtedness, the Dollar-equivalent principal amount of
Indebtedness denominated in a foreign currency shall be calculated based on the
relevant currency exchange rate in effect on the date such Indebtedness was
incurred, in the case of term debt, or first committed, in the case of
revolving credit debt; provided
that if such Indebtedness is incurred to refinance other Indebtedness
denominated in a foreign currency, and such refinancing would cause the
applicable Dollar-denominated restriction to be exceeded if calculated at the
relevant currency exchange rate in effect on the date of such refinancing, such
Dollar-denominated restriction shall be deemed not to have been exceeded so
long as the principal amount of such refinancing Indebtedness does not exceed
the principal amount of such Indebtedness being refinanced.

 

(f)                                    The principal
amount of any Indebtedness incurred to refinance other Indebtedness, if
incurred in a different currency from the Indebtedness being refinanced, shall
be calculated based on the currency exchange rate applicable to the currencies
in which such respective Indebtedness is denominated that is in effect on the
date of such refinancing.

 

SECTION 7.04. Liens. The Borrower
will not, and will not permit any Subsidiary Guarantor to, directly or
indirectly, create, incur, assume or suffer to exist any Lien on any asset or
property of the Borrower or any Subsidiary Guarantor now owned or hereafter
acquired, or any income or profits therefrom, or assign or convey any right to
receive income therefrom, except:

 

(a)                                  in the case of the TL
Priority Collateral, any Permitted Collateral Lien;

 

(b)                                 in the case of the ABL
Priority Collateral or any other asset or property, any Permitted Lien.

 

SECTION 7.05. Consolidated Secured
Debt Ratio. Permit the ratio of (a) the Consolidated Total
Indebtedness of the Borrower and its Restricted Subsidiaries that is secured by
Liens as at the last day of any Test Period set forth below to (b) the
Borrower’s EBITDA for such Test Period, in each case with such pro forma
adjustments to EBITDA as are appropriate and consistent with the pro forma
adjustment provisions set forth in the definition of Fixed Charge Coverage
Ratio, to be greater than the ratio set forth below opposite such Relevant
Reference Period below:

 

112

 

	
  Calendar Year

  Ended

  	
   

  	
  Test Period

  Ended Closest to

  January 31

  	
   

  	
  Test Period

  Ended Closest to

  April 30

  	
   

  	
  Test Period

  Ended Closest to

  July 31

  	
   

  	
  Test Period

  Ended Closest to

  October 31

  	
   

  
	
  2008

  	
   

  	
  5.95:1.00

  	
   

  	
  5.95:1.00

  	
   

  	
  5.95:1.00

  	
   

  	
  5.95:1.00

  	
   

  
	
  2009

  	
   

  	
  5.95:1.00

  	
   

  	
  5.50:1.00

  	
   

  	
  5.50:1.00

  	
   

  	
  5.50:1.00

  	
   

  
	
  2010

  	
   

  	
  5.50:1.00

  	
   

  	
  5.00:1.00

  	
   

  	
  5.00:1.00

  	
   

  	
  5.00:1.00

  	
   

  
	
  2011

  	
   

  	
  5.00:1.00

  	
   

  	
  4.50:1.00

  	
   

  	
  4.50:1.00

  	
   

  	
  4.50:1.00

  	
   

  
	
  2012

  	
   

  	
  4.50:1.00

  	
   

  	
  4.00:1.00

  	
   

  	
  4.00:1.00

  	
   

  	
  4.00:1.00

  	
   

  
	
  2013

  	
   

  	
  4.00:1.00

  	
   

  	
  4.00:1.00

  	
   

  	
  4.00:1.00

  	
   

  	
  4.00:1.00

  	
   

  

 

SECTION 7.06. Merger, Amalgamation,
Consolidation or Sale of All or Substantially All Assets. (a)  The
Borrower may not consolidate, merge or amalgamate with or into or wind up
into (whether or not the Borrower is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets, in one or more related transactions, to any
Person unless:

 

(i)                                     the Borrower is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Borrower) or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made is a corporation organized or existing under the laws of the jurisdiction
of organization of the Borrower or the laws of the United States, any state
thereof or the District of Columbia (or any territory thereof) (the Borrower or
such Person, as the case may be, being herein called the “Successor
Borrower”);

 

(ii)                                  the Successor
Borrower, if other than the Borrower, expressly assumes all the obligations of
the Borrower under this Agreement and the other Loan Documents pursuant to
supplements to the Loan Documents or other documents or instruments, in each
case in a form reasonably satisfactory to the Administrative Agent;

 

(iii)                               immediately after such
transaction, no Default exists;

 

(iv)                              immediately after giving pro
forma effect to such transaction and any related financing transactions,
as if such transactions had occurred at the beginning of the applicable
four-quarter period, (A) either (1) the Successor Borrower could
satisfy the Fixed Charge Coverage Ratio Incurrence Test or (2) the Fixed
Charge Coverage Ratio for the Successor Borrower would be greater than the
Fixed Charge Coverage Ratio for the Borrower and its Restricted Subsidiaries
immediately prior to such transaction and (B) the Successor Borrower is in
Pro  Forma Compliance with Section 7.05;

 

(v)                                 each Restricted
Subsidiary that is a Subsidiary Guarantor, unless it is the other party to the
transactions described above, in which case Section 7.06(c)(i)(B) shall
apply, shall have by supplement to the Loan Documents confirmed that its
Guaranty shall apply to such Person’s obligations under the Loan Documents and
the Loans; and

 

(vi)                              the Borrower shall have
delivered to the Administrative Agent an Officer’s Certificate and an Opinion
of Counsel, each stating that such consolidation,

 

113

 

merger or transfer and such supplements to
the Loan Documents, if any, comply with this Agreement and the other Loan
Documents.

 

(b)                                 The Successor Borrower
will succeed to, and be substituted for the Borrower, as the case may be,
under this Agreement and the other Loan Documents. The foregoing clauses (iii),
(iv), (v) and (vi) of Section 7.06(a) shall not apply to
the merger contemplated by the Recapitalization Agreement. Notwithstanding Section 7.06(a)(iii) and
(iv), (i) any Restricted Subsidiary may consolidate with or merge
into or transfer all or part of its properties and assets to the Borrower,
and (ii) the Borrower may merge with an Affiliate of the Borrower, as
the case may be, solely for the purpose of reincorporating the Borrower in
a State of the United States, so long as the amount of Indebtedness of the
Borrower and its Restricted Subsidiaries is not increased thereby.

 

(c)                                  No Guarantor will,
and the Borrower will not permit any Guarantor (other than the Borrower) to,
consolidate, merge or amalgamate with or into or wind up into (whether or not
the Borrower or a Guarantor is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions, to any Person
unless:

 

(i)                                     (A)  such
Guarantor is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made is a corporation organized or existing under the laws of the
jurisdiction of organization of such Guarantor, as the case may be, or the
laws of the United States, any state thereof or the District of Columbia or any
territory thereof or, in the case of a Canadian Subsidiary Guarantor, a
province or territory of Canada (such Guarantor or such Person, as the case may be,
being herein called the “Successor Guarantor”);

 

(B)  the
Successor Guarantor, if other than such Guarantor, expressly assumes all the
obligations of such Guarantor under the Guaranty and the other Loan Documents
pursuant to a joinder agreement and/or supplements to the Loan Documents or
other documents or instruments, in each case in a form reasonably
satisfactory to the Administrative Agent;

 

(C) 
immediately after such transaction, no Default exists;

 

(D)  the
Borrower shall have delivered to the Administrative Agent an Officer’s
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such joinder agreement, supplements and/or other
documents or instruments, if any, comply with this Agreement and the other Loan
Documents; and

 

(E)  if a
consolidation, merger or amalgamation includes any Canadian Subsidiary and such
Canadian Subsidiary is not the surviving entity, such transaction shall be on
terms conditions reasonably satisfactory to the Administrative Agent (whose
consent shall not be unreasonably withheld); or

 

(ii)                                  the transaction is
made in compliance with Section 7.01.

 

114

 

(d)                                 In the case of Section 7.06(c)(i),
the Successor Guarantor will succeed to, and be substituted for, such Guarantor
under such Guarantor’s Guaranty and the other Loan Documents. Notwithstanding
the foregoing, any Subsidiary Guarantor may merge or amalgamate into or
with or wind up into or transfer all or part of its properties and assets
to another Subsidiary Guarantor or the Borrower.

 

SECTION 7.07. Transactions with
Affiliates. (a)  The Borrower will not, and will not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate of the Borrower (each of the foregoing, an “Affiliate Transaction”) involving aggregate
payments or consideration in excess of $10,000,000, unless:  (i) such Affiliate Transaction is on
terms that are not materially less favorable to the Borrower or its relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction by the Borrower or such Restricted Subsidiary with an unrelated
Person on an arm’s-length basis, and (ii) the Borrower delivers to the
Administrative Agent with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate payments or consideration in
excess of $30,000,000, a resolution adopted by the majority of the Board of
Directors of the Borrower approving such Affiliate Transaction and set forth in
an Officer’s Certificate certifying that such Affiliate Transaction complies
with clause (i) above.

 

(b)                                 The limitations set
forth in Section 7.07(a) will not apply to the following:

 

(i)                                     transactions
between or among the Borrower or any of its Restricted Subsidiaries;

 

(ii)                                  Restricted Payments
permitted by the provisions of Section 7.02 and Investments constituting “Permitted
Investments”;

 

(iii)                               the payment of
management, consulting, monitoring and advisory fees and termination fees and
related indemnities and expenses pursuant to the Sponsor Management Agreement;

 

(iv)                              the payment of reasonable
and customary fees and compensation paid to, and indemnities and reimbursements
provided on behalf of, officers, directors, employees or consultants of
Borrower, any of its direct or indirect parent companies or any of its
Restricted Subsidiaries;

 

(v)                                 transactions in which
the Borrower or any of its Restricted Subsidiaries, as the case may be,
delivers to the Administrative Agent a letter from an Independent Financial
Advisor stating that such transaction is fair to the Borrower or such
Restricted Subsidiary from a financial point of view or stating that the terms
are not materially less favorable to the Borrower or its relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Borrower or such Restricted Subsidiary with an unrelated Person on an
arm’s-length basis;

 

115

 

(vi)                              any agreement as in
effect as of the Closing Date, or any amendment thereto (so long as any such
amendment is not disadvantageous in any material respect to the Lenders when
taken as a whole as compared to the applicable agreement as in effect on the
Closing Date);

 

(vii)                           the existence of, or the
performance by the Borrower or any of its Restricted Subsidiaries of its
obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which
it is a party as of the Closing Date and any similar agreements which it may enter
into thereafter; provided, however,
that the existence of, or the performance by the Borrower or any of its
Restricted Subsidiaries of obligations under any future amendment to any such
existing agreement or under any similar agreement entered into after the
Closing Date shall only be permitted by this clause (vii) to the extent
that the terms of any such amendment or new agreement are not otherwise
disadvantageous in any material respect to the Lenders when taken as a whole as
compared to the original agreement in effect on the Closing Date;

 

(viii)                        the Transaction and the payment
of all fees and expenses related to the Transaction, including Transaction
Expenses, in each case as disclosed in the offering memorandum relating to the
Senior Notes and the Senior Subordinated Notes;

 

(ix)                                transactions with
customers, clients, suppliers, or purchasers or sellers of goods or services,
in each case in the ordinary course of business and otherwise in compliance
with the terms of this Agreement which are fair to the Borrower and its
Restricted Subsidiaries, in the reasonable determination of the Board of
Directors of the Borrower or the senior management thereof, or are on terms at
least as favorable as would reasonably have been obtained at such time from an
unaffiliated party;

 

(x)                                   the issuance of
Equity Interests (other than Disqualified Stock) of the Borrower to any direct
or indirect parent of the Borrower or to any Permitted Holder or to any
director, officer, employee or consultant of the Borrower, any Subsidiary or
any direct or indirect parent of the Borrower;

 

(xi)                                sales of accounts
receivable, or participations therein, in connection with any Receivables
Facility;

 

(xii)                             payments by the Borrower
or any of its Restricted Subsidiaries to any of the Investors made for any
financial advisory, financing, underwriting or placement services or in respect
of other investment banking activities, including, without limitation, in
connection with acquisitions or divestitures which payments are approved by a
majority of the Board of Directors of the Borrower in good faith or which are
otherwise permitted by this Agreement;

 

(xiii)                          payments or loans (or
cancellation of loans) to employees or consultants of the Borrower, any of its
direct or indirect parent companies or any of its Restricted Subsidiaries and
employment agreements, stock option plans and other similar

 

116

 

arrangements with such employees or
consultants which, in each case, are approved by the Borrower in good faith;
and

 

(xiv)                         investments by the Investors
in securities of the Borrower or any of its Restricted Subsidiaries, so long as
(A) the investment is being offered generally to other investors on the
same or more favorable terms and (B) the investment constitutes less than
5% of the proposed or outstanding issue amount of such class of
securities.

 

SECTION 7.08. Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries. The Borrower will
not, and will not permit any of its Restricted Subsidiaries that are not
Subsidiary Guarantors to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction on the ability of any such Restricted Subsidiary to:

 

(x)                                   (A) 
pay dividends or make any other distributions to the Borrower or any of its
Restricted Subsidiaries on its Capital Stock or with respect to any other
interest or participation in, or measured by, its profits, or (B) pay any
Indebtedness owed to the Borrower or any of its Restricted Subsidiaries;

 

(y)                                 make
loans or advances to the Borrower or any of its Restricted Subsidiaries; or

 

(z)                                   sell,
lease or transfer any of its properties or assets to the Borrower or any of its
Restricted Subsidiaries,

 

provided that the
foregoing limitations shall not apply (in each case) to such encumbrances or
restrictions existing under or by reason of:

 

(i)                                     contractual
encumbrances or restrictions in effect on the Closing Date, including pursuant
to the New Notes Documentation and the ABL Loan Documents;

 

(ii)                                  the Loan Documents;

 

(iii)                               purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (z) of this Section 7.08
above on the property so acquired;

 

(iv)                              applicable law or any
applicable rule, regulation or order;

 

(v)                                 any agreement or other
instrument of a Person acquired by the Borrower or any of its Restricted
Subsidiaries in existence at the time of such acquisition (but not created in
contemplation thereof), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person so
acquired and its Subsidiaries, or the property or assets of the Person so
acquired and its Subsidiaries;

 

(vi)                              contracts for the sale of
assets, including customary restrictions with respect to a Subsidiary of the
Borrower pursuant to an agreement that has been entered

 

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into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;

 

(vii)                           Secured Indebtedness
otherwise permitted to be incurred pursuant to Section 7.03 that limits
the right of the debtor to dispose of the assets securing such Indebtedness;

 

(viii)                        restrictions on cash or other
deposits or net worth imposed by customers under contracts entered into in the
ordinary course of business;

 

(ix)                                other Indebtedness,
Disqualified Stock or Preferred Stock of Foreign Subsidiaries permitted to be
incurred or issued subsequent to the Closing Date pursuant to the provisions of
Section 7.03;

 

(x)                                   customary provisions
in any joint venture agreement and other similar agreement relating solely to
such joint venture;

 

(xi)                                customary provisions contained
in leases, subleases, licenses or sublicenses and other agreements, in each
case, entered into in the ordinary course of business;

 

(xii)                             any encumbrances or
restrictions of the type referred to in clauses (x), (y) and (z) of this Section 7.08
above imposed by any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses (i) through
(xi) above; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of the
Borrower, no more restrictive in any material respect with respect to such
encumbrances and other restrictions taken as a whole than those prior to such
amendment, modification, restatement, renewal, increase, supplement, refunding,
replacement or refinancing;

 

(xiii)                          any other agreement governing
Indebtedness entered into after the Closing Date that contains encumbrances and
other restrictions that are, in the good faith judgment of the Borrower, no
more restrictive in any material respect taken as a whole with respect to any
Restricted Subsidiary than those encumbrances and other restrictions that are
in effect on the Closing Date with respect to that Restricted Subsidiary
pursuant to agreements in effect on the Closing Date; and

 

(xiv)                         restrictions created in
connection with any Receivables Facility that, in the good faith determination
of the Borrower are necessary or advisable to effect such Receivables Facility.

 

SECTION 7.09. Limitation on
Guarantees of Indebtedness by Restricted Subsidiaries. The Borrower will
not permit any of its Wholly-Owned Subsidiaries that are Restricted
Subsidiaries (and non-Wholly-Owned Subsidiaries if such non-Wholly-Owned
Subsidiaries guarantee other capital markets debt securities), other than a
Subsidiary Guarantor

 

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or a Foreign Subsidiary, to guarantee the payment of any Indebtedness
of the Borrower or any other Subsidiary Guarantor unless:

 

(a)                                  such Restricted
Subsidiary within 30 days executes and delivers a joinder agreement for the
relevant Guaranty, except that with respect to a guarantee of Indebtedness of
the Borrower or any Subsidiary Guarantor, if such Indebtedness is by its
express terms subordinated in right of payment to the Obligations (including
such Subsidiary Guarantor’s Guaranty), any such guarantee by such Restricted
Subsidiary with respect to such Indebtedness shall be subordinated in right of
payment to the relevant Guaranty substantially to the same extent as such
Indebtedness is subordinated to the Obligations;

 

(b)                                 such Restricted
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Borrower or any other Restricted Subsidiary as
a result of any payment by such Restricted Subsidiary under its Guaranty; and

 

(c)                                  such Restricted Subsidiary
shall deliver to the Administrative Agent an Opinion of Counsel to the effect
that:

 

(i)                                     such Guaranty has
been duly executed and authorized; and

 

(ii)                                  such Guaranty
constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by
bankruptcy, insolvency or similar laws (including, without limitation, all laws
relating to fraudulent transfers) and except insofar as enforcement thereof is
subject to general principles of equity;

 

provided that this Section 7.09
shall not be applicable to any guarantee of any Restricted Subsidiary that
existed at the time such Person became a Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary.

 

SECTION 7.10. Change in Nature of
Business. The Borrower shall not, and shall not permit any of its
Restricted Subsidiaries to, engage in any material line of business
substantially different from those lines of business conducted by the Borrower
and the Restricted Subsidiaries on the date hereof or any business reasonably
related or ancillary thereto or a reasonable extension thereof.

 

SECTION 7.11. [Reserved].

 

SECTION 7.12. Use of Proceeds. The
Borrower shall not, and shall not permit any of its Restricted Subsidiaries to,
use the proceeds of any Borrowing, whether directly or indirectly, in a manner
inconsistent with the uses set forth in the preliminary statements to this
Agreement.

 

SECTION 7.13. Accounting Changes.
The Borrower shall not, and shall not permit any of its Restricted Subsidiaries
to, make any change in its fiscal year, fiscal quarter or

 

119

 

fiscal month; provided, however,
that the Borrower may, upon written notice to the Administrative Agent, change
its fiscal year, fiscal quarter or fiscal month to any other fiscal year,
fiscal quarter or fiscal month, as the case may be, reasonably acceptable
to the Administrative Agent, in which case, the Borrower and the Administrative
Agent will, and are hereby authorized by the Lenders to, make any adjustments
to this Agreement that are necessary to reflect such change in fiscal year,
fiscal quarter or fiscal month, as the case may be.

 

SECTION 7.14. Amendments of Indebtedness,
Etc. (a) Without the consent of the Required Lenders, the Borrower
will not amend, modify or alter (i) the subordination provisions of the
Senior Subordinated Notes Indenture, the Subordinated Discount Notes Indenture
and any other Junior Financing Documentation (and the component definitions as
used therein), or (ii) any other term or condition of the Senior
Subordinated Notes Indenture, the Subordinated Discount Notes Indenture and any
other Junior Financing Documentation, in the case of this clause (ii), in a
manner materially adverse to the interests of the Lenders.

 

(b)                                 The Borrower shall
not, and shall not permit any of its Restricted Subsidiaries to, designate any
Indebtedness (or related interest obligations) as “Designated Senior
Indebtedness” (as defined in each of the Senior Subordinated Notes Indenture
and the Subordinated Discount Notes Indenture) or any similar term (as defined
in any Junior Financing Documentation), in each case, except for Obligations of
the type described in clause (x) of the definition thereof and ABL Loans (and
related obligations).

 

ARTICLE VIII

 

Events Of Default and
Remedies

 

SECTION 8.01. Events of Default. Any
of the following shall constitute an Event of Default:

 

(a)                                  Non-Payment. The Borrower or any other
Loan Party fails to pay (i) when and as required to be paid herein, any
amount of principal of any Loan, or (ii) within five (5) Business
Days after the same becomes due, any interest on any Loan or any other amount
payable hereunder or with respect to any other Loan Document; or

 

(b)                                 Specific Covenants. The Borrower fails to
perform or observe any term, covenant or agreement contained in any of
Sections 6.03(a) or 6.05(a) (solely with respect to the Borrower) or Article 7;
provided, that any Event of Default under Section 7.05 is subject to cure
as contemplated by Section 8.05; or

 

(c)                                  Other Defaults. Any Loan Party fails to
perform or observe any other covenant or agreement (not specified in Section 8.01(a) or
(b) above) contained in any Loan Document on its part to be performed
or observed and such failure continues for thirty (30) days after notice
thereof by the Administrative Agent to the Borrower; or

 

(d)                                 Representations and Warranties. Any
representation, warranty, certification or statement of fact made or deemed
made by or on behalf of the Borrower or any other Loan Party herein, in any
other Loan Document, or in any document

 

120

 

required to be delivered in connection
herewith or therewith shall be incorrect or misleading in any material respect
when made or deemed made; or

 

(e)                                  Cross-Default. Any Loan Party or any
Restricted Subsidiary (i) fails to make any payment beyond the applicable
grace period with respect thereto, if any (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) in respect of any
Indebtedness (other than Indebtedness hereunder) having an aggregate principal
amount of not less than the Threshold Amount, or (ii) fails to observe or
perform any other agreement or condition relating to any such
Indebtedness, or any other event occurs (other than, with respect to
Indebtedness consisting of Swap Contracts, termination events or equivalent
events pursuant to the terms of such Swap Contracts), the effect of which
default or other event is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required,
such Indebtedness to become due or to be repurchased, prepaid, defeased or
redeemed (automatically or otherwise), or an offer to repurchase, prepay,
defease or redeem such Indebtedness to be made, prior to its stated maturity; provided that, any such failure or the
occurrence of any such other event referred to in sub-clauses (i) and (ii) relating
to Indebtedness under the ABL Credit Agreement shall constitute an Event of
Default under this Section 8.01(e) only after the earliest to occur
of (x) expiration of a 60-day period following the commencement of such failure
or the date of such occurrence, (y) any acceleration of the ABL Obligations (as
defined in the Intercreditor Agreement) or (z) the commencement of the Exercise
of Any Secured Creditor Remedies (as defined in the Intercreditor Agreement) by
the ABL Collateral Agent or any ABL Lender as a result of such failure or
occurrence; provided further,
that preceding sub-clause (ii) shall not apply to secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the property
or assets securing such Indebtedness, if such sale or transfer is permitted
hereunder and under the documents providing for such Indebtedness; or

 

(f)                                    Insolvency Proceedings, Etc. Any Loan
Party or any of the Restricted Subsidiaries institutes or consents to the
institution of any proceeding under any Debtor Relief Law (or any Canadian
Subsidiary Guarantor institutes or consents to the institution of any proposal
or notice of intent to file a proposal), or makes an assignment for the benefit
of creditors; or applies for or consents to the appointment of any receiver,
trustee, custodian, conservator, monitor, liquidator, rehabilitator,
administrator, administrative receiver or similar officer for it or for all or
any material part of its property; or any receiver, trustee, custodian,
conservator, monitor, liquidator, rehabilitator, administrator, administrative
receiver or similar officer is appointed without the application or consent of
such Person and the appointment continues undischarged or unstayed for sixty
(60) calendar days; or any proceeding under any Debtor Relief Law relating to
any such Person or to all or any material part of its property is
instituted without the consent of such Person and continues undismissed or
unstayed for sixty (60) calendar days, or an order for relief is entered in any
such proceeding; or

 

(g)                                 Inability to Pay Debts; Attachment. (i) Any
Loan Party or any Restricted Subsidiary becomes unable or admits in writing its
inability or fails generally to pay its debts in excess of the Threshold Amount
as they become due, or (ii) any writ or warrant

 

121

 

of attachment or execution or similar process
is issued or levied against all or any material part of the property of
the Loan Parties, taken as a whole, and is not released, vacated or fully
bonded within forty-five (45) days after its issue or levy; or

 

(h)                                 Judgments. There is entered against any
Loan Party or any Restricted Subsidiary a final judgment or order for the
payment of money in an aggregate amount exceeding the Threshold Amount (to the
extent not covered by independent third-party insurance as to which the insurer
has been notified of such judgment or order and has not denied coverage) and
such judgment or order shall not have been satisfied, vacated, discharged or
stayed or bonded pending an appeal for a period of forty-five (45) consecutive
days; or

 

(i)                                     (A) ERISA. (i) An ERISA Event occurs with
respect to a Pension Plan or Multiemployer Plan which has resulted or could
reasonably be expected to result in liability of any Loan Party in an aggregate
amount which could reasonably be expected to result in a Material Adverse
Effect, or (ii) any Loan Party or any ERISA Affiliate fails to pay when
due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under Section 4201 of
ERISA under a Multiemployer Plan in an aggregate amount which could reasonably
be expected to result in a Material Adverse Effect; or

 

(B) Pension Plans. Except as could not
reasonably be expected to result in a Material Adverse Effect, (i) a
Pension Event shall occur which, in Collateral Agent’s determination,
constitutes grounds for the termination under any Laws, of any Pension Plan or (ii) the
appointment by the appropriate Governmental Authority of a trustee for any
Pension Plan, or (iii) if any Pension Plan shall be terminated or any such
trustee shall be requested or appointed, or (iv) if a Loan Party is in
default with respect to payments to a Pension Plan resulting from their
complete or partial withdrawal from such Pension Plan or (v) any event
that may reasonably be expected to have a Material Adverse Effect or any
Lien arises (save for contribution amounts not yet due) in connection with any
Pension Plan.

 

(j)                                     Invalidity of Loan Documents. Any material
provision of any Loan Document, at any time after its execution and delivery
and for any reason other than as expressly permitted hereunder or thereunder
(including as a result of a transaction permitted under Section 7.01 or
7.06) or as a result of acts or omissions by the Administrative Agent or any
Lender or the satisfaction in full of all the Obligations, ceases to be in full
force and effect; or any Loan Party contests in writing the validity or
enforceability of any provision of any Loan Document or any Lien created under
any Loan Document; or any Loan Party denies in writing that it has any or
further liability or obligation under any Loan Document (other than as a result
of repayment in full of the Obligations and termination of the Aggregate
Commitments), or purports in writing to revoke or rescind any Loan Document; or

 

(k)                                  Collateral Documents. Any Collateral
Document after delivery thereof pursuant to Section 4.01 or 6.11 shall for
any reason (other than pursuant to the terms thereof, including as a result of
a transaction permitted under Section 7.01 or 7.06) cease

 

122

 

to create a valid and perfected lien, with
the priority required by the Collateral Documents and the Intercreditor
Agreement (or other security purported to be created on the applicable
Collateral), on and security interest in any material portion of the Collateral
purported to be covered thereby, subject to Liens permitted under Section 7.04,
except to the extent that any such loss of perfection or priority results from (i) the
failure of the Administrative Agent or the Collateral Agent to maintain
possession of certificates or notes actually delivered to it representing
securities or instruments pledged under the Collateral Documents, (ii) to
file Uniform Commercial Code or PPSA continuation statements in the
applicable filing offices properly notified by the relevant Loan Party and (iii) any
other failure of the Administrative Agent or the Collateral Agent to maintain
perfection in circumstances where such failure does not result from the breach
or non-compliance by a Loan Party with the Loan Documents, and except as to
Collateral consisting of real property to the extent that such losses are
covered by a lender’s title insurance policy and such insurer has not denied
coverage; or

 

(l)                                     Change of Control. A Change of Control
shall occur; or

 

(m)                               Junior Financing Documentation. (i) Any
of the Obligations of the Loan Parties under the Loan Documents for any reason
shall cease to be “Senior Indebtedness” (or any comparable term) or “Senior
Secured Financing” (or any comparable term) under, and as defined in any Junior
Financing Documentation or (ii) the subordination provisions set forth in
any Junior Financing Documentation shall, in whole or in part, cease to be
effective or cease to be legally valid, binding and enforceable against the
holders of any Subordinated Indebtedness, if applicable.

 

SECTION 8.02. Remedies Upon Event of
Default. If any Event of Default occurs and is continuing, the
Administrative Agent may and, at the request of the Required Lenders,
shall take any or all of the following actions:

 

(i)                                     declare the
commitment of each Lender to make Loans to be terminated, whereupon such
commitments and obligation shall be terminated;

 

(ii)                                  declare the unpaid
principal amount of all outstanding Loans, all interest accrued and unpaid
thereon, and all other amounts owing or payable hereunder or under any other
Loan Document to be immediately due and payable, without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived
by the Borrower; and

 

(iii)                               exercise on behalf of
itself and the Lenders all rights and remedies available to it and the Lenders
under the Loan Documents or applicable Law, subject to the terms of the
Intercreditor Agreement;

 

provided that upon
the occurrence of an Event of Default under Section 8.01(f) with
respect to the Borrower, the obligation of each Lender to make Loans shall
automatically terminate, and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically
become due and payable, in each case without further act of the Administrative
Agent or any Lender.

 

123

 

SECTION 8.03. Exclusion of Immaterial
Subsidiaries. Solely for the purpose of determining whether a Default has
occurred under Section 8.01(f) or (g), any reference in any such
clause to any Restricted Subsidiary or Loan Party shall be deemed not to
include any Restricted Subsidiary affected by any event or circumstances
referred to in any such clause that did not, as of the last day of the most
recent completed fiscal quarter of the Borrower, have assets with a value in
excess of 5.0% of the Total Assets of the Borrower and the Restricted
Subsidiaries and did not, as of the four quarter period ending on the last day
of such fiscal quarter, have revenues exceeding 5.0% of the total revenues of
the Borrower and the Restricted Subsidiaries (it being agreed that all
Restricted Subsidiaries affected by any event or circumstance referred to in
any such clause shall be considered together, as a single consolidated
Restricted Subsidiary, for purposes of determining whether the condition
specified above is satisfied).

 

SECTION 8.04. Application of Funds.
Subject in all respects to the provisions of the Intercreditor Agreement, after
the exercise of remedies provided for in Section 8.02 (or after the Loans
have automatically become immediately due and payable as set forth in the
proviso to Section 8.02), any amounts received on account of the
Obligations shall be applied by the Administrative Agent in the following
order:

 

First, to payment of that portion of the
Obligations constituting fees, indemnities, expenses and other amounts (other
than principal and interest, but including Attorney Costs payable under Section 10.04
and amounts payable under Article III) payable to each of the
Administrative Agent and the Collateral Agent in its capacity as such;

 

Second, to payment of that portion of the
Obligations constituting fees, indemnities and other amounts (other than
principal and interest) payable to the Lenders (including Attorney Costs
payable under Section 10.05 and amounts payable under Article III),
ratably among them in proportion to the amounts described in this clause Second
payable to them;

 

Third, to payment of that portion of the
Obligations constituting accrued and unpaid interest on the Loans, ratably
among the Lenders in proportion to the respective amounts described in this
clause Third payable to them;

 

Fourth, to payment of that portion of the
Obligations constituting unpaid principal of the Loans and the termination
value under Secured Hedge Agreements, ratably among the Lenders and the other
Secured Parties in proportion to the respective amounts described in this
clause Fourth held by them;

 

Fifth, to the payment of all other Obligations
of the Loan Parties that are due and payable to the Administrative Agent and
the other Secured Parties on such date, ratably based upon the respective
aggregate amounts of all such Obligations owing to the Administrative Agent and
the other Secured Parties on such date; and

 

Last, the balance, if any, after all of the
Obligations have been indefeasibly paid in full, to the Borrower or as
otherwise required by Law.

 

124

 

SECTION 8.05. Company’s Right to Cure.
(a) Notwithstanding anything to the contrary contained in Section 8.01,
in the event of any Event of Default under any covenant set forth in Section 7.05
and until the expiration of the tenth (10th) day after the date on which
financial statements are required to be delivered with respect to the
applicable fiscal quarter hereunder, the Borrower may issue Equity
Interests (other than Disqualified Stock) to any of the Investors (each, a “Permitted Cure Issuance”) and apply the
amount of the net cash proceeds thereof to increase EBITDA with respect to such
applicable quarter; provided that
such net cash proceeds (i) are actually received by the Borrower no later
than ten (10) days after the date on which financial statements are
required to be delivered with respect to such fiscal quarter hereunder and (ii) do
not exceed the aggregate amount necessary to cure such Event of Default under Section 7.05
for any applicable period. The parties hereby acknowledge that this Section 8.05(a) may not
be relied on for purposes of calculating any financial ratios other than as
applicable to Section 7.05 and shall not result in any adjustment to any
amounts other than the amount of the EBITDA referred to in the immediately
preceding sentence (including, without limitation, as used in determining
EBITDA for purposes of computing the Consolidated Total Leverage Ratio as used
in the definition of “Applicable Rate”).

 

(b)                                 In each period of four
fiscal quarters, there shall be at least two (2) fiscal quarters in which
no cure set forth in Section 8.05(a) is made.

 

ARTICLE IX

 

Administrative Agent
and Other Agents

 

SECTION 9.01. Appointment and
Authorization of Agents. (a)  Each Lender hereby irrevocably appoints,
designates and authorizes the Administrative Agent to take such action on its
behalf under the provisions of this Agreement and each other Loan Document and
to exercise such powers and perform such duties as are expressly delegated
to it by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary contained elsewhere herein or in any other Loan Document, the
Administrative Agent shall have no duties or responsibilities, except those
expressly set forth herein, nor shall the Administrative Agent have or be
deemed to have any fiduciary relationship with any Lender or participant, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent. Without limiting the
generality of the foregoing sentence, the use of the term “agent” herein and in
the other Loan Documents with reference to any Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable Law. Instead, such term is used merely as a matter
of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.

 

(b)                                 The Administrative
Agent shall also act as the “collateral agent” under the Loan Documents, and
each of the Lenders (in its capacities as a Lender and a potential Hedge Bank)
hereby irrevocably appoints and authorizes the Administrative Agent to act as
the agent of (and to hold any security interest created by the Collateral
Documents for and on behalf of or on trust for) such Lender for purposes of
acquiring, holding and enforcing (subject to the Intercreditor Agreement) any
and all Liens on Collateral granted by any of the Loan Parties to

 

125

 

secure any of the Secured Obligations, together with such powers and
discretion as are reasonably incidental thereto. In this connection, the
Administrative Agent, as “collateral agent” (and any co-agents, sub-agents and
attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.02
for purposes of holding or enforcing any Lien on the Collateral (or any portion
thereof) granted under the Collateral Documents, or for exercising any rights
and remedies thereunder at the direction of the Administrative Agent), shall be
entitled to the benefits of all provisions of this Article IX (including, Section 9.07,
as though such co-agents, sub-agents and attorneys-in-fact were the “collateral
agent” under the Loan Documents) as if set forth in full herein with respect
thereto.

 

SECTION 9.02. Delegation of Duties.
The Administrative Agent may execute any of its duties under this
Agreement or any other Loan Document (including for purposes of holding or
enforcing any Lien on the Collateral (or any portion thereof) granted under the
Collateral Documents or of exercising any rights and remedies thereunder) by or
through agents, employees or attorneys-in-fact, such sub-agents as shall be
deemed necessary by the Administrative Agent and shall be entitled to advice of
counsel and other consultants or experts concerning all matters pertaining to
such duties. The Administrative Agent shall not be responsible for the
negligence or misconduct of any agent or sub-agent or attorney-in-fact that it
selects in the absence of gross negligence or willful misconduct (as determined
in the final judgment of a court of competent jurisdiction).

 

SECTION 9.03. Liability of Agents.
No Agent-Related Person shall (a) be liable for any action taken or
omitted to be taken by any of them under or in connection with this Agreement
or any other Loan Document or the transactions contemplated hereby (except for
its own gross negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction, in connection with its duties
expressly set forth herein), or (b) be responsible in any manner to any
Lender or Participant for any recital, statement, representation or warranty
made by any Loan Party or any officer thereof, contained herein or in any other
Loan Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent under
or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or the perfection or priority of any Lien
or security interest created or purported to be created under the Collateral
Documents, or for any failure of any Loan Party or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Lender or Participant
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party or
any Affiliate thereof.

 

SECTION 9.04. Reliance by Agents. (a) 
Each Agent shall be entitled to rely, and shall be fully protected in relying,
upon any writing, communication, signature, resolution, representation, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, electronic mail message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to any Loan Party), independent accountants
and other experts selected by such Agent. Each Agent shall be fully justified
in failing or refusing to take any action under any Loan Document unless it
shall first

 

126

 

receive such advice or concurrence of the Required Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. Each
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance with a
request or consent of the Required Lenders (or such greater number of Lenders
as may be expressly required hereby in any instance) and such request and
any action taken or failure to act pursuant thereto shall be binding upon all
the Lenders.

 

(b)                                 For purposes of
determining compliance with the conditions specified in Section 4.01, each
Lender that has signed this Agreement shall be deemed to have consented to,
approved or accepted or to be satisfied with, each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to a Lender unless the Administrative Agent shall have received
notice from such Lender prior to the proposed Closing Date specifying its
objection thereto.

 

SECTION 9.05. Notice of Default. The
Administrative Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default, except with respect to defaults in the payment of
principal, interest and fees required to be paid to the Administrative Agent
for the account of the Lenders, unless the Administrative Agent shall have
received written notice from a Lender or the Borrower referring to this
Agreement, describing such Default and stating that such notice is a “notice of default”. The Administrative
Agent will notify the Lenders of its receipt of any such notice. The
Administrative Agent shall take such action with respect to any Event of
Default as may be directed by the Required Lenders in accordance with Article 8;
provided that unless and until
the Administrative Agent has received any such direction, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Event of Default as it shall deem
advisable or in the best interest of the Lenders.

 

SECTION 9.06. Credit Decision; Disclosure
of Information by Agents. Each Lender acknowledges that no Agent-Related
Person has made any representation or warranty to it, and that no act by any
Agent hereafter taken, including any consent to and acceptance of any
assignment or review of the affairs of any Loan Party or any Affiliate thereof,
shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Lender as to any matter, including whether
Agent-Related Persons have disclosed material information in their possession. Each
Lender represents to each Agent that it has, independently and without reliance
upon any Agent-Related Person and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the business,
prospects, operations, property, financial and other condition and creditworthiness
of the Loan Parties and their respective Subsidiaries, and all applicable bank
or other regulatory Laws relating to the transactions contemplated hereby, and
made its own decision to enter into this Agreement and to extend credit to the
Borrower and the other Loan Parties hereunder. Each Lender also represents that
it will, independently and without reliance upon any Agent-Related Person and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as
to the business, prospects, operations, property, financial and other condition
and

 

127

 

creditworthiness of the Borrower and the other Loan Parties. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by any Agent herein, such Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of any of the Loan Parties or any of their
respective Affiliates which may come into the possession of any
Agent-Related Person.

 

SECTION 9.07. Indemnification of
Agents. Whether or not the transactions contemplated hereby are
consummated, the Lenders shall indemnify upon demand each Agent-Related Person
(to the extent not reimbursed by or on behalf of any Loan Party and without
limiting the obligation of any Loan Party to do so), pro  rata,
and hold harmless each Agent-Related Person from and against any and all
Indemnified Liabilities incurred by it; provided
that no Lender shall be liable for the payment to any Agent-Related Person of
any portion of such Indemnified Liabilities resulting from such Agent-Related
Person’s own gross negligence or willful misconduct, as determined by the final
judgment of a court of competent jurisdiction; provided
that no action taken in accordance with the directions of the Required Lenders
(or such other number or percentage of the Lenders as shall be required by the
Loan Documents) shall be deemed to constitute gross negligence or willful
misconduct for purposes of this Section 9.07. In the case of any
investigation, litigation or proceeding giving rise to any Indemnified Liabilities,
this Section 9.07 applies whether any such investigation, litigation or
proceeding is brought by any Lender or any other Person. Without limitation of
the foregoing, each Lender shall reimburse the Administrative Agent upon demand
for its ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by the Administrative Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that the Administrative Agent is not reimbursed for such expenses
by or on behalf of the Borrower. The undertaking in this Section 9.07
shall survive termination of the Aggregate Commitments, the payment of all
other Obligations and the resignation of the Administrative Agent.

 

SECTION 9.08. Agents in their
Individual Capacities. DBNY and its Affiliates may make loans to,
issue letters of credit for the account of, accept deposits from, acquire
Equity Interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with each of the Loan
Parties and their respective Affiliates as though DBNY were not the
Administrative Agent hereunder and without notice to or consent of the Lenders.
The Lenders acknowledge that, pursuant to such activities, DBNY or its Affiliates
may receive information regarding any Loan Party or its Affiliates
(including information that may be subject to confidentiality obligations
in favor of such Loan Party or such Affiliate) and acknowledge that the
Administrative Agent shall be under no obligation to provide such information
to them. With respect to its Loans, DBNY shall have the same rights and powers
under this Agreement as any other Lender and may exercise such rights and
powers as though it were not the Administrative Agent DBNY, and the terms “Lender” and “Lenders” include DBNY in its individual capacity.

 

SECTION 9.09. Successor Agents. The
Administrative Agent may resign as the Administrative Agent upon thirty
(30) days’ notice to the Lenders and the Borrower. If the Administrative Agent
resigns under this Agreement, the Required Lenders shall appoint from

 

128

 

among the Lenders a successor agent for the Lenders, which successor
agent shall be consented to by the Borrower at all times other than during the
existence of an Event of Default under Section 8.01(f) or (g) (which
consent of the Borrower shall not be unreasonably withheld or delayed). If no
successor agent is appointed prior to the effective date of the resignation of
the Administrative Agent, the Administrative Agent may appoint, after
consulting with the Lenders and the Borrower, a successor agent from among the
Lenders. Upon the acceptance of its appointment as successor agent hereunder,
the Person acting as such successor agent shall succeed to all the rights,
powers and duties of the retiring Administrative Agent and the term “Administrative Agent”, shall mean such
successor administrative agent and/or supplemental administrative agent, as the
case may be, and the retiring Administrative Agent’s appointment, powers
and duties as the Administrative Agent shall be terminated. After the retiring
Administrative Agent’s resignation hereunder as the Administrative Agent, the
provisions of this Article 9 and Sections 10.04 and 10.05 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
the Administrative Agent under this Agreement. If no successor agent has
accepted appointment as the Administrative Agent by the date which is thirty
(30) days following the retiring Administrative Agent’s notice of resignation,
the retiring Administrative Agent’s resignation shall nevertheless thereupon
become effective and the Lenders shall perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. Upon the acceptance of any
appointment as the Administrative Agent hereunder by a successor and upon the
execution and filing or recording of such financing statements, or amendments
thereto, and such amendments or supplements to the Mortgages, and such other
instruments or notices, as may be necessary or desirable, or as the
Required Lenders may request, in order to (a) continue the perfection
of the Liens granted or purported to be granted by the Collateral Documents or (b) otherwise
ensure that the Collateral and Guarantee Requirement is satisfied, the
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges, and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under the Loan Documents. After the retiring
Administrative Agent’s resignation hereunder as the Administrative Agent, the
provisions of this Article 9 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Administrative Agent.

 

SECTION 9.10. Administrative Agent May File
Proofs of Claim. In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition
or other judicial proceeding relative to any Loan Party, the Administrative
Agent (irrespective of whether the principal of any Loan shall then be due and
payable as herein expressed or by declaration or otherwise and irrespective of
whether the Administrative Agent shall have made any demand on the Borrower)
shall be entitled and empowered, by intervention in such proceeding or
otherwise:

 

(a)                                  to file and prove a
claim for the whole amount of the principal and interest owing and unpaid in
respect of the Loans and all other Obligations that are owing and unpaid and to
file such other documents as may be necessary or advisable in order to
have the claims of the Lenders and the Administrative Agent (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Lenders and the Administrative Agent and their respective agents and
counsel and all other amounts due

 

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the Lenders and the Administrative Agent
under Sections 2.09 and 10.04) allowed in such judicial proceeding; and

 

(b)                                 to collect and receive
any monies or other property payable or deliverable on any such claims and to
distribute the same;

 

and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is
hereby authorized by each Lender to make such payments to the Administrative
Agent and, in the event that the Administrative Agent shall consent to the
making of such payments directly to the Lenders, to pay to the Administrative
Agent any amount due for the reasonable compensation, expenses, disbursements
and advances of the Agents and their respective agents and counsel, and any
other amounts due the Administrative Agent under Sections 2.09 and 10.04.

 

Nothing contained herein shall be deemed to
authorize the Administrative Agent to authorize or consent to or accept or adopt
on behalf of any Lender any plan of reorganization, arrangement, adjustment or
composition affecting the Obligations or the rights of any Lender or to
authorize the Administrative Agent to vote in respect of the claim of any
Lender in any such proceeding.

 

SECTION 9.11. Collateral and Guaranty
Matters. The Lenders irrevocably agree, subject to the terms of the
Intercreditor Agreement:

 

(a)                                  that any Lien on any
property granted to or held by the Administrative Agent or the Collateral Agent
under any Loan Document shall be automatically released (i) upon
termination of the Aggregate Commitments and payment in full of all Obligations
(other than (x) obligations under Secured Hedge Agreements not yet due and
payable, and (y) contingent indemnification obligations not yet accrued and
payable), (ii) at the time the property subject to such Lien is
transferred or to be transferred as part of or in connection with any
transfer permitted hereunder or under any other Loan Document to any Person
other than the Borrower or any other Subsidiary Guarantor, (iii) subject
to Section 10.01, if the release of such Lien is approved, authorized or
ratified in writing by the Required Lenders, (iv) if the property subject
to such Lien is owned by a Subsidiary Guarantor, upon release of such
Subsidiary Guarantor from its obligations under its Guaranty pursuant to clause
(c) below or (v) as required pursuant to the terms of the
Intercreditor Agreement;

 

(b)                                 to release or
subordinate any Lien on any property granted to or held by the Administrative
Agent or the Collateral Agent under any Loan Document to the holder of any Lien
on such property that is permitted by Section 7.04 to the extent required
by law or the terms of this Agreement (other than Liens securing the Pari
Passu Lien Obligations); and

 

(c)                                  that any Restricted
Subsidiary that is a Subsidiary Guarantor shall be automatically released from
its obligations under its Guaranty if such Person ceases to be a Restricted
Subsidiary as a result of a transaction or designation permitted hereunder
(including as a result of a Restricted Subsidiary that is a Subsidiary
Guarantor being

 

130

 

redesignated as an Unrestricted Subsidiary); provided that no such release shall occur
if such Subsidiary Guarantor continues to be a guarantor in respect of the New
Notes, any Subordinated Indebtedness or the ABL Credit Agreement.

 

Upon request by the Administrative Agent at
any time, the Required Lenders (or such greater number of Lenders as may be
required under Section 10.01) will confirm in writing the Administrative
Agent’s authority to release or subordinate its interest in particular types or
items of property, or to release any Subsidiary Guarantor from its obligations
under its Guaranty pursuant to this Section 9.11. In each case as
specified in this Section 9.11, the Administrative Agent will (and each
Lender irrevocably authorizes the Administrative Agent to), at the Borrower’s
expense, execute and deliver to the applicable Loan Party such documents as
such Loan Party may reasonably request to evidence the release or
subordination of such item of Collateral from the assignment and security
interest granted under the Collateral Documents, or to evidence the release of
such Subsidiary Guarantor from its obligations under its Guaranty, in each case
in accordance with the terms of the Loan Documents and this Section 9.11.

 

SECTION 9.12. Other Agents; Arrangers
and Managers. None of the Lenders or other Persons identified on the facing
page or signature pages of this Agreement as a “syndication agent”, “co-documentation
agent”, “joint bookrunner” or “arranger” shall have any right, power,
obligation, liability, responsibility or duty under this Agreement other than
those applicable to all Lenders as such. Without limiting the foregoing, none
of the Lenders or other Persons so identified shall have or be deemed to have
any fiduciary relationship with any Lender. Each Lender acknowledges that it
has not relied, and will not rely, on any of the Lenders or other Persons so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder.

 

SECTION 9.13. Appointment of
Supplemental Administrative Agents. (a)  It is the purpose of this
Agreement and the other Loan Documents that there shall be no violation of any
Law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as agent or trustee in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or any of the other Loan Documents, and in particular in case of the
enforcement of any of the Loan Documents, or in case the Administrative Agent
deems that by reason of any present or future Law of any jurisdiction it may not
exercise any of the rights, powers or remedies granted herein or in any of the
other Loan Documents or take any other action which may be desirable or
necessary in connection therewith, the Administrative Agent is hereby
authorized to appoint an additional individual or institution selected by the
Administrative Agent in its sole discretion as a separate trustee, co-trustee,
administrative agent, collateral agent, administrative sub-agent or
administrative co-agent (any such additional individual or institution being
referred to herein individually, as a “Supplemental
Administrative Agent” and collectively, as “Supplemental Administrative Agents”).

 

(b)                                 In the event that the
Administrative Agent appoints a Supplemental Administrative Agent with respect
to any Collateral, (i) each and every right, power, privilege or duty
expressed or intended by this Agreement or any of the other Loan Documents to
be exercised by or vested in or conveyed to the Administrative Agent with
respect to such Collateral shall be exercisable by and vest in such
Supplemental Administrative Agent to the extent, and only to the extent,
necessary to enable such Supplemental Administrative Agent to exercise such

 

131

 

rights, powers and privileges with respect to such Collateral and to
perform such duties with respect to such Collateral, and every covenant
and obligation contained in the Loan Documents and necessary to the exercise or
performance thereof by such Supplemental Administrative Agent shall run to and be
enforceable by either the Administrative Agent or such Supplemental
Administrative Agent, and (ii) the provisions of this Article IX and
of Sections 10.04 and 10.05 that refer to the Administrative Agent shall inure
to the benefit of such Supplemental Administrative Agent and all references
therein to the Administrative Agent shall be deemed to be references to the
Administrative Agent and/or such Supplemental Administrative Agent, as the
context may require.

 

(c)                                  Should any instrument
in writing from the Borrower or any other Loan Party be required by any
Supplemental Administrative Agent so appointed by the Administrative Agent for
more fully and certainly vesting in and confirming to him or it such rights,
powers, privileges and duties, the Borrower shall, or shall cause such Loan
Party to, execute, acknowledge and deliver any and all such instruments
promptly upon request by the Administrative Agent. In case any Supplemental
Administrative Agent, or a successor thereto, shall die, become incapable of acting,
resign or be removed, all the rights, powers, privileges and duties of such
Supplemental Administrative Agent, to the extent permitted by Law, shall vest
in and be exercised by the Administrative Agent until the appointment of a new
Supplemental Administrative Agent.

 

SECTION 9.14. Solidary
Interests/Quebec Liens (Hypothecs). Without limiting the generality of the
foregoing, for the purposes of creating a solidarité active in accordance with Article 1541
of the Civil Code of Quebec, between each Secured Credit Party, taken
individually, on the one hand, and the Administrative Agent, on the other hand,
the Borrower, the Guarantors and each such Secured Credit Party acknowledge and
agree with the Administrative Agent that such Secured Credit Party and the
Administrative Agent are hereby conferred the legal status of solidary
creditors of the Borrower and the Guarantors in respect of all Obligations,
present and future, owed by the Borrowers or the Guarantors to each such
Secured Credit Party and the Administrative Agent (collectively, the “Solidary
Claim”). Accordingly, but subject (for the avoidance of doubt) to Article 1542
of the Civil Code of Quebec, the Borrower and the Guarantors are irrevocably
bound towards the Administrative Agent and each Secured Credit Party in respect
of the entire Solidary Claim of the Administrative Agent and such Secured
Credit Party. As a result of the foregoing, the parties hereto acknowledge that
the Administrative Agent and each Secured Credit Party shall at all times have
a valid and effective right of action for the entire Solidary Claim of the
Administrative Agent and such Secured Credit Party and the right to give full
acquittance for it. Accordingly, without limiting the generality of the
foregoing, the Administrative Agent, as solidary creditor with each Secured
Credit Party, shall at all times have a valid and effective right of action in
respect of all Obligations, present and future, owed by the Borrower or the
Guarantors to the Administrative Agent and to the Credit Parties or any of them
and the right to give a full acquittance for same. For greater certainty, the
foregoing provisions of this paragraph, and the rights of the Credit Parties,
shall at all times be subject to the provisions of this Agreement.

 

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ARTICLE X

 

Miscellaneous

 

SECTION 10.01. Amendments, Etc. Except
as otherwise set forth in this Agreement, no amendment, modification,
supplement or waiver of any provision of this Agreement or any other Loan
Document, and no consent to any departure by the Borrower or any other Loan
Party therefrom, shall be effective unless in writing signed by the Required
Lenders and the Borrower or the applicable Loan Party, as the case may be,
and each such waiver, amendment, modification, supplement or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided that, no such
amendment, modification, supplement, waiver or consent shall:

 

(a)                                  extend or increase
the Commitment of any Lender without the written consent of such Lender (it
being understood that a waiver of any condition precedent set forth in Section 4.01
or the waiver of any Default or mandatory prepayment or offer to purchase of
the Loans shall not constitute an extension or increase of any Commitment of
any Lender);

 

(b)                                 postpone any date
scheduled for, or reduce or forgive the amount of, any payment of principal or
interest under Section 2.07 or 2.08 without the written consent of each
Lender directly affected thereby, it being understood that the waiver of (or
amendment to the terms of) any mandatory prepayment or offer to purchase of the
Loans shall not constitute a postponement of any date scheduled for the payment
of principal or interest;

 

(c)                                  reduce the principal
of, or the rate of interest specified herein on, any Loan, or (subject to
clause (i) of the second proviso to this Section 10.01) any fees or
other amounts payable hereunder or under any other Loan Document without the
written consent of each Lender directly affected thereby, it being understood
that any change to the definition of Consolidated Total Leverage Ratio or in
the component definitions thereof shall not constitute a reduction in the rate;
provided that only the consent of
the Required Lenders shall be necessary to amend the definition of “Default
Rate” or to waive any obligation of the Borrower to pay interest at the Default
Rate;

 

(d)                                 change any provision
of this Section 10.01, the definition of “Required Lenders” or “Pro
Rata Share” or Section 2.12(a) and (g), 2.13 or 8.04 without
the written consent of each Lender directly affected thereby;

 

(e)                                  other than in a
transaction permitted under Section 7.01 or 7.06, release all or
substantially all of the Collateral in any transaction or series of
related transactions, without the written consent of each Lender; or

 

(f)                                    other than in
connection with a transaction permitted under Section 7.01 or 7.06,
release all or substantially all of the aggregate value of the Guaranties,
without the written consent of each Lender;

 

133

 

and provided further,
that (i) no amendment, waiver or consent shall, unless in writing and
signed by the Administrative Agent in addition to the Lenders required above,
affect the rights or duties of, or any fees or other amounts payable to, the
Administrative Agent under this Agreement or any other Loan Document (including
in its capacity as Collateral Agent) and (ii) Section 10.07(h) may not
be amended, waived or otherwise modified without the consent of each Granting
Lender all or any part of whose Loans are being funded by an SPC at the
time of such amendment, waiver or other modification. Any such waiver and any
such amendment, modification or supplement in accordance with the terms of this
Section 10.01 shall apply equally to each of the Lenders and shall be
binding on the Loan Parties, the Lenders, the Agents and all future holders of
the Loans and the Commitments. Notwithstanding anything to the contrary herein,
no Defaulting Lender shall have any right to approve or disapprove any
amendment, waiver or consent hereunder, except that the Commitment of such
Lender may not be increased or extended without the consent of such Lender
(it being understood that any Commitments or Loans held or deemed held by any
Defaulting Lender shall be excluded for a vote of the Lenders hereunder
requiring any consent of the Lenders).

 

Notwithstanding the foregoing, this Agreement
may be amended (or amended and restated) with the written consent of the
Required Lenders, the Administrative Agent and the Borrower (a) to add one
or more additional credit facilities to this Agreement and to permit the
extensions of credit from time to time outstanding thereunder and the accrued
interest and fees in respect thereof to share ratably in the benefits of this
Agreement and the other Loan Documents with the Loan and the accrued interest
and fees in respect thereof and (b) to include appropriately the Lenders
holding such credit facilities in any determination of the Required Lenders.

 

In addition, notwithstanding the foregoing,
this Agreement may be amended with the written consent of the
Administrative Agent, the Borrower and the Lenders providing the relevant
Replacement Term Loans to permit the refinancing of all outstanding Loans (“Refinanced Term Loans”) with a replacement
term loan tranche denominated in Dollars (“Replacement
Term Loans”) hereunder; provided
that (a) the aggregate principal amount of such Replacement Term Loans
shall not exceed the aggregate principal amount of such Refinanced Term Loans, (b) the
Applicable Rate for such Replacement Term Loans shall not be higher than the
Applicable Rate for such Refinanced Term Loans, (c) the Weighted Average
Life to Maturity of such Replacement Term Loans shall not be shorter than the
Weighted Average Life to Maturity of such Refinanced Term Loans at the time of
such refinancing (except to the extent of nominal amortization for periods
where amortization has been eliminated as a result of prepayment of the Loans)
and (d) all other terms applicable to such Replacement Term Loans shall be
substantially identical to, or less favorable to the Lenders providing such
Replacement Term Loans than, those applicable to such Refinanced Term Loans,
except to the extent necessary to provide for covenants and other terms
applicable to any period after the latest final maturity of the Loans in effect
immediately prior to such refinancing.

 

SECTION 10.02. Notices and Other
Communications; Facsimile Copies. (a) General. Unless otherwise
expressly provided herein, all notices and other communications provided for
hereunder or under any other Loan Document shall be in writing (including by
facsimile transmission). All such written notices shall be mailed, faxed or
delivered to the applicable address, facsimile number or electronic mail
address, and all notices and other

 

134

 

communications expressly permitted hereunder to be given by telephone
shall be made to the applicable telephone number, as follows:

 

(i)                                     if to the Borrower
or the Administrative Agent, to the address, facsimile number, electronic mail
address or telephone number specified for such Person on Schedule 10.02 or
to such other address, facsimile number, electronic mail address or telephone
number as shall be designated by such party in a notice to the other parties;
and

 

(ii)                                  if to any other
Lender, to the address, facsimile number, electronic mail address or telephone
number specified in its Administrative Questionnaire or to such other address,
facsimile number, electronic mail address or telephone number as shall be
designated by such party in a notice to the Borrower, and the Administrative
Agent.

 

All such notices and other communications shall be deemed to be given
or made upon the earlier to occur of (i) actual receipt by the relevant
party hereto and (ii) (A) if delivered by hand or by courier, when
signed for by or on behalf of the relevant party hereto; (B) if delivered
by mail, four (4) Business Days after deposit in the mails, postage
prepaid; (C) if delivered by facsimile, when sent and receipt has been
confirmed by telephone; and (D) if delivered by electronic mail (which form of
delivery is subject to the provisions of Section 10.02(c)), when
delivered; provided that notices
and other communications to the Administrative Agent pursuant to Article 2
shall not be effective until actually received by such Person. In no event
shall a voice mail message be effective as a notice, communication or
confirmation hereunder.

 

(b)                                 Effectiveness of Facsimile
Documents and Signatures. Loan Documents may be transmitted and/or signed
by facsimile. The effectiveness of any such documents and signatures shall,
subject to applicable Law, have the same force and effect as manually signed
originals and shall be binding on all Loan Parties, the Agents and the Lenders.

 

(c)                                  Reliance by Agents
and Lenders. The Administrative Agent and the Lenders shall be entitled to rely
and act upon any notices (including telephonic Committed Loan Notices)
purportedly given by or on behalf of the Borrower even if (i) such notices
were not made in a manner specified herein, were incomplete or were not
preceded or followed by any other form of notice specified herein, or (ii) the
terms thereof, as understood by the recipient, varied from any confirmation
thereof. The Borrower shall indemnify each Agent-Related Person and each Lender
from all losses, costs, expenses and liabilities resulting from the reliance by
such Person on each notice purportedly given by or on behalf of the Borrower in
the absence of gross negligence or willful misconduct. All telephonic notices
to the Administrative Agent may be recorded by the Administrative Agent,
and each of the parties hereto hereby consents to such recording.

 

SECTION 10.03. No Waiver; Cumulative
Remedies. No failure by any Lender or the Administrative Agent to exercise,
and no delay by any such Person in exercising, any right, remedy, power or
privilege hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided, and

 

135

 

provided under each other Loan Document, are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by Law.

 

SECTION 10.04. Attorney Costs and
Expenses. The Borrower agrees (a) if the Closing Date occurs, to pay
or reimburse the Administrative Agent, the Collateral Agent, the Syndication
Agent, the Co-Documentation Agents and the Arrangers for all reasonable
out-of-pocket costs and expenses incurred in connection with the preparation,
negotiation, syndication and execution of this Agreement and the other Loan
Documents, and any amendment, waiver, consent or other modification of the
provisions hereof and thereof (whether or not the transactions contemplated
thereby are consummated), and the consummation and administration of the
transactions contemplated hereby and thereby, including all Attorney Costs of
White & Case LLP and local counsel in any other relevant jurisdiction
(but excluding all other Attorney Costs), and (b) to pay or reimburse the
Administrative Agent, the Collateral Agent, the Syndication Agent, the
Co-Documentation Agents, the Arrangers and each Lender for all out-of-pocket
costs and expenses incurred in connection with the enforcement of any rights or
remedies under this Agreement or the other Loan Documents (including all such
costs and expenses incurred during any legal proceeding, including any
proceeding under any Debtor Relief Law, and including all Attorney Costs of a
single law firm acting as counsel to the Administrative Agent in each relevant
jurisdiction). The foregoing costs and expenses shall include all reasonable
search, filing, recording and title insurance charges and fees and taxes
related thereto, and other (reasonable, in the case of Section 10.04(a))
out-of-pocket expenses incurred by any Agent. The agreements in this Section 10.04
shall survive the termination of the Aggregate Commitments and repayment of all
other Obligations. All amounts due under this Section 10.04 shall be paid
within ten (10) Business Days of receipt by the Borrower of an invoice
relating thereto setting forth such expenses in reasonable detail. If any Loan
Party fails to pay when due any costs, expenses or other amounts payable by it
hereunder or under any Loan Document, such amount may be paid on behalf of
such Loan Party by the Administrative Agent in its sole discretion.

 

SECTION 10.05. Indemnification by the
Borrower. Whether or not the transactions contemplated hereby are
consummated, the Borrower shall indemnify and hold harmless each Agent-Related
Person, each Lender and their respective Affiliates, directors, officers,
employees, counsel, agents, trustees, investment advisors and attorneys-in-fact
(collectively, the “Indemnitees”)
from and against any and all liabilities, obligations, losses, damages,
penalties, claims, demands, actions, judgments, suits, costs, expenses and
disbursements (including Attorney Costs) of any kind or nature whatsoever
(other than Taxes, which are governed by Sections 3.01 and 10.15 herein) which may at
any time be imposed on, incurred by or asserted against any such Indemnitee in
any way relating to or arising out of or in connection with (a) the
execution, delivery, enforcement, performance or administration of any Loan
Document or any other agreement, letter or instrument delivered in connection
with the transactions contemplated thereby or the consummation of the
transactions contemplated thereby, (b) any Commitment, Loan or the use or
proposed use of the proceeds therefrom, or (c) any actual or alleged
presence or release of Hazardous Materials on or from any property currently or
formerly owned or operated by the Borrower, any Subsidiary or any other Loan
Party, or any Environmental Liability related in any way to the Borrower, any Subsidiary
or any other Loan Party, or (d) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory (including

 

136

 

any investigation of, preparation for, or defense of any pending or
threatened claim, investigation, litigation or proceeding) and regardless of
whether any Indemnitee is a party thereto (all the foregoing, collectively, the
“Indemnified Liabilities”), in all
cases, whether or not caused by or arising, in whole or in part, out of the
negligence of the Indemnitee; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such liabilities, obligations, losses, damages, penalties, claims,
demands, actions, judgments, suits, costs, expenses or disbursements (x)
resulted from the gross negligence, bad faith or willful misconduct of such
Indemnitee or of any Affiliate, director, officer, employee, counsel, agent or
attorney-in-fact of such Indemnitee, and (y) resulted from a breach by such
Indemnitee of its obligations to a Loan Party. No Indemnitee shall be liable
for any damages arising from the use by others of any information or other
materials obtained through IntraLinks or other similar information transmission
systems in connection with this Agreement, nor shall any Indemnitee or any Loan
Party have any liability for any special, punitive, indirect or consequential
damages relating to this Agreement or any other Loan Document or arising out of
its activities in connection herewith or therewith (whether before or after the
Closing Date). In the case of an investigation, litigation or other proceeding
to which the indemnity in this Section 10.05 applies, such indemnity shall
be effective whether or not such investigation, litigation or proceeding is
brought by any Loan Party, its directors, stockholders or creditors or an
Indemnitee or any other Person, whether or not any Indemnitee is otherwise a
party thereto and whether or not any of the transactions contemplated hereunder
or under any of the other Loan Documents is consummated. All amounts due under
this Section 10.05 shall be paid within ten (10) Business Days after
demand therefor; provided, however,
that such Indemnitee shall promptly refund such amount to the extent that there
is a final judicial or arbitral determination that such Indemnitee was not
entitled to indemnification or contribution rights with respect to such payment
pursuant to the express terms of this Section 10.05. The agreements in
this Section 10.05 shall survive the resignation of the Administrative
Agent, the replacement of any Lender, the termination of the Aggregate
Commitments and the repayment, satisfaction or discharge of all the other Obligations.

 

SECTION 10.06. Payments Set Aside.
To the extent that any payment by or on behalf of the Borrower is made to any
Agent or any Lender, or any Agent or any Lender exercises its right of setoff,
and such payment or the proceeds of such setoff or any part thereof is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required (including pursuant to any settlement entered into by such Agent or
such Lender in its discretion) to be repaid to a trustee, receiver or any other
party, in connection with any proceeding under any Debtor Relief Law or
otherwise, then (a) to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force and effect as if such payment had not been made or such setoff had not
occurred, and (b) each Lender severally agrees to pay to the
Administrative Agent upon demand its applicable share of any amount so
recovered from or repaid by any Agent, plus
interest thereon from the date of such demand to the date such payment is made
at a rate per annum equal to the Federal Funds Rate from time to time in
effect.

 

SECTION 10.07. 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, except that the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (except as

 

137

 

expressly permitted by Sections 7.06(a) and (b)) and no Lender may assign
or otherwise transfer any of its rights or obligations hereunder except (i) to
an Eligible Assignee, (ii) by way of participation in accordance with the
provisions of Section 10.07(e), (iii) by way of pledge or assignment
of a security interest subject to the restrictions of Section 10.07(g) and
(i) or (iv) to an SPC in accordance with the provisions of Section 10.07(h) (and
any other attempted assignment or transfer by any party hereto 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, Participants to the extent provided in
Section 10.07(e) and, to the extent expressly contemplated hereby,
the Indemnitees) any legal or equitable right, remedy or claim under or by
reason of this Agreement.

 

(b)                                 (i)  Subject to
the conditions set forth in paragraph (b)(ii) below, any Lender may assign
to one or more assignees (“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) with the prior written consent (such
consent not to be unreasonably withheld, delayed or conditioned) of:

 

(A)                              the
Borrower, provided that no
consent of the Borrower shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund or, if an Event of Default under Section 8.01(a),
(f) or (g) has occurred and is continuing, any Assignee; and

 

(B)                                the
Administrative Agent, provided
that no consent of the Administrative Agent shall be required for an assignment
(i) of all or any portion of a Loan to a Lender, an Affiliate of a Lender
or an Approved Fund or (ii) to an Agent or an Affiliate of an Agent.

 

(ii)                                  Assignments shall be
subject to the following additional conditions:

 

(A)                              except
in the case of an assignment to a Lender or an Affiliate of a Lender or
Approved Fund 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 Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $1,000,000 unless each of the
Borrower and the Administrative Agent otherwise consents, provided that (1) no such consent of
the Borrower shall be required if an Event of Default under Section 8.01(a),
(f) or (g) has occurred and is continuing and (2) such amounts
shall be aggregated in respect of each Lender and its Affiliates or Approved
Funds, if any;

 

(B)                                the
parties to each assignment shall execute and deliver to the Administrative
Agent an Assignment and Assumption, together with a processing and recordation
fee of $3,500; and

 

(C)                                the
Assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire.

 

138

 

(c)                                  Subject to acceptance
and recording thereof by the Administrative Agent pursuant to Section 10.07(d),
from and after the effective date specified in each Assignment and Assumption,
the Eligible Assignee thereunder shall be a party to this Agreement and, to the
extent of the interest assigned by such Assignment and Assumption, have the
rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this
Agreement (and, in the case of an Assignment and Assumption 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 Sections 3.01, 3.04, 3.05, 10.04 and 10.05 with respect to facts
and circumstances occurring prior to the effective date of such assignment). Upon
request, and the surrender by the assigning Lender of its Note, the Borrower
(at its expense) shall execute and deliver a Note to the assignee Lender. Any
assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with this clause (c) 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 Section 10.07(e).

 

(d)                                 The Administrative
Agent, acting solely for this purpose as an agent of the Borrower, shall
maintain at the Administrative Agent’s Office a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitments of, and principal amounts (and
related interest amounts) of the Loans owing to each Lender pursuant to the
terms hereof from time to time (the “Register”).
The entries in the Register shall be conclusive, absent manifest error, and the
Borrower, the Agents and the Lenders shall 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, any Agent and any
Lender, at any reasonable time and from time to time upon reasonable prior
notice.

 

(e)                                  Any Lender may at
any time, without the consent of, or notice to, the Borrower or the
Administrative Agent, sell participations to any Person (other than a natural
person) (each, a “Participant”) in
all or a portion of such Lender’s rights and/or obligations under this
Agreement (including all or a portion of its Commitment and/or 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 Borrower, the Agents 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
shall provide that such Lender shall retain the sole right to enforce this
Agreement and the other Loan Documents and to approve any amendment,
modification or waiver of any provision of this Agreement or the other 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, waiver or other
modification described in the first proviso to Section 10.01 that directly
affects such Participant. Subject to Section 10.07(f), the Borrower agrees
that each Participant shall be entitled to the benefits of Sections 3.01, 3.04
and 3.05 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to Section 10.07(c) but shall not be
entitled to recover greater amounts under such Sections than the selling Lender
would be entitled to recover. To the extent permitted by applicable Law, each
Participant also

 

139

 

shall be entitled to the benefits of Section 10.09 as though it
were a Lender; provided that such
Participant agrees to be subject to Section 2.13 as though it were a
Lender.

 

(f)                                    A Participant shall
not be entitled to receive any greater payment under Section 3.01, 3.04 or
3.05 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 shall not be entitled to the benefits of Section 3.01
unless 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 10.15
as though it were a Lender.

 

(g)                                 Any Lender, without
the consent of the Borrower or the Administrative Agent, may at any time
pledge or assign a security interest in all or any portion of its rights under
this Agreement (including under its Note, if any) to secure obligations of such
Lender, including any pledge or assignment to secure obligations to a Federal
Reserve Bank; provided that no
such pledge or assignment shall release such Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.

 

(h)                                 Notwithstanding
anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special
purpose funding vehicle identified as such in writing from time to time by the
Granting Lender to the Administrative Agent and the Borrower (an “SPC”) the option to provide all or any part of
any Loan that such Granting Lender would otherwise be obligated to make
pursuant to this Agreement; provided
that (i) nothing herein shall constitute a commitment by any SPC to fund
any Loan, and (ii) if an SPC elects not to exercise such option or
otherwise fails to make all or any part of such Loan, the Granting Lender
shall be obligated to make such Loan pursuant to the terms hereof. Each party
hereto hereby agrees that (i) neither the grant to any SPC nor the
exercise by any SPC of such option shall increase the costs or expenses or
otherwise increase or change the obligations of the Borrower under this
Agreement (including its obligations under Section 3.01, 3.04 or 3.05), (ii) no
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement for which a Lender would be liable, and (iii) the Granting
Lender shall for all purposes, including the approval of any amendment, waiver
or other modification of any provision of any Loan Document, remain the lender
of record hereunder. The making of a Loan by an SPC hereunder shall utilize the
Commitment of the Granting Lender to the same extent, and as if, such Loan were
made by such Granting Lender. Notwithstanding anything to the contrary
contained herein, any SPC may (i) with notice to, but without prior
consent of the Borrower and the Administrative Agent and with the payment of a
processing fee of $3,500, assign all or any portion of its right to receive
payment with respect to any Loan to the Granting Lender and (ii) disclose
on a confidential basis any non-public information relating to its funding of
Loans to any rating agency, commercial paper dealer or provider of any surety
or Guarantee or credit or liquidity enhancement to such SPC.

 

Notwithstanding anything to the contrary contained herein, (1) any
Lender, without the consent of the Borrower or the Administrative Agent, may in
accordance with applicable Law create a security interest in all or any portion
of the Loans owing to it and the Note, if any, held by it and (2) any
Lender that is a Fund, without the consent of the Borrower or the
Administrative Agent, may create a security interest in all or any portion
of the Loans owing to it and the Note, if any,

 

140

 

held by it to the trustee for holders of obligations owed, or
securities issued, by such Fund as security for such obligations or securities;
provided that unless and until
such trustee actually becomes a Lender in compliance with the other provisions
of this Section 10.07, (i) no such pledge shall release the pledging
Lender from any of its obligations under the Loan Documents and (ii) such
trustee shall not be entitled to exercise any of the rights of a Lender under
the Loan Documents even though such trustee may have acquired ownership
rights with respect to the pledged interest through foreclosure or otherwise.

 

SECTION 10.08. Confidentiality. Each
of the Agents and the Lenders agrees to maintain the confidentiality of the
Information, except that Information may be disclosed (a) to its
Affiliates and its and its Affiliates’ directors, officers, employees,
trustees, investment advisors and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such Information
and instructed to keep such Information confidential); (b) to the extent
requested by any Governmental Authority; (c) to the extent required by
applicable Laws or regulations or by any subpoena or similar legal process; (d) to
any other party to this Agreement; (e) subject to an agreement containing
provisions substantially the same as those of this Section 10.08 (or as may otherwise
be reasonably acceptable to the Borrower), to any pledgee referred to in Section 10.07(g),
counterparty to a Swap Contract, Eligible Assignee of or Participant in, or any
prospective Eligible Assignee of or Participant in, any of its rights or
obligations under this Agreement; (f) with the written consent of the
Borrower; (g) to the extent such Information becomes publicly available
other than as a result of a breach of this Section 10.08; (h) to any
Governmental Authority or examiner (including the National Association of
Insurance Commissioners or any other similar organization) regulating any
Lender or its Affiliates; or (i) to any rating agency when required by it
(it being understood that, prior to any such disclosure, such rating agency
shall undertake to preserve the confidentiality of any Information relating to
the Loan Parties received by it from such Lender). In addition, the Agents and
the Lenders may disclose the existence of this Agreement and information
about this Agreement to market data collectors, similar service providers to
the lending industry, and service providers to the Agents and the Lenders in
connection with the administration and management of this Agreement, the other
Loan Documents, the Commitments, and the Loans. For the purposes of this Section 10.08,
“Information” means all
information received from any Loan Party relating to any Loan Party or its
business, other than any such information that is publicly available to any
Agent or any Lender prior to disclosure by any Loan Party other than as a
result of a breach of this Section 10.08; provided
that, in the case of information received from a Loan Party after the date
hereof, such information is clearly identified at the time of delivery as
confidential or (ii) is delivered pursuant to Section 6.01, 6.02 or
6.03 hereof.

 

SECTION 10.09. Setoff. In
addition to any rights and remedies of the Lenders provided by Law, upon the
occurrence and during the continuance of any Event of Default, each Lender and
its Affiliates is authorized at any time and from time to time, without prior
notice to the Borrower or any other Loan Party, any such notice being waived by
the Borrower (on its own behalf and on behalf of each Loan Party and its
Subsidiaries) to the fullest extent permitted by applicable Law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held by, and other Indebtedness at any time owing by, such
Lender and its Affiliates to or for the credit or the account of the respective
Loan Parties and their Subsidiaries against any and all Obligations owing to
such Lender and its Affiliates

 

141

 

hereunder or under any other Loan Document, now or hereafter existing,
irrespective of whether or not such Agent or such Lender or Affiliate shall
have made demand under this Agreement or any other Loan Document and although
such Obligations may be contingent or unmatured or denominated in a
currency different from that of the applicable deposit or Indebtedness. Each
Lender agrees promptly to notify the Borrower and the Administrative Agent
after any such set off and application made by such Lender; provided that the failure to give such
notice shall not affect the validity of such setoff and application. The rights
of the Administrative Agent and each Lender under this Section 10.09 are
in addition to other rights and remedies (including other rights of setoff)
that the Administrative Agent and such Lender may have.

 

SECTION 10.10. Interest Rate
Limitation. Notwithstanding anything to the contrary contained in any Loan
Document, the interest paid or agreed to be paid under the Loan Documents shall
not exceed the maximum rate of non-usurious interest permitted by applicable
Law (the “Maximum Rate”). If any
Agent or any Lender shall receive interest in an amount that exceeds the
Maximum Rate, the excess interest shall be applied to the principal of the
Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In
determining whether the interest contracted for, charged, or received by an
Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent
permitted by applicable Law, (a) characterize any payment that is not
principal as an expense, fee, or premium rather than interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest
throughout the contemplated term of the Obligations hereunder.

 

SECTION 10.11. Counterparts. This
Agreement and each other Loan Document may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery by telecopier
of an executed counterpart of a signature page to this Agreement and
each other Loan Document shall be effective as delivery of an original executed
counterpart of this Agreement and such other Loan Document. The Agents may also
require that any such documents and signatures delivered by telecopier be
confirmed by a manually signed original thereof; provided that the failure to request or deliver the same
shall not limit the effectiveness of any document or signature delivered by
telecopier.

 

SECTION 10.12. Integration. This
Agreement, together with the other Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and thereof
and supersedes all prior agreements, written or oral, on such subject matter. In
the event of any conflict between the provisions of this Agreement and those of
any other Loan Document, the provisions of this Agreement shall control; provided that the inclusion of
supplemental rights or remedies in favor of the Agents or the Lenders in any
other Loan Document shall not be deemed a conflict with this Agreement. Each
Loan Document was drafted with the joint participation of the respective
parties thereto and shall be construed neither against nor in favor of any
party, but rather in accordance with the fair meaning thereof.

 

SECTION 10.13. Survival of
Representations and Warranties. All representations and warranties made
hereunder and in any other Loan Document or other document delivered pursuant
hereto or thereto or in connection herewith or therewith shall survive the
execution and delivery hereof and thereof. Such representations and warranties
have

 

142

 

been or will be relied upon by each Agent and each Lender, regardless
of any investigation made by any Agent or any Lender or on their behalf and
notwithstanding that any Agent or any Lender may have had notice or
knowledge of any Default at the time of any Loan, and shall continue in full
force and effect as long as any Loan or any other Obligation hereunder shall
remain unpaid or unsatisfied (other than Obligations under Secured Hedge
Agreements or contingent indemnification obligations, in any such case, not
then due and payable).

 

SECTION 10.14. Severability. If
any provision of this Agreement or the other Loan Documents is held to be
illegal, invalid or unenforceable, the legality, validity and enforceability of
the remaining provisions of this Agreement and the other Loan Documents shall
not be affected or impaired thereby. The invalidity of a provision in a
particular jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.

 

SECTION 10.15. Tax Forms. (a) 
Each Lender and Agent that is not a “United States person” within the meaning
of Section 7701(a)(30) of the Code (each, a “Foreign Lender”) shall deliver to the Borrower and the
Administrative Agent, on or prior to the date which is ten (10) Business
Days after the Closing Date (or upon accepting an assignment of an interest
herein), two duly signed, properly completed copies of either IRS Form W-8BEN
or any successor thereto (relating to such Foreign Lender and entitling it to
an exemption from, or reduction of, United States withholding tax on all
payments to be made to such Foreign Lender by the Borrower or any other Loan
Party pursuant to this Agreement or any other Loan Document) or IRS Form W-8ECI
or any successor thereto (relating to all payments to be made to such Foreign
Lender by the Borrower or any other Loan Party pursuant to this Agreement or
any other Loan Document) or such other evidence reasonably satisfactory to the
Borrower and the Administrative Agent that such Foreign Lender is entitled to
an exemption from, or reduction of, United States withholding tax, including
any exemption pursuant to Section 871(h) or 881(c) of the Code,
and in the case of a Foreign Lender claiming such an exemption under Section 881(c) of
the Code, a certificate that establishes in writing to the Borrower and the
Administrative Agent that such Foreign Lender is not (i) a “bank” as
defined in Section 881(c)(3)(A) of the Code, (ii) a 10-percent
stockholder within the meaning of Section 871(h)(3)(B) of the Code,
or (iii) a controlled foreign corporation related to the Borrower with the
meaning of Section 864(d) of the Code. Thereafter and from time to
time, each such Foreign Lender shall (A) promptly submit to the Borrower
and the Administrative Agent such additional duly completed and signed copies
of one or more of such forms or certificates (or such successor forms or
certificates as shall be adopted from time to time by the relevant United
States taxing authorities) as may then be available under then current
United States Laws and regulations to avoid, or such evidence as is reasonably
satisfactory to the Borrower and the Administrative Agent of any available
exemption from, or reduction of, United States withholding taxes in respect of
all payments to be made to such Foreign Lender by the Borrower or other Loan
Party pursuant to this Agreement, or any other Loan Document, in each case, (1) on
or before the date that any such form, certificate or other evidence expires or
becomes obsolete, (2) after the occurrence of any event requiring a change
in the most recent form, certificate or evidence previously delivered by it to
the Borrower and the Administrative Agent and (3) from time to time
thereafter if reasonably requested by the Borrower or the Administrative Agent,
and (B) promptly notify the Borrower and the Administrative Agent of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction. In the event that a payment will be made to a Lender or
Agent under the Canadian Guarantee, such Lender or Agent agrees to use
reasonable

 

143

 

efforts (consistent with legal and regulatory restrictions and subject
to overall policy considerations of such Lender or Agent), if requested by a
Loan Party, to deliver such other information prescribed by applicable laws or
reasonably requested by the Loan Party as will enable such Loan Party to
determine whether such Lender or Agent is subject to Canadian withholding tax,
is entitled to an exemption from Canadian withholding tax or is eligible for a
reduced rate of Canadian withholding tax; provided,
however, that nothing in this Section 10.15(a) shall
require a Lender or Agent to disclose any confidential information (including,
without limitation, its tax returns or its calculations).

 

(b)                                 Each Foreign Lender,
to the extent it does not act or ceases to act for its own account with respect
to any portion of any sums paid or payable to such Foreign Lender under any of
the Loan Documents (for example, in the case of a typical participation by such
Foreign Lender), shall deliver to the Borrower and the Administrative Agent on
the date when such Foreign Lender ceases to act for its own account with
respect to any portion of any such sums paid or payable, and at such other
times as may be necessary in the determination of the Borrower or the
Administrative Agent (in either case, in the reasonable exercise of its
discretion), (A) two duly signed completed copies of the forms or statements
required to be provided by such Foreign Lender as set forth above, to establish
the portion of any such sums paid or payable with respect to which such Foreign
Lender acts for its own account that is not subject to United States
withholding tax, and (B) two duly signed completed copies of IRS Form W-8IMY
(or any successor thereto), together with any information such Foreign Lender
chooses to transmit with such form, and any other certificate or statement of
exemption required under the Code, to establish that such Foreign Lender is not
acting for its own account with respect to a portion of any such sums payable
to such Foreign Lender.

 

(c)                                  Each Lender and Agent
that is a “United States person” within the meaning of Section 7701(a)(30)
of the Code (each, a “U.S. Lender”)
shall deliver to the Administrative Agent and the Borrower two duly signed,
properly completed copies of IRS Form W-9 (or any successor form) on or
prior to the Closing Date (or on or prior to the date it becomes a party to
this Agreement), certifying that such U.S. Lender is entitled to an exemption
from United States backup withholding tax.

 

(d)                                 No Loan Party shall be
required to pay any additional amount or any indemnity payment under Section 3.01
to (A) any Lender to the extent Taxes are not due but for the failure of
such Lender to satisfy the foregoing provisions of this Section 10.15 or (B) any
Lender to the extent such amounts are United States withholding taxes imposed
on amounts payable to such Lender at the time such Lender becomes a party to
this Agreement, except to the extent such Lender’s assignor (if any) was
entitled, at the time of the assignment, to receive additional amounts from the
Borrower with respect to such Taxes pursuant to Section 3.01 of this
Agreement; provided that (i) if
such Lender shall have satisfied the requirement of this Section 10.15 on
the date required in this Section 10.15, nothing in this Section 10.15
shall relieve the Borrower of its obligation to pay any amounts pursuant to Section 3.01
in the event that, as a result of any change in any applicable Law, treaty or
governmental rule, regulation or order, or any change in the interpretation,
administration or application thereof, such Lender is no longer properly
entitled to deliver forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender or other Person for the account of which
such Lender receives any sums payable under any of the Loan Documents is not
subject to withholding or is subject to

 

144

 

withholding at a reduced rate and (ii) nothing in this Section 10.15
shall relieve the Borrower of its obligation to pay any amounts pursuant to Section 3.01
in the event that the requirements of 10.15(b) have not been satisfied if
the Borrower is entitled, under applicable Law, to rely on any applicable forms
and statements required to be provided under this Section 10.15 by the
Foreign Lender that does not act or has ceased to act for its own account under
any of the Loan Documents, including in the case of a typical participation.

 

(e)                                  The Administrative
Agent may deduct and withhold any taxes required by any Laws to be
deducted and withheld from any payment under any of the Loan Documents.

 

SECTION 10.16. GOVERNING LAW. (a) 
THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT
IF THE LAWS OF ANY JURISDICTION OTHER THAN NEW YORK SHALL GOVERN IN REGARD TO
THE VALIDITY, PERFECTION OR EFFECT OF PERFECTION OF ANY LIEN OR IN REGARD TO
PROCEDURAL MATTERS AFFECTING ENFORCEMENT OF ANY LIENS IN COLLATERAL, SUCH LAWS
OF SUCH OTHER JURISDICTIONS SHALL CONTINUE TO APPLY TO THAT EXTENT.

 

(b)                                 ANY LEGAL ACTION OR
PROCEEDING ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH
RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, MAY BE BROUGHT IN THE COURTS OF
THE STATE OF NEW YORK SITTING IN NEW YORK CITY OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE BORROWER, EACH AGENT AND EACH LENDER CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. THE
BORROWER, EACH AGENT AND EACH LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM
NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
ACTION OR PROCEEDING IN SUCH JURISDICTION, IN RESPECT OF ANY LOAN DOCUMENT OR
OTHER DOCUMENT RELATED THERETO.

 

SECTION 10.17. WAIVER OF RIGHT TO
TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING
UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT,
OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL

 

145

 

COUNTERPART OR A COPY OF THIS SECTION 10.17 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.

 

SECTION 10.18. Binding Effect. This
Agreement shall become effective when it shall have been executed by the
Borrower and the Administrative Agent shall have been notified by each Lender that
each such Lender has executed it and thereafter shall be binding upon and inure
to the benefit of the Borrower, each Agent and each Lender and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Lenders, except as permitted by Section 7.04.

 

SECTION 10.19. Lender Action. Each
Lender agrees that it shall not take or institute any actions or proceedings,
judicial or otherwise, for any right or remedy against any Loan Party or any
other obligor under any of the Loan Documents or the Secured Hedge Agreements
(including the exercise of any right of setoff, rights on account of any banker’s
lien or similar claim or other rights of self-help), or institute any actions
or proceedings, or otherwise commence any remedial procedures, with respect to
any Collateral or any other property of any such Loan Party, without the prior
written consent of the Administrative Agent. The provisions of this Section 10.19
are for the sole benefit of the Lenders and shall not afford any right to, or
constitute a defense available to, any Loan Party.

 

SECTION 10.20. USA PATRIOT Act;
Proceeds of Crime Act. Each Lender hereby notifies the Borrower that pursuant
to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed
into law October 26, 2001)) (the “Act”),
it is required to obtain, verify and record information that identifies the
Loan Parties, which information includes the name and address of the Loan
Parties and other information that will allow such Lender to identify the Loan
Parties in accordance with the Act. Each Loan Party is in compliance in all
material respects with the Act and the Proceeds of Crime Act.

 

SECTION 10.21. Judgment Currency.
If, for the purposes of obtaining judgment in any court, it is necessary to
convert a sum due hereunder or any other Loan Document in one currency into
another currency, the rate of exchange used shall be that at which in
accordance with normal banking procedures the Administrative Agent could
purchase the first currency with such other currency on the Business Day
preceding that on which final judgment is given. The obligation of each
Borrower in respect of any such sum due from it to the Administrative Agent or
the Lenders hereunder or under the other Loan Documents shall, notwithstanding
any judgment in a currency (the “Judgment
Currency”) other than that in which such sum is denominated in
accordance with the applicable provisions of this Agreement (the “Agreement Currency”) be discharged only to
the extent that on the Business Day following receipt by the Administrative
Agent of any sum adjudged to be so due in the Judgment Currency, the
Administrative Agent may in accordance with normal banking procedures
purchase the Agreement Currency with the Judgment Currency. If the amount of
the Agreement Currency so purchased is less than the sum originally due to the
Administrative Agent from any Borrower in the Agreement Currency, such Borrower
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Administrative Agent or the Person to whom such obligation was
owing against such loss. If the amount of the Agreement Currency so purchased

 

146

 

is greater than the sum originally due to the Administrative Agent in
such currency, the Administrative Agent agrees to return the amount of any
excess to such Borrower (or to any other Person who may be entitled
thereto under Applicable Law).

 

SECTION 10.22. Other Liens on
Collateral; Terms of Intercreditor Agreement; Etc. (i)  EACH LENDER
HERETO UNDERSTANDS, ACKNOWLEDGES AND AGREES THAT LIENS SHALL BE CREATED ON THE
COLLATERAL PURSUANT TO THE ABL CREDIT AGREEMENT AND THE ABL LOAN DOCUMENTS,
WHICH LIENS (x) TO THE EXTENT CREATED WITH RESPECT TO ABL PRIORITY COLLATERAL,
SHALL BE SENIOR TO THE LIENS CREATED UNDER THIS AGREEMENT AND THE RELATED LOAN
DOCUMENTS (WITH THE LIENS SO CREATED HEREUNDER AND UNDER THE OTHER LOAN
DOCUMENTS ON ABL PRIORITY COLLATERAL BEING SUBORDINATED TO SUCH LIENS PURSUANT
TO THE TERMS OF THE INTERCREDITOR AGREEMENT) AND (Y) TO THE EXTENT CREATED WITH
RESPECT TO TL PRIORITY COLLATERAL, SHALL BE REQUIRED TO BE SUBJECT TO THE
SUBORDINATION PROVISIONS (TO THE EXTENT APPLICABLE) OF THE INTERCREDITOR
AGREEMENT. THE INTERCREDITOR AGREEMENT ALSO HAS OTHER PROVISIONS WHICH ARE
BINDING UPON THE LENDERS AND THE HEDGE BANKS PURSUANT TO THIS AGREEMENT. PURSUANT
TO THE EXPRESS TERMS OF SECTION 7.17 OF THE INTERCREDITOR AGREEMENT, IN
THE EVENT OF ANY CONFLICT BETWEEN THE TERMS OF THE INTERCREDITOR AGREEMENT AND
ANY OF THE LOAN DOCUMENTS, THE PROVISIONS OF THE INTERCREDITOR AGREEMENT SHALL
GOVERN AND CONTROL.

 

(ii)                                  EACH LENDER
AUTHORIZES AND INSTRUCTS THE COLLATERAL AGENT AND THE ADMINISTRATIVE AGENT TO
ENTER INTO THE INTERCREDITOR AGREEMENT ON BEHALF OF SUCH LENDER, AND TO TAKE
ALL ACTIONS (AND EXECUTE ALL DOCUMENTS) REQUIRED (OR DEEMED ADVISABLE) BY IT IN
ACCORDANCE WITH THE TERMS OF THE INTERCREDITOR AGREEMENT.

 

(iii)                               THE PROVISIONS OF THIS SECTION 10.22
ARE NOT INTENDED TO SUMMARIZE ALL RELEVANT PROVISIONS OF THE INTERCREDITOR
AGREEMENT, THE FORM OF WHICH IS ATTACHED AS AN EXHIBIT TO THIS
AGREEMENT. REFERENCE MUST BE MADE TO THE INTERCREDITOR AGREEMENT ITSELF TO
UNDERSTAND ALL TERMS AND CONDITIONS THEREOF. EACH LENDER IS RESPONSIBLE FOR
MAKING ITS OWN ANALYSIS AND REVIEW OF THE INTERCREDITOR AGREEMENT AND THE TERMS
AND PROVISIONS THEREOF, AND NO AGENT (AND NONE OF ITS AFFILIATES) MAKES ANY
REPRESENTATION TO ANY LENDER AS TO THE SUFFICIENCY OR ADVISABILITY OF THE
PROVISIONS CONTAINED IN THE INTERCREDITOR AGREEMENT.

 

SECTION 10.23. Assignment of
Obligations. The Borrower hereby agrees to assume any and all obligations
of Bain Paste Finco, LLC (“Bain Finco”)
and Blackstone Paste Finco, LLC (“Blackstone
Finco”) under (i) the Commitment Letter dated as of July 13,
2006 among Bain Finco, Blackstone Finco, Bain Capital Fund IX, LLC (“Bain Fund”), Blackstone Capital Partners V
L.P. (“Blackstone Fund”), Deutsche
Bank AG New York Branch (“DBNY”),
Deutsche Bank AG Cayman Islands Branch (“DBCI”),
Deutsche Bank Securities

 

147

 

Inc. (“DBSI”), J.P. Morgan
Securities Inc. (“JPMorgan”),
JPMorgan Chase Bank, N.A. (“JPMorgan Chase
Bank”), Bank of America, N.A. (“Bank
of America”), Banc of America Securities LLC (“BAS”), Banc of
America Bridge LLC (“Banc of America Bridge”),
Credit Suisse Securities (USA) LLC (“CS
Securities”) and Credit Suisse (“CS”),
(ii) the Fee Letter dated as of July 13, 2006 among Bain Finco,
Blackstone Finco, DBNY, DBCI, DBSI, JPMorgan, JPMorgan Chase Bank, Bank of
America, BAS, Banc of America Bridge, CS Securities and CS and (iii) the
Engagement Letter dated as of July 13, 2006 among Bain Finco, Blackstone
Finco, DBSI, JPMorgan, BAS and CS Securities. The Lenders party hereto hereby
acknowledge and accept such assumption of obligations by the Borrower.

 

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

 

148

 

IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be duly executed as of the
date first above written.

 

	
   

  	
   

  	
  MICHAELS STORES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ Jeffrey N. Boyer

  	
   

  
	
   

  	
   

  	
   

  	
  Title:  President and Chief
  Financial Officer

  

 

 

	
   

  	
   

  	
  DEUTSCHE BANK AG NEW YORK

  BRANCH, Individually and as Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ Marguerite Sutton 

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ Omayra Laucella 

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Vice President

  

 

 

	
   

  	
   

  	
  JPMORGAN CHASE BANK, N.A.,

  
	
   

  	
   

  	
    as Syndication Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/
  Barry Bergman

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Managing Director

  

 

 

	
   

  	
   

  	
  BANK OF AMERICA, N.A.,

  
	
   

  	
   

  	
    Co-Documentation Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ Matthew C. Sclafani

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Principal

  

 

 

	
   

  	
   

  	
  CREDIT SUISSE,

  
	
   

  	
   

  	
    as Co-Documentation Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ Ian Nalitt

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Vice
  President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
    /s/ David Dodd

  	
   

  
	
   

  	
   

  	
   

  	
  Title: Vice President

  

 

 

SCHEDULE 1.01B

To Credit Agreement

 

Schedule 1.01B

Collateral
Documents

 

1. Guarantee Agreement, dated as of October 31, 2006, among
Michaels Stores, Inc., a Delaware corporation, the Subsidiaries of the
Borrower identified therein and Deutsche Bank AG New York Branch, as
Administrative Agent.

 

2. Security Agreement, dated as of October 31, 2006, among
Michaels Stores, Inc., a Delaware corporation, the Subsidiaries of the
Borrower identified therein and Deutsche Bank AG New York Branch, as Collateral
Agent for the Secured Parties.

 

3. Canadian Guarantee, dated as of October 31, 2006, among
Michaels of Canada, ULC, a Nova Scotia unlimited liability company, and
Deutsche Bank AG New York Branch, as Administrative Agent.

 

4. Canadian Security Agreement, dated as of October 31, 2006,
among Michaels of Canada, ULC, a Nova Scotia unlimited liability company,
and  Deutsche Bank AG New York Branch, as
Collateral Agent for the Secured Parties.

 

5. Grant of Security Interest in United States Trademarks, dated as of October 31,
2006, between Aaron Brothers, Inc., a Delaware corporation, and Deutsche
Bank AG New York Branch, as Collateral Agent.

 

6. Grant of Security Interest in United States Trademarks, dated as of October 31,
2006, between Michaels Stores Procurement Company, Inc., a Delaware
corporation, and Deutsche Bank AG New York Branch, as Collateral Agent.

 

8. Grant of Security Interest in Canadian Trademarks, dated as of October 31,
2006, between Michaels Stores Procurement Company, Inc., a Delaware
corporation, and Deutsche Bank AG New York Branch, as Collateral Agent.

 

 

SCHEDULE 1.01D

To Credit
Agreement

 

Schedule 1.01D

Mortgaged
Properties

 

None.

 

 

SCHEDULE 1.01E

To Credit
Agreement

 

Schedule 1.01E

Excluded
Subsidiary

 

None.

 

 

SCHEDULE 1.01F

To Credit Agreement

 

Schedule 1.01F

Foreign
Subsidiary

 

None.

 

 

SCHEDULE 2.01

To Credit
Agreement

 

Schedule 2.01

Commitments

 

	
  LENDER

  	
   

  	
  COMMITMENT

  	
   

  
	
  DEUTSCHE
  BANK AG NEW YORK BRANCH

  	
   

  	
  $

  	
  2,400,000,000

  	
   

  
					

 

 

SCHEDULE 5.05

To Credit
Agreement

Schedule 5.05

Financial Statements

 

1. See Risk Factor “We face risks relating to our historical stock
option practices” in the Offering Memorandum, dated October 25, 2006.

 

2. See Risk Factor “We face risks related to unresolved SEC staff
comments” in the Offering Memorandum, dated October 25, 2006.

 

 

SCHEDULE 5.10

To Credit
Agreement

 

Schedule 5.10

Taxes

 

1. The Company currently has state income tax audits in process in the
following states: California (Fiscal Years 1994 – 2003); Colorado (Fiscal Years
2002 – 2006); Connecticut (Fiscal Years 2002 – 2004); Maryland (Fiscal Years
2002 – 2003); Massachusetts (Fiscal Years 2001 – 2004); New York (Fiscal Years
2005 – 2007); North Carolina (Fiscal Year 2004); Ohio (Fiscal Years 2002 –
2003); Wisconsin (1998 – 2004).

 

2. The Company currently has sales tax audits in process in the
following states:  California (1/1/03 to 9/30/06); Colorado (9/1/03 to
8/31/06); Connecticut (11/1/01 to 10/31/04); Illinois (11/1/03 to 12/31/06);
Kansas (1/1/04 to 3/31/05); Louisiana (4/1/02 to 3/31/05); Michigan (7/1/01 to
3/31/05); Minnesota (4/1/01 to 3/31/05); North Carolina (12/1/01 to 9/30/05);
Ohio (10/1/02 to 12/31/05); Texas (8/1/01 to 1/31/06); Virginia (10/1/03 to
9/30/06); Washington (1/1/02 to 3/31/05); Wisconsin (4/1/01 to 3/31/05).

 

3. On May 17, 2006, the Company received approval of their May 10,
2006 filing of Form 872, Consent to Extend the Time to Assess Tax, with
the IRS extending the assessment period for fiscal year 2002 to the expiration
date of December 31, 2006. The Company has filed an additional six-month
extension for the fiscal year 2002 return.

 

 

SCHEDULE 5.11

To Credit
Agreement

 

Schedule 5.11

ERISA and
other Pension Plan Compliance

 

None.

 

 

SCHEDULE 5.12

To Credit
Agreement

 

Schedule 5.12

Subsidiaries
and Other Equity Investments

 

	
  Subsidiary

  	
   

  	
  Jurisdiction

  	
   

  	
  Owner

  	
   

  	
  # of

  Shares

  Owned

  	
   

  	
  Total Shares

  Outstanding

  	
   

  	
  % of

  Interest

  	
   

  	
  %

  Pledged

  	
   

  
	
  Aaron Brothers, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Michaels Stores, Inc.

  	
   

  	
  100

  	
   

  	
  100

  	
   

  	
  100

  	
  %

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Michaels Stores, Inc.

  	
   

  	
  100

  	
   

  	
  100

  	
   

  	
  100

  	
  %

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Michaels Stores Card Services, LLC

  	
   

  	
  Virginia

  	
   

  	
  Michaels Stores, Inc.

  	
   

  	
  100

  	
   

  	
  100

  	
   

  	
  100

  	
  %

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Michaels Stores Procurement Company, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Michaels Stores, Inc.

  	
   

  	
  100

  	
   

  	
  100

  	
   

  	
  100

  	
  %

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Artistree, Inc.

  	
   

  	
  Delaware

  	
   

  	
  Michaels Stores Procurement Company, Inc.

  	
   

  	
  100

  	
   

  	
  100

  	
   

  	
  100

  	
  %

  	
  100

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Michaels of Canada, ULC

  	
   

  	
  Nova Scotia

  	
   

  	
  Michaels Stores, Inc.

  	
   

  	
  1,000 Common

  	
   

  	
  1,000

  	
   

  	
  100

  	
  %

  	
  0

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Michaels of Canada, ULC

  	
   

  	
  Nova Scotia

  	
   

  	
  Michaels Stores, Inc.

  	
   

  	
  4,000 Class A
  Preferred

  	
   

  	
  4,000

  	
   

  	
  100

  	
  %

  	
  0

  	
  %

  

 

 

SCHEDULE 6.07

To Credit
Agreement

 

Schedule 6.07

Insurance

 

See attached.

 

 

SCHEDULE 7.03

To Credit
Agreement

 

Schedule 7.03

Existing
Indebtedness

 

Letters of Credit as follows:

 

	
  Issuing
  Bank

  	
   

  	
  Beneficiary

  	
   

  	
  Amount

  	
   

  
	
  Bank of America

  	
   

  	
  Lumbermens Mutual Casualty Company

  

  American Motorists Insurance Co.

  

  American Manufacturers

  Mutual Insurance Company

  

  American Protection Company

  	
   

  	
  US$

  	
  8,138,000

  	
   

  
	
  Bank of America

  	
   

  	
  Zurich American Insurance Company

  	
   

  	
  US$

  	
  1,000,000

  	
   

  
	
  Bank of America

  	
   

  	
  Royal Indemnity Company

  	
   

  	
  US$

  	
  5,600,000

  	
   

  

 

 

SCHEDULE 7.04

To Credit
Agreement

 

Schedule 7.04

Existing Liens

 

	
  Name

  	
   

  	
  Jurisdiction

  	
   

  	
  Filing

  Reference #

  	
   

  	
  Filing Date

  	
   

  	
  Secured Party

  (of Record)

  	
   

  	
  Description

  
	
  Aaron Brothers, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  31159915

  	
   

  	
  5/6/2003

  	
   

  	
  OCE-USA, Inc.

  	
   

  	
  Equipment Lien

  
	
  Aaron Brothers, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  31934580

  	
   

  	
  7/28/2003

  	
   

  	
  OCE-USA, Inc.

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  11355853

  	
   

  	
  10/9/2001

  	
   

  	
  Toyota Motor Credit Corp.

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  20954465

  	
   

  	
  3/25/2002

  	
   

  	
  IBM Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  20969240

  	
   

  	
  3/25/2002

  	
   

  	
  IBM Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  21273360

  	
   

  	
  5/2/2002

  	
   

  	
  IBM Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  22817736

  	
   

  	
  10/28/2002

  	
   

  	
  US Bancorp

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  30548670

  	
   

  	
  2/3/2003

  	
   

  	
  Fleet Capital Corporation, successor by merger to, BancBoston Leasing, Inc.

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  30938483

  	
   

  	
  4/10/2003

  	
   

  	
  BancBoston Leasing Inc., additional s/p: Ameritech Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  30938657

  	
   

  	
  4/10/2003

  	
   

  	
  BancBoston Leasing Inc., additional s/p: Ameritech Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  30938756

  	
   

  	
  4/10/2003

  	
   

  	
  BancBoston Leasing Inc., additional s/p: Ameritech Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  30940315

  	
   

  	
  4/10/2003

  	
   

  	
  BancBoston Leasing Inc., additional s/p: Ameritech Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  30940653

  	
   

  	
  4/10/2003

  	
   

  	
  Ameritech Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  30940885

  	
   

  	
  4/10/2003

  	
   

  	
  Ameritech Credit Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  31034225

  	
   

  	
  4/22/2003

  	
   

  	
  Mobile Storage Group, Inc.

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  31057143

  	
   

  	
  4/11/2003

  	
   

  	
  US Bancorp

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  50136706

  	
   

  	
  1/10/2005

  	
   

  	
  CPRE-1 END, Lakeline, L.P.

  	
   

  	
  Fixture Filing.

  

 

2

 

	
  Name

  	
   

  	
  Jurisdiction

  	
   

  	
  Filing

  Reference #

  	
   

  	
  Filing Date

  	
   

  	
  Secured Party

  (of Record)

  	
   

  	
  Description

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  33215657

  	
   

  	
  12/8/2003

  	
   

  	
  Fleet Business Credit, LLC

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  33215780

  	
   

  	
  12/8/2003

  	
   

  	
  Fleet Business Credit, LLC

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  33216200

  	
   

  	
  12/8/2003

  	
   

  	
  Fleet Business Credit, LLC

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  43018878

  	
   

  	
  10/26/2004

  	
   

  	
  Crown Lift Trucks

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  DE SOS

  	
   

  	
  43697440

  	
   

  	
  12/31/2004

  	
   

  	
  US Bancorp

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  NC SOS

  	
   

  	
  20040011219A

  	
   

  	
  2/4/2004

  	
   

  	
  The CIT Group/Equipment Financing, Inc.

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  02-0032723574

  	
   

  	
  6/7/2002

  	
   

  	
  Fleet Business Credit, LLC, addt’l s/p: EMC Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  04-00516990

  	
   

  	
  12/19/2003

  	
   

  	
  Fleet Business Credit, LLC, addt’l s/p: EMC Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  04-00518513

  	
   

  	
  12/22/2003

  	
   

  	
  Fleet Business Credit, LLC, addt’l s/p: EMC Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0005677230

  	
   

  	
  10/21/2002

  	
   

  	
  Fleet Business Credit, LLC, addt’l s/p: EMC Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  04-00516699

  	
   

  	
  12/19/2003

  	
   

  	
  Fleet Business Credit, LLC, addt’l s/p: EMC Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0006790247

  	
   

  	
  10/31/2002

  	
   

  	
  US Bancorp

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0017100719

  	
   

  	
  2/11/2003

  	
   

  	
  Sumner Group

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0017100931

  	
   

  	
  2/11/2003

  	
   

  	
  Sumner Group

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0017101285

  	
   

  	
  2/11/2003

  	
   

  	
  Sumner Group

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0017101396

  	
   

  	
  2/11/2003

  	
   

  	
  Sumner Group

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0017101518

  	
   

  	
  2/11/2003

  	
   

  	
  Sumner Group

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0017101629

  	
   

  	
  2/11/2003

  	
   

  	
  Sumner Group

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  03-0023367064

  	
   

  	
  4/7/2003

  	
   

  	
  Fleet Business Credit, LLC, addt’l s/p: EMC Corporation

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0019455877

  	
   

  	
  6/22/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  

 

3

 

	
  Name

  	
   

  	
  Jurisdiction

  	
   

  	
  Filing

  Reference #

  	
   

  	
  Filing Date

  	
   

  	
  Secured Party

  (of Record)

  	
   

  	
  Description

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0034548382

  	
   

  	
  11/8/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0034548837

  	
   

  	
  11/8/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0034549414

  	
   

  	
  11/8/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0034549858

  	
   

  	
  11/8/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0034550779

  	
   

  	
  11/8/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0034551245

  	
   

  	
  11/8/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0034551912

  	
   

  	
  11/8/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  
	
  Michaels Finance Company, Inc.

  	
   

  	
  TX SOS

  	
   

  	
  05-0034552599

  	
   

  	
  11/8/2005

  	
   

  	
  Sumner Group Inc

  	
   

  	
  Equipment Lien

  

 

4

 

SCHEDULE 10.02 

To Credit
Agreement

 

Schedule 10.02

Administrative
Agent’s Office, Certain Addresses for Notices

 

Deutsche Bank AG New York Branch

60 Wall Street

New York, New York  10005

Fax:  212-797-6655

Attn:  Marguerite Sutton
(marguerite.sutton@db.com)

 

Michaels Stores, Inc.

8000 Bent Branch Drive

Irving, Texas 
75063

Fax: 
972-409-1556

Attn: 
Lisa Klinger (klingerl@michaels.com)

 

With copies to:

Michaels Stores, Inc.

8000 Bent Branch Drive

Irving, Texas 
75063

Fax: 
972-409-1965

Attn: 
General Counsel

 

Bain Capital Partners, LLC

111 Huntington Avenue

Boston, Massachusetts  02199

Fax:  617-516-2010

Attn: 
Josh Bekenstein (jbekenstein@baincapital.com), Matthew Levin

(mlevin@baincapital.com) and Todd Cook
(tcook@baincapital.com)

 

Blackstone Management Associates V LLC

345 Park Avenue

New York, New York  10154

Fax: 
212-583-5717

Attn: 
Michael Chae (chae@blackstone.com) and Matthew Kabaker

(kabaker@blackstone.com)

 

Ropes & Gray LLP

One International Place

Boston, Massachusetts  02110

Fax: 
617-951-7050

Attn: 
Byung Choi, Esquire (byung.choi@ropesgray.com)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00114-of-00352.parquet"}]]