Document:

EXHIBIT
10.1

 

 

AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT

 

 

 

 

Fleet
Retail Group, Inc.

 

The
Administrative and Collateral Agent

 

for the
Lenders Referenced Herein

 

 

 

 

Mothers
Work, Inc.

 

The Lead
Borrower

 

For The
Borrowers Referenced Herein

 

AND

 

The
Guarantors Party Hereto

 

 

October
15, 2004

 

 

TABLE OF CONTENTS

 

	
  ARTICLE
  I. - DEFINITIONS

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE II. - THE
  REVOLVING CREDIT

  	
  41

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Establishment of
  Revolving Credit.

  	
  41

  
	
   

  	
   

  	
   

  
	
  2.2

  	
  Advances
  in Excess of Borrowing Base (Overloans).

  	
  41

  
	
   

  	
   

  	
   

  
	
  2.3

  	
  Risks of Value of
  Collateral.

  	
  42

  
	
   

  	
   

  	
   

  
	
  2.4

  	
  Commitment
  to Make Revolving Credit Loans and Support Letters of Credit.

  	
  42

  
	
   

  	
   

  	
   

  
	
  2.5

  	
  Revolving Credit Loan
  Requests.

  	
  42

  
	
   

  	
   

  	
   

  
	
  2.6

  	
  Making Of Revolving
  Credit Loans.

  	
  45

  
	
   

  	
   

  	
   

  
	
  2.7

  	
  SwingLine Loans.

  	
  45

  
	
   

  	
   

  	
   

  
	
  2.8

  	
  The Loan Account.

  	
  46

  
	
   

  	
   

  	
   

  
	
  2.9

  	
  The Revolving Credit Note.

  	
  47

  
	
   

  	
   

  	
   

  
	
  2.10

  	
  Payment of the Loan
  Account.

  	
  47

  
	
   

  	
   

  	
   

  
	
  2.11

  	
  Interest On
  Revolving Credit Loans.

  	
  48

  
	
   

  	
   

  	
   

  
	
  2.12

  	
  Revolving Credit
  Commitment Fee.

  	
  49

  
	
   

  	
   

  	
   

  
	
  2.13

  	
  Intentionally Omitted.

  	
  50

  
	
   

  	
   

  	
   

  
	
  2.14

  	
  Unused Line Fee.

  	
  50

  
	
   

  	
   

  	
   

  
	
  2.15

  	
  Early Termination Fee.

  	
  50

  
	
   

  	
   

  	
   

  
	
  2.16

  	
  Concerning Fees.

  	
  50

  
	
   

  	
   

  	
   

  
	
  2.17

  	
  Intentionally Omitted.

  	
  50

  
	
   

  	
   

  	
   

  
	
  2.18

  	
  Procedures For
  Issuance Of L/C’s.

  	
  51

  
	
   

  	
   

  	
   

  
	
  2.19

  	
  Fees For L/C’s.

  	
  52

  
	
   

  	
   

  	
   

  
	
  2.20

  	
  Concerning L/C’s.

  	
  53

  
	
   

  	
   

  	
   

  
	
  2.21

  	
  Changed Circumstances.

  	
  54

  
	
   

  	
   

  	
   

  
	
  2.22

  	
  Lenders’ Commitments.

  	
  56

  
	
   

  	
   

  	
   

  
	
  2.23

  	
  Designation
  of Lead Borrower as Borrowers’ Agent.

  	
  58

  
	
   

  	
   

  	
   

  
	
  ARTICLE III. -
  CONDITIONS PRECEDENT

  	
  58

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Corporate Due Diligence.

  	
  58

  
	
   

  	
   

  	
   

  
	
  3.2

  	
  Opinion.

  	
  59

  
	
   

  	
   

  	
   

  
	
  3.3

  	
  Officers’ Certificates.

  	
  59

  
	
   

  	
   

  	
   

  
	
  3.4

  	
  Additional Documents.

  	
  59

  
	
   

  	
   

  	
   

  
	
  3.5

  	
  Representations and Warranties.

  	
  61

  
	
   

  	
   

  	
   

  
	
  3.6

  	
  Minimum Day One
  Excess Availability.

  	
  61

  
	
   

  	
   

  	
   

  
	
  3.7

  	
  All Fees and Expenses Paid.

  	
  62

  

 

i

 

	
  3.8

  	
  No Borrower Default.

  	
  62

  
	
   

  	
   

  	
   

  
	
  3.9

  	
  No Adverse Change.

  	
  62

  
	
   

  	
   

  	
   

  
	
  3.10

  	
  Validity of Liens.

  	
  62

  
	
   

  	
   

  	
   

  
	
  3.11

  	
  Documents.

  	
  62

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV. - GENERAL REPRESENTATIONS,
  COVENANTS AND WARRANTIES

  	
  62

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Payment and
  Performance of Liabilities.

  	
  62

  
	
   

  	
   

  	
   

  
	
  4.2

  	
  Due
  Organization. Corporate Authorization. No Conflicts.

  	
  63

  
	
   

  	
   

  	
   

  
	
  4.3

  	
  Trade Names.

  	
  64

  
	
   

  	
   

  	
   

  
	
  4.4

  	
  Infrastructure.

  	
  64

  
	
   

  	
   

  	
   

  
	
  4.5

  	
  GUARANTOR.

  	
  65

  
	
   

  	
   

  	
   

  
	
  4.6

  	
  Locations.

  	
  65

  
	
   

  	
   

  	
   

  
	
  4.7

  	
  Title To Assets.

  	
  66

  
	
   

  	
   

  	
   

  
	
  4.8

  	
  Indebtedness.

  	
  67

  
	
   

  	
   

  	
   

  
	
  4.9

  	
  Insurance.

  	
  68

  
	
   

  	
   

  	
   

  
	
  4.10

  	
  Licenses; Material Contracts.

  	
  69

  
	
   

  	
   

  	
   

  
	
  4.11

  	
  Leases.

  	
  70

  
	
   

  	
   

  	
   

  
	
  4.12

  	
  Requirements of Law.

  	
  70

  
	
   

  	
   

  	
   

  
	
  4.13

  	
  Labor Relations.

  	
  70

  
	
   

  	
   

  	
   

  
	
  4.14

  	
  Maintain Properties.

  	
  71

  
	
   

  	
   

  	
   

  
	
  4.15

  	
  Taxes.

  	
  72

  
	
   

  	
   

  	
   

  
	
  4.16

  	
  No Margin Stock or Securities.

  	
  73

  
	
   

  	
   

  	
   

  
	
  4.17

  	
  ERISA.

  	
  73

  
	
   

  	
   

  	
   

  
	
  4.18

  	
  Hazardous Materials and
  Environmental Compliance.

  	
  74

  
	
   

  	
   

  	
   

  
	
  4.19

  	
  Litigation.

  	
  77

  
	
   

  	
   

  	
   

  
	
  4.20

  	
  Dividends; Investments; Corporate
  Action

  	
  77

  
	
   

  	
   

  	
   

  
	
  4.21

  	
  Loans.

  	
  79

  
	
   

  	
   

  	
   

  
	
  4.22

  	
  Protection of Assets.

  	
  79

  
	
   

  	
   

  	
   

  
	
  4.23

  	
  Line of Business.

  	
  79

  
	
   

  	
   

  	
   

  
	
  4.24

  	
  Affiliate Transactions.

  	
  79

  
	
   

  	
   

  	
   

  
	
  4.25

  	
  Further Assurances.

  	
  80

  
	
   

  	
   

  	
   

  
	
  4.26

  	
  Adequacy OF Disclosure.

  	
  80

  
	
   

  	
   

  	
   

  
	
  4.27

  	
  No Restrictions on
  Liabilities.

  	
  81

  
	
   

  	
   

  	
   

  
	
  4.28

  	
  Other Covenants.

  	
  81

  
	
   

  	
   

  	
   

  
	
  ARTICLE V. - FINANCIAL REPORTING AND
  PERFORMANCE COVENANTS

  	
  81

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Maintain Records.

  	
  81

  

 

ii

 

	
  5.2

  	
  Access to Records.

  	
  82

  
	
   

  	
   

  	
   

  
	
  5.3

  	
  Immediate Notice to Agent.

  	
  83

  
	
   

  	
   

  	
   

  
	
  5.4

  	
  Borrowing Base Certificate.

  	
  84

  
	
   

  	
   

  	
   

  
	
  5.5

  	
  Weekly Reports.

  	
  84

  
	
   

  	
   

  	
   

  
	
  5.6

  	
  Monthly Reports.

  	
  84

  
	
   

  	
   

  	
   

  
	
  5.7

  	
  Quarterly Reports.

  	
  86

  
	
   

  	
   

  	
   

  
	
  5.8

  	
  Annual Reports.

  	
  86

  
	
   

  	
   

  	
   

  
	
  5.9

  	
  Officers’ Certificates.

  	
  87

  
	
   

  	
   

  	
   

  
	
  5.10

  	
  Inventories, Appraisals, and Audits.

  	
  87

  
	
   

  	
   

  	
   

  
	
  5.11

  	
  Additional Financial Information.

  	
  88

  
	
   

  	
   

  	
   

  
	
  5.12

  	
  Financial Performance
  Covenants.

  	
  89

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI. - USE AND COLLECTION OF
  COLLATERAL

  	
  90

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Use of Inventory Collateral.

  	
  90

  
	
   

  	
   

  	
   

  
	
  6.2

  	
  Inventory Quality.

  	
  90

  
	
   

  	
   

  	
   

  
	
  6.3

  	
  Adjustments and Allowances.

  	
  90

  
	
   

  	
   

  	
   

  
	
  6.4

  	
  Validity of Accounts.

  	
  90

  
	
   

  	
   

  	
   

  
	
  6.5

  	
  Notification to Account
  Debtors.

  	
  91

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII. - CASH MANAGEMENT; PAYMENT OF
  LIABILITIES

  	
  91

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Depository Accounts.

  	
  91

  
	
   

  	
   

  	
   

  
	
  7.2

  	
  Credit Card Receipts.

  	
  92

  
	
   

  	
   

  	
   

  
	
  7.3

  	
  The Concentration, Blocked, and
  Operating Accounts.

  	
  92

  
	
   

  	
   

  	
   

  
	
  7.4

  	
  Proceeds and
  Collection of Accounts.

  	
  94

  
	
   

  	
   

  	
   

  
	
  7.5

  	
  Payment of Liabilities.

  	
  95

  
	
   

  	
   

  	
   

  
	
  7.6

  	
  The Operating Account
  and Disbursement Account.

  	
  96

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII. - GRANT OF SECURITY INTEREST

  	
  96

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Grant of Security Interest.

  	
  96

  
	
   

  	
   

  	
   

  
	
  8.2

  	
  Extent and
  Duration of Security Interest.

  	
  98

  
	
   

  	
   

  	
   

  
	
  8.3

  	
  Perfection of Security
  Interests.

  	
  98

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX. - COLLATERAL AGENT AS
  BORROWERS’ ATTORNEY-IN-FACT

  	
  101

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Appointment as Attorney-In-Fact.

  	
  101

  
	
   

  	
   

  	
   

  
	
  9.2

  	
  No Obligation to Act.

  	
  102

  
	
   

  	
   

  	
   

  
	
  ARTICLE X. - EVENTS OF DEFAULT

  	
  102

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Failure to Pay Revolving Credit.

  	
  103

  
	
   

  	
   

  	
   

  
	
  10.2

  	
  Failure To Make Other Payments.

  	
  103

  
	
   

  	
   

  	
   

  
	
  10.3

  	
  Failure to Perform Covenant or
  Liability (No Grace Period).

  	
  103

  

 

iii

 

	
  10.4

  	
  Failure to Perform Covenant
  or Liability (Grace Period).

  	
  104

  
	
   

  	
   

  	
   

  
	
  10.5

  	
  Misrepresentation.

  	
  104

  
	
   

  	
   

  	
   

  
	
  10.6

  	
  Acceleration of Other Debt. Breach of
  Lease.

  	
  104

  
	
   

  	
   

  	
   

  
	
  10.7

  	
  Default Under Other Agreements.

  	
  105

  
	
   

  	
   

  	
   

  
	
  10.8

  	
  Intentionally Omitted.

  	
  105

  
	
   

  	
   

  	
   

  
	
  10.9

  	
  Attachment; Judgment; Restraint of
  Business.

  	
  105

  
	
   

  	
   

  	
   

  
	
  10.10

  	
  Business Failure.

  	
  105

  
	
   

  	
   

  	
   

  
	
  10.11

  	
  Bankruptcy.

  	
  105

  
	
   

  	
   

  	
   

  
	
  10.12

  	
  Default
  by Guarantor or Affiliate.

  	
  106

  
	
   

  	
   

  	
   

  
	
  10.13

  	
  Indictment
  - Forfeiture.

  	
  106

  
	
   

  	
   

  	
   

  
	
  10.14

  	
  Termination
  of Guaranty.

  	
  106

  
	
   

  	
   

  	
   

  
	
  10.15

  	
  Challenge to Loan Documents.

  	
  106

  
	
   

  	
   

  	
   

  
	
  10.16

  	
  Intentionally
  Omitted.

  	
  106

  
	
   

  	
   

  	
   

  
	
  10.17

  	
  Change in
  Control.

  	
  106

  
	
   

  	
   

  	
   

  
	
  10.18

  	
  Uninsured
  Losses.

  	
  106

  
	
   

  	
   

  	
   

  
	
  10.19

  	
  ERISA.

  	
  107

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI. - RIGHTS AND REMEDIES UPON
  DEFAULT

  	
  107

  
	
   

  	
   

  	
   

  
	
  11.1

  	
  Rights of Enforcement.

  	
  107

  
	
   

  	
   

  	
   

  
	
  11.2

  	
  Sale of Collateral.

  	
  108

  
	
   

  	
   

  	
   

  
	
  11.3

  	
  Occupation of Business Location.

  	
  108

  
	
   

  	
   

  	
   

  
	
  11.4

  	
  Grant of Nonexclusive License.

  	
  109

  
	
   

  	
   

  	
   

  
	
  11.5

  	
  Assembly of Collateral.

  	
  109

  
	
   

  	
   

  	
   

  
	
  11.6

  	
  Rights and Remedies.

  	
  109

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII. - NOTICES

  	
  110

  
	
   

  	
   

  	
   

  
	
  12.1

  	
  Notice Addresses.

  	
  110

  
	
   

  	
   

  	
   

  
	
  12.2

  	
  Notice Given.

  	
  111

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIII. - TERM

  	
  111

  
	
   

  	
   

  	
   

  
	
  13.1

  	
  Termination of Revolving Credit.

  	
  111

  
	
   

  	
   

  	
   

  
	
  13.2

  	
  Actions On Termination.

  	
  111

  
	
   

  	
   

  	
   

  
	
  ARTICLE XIV. - GENERAL

  	
  112

  
	
   

  	
   

  	
   

  
	
  14.1

  	
  Protection of Collateral.

  	
  112

  
	
   

  	
   

  	
   

  
	
  14.2

  	
  Publicity.

  	
  112

  
	
   

  	
   

  	
   

  
	
  14.3

  	
  Successors and Assigns.

  	
  112

  
	
   

  	
   

  	
   

  
	
  14.4

  	
  Severability.

  	
  112

  
	
   

  	
   

  	
   

  
	
  14.5

  	
  Amendments; Course of
  Dealing.

  	
  112

  

 

iv

 

	
  14.6

  	
  Power of Attorney.

  	
  113

  
	
   

  	
   

  	
   

  
	
  14.7

  	
  Application of Proceeds.

  	
  113

  
	
   

  	
   

  	
   

  
	
  14.8

  	
  Increased Costs.

  	
  113

  
	
   

  	
   

  	
   

  
	
  14.9

  	
  Costs and Expenses of the Agent and
  Lenders.

  	
  114

  
	
   

  	
   

  	
   

  
	
  14.10

  	
  Copies and Facsimiles.

  	
  115

  
	
   

  	
   

  	
   

  
	
  14.11

  	
  New
  York Law.

  	
  115

  
	
   

  	
   

  	
   

  
	
  14.12

  	
  Consent to Jurisdiction.

  	
  115

  
	
   

  	
   

  	
   

  
	
  14.13

  	
  Indemnification.

  	
  116

  
	
   

  	
   

  	
   

  
	
  14.14

  	
  Rules of Construction.

  	
  116

  
	
   

  	
   

  	
   

  
	
  14.15

  	
  Intent.

  	
  118

  
	
   

  	
   

  	
   

  
	
  14.16

  	
  Participations.

  	
  118

  
	
   

  	
   

  	
   

  
	
  14.17

  	
  Right of Set-Off.

  	
  119

  
	
   

  	
   

  	
   

  
	
  14.18

  	
  Pledges To Federal Reserve Banks.

  	
  119

  
	
   

  	
   

  	
   

  
	
  14.19

  	
  Maximum Interest Rate.

  	
  119

  
	
   

  	
   

  	
   

  
	
  14.20

  	
  Waivers.

  	
  119

  
	
   

  	
   

  	
   

  
	
  14.21

  	
  Counterparts.

  	
  120

  
	
   

  	
   

  	
   

  
	
  14.22

  	
  Electronic Submissions.

  	
  120

  
	
   

  	
   

  	
   

  
	
  14.23

  	
  Fleet
  Retail Group, Inc. as Agent.

  	
  121

  
	
   

  	
   

  	
   

  
	
  14.24

  	
  Joint
  Borrower Provisions.

  	
  121

  
	
   

  	
   

  	
   

  
	
  14.25

  	
  Transitional
  Arrangements.

  	
  125

  
	
   

  	
   

  	
   

  
	
  14.26

  	
  Confidentiality.

  	
  125

  

 

v

 

EXHIBITS

 

	
  2.7

  	
  :

  	
  SwingLine Note

  
	
   

  	
   

  	
   

  
	
  2.9

  	
  :

  	
  Revolving Credit Note

  
	
   

  	
   

  	
   

  
	
  2.22

  	
  :

  	
  Revolving Credit
  Lenders’ Commitments

  
	
   

  	
   

  	
   

  
	
  4.2

  	
  :

  	
  Affiliates

  
	
   

  	
   

  	
   

  
	
  4.3

  	
  :

  	
  Trade Names

  
	
   

  	
   

  	
   

  
	
  4.6(a)

  	
  :

  	
  Locations, Leases, and
  Landlords

  
	
   

  	
   

  	
   

  
	
  4.6(c)

  	
   

  	
  Form of Landlord Waiver

  
	
   

  	
   

  	
   

  
	
  4.7(a)

  	
  :

  	
  Encumbrances

  
	
   

  	
   

  	
   

  
	
  4.7(d)

  	
  :

  	
  Third Party Bailees

  
	
   

  	
   

  	
   

  
	
  4.8

  	
  :

  	
  Indebtedness

  
	
   

  	
   

  	
   

  
	
  4.9

  	
  :

  	
  Insurance Policies

  
	
   

  	
   

  	
   

  
	
  4.10

  	
  :

  	
  Licenses; Material
  Contracts

  
	
   

  	
   

  	
   

  
	
  4.11

  	
  :

  	
  Capital Leases

  
	
   

  	
   

  	
   

  
	
  4.15

  	
  :

  	
  Taxes

  
	
   

  	
   

  	
   

  
	
  4.17

  	
  :

  	
  ERISA

  
	
   

  	
   

  	
   

  
	
  4.18

  	
  :

  	
  Environmental
  Compliance

  
	
   

  	
   

  	
   

  
	
  4.19

  	
  :

  	
  Litigation

  
	
   

  	
   

  	
   

  
	
  4.20

  	
  :

  	
  Investments

  
	
   

  	
   

  	
   

  
	
  5.4

  	
  :

  	
  Form of Borrowing Base
  Certificate

  
	
   

  	
   

  	
   

  
	
  5.9

  	
  :

  	
  Officer’s Compliance
  Certificate

  
	
   

  	
   

  	
   

  
	
  5.12(a)

  	
  :

  	
  Financial Performance
  Covenants

  
	
   

  	
   

  	
   

  
	
  5.12(b)

  	
  :

  	
  Business Plan

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  :

  	
  DDA’s

  
	
   

  	
   

  	
   

  
	
  7.2

  	
  :

  	
  Credit Card
  Arrangements

  
	
   

  	
   

  	
   

  
	
  8.3(d)

  	
  :

  	
  Investment Property

  

 

vi

 

AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT

 

October 15, 2004

 

THIS AGREEMENT is made between

 

 

Fleet Retail Group, Inc.,
a Delaware corporation, with offices at 40 Broad Street, Boston,
Massachusetts  02109, as agent (in such
capacity, herein the “Administrative  Agent”) for the benefit of the Lenders, on a Pro Rata basis,
based upon each Lender’s Percentage Commitment, who are, at present, those
financial institutions identified on the signature pages of this Agreement and
who in the future are those Persons (if any) who become a “Lender”
in accordance with the provisions of Article VII of the Agency Agreement;

 

and

 

Fleet
Retail Group, Inc., a Delaware corporation, with offices at
40 Broad Street, Boston, Massachusetts 
02109, as agent (in such capacity, herein the “Collateral
Agent”) for the benefit of the Lenders and the Administrative Agent,

 

and

 

Cave Springs, Inc.,
a Delaware corporation (collectively, with the Lead Borrower, the “Borrowers” and each individually, a “Borrower”),
which has its principal executive offices at 456 North Fifth Street,
Philadelphia, Pennsylvania  19123,

 

Mothers Work, Inc.,
a Delaware corporation with its principal executive offices at 456 North Fifth
Street, Philadelphia, Pennsylvania  19123
(the “Lead Borrower” and a “Borrower”),

 

and

 

Mothers Work Canada, Inc.,
a Delaware corporation (“Guarantor”),
which has its principal executive offices at 456 North Fifth Street,
Philadelphia, Pennsylvania 19123,

 

in consideration of the
mutual covenants contained herein and benefits to be derived herefrom,

 

WITNESSETH:

 

1

 

ARTICLE I. - DEFINITIONS:

 

As herein used, the
following terms have the following meanings or are defined in the section of
this Agreement so indicated:

 

“Acceleration”:  With
respect to any Indebtedness, its becoming due and payable prior to its stated
maturity.  Derivations of the word
“Acceleration” (such as “Accelerate”) are used with like meaning in this
Agreement.

 

“Accounts” and “Accounts Receivable”   “Accounts” as defined in the UCC, and also
all:  accounts, accounts receivable,
receivables, and rights to payment (whether or not earned by performance) for:
property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of; services rendered or to be rendered; a policy of insurance
issued or to be issued; a secondary obligation incurred or to be incurred;
energy provided or to be provided; for the use or hire of a vessel; arising out
of the use of a credit or charge card or information contained on or used with
that card; winnings in a lottery or other game of chance; and also all
Inventory which gave rise thereto, and all rights associated with such
Inventory, including the right of stoppage in transit; all reclaimed, returned,
rejected or repossessed Inventory (if any) the sale of which gave rise to any
Account.

 

“ACH”:  Automated
clearing house.

 

“Account Debtor”:  Has
the meaning given that term in the UCC.

 

“Administrative Agent”: 
Defined in the Preamble.

 

“Affiliate”:

 

(a)           With
respect to any two Persons, a relationship in which (i) one holds, directly or
indirectly, not less than Twenty-Five Percent (25%) of the capital stock,
beneficial interests, partnership interests, or other equity interests of the
other; or (ii) one has, directly or indirectly, the right, under ordinary
circumstances, to elect a majority of the directors (or other body or Person
who has those powers customarily vested in a board of directors of a
corporation); or (iii) the same third Person holds, directly or indirectly, not
less than Twenty-Five Percent (25%) of their respective capital stock,
beneficial interests, partnership interests or other equity interests; or has
directly or indirectly the right to elect the majority of directors of both
such parties; or

 

(b)           Any
corporation, limited liability company, trust, partnership, joint venture, or
other enterprise which: is a parent, brother-sister, subsidiary, or affiliate,
of any Obligor; has such enterprise’s tax returns or financial statements
consolidated with the Lead Borrower’s; is a member of the

 

2

 

same controlled group of
corporations (within the meaning of Section 1563(a)(1), (2) and (3) of the
Internal Revenue Code of 1986, as amended from time to time) of which the Lead
Borrower is a member; controls or is controlled by the Lead Borrower.

 

“Agreement”:  This Loan
and Security Agreement, as it may be modified, amended, supplemented or
restated from time to time.

 

“Agency Agreement”: 
That certain Agency Agreement dated October 15, 2004, by and among the
Administrative Agent, the Collateral Agent, and the Lenders.

 

“Agent”:  When not
preceded by “Administrative” or “Collateral”, the terms “Agent” or “Agents”
refer collectively and individually to the Administrative Agent and the
Collateral Agent.

 

 “Agent Fee Letter”:  That certain letter of even date by and
between the Administrative Agent and the Borrowers concerning Administrative
Agent’s and Collateral Agent’s fees.

 

“Agent’s Rights and Remedies”:  Defined in Section 11.6.

 

“Appraised
Inventory Liquidation Percentage”: That percentage, obtained
by the Collateral Agent from the then most recent appraisal of the Borrowers’
Inventory obtained by the Collateral Agent, to reflect the appraiser’s estimate
of the consolidated net recovery (liquidation value) as a percentage of cost
including raw materials.

 

“Approved Electronic Form Notice”:  Defined in Section 14.22.

 

“Approved Electronic Form”: 
Defined in Section 14.22.

 

“Acquired
Real Property”: Any real property acquired by the Borrowers
after the date hereof, other than the Headquarters Facility.

 

“Authorized Officer”: 
The Lead Borrower’s President, Treasurer or Chief Financial Officer duly
authorized by the Lead Borrower’s Board of Directors, or, in the case of
Borrowing Base Certificates, such person as is authorized by the Board of
Directors of the Borrower.

 

“Availability”:      The
sum of:

 

(a)           The
Borrowing Base

 

Minus

 

(b)           The
aggregate unpaid balance of the Loan Account

 

3

 

Minus

 

(c)           The
aggregate undrawn Stated Amount of all then outstanding L/C’s.

 

“Availability Reserves”: 
Such reserves as the Collateral Agent from time to time determines in
the Collateral Agent’s reasonable discretion as being appropriate (determined
in accordance with customary credit considerations) to reflect the impediments
to the Collateral Agent’s ability to realize upon the Collateral.  Without limiting the generality of the
foregoing, Availability Reserves may include (but are not limited to) reserves
based on the following:

 

(i)            Rent
for any location in a Landlord State with respect to which a Landlord Waiver
has not been received by the Collateral Agent (which initially shall be one (1)
month rent for any such location).

 

(ii)           Customer
Credit Liabilities (the Availability Reserve for which initially shall be up to
Thirty-Three Percent (33%) of Customer Credit Liabilities and which may be
adjusted based on changes in the operation of the Borrower’s business).

 

(iii)          Taxes
and other governmental charges, including, ad valorem, personal property, and
other taxes which might have priority over the Collateral Interests of the
Collateral Agent in the Collateral.

 

(iv)          Payables
(based upon payables which are past the Borrower’s normal trade terms).

 

“Bankruptcy Code”: 
Title 11, U.S.C., as amended from time to time.

 

“Base”:    The Base is the publicly announced prime rate
from time to time by FNB (or any successor in interest to FNB)(which is not
intended to be FNB’s lowest or most favorable rate in effect at any time).  In the event that said bank (or any such
successor) ceases to announce such a rate, “Base” shall refer to that rate or
index announced or published from time to time as the Administrative Agent, in
good faith, designates as the functional equivalent to said rate.  Any change in “Base” shall be effective, for
purposes of the calculation of interest due hereunder, when such change is made
effective generally by the bank on whose rate or index “Base” is being set.  In all events, interest that is determined by
reference to Base (or any successor to Base) shall be calculated on a
365/366-day year and actual days elapsed.

 

“Base Margin”:  Zero
Percent (0.00 %).

 

“Base Margin Loan”: 
Each Revolving Credit Loan while bearing interest at the Base Margin
Rate.

 

“Base Margin Rate”: 
The aggregate of Base plus the applicable Base Margin.

 

4

 

“Blocked Account”: 
Defined in Section 7.3(a)(ii).

 

“Blocked Account Agreement”: 
An agreement, in form satisfactory to the Collateral Agent, which
agreement recognizes the Collateral Agent’s Collateral Interest in the contents
of the DDA which is the subject of such agreement and agrees that such contents
shall be transferred only to the Concentration Account or as otherwise
instructed by the Collateral Agent.

 

“Borrowers”:  Defined
in the Preamble.

 

“Borrowing Base”:             The
lesser of:

 

(a)           the
lesser of the Revolving Credit Loan Ceiling or Borrowing Base A;

 

or

 

(b)           the
Borrowing Base B.

 

“Borrowing Base A”: 
The sum of:

 

(a)           The
lesser of (1) 50% of the sum of clauses (b), (c), (d), and (e) below or (2) the
sum of:

 

(i)      the
face amount of Eligible Accounts arising from the sale of goods in wholesale
arrangements multiplied by Eighty-Five Percent
(85%), plus

 

(ii)     the
face amount of Eligible Accounts arising from the leasing of a customer list,
marketing services, or an Account owing to a Borrower from an account debtor
operating a department or specialty store or other location in which a Borrower
leases or licenses a portion of the space in such store  (provided, however, that customer list or
marketing services Accounts shall be included only to the extent that they do
not exceed $5,000,000 in the aggregate) multiplied by
Eighty Percent (80%),

 

Plus

 

(b)           the
face amount of Eligible Credit Card Receivables multiplied
by the Credit Card Advance Rate;

 

Plus

 

(c)           the
sum of:

 

5

 

(i) the Cost of Eligible
Raw Materials Inventory (net of Inventory Reserves) multiplied
by the applicable Inventory Advance Rate,

 

(ii) (A) the sum of (I)
the Cost of Eligible Finished Goods Inventory (net of Inventory Reserves) not
located in department or specialty stores or other locations in which a
Borrower leases or licenses a portion of the space in such store; plus (II) the lesser of (a)
18% of the sum of the Cost of Eligible Finished Goods Inventory, Eligible L/C
Inventory, and Eligible In-Transit Inventory (in each case, net of Inventory
Reserves) or (b) the Cost of Eligible Finished Goods Inventory (net of
Inventory Reserves) located in department or specialty stores or other
locations in which a Borrower leases or licenses a portion of the space in such
store multiplied by (B) the applicable
Inventory Advance Rate, and

 

(iii) the lesser of
$20,000,000 or the sum of (A) Cost of Eligible L/C Inventory (net of Inventory
Reserves) multiplied by the applicable Inventory
Advance Rate; plus (B) the Cost of Eligible In-Transit Inventory (net of
Inventory Reserves) multiplied by
the applicable Inventory Advance Rate;

 

Plus

 

(d)           (i)
prior to the date that the Third Mortgage Conditions have been satisfied, the
lesser of (i) the Determined Value of the Eligible Fixed Assets multiplied by the Real Estate Advance Rate; or (ii) the
Stated Amount of the Special Purpose Credit; or

 

(ii) thereafter, the
amount equal to (A) the Determined Value of the Eligible Fixed Assets multiplied by the Real Estate Advance Rate; less (B) the Second Mortgage Cap;

 

Plus

 

(e)           the
sum of:

 

(i) 100% of Eligible
Liquid Collateral consisting of a money market fund held by FNB whose assets
entirely consist of cash;

 

PLUS

 

(ii) 90% of Eligible
Liquid Collateral consisting of a money market fund whose assets entirely
consist of cash (other than a fund held by FNB);

 

6

 

PLUS

 

(iii) 100% of Eligible
Liquid Collateral consisting of certificates of deposit with maturities of 365
days or less from the date of acquisition issued by FNB (or a money market fund
held by FNB whose assets consist entirely of cash and certificates of deposit
with maturities of 365 days or less from the date of acquisition issued by a
FDIC-insured financial institution);

 

PLUS

 

(iv) 90% of Eligible
Liquid Collateral consisting of certificates of deposit with maturities of 365
days or less from the date of acquisition issued by a FDIC-insured financial
institution other than FNB (or a money market fund (other than a fund held by
FNB) whose assets consist entirely of cash and certificates of deposit with
maturities of 365 days or less from the date of acquisition issued by
FDIC-insured financial institutions);

 

PLUS

 

(v) 90% of Eligible
Liquid Collateral consisting of securities with maturities of 180 days or less
from the date of acquisition issued or fully guaranteed or insured as to
payment of principal and interest by the United States Treasury held by FNB (or
a money market fund held by FNB whose assets consist entirely of cash,
securities with maturities of 180 days or less from the date of acquisition
issued or fully guaranteed or insured as to payment of principal and interest
by the United States Treasury, and certificates of deposit with maturities of
365 days or less from the date of acquisition issued by a FDIC-insured
financial institution);

 

PLUS

 

(vi) 85% of Eligible
Liquid Collateral consisting of securities (not held by FNB) with maturities of
180 days or less from the date of acquisition issued or fully guaranteed or
insured as to payment of principal and interest by the United States Treasury
(or a money market fund (other than a fund held by FNB) whose assets consist
entirely of cash, securities with maturities of 180 days or less from the date
of acquisition issued or fully guaranteed or insured as to

 

7

 

payment of principal and
interest by the United States Treasury, and certificates of deposit with
maturities of 365 days or less from the date of acquisition issued by a
FDIC-insured financial institution);

 

PLUS

 

(vii) 80% of Eligible
Liquid Collateral consisting of senior unsecured bonds of a domestic corporate
issuer rated at least A- by a rating agency acceptable to the Collateral Agent
with maturities of 2 years or less from the date of acquisition held by FNB (or
a money market fund held by FNB whose assets consist entirely of cash, senior
unsecured bonds of a domestic corporate issuer rated at least A- by a rating
agency acceptable to the Collateral Agent with maturities of 2 years or less
from the date of acquisition, securities with maturities of 180 days or less
from the date of acquisition issued or fully guaranteed or insured as to
payment of principal and interest by the United States Treasury, and
certificates of deposit with maturities of 365 days or less from the date of
acquisition issued by a FDIC-insured financial institution);

 

PLUS

 

(viii) 75% of Eligible
Liquid Collateral consisting of senior unsecured bonds (not held by FNB) of a
domestic corporate issuer rated at least A- by a rating agency acceptable to
the Collateral Agent with maturities of 2 years or less from the date of
acquisition (or a money market fund (other than a fund held by FNB) whose
assets consist entirely of cash, senior unsecured bonds of a domestic corporate
issuer rated at least A- by a rating agency acceptable to the Collateral Agent
with maturities of 2 years or less from the date of acquisition, securities
with maturities of 180 days or less from the date of acquisition issued or
fully guaranteed or insured as to payment of principal and interest by the
United States Treasury, and certificates of deposit with maturities of 365 days
or less from the date of acquisition issued by a FDIC-insured financial
institution);

 

Minus

 

(f)            Availability
Reserves.

 

8

 

“Borrowing Base B”:  At
any time that the Indenture restricts Indebtedness, the sum that the Lead
Borrower and those Obligors that are Restricted Subsidiaries (as defined in the
Indenture Agreement) are permitted to incur as Indebtedness (as defined in the
Indenture Agreement) hereunder on a consolidated basis without violating the
Indenture Agreement.

 

“Borrowing Base Certificate”: 
Defined in Section 5.4.

 

“Business Day”:  Any
day (with any references herein to time of day requirements meaning such times
based on Eastern time) other than (a) Saturday or Sunday; (b) any day on which
banks in Boston, Massachusetts or New York City, New York, generally are not
open to the general public for the purpose of conducting commercial banking
business; or (c) a day on which the principal office of the Administrative
Agents or any Lender is not open to the general public to conduct business.

 

“Business Plan”:  The
Borrowers’ business plan annexed hereto as EXHIBIT 5.12(b)
and any revision, amendment, or update of such business plan, provided such
revision, amendment, or update has been accepted in writing by the
Administrative Agent.

 

“Capital Adequacy Demand”: 
Defined in Section 14.8.

 

“Capital Adequacy Charge”: 
Defined in Section 14.8.

 

“Capital Expenditures”: 
The expenditure of funds or the incurrence of liabilities which are
capitalized in accordance with GAAP.

 

“Capital Lease”:  Any
lease which is capitalized in accordance with GAAP.

 

“Certificate”:  Any
certificate in form and substance acceptable to the Agents.  Each Certificate shall be deemed to be given
under oath by the signatory to such Certificate.

 

“Change in Control”: 
The occurrence of any of the following:

 

(a)           The
failure of the Lead Borrower to directly or indirectly own, beneficially and of
record, 100% of the capital stock of all of the other Obligors; provided, however, it shall not constitute a “Change in
Control” under this Agreement if the Lead Borrower no longer owns 100% of the
capital stock of any other Obligor as a result of a merger or consolidation of
such other Obligor with and into Lead Borrower, with Lead Borrower being the
survivor thereof.

 

(b)           The
acquisition after the date hereof, by any group of persons (within the meaning
of the Securities Exchange Act of 1934, as amended) or by any Person, of
beneficial ownership (within the meaning of Rule

 

9

 

13d-3 of the Securities
Exchange Act of 1934, as amended), directly or indirectly, of 50% or more of
the issued and outstanding capital stock of any Obligor having the right to
vote for the election of directors of such Obligor.

 

(c)           
More than half of the persons who were directors of the Lead Borrower on the
first day of any period consisting of Twelve (12) consecutive calendar months
(the first of which Twelve (12) month periods commencing with the first day of
the month during which this Agreement was executed), cease, for any reason
other than death or disability, to be directors of the Lead Borrower, and the
board of directors as thereafter constituted is not acceptable to the
Administrative Agent.

 

“Chattel Paper”:  Has
the meaning given that term in the UCC.

 

“Closing Date”:  The
date on which all conditions precedent in Article III of this Agreement are
satisfied and the initial Revolving Credit Loans are made under this Agreement.

 

“Collateral”:  Defined
in Section 8.1.

 

“Collateral Agent”:  Defined
in the Preamble.

 

“Collateral Interest”: 
Any interest in property to secure an obligation, including, without
limitation, a security interest, mortgage, and deed of trust.

 

“Commitment”:  With
respect to each Lender, that respective Lender’s Dollar Commitment.

 

“Concentration Account”: 
Defined in Section 7.3(a)(i).

 

“Consolidated”:  When
used to modify a financial term, test, statement, or report, refers to the
application or preparation of such term, test, statement, or report (as
applicable) based upon the consolidation, in accordance with GAAP, with any
adjustments or modifications acceptable to the Administrative Agent, of the
financial condition or operating results of the Borrowers.

 

“Cost”:

 

The calculated cost of
purchases, based upon the Borrowers’ accounting practices, on a first-in,
first-out (FIFO) basis, known to the Collateral Agent, which practices are in
effect on the date on which this Agreement was executed as such calculated cost
is determined from invoices received by the Borrowers; such Borrower’s purchase
journal; or such Borrower’s stock ledger

 

10

 

provided
that “Cost” does not include Inventory capitalization costs
or other non-purchase price charges (such as freight and UNICAP) used in the
Borrowers’ calculation of cost of goods sold.

 

“Costa Rican Facilities”: 
Includes (i) Property # A F 007368-000; Industrial Unit A2, Alajuela,
District 09 Rio Segundo, County 01, (ii) Property # A 182290-00, Alajuela,
District 02 San Jose, County 01, (iii) Property # A 205774-000, Alajuela,
District 02 San Jose, County 01, (iv) Property # A 213743-000, Alajuela,
District 01 Palmares, County 07, (v) Property # A 159001-00, Alajuela, District
01 Palmares, County 07, (vi) Property # A 219383-000, Alajuela, District 01
Palmares, County 07, (vii) Property # A 215113-000, Alajuela, District 01
Palmares, County 07, and (viii) Property # P 084214-000, lot for construction,
Puntarenas, District 01 Quepos, County 06.

 

“Costa Rican Transaction”: 
The sale or lease of the Costa Rican Facilities individually or as a
whole.

 

“Costs of Collection”: 
Includes, without limitation, all attorneys’ reasonable fees and
reasonable out-of-pocket expenses incurred by the Agents’ attorneys, and all
reasonable costs incurred by any Agent including, without limitation,
reasonable costs and expenses associated with any bankruptcy or insolvency
proceeding or travel on behalf of any Agent, where such costs and expenses are
directly or indirectly related to or in respect of such Agent’s:  administration and management of the
Liabilities; negotiation, documentation, and amendment of any Loan Document; or
efforts to preserve, protect, collect, or enforce the Collateral, the
Liabilities, and/or the Agent’s Rights and Remedies and/or any of the rights
and remedies of any such Agent against or in respect of any guarantor or other
person liable in respect of the Liabilities (whether or not suit is instituted
in connection with such efforts).  “Costs
of Collection” shall also include the reasonable costs and expenses similar to
the foregoing of Lender’s Special Counsel. 
The Costs of Collection are Liabilities, and at the Administrative
Agent’s option may bear interest at the then effective Base Margin Rate.

 

 “Credit Card Advance Rate”:  Ninety Percent (90%).

 

“Customer Credit Liability”: 
Gift certificates, customer deposits, merchandise credits, layaway
obligations, frequent shopping programs, and similar liabilities of any Borrower
to its retail customers and prospective customers.

 

“Customs Broker Agreement”:  
A tri-party agreement in form satisfactory to the Collateral Agent,
among the Lead Borrower or any Obligor, and a customs broker or other carrier,
in which the customs broker or other carrier acknowledges that it has control
over and holds the documents evidencing ownership of the subject Inventory for
the benefit of the Collateral Agent and agrees, upon notice from the

 

11

 

Collateral Agent, to hold
and dispose of the subject Inventory solely as directed by the Collateral
Agent.

 

“DDA”:  Any checking or
other demand depository account maintained by any of the Borrowers other than
an Exempt DDA.

 

“Deposit Account”:  Has
the meaning given that term in the UCC.

 

“Determined Value”:  At
the relevant time of reference thereto, the appraised value of such assets on
fair market value basis determined by the most recent appraisal thereof
acceptable to the Collateral Agent in its discretion.

 

 “Distributions”:  Includes (i) the payment of any dividends or
other distributions on capital stock of the Lead Borrower (except distributions
in such stock), and (ii) the redemption or acquisition of Securities.

 

“Documents”:  Has the
meaning given that term in the UCC.

 

“Documents of Title”: 
Has the meaning given that term in the UCC.

 

“Dollar Commitment”: 
As set forth on EXHIBIT 2.22,
annexed hereto (as such amounts may change in accordance with the provisions of
this Agreement).  The aggregate of the
Dollar Commitments shall not exceed the Revolving Credit Loan Ceiling.

 

“Domestic
Distribution Centers:” The Borrowers’ distribution centers
located at the Headquarters Facility and Naval Yard, Philadelphia, or elsewhere
upon prior written notice to the Collateral Agent.

 

“EBITDA”:  The
Borrowers’ Consolidated earnings (excluding extraordinary gains and gains from
the sale of assets other than in the ordinary course of business) before
interest, taxes, depreciation, amortization and other non-cash charges properly
deducted in determining earnings in accordance with GAAP, each as determined in
accordance with GAAP.

 

“Eligible Accounts”: 
Includes an Account owing to a Borrower with respect to (A) the leasing
of a customer list or marketing services, (B) an Account owing to a Borrower
arising from a department or specialty store or other location in which a
Borrower leases or licenses a portion of the space in such store, or (C) a
wholesale Account, each of which arose in the ordinary course of a Borrower’s
business from the lease of customer lists, sale of goods or rendition of
services.  Eligible Accounts shall be
determined without duplication of Eligible Credit Card Receivables.  In no event shall Accounts purchased by a
Borrower or held by a Borrower whose stock has been purchased by a Borrower
constitute Eligible Accounts until after a determination thereof has been made
by the Collateral Agent in its reasonable discretion (determined in accordance
with customary

 

12

 

credit
considerations).  Without limiting the
generality of the foregoing, no Account shall be an Eligible Account if:

 

(i)            it
arises out of a sale made by a Borrower to a Subsidiary or an Affiliate of a
Borrower or to a Person controlled by an Affiliate of a Borrower; or

 

(ii)           (a)
if arising under clause (A) above, it is due or unpaid more than 60 days after
the original due date shown on the invoice or more than 90 days after the date
of such invoice;

 

(b) if arising under
clause (B) above, it is due or unpaid more than 30 days from the date such
account is owing under the applicable agreement; or

 

(c) if arising under
clause (C) above, it is due or unpaid more than 60 days after the original due
date shown on the invoice or more than 120 days after the date of such invoice;

 

(iii)          50%
or more of the Accounts from the Account Debtor are not deemed Eligible
Accounts hereunder; or

 

(iv)          the
total unpaid Accounts of the Account Debtor exceed 20% of the net amount of all
Eligible Accounts, to the extent of such excess (other than those Account
Debtors as to which the Collateral Agent has agreed in writing that this clause
(iv) does not apply); or

 

(v)           any
covenant, representation or warranty contained in the Agreement with respect to
such Account has been breached; or

 

(vi)          the
Account Debtor is also a Borrower’s creditor or supplier, or the Account Debtor
has disputed liability with respect to such Account, or the Account Debtor has
made any claim with respect to any other Account due from such Account Debtor
to any Borrower or the Account otherwise is or may become subject to any right
of setoff by the Account Debtor (but in the case of such claims or setoff, the
portion of the Accounts of such Account Debtor in excess of the amount at any time
and from time to time owed by such Borrower to such Account Debtor or claimed
owed by such Account Debtor may be an Eligible Account); or

 

(vii)         the
Account Debtor has commenced a voluntary case under the federal bankruptcy
laws, as now constituted or hereafter amended, or made an assignment for the
benefit of creditors, or a decree or order for relief has been entered by a
court having jurisdiction in the premises in respect of the Account Debtor in
an involuntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other petition or other application for relief under
the federal bankruptcy laws has been filed against the Account Debtor, or if
the Account Debtor has failed, suspended business, ceased to be solvent, or consented
to or suffered a

 

13

 

receiver, trustee,
liquidator or custodian to be appointed for it or for all or a significant
portion of its assets or affairs; or

 

(viii)        it
arises from a sale to an Account Debtor outside the United States, unless the
sale is on letter of credit, guaranty or acceptance terms, in each case
acceptable to Collateral Agent in its sole discretion; or

 

(ix)           it
arises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale,
sale-or-return, sale-on-approval, consignment or any other repurchase or return
basis; or

 

(x)            the
Account Debtor is the United States of America or any department, agency or
instrumentality thereof, unless such Borrower assigns its right to payment of
such Account to Collateral Agent for the benefit of the Lenders, in a manner
satisfactory to Collateral Agent, so as to comply with the Assignment of Claims
Act of 1940 (31 U.S.C. §§ 203 et seq., as amended); or

 

(xi)           the
Account is not at all times subject to Lender’s duly perfected, first priority
security interest and no other Encumbrance other than a Permitted Encumbrance;
or

 

(xii)          the
goods giving rise to such Account have not been delivered to and accepted by
the Account Debtor or the services giving rise to such Account have not been
performed by a Borrower and accepted by the Account Debtor or the Account
otherwise does not represent a final sale; or

 

(xiii)
        the Account is evidenced
by chattel paper or an Instrument of any kind, or has been reduced to judgment;
or

 

(xiv)        such
Borrower has made any agreement with the Account Debtor for any deduction
therefrom, except for discounts or allowances which are made in the ordinary
course of business for prompt payment and which discounts or allowances are
reflected in the calculation of the face value of each invoice related to such
Account; or

 

(xv)         such
Borrower has made an agreement with the Account Debtor to extend the time of
payment thereof in the ordinary course of business (provided, however that such
Account shall cease to be an Eligible Account if it is due or unpaid beyond the
applicable limited period of days after the original invoice date or original
due date set forth in clause (ii) above); or

 

(xvi)        the
Account is otherwise deemed unacceptable by the Collateral Agent in its
reasonable discretion (determined in accordance with customary credit
considerations).

 

14

 

The criteria for Eligible
Accounts set forth above may only be changed and any new criteria for Eligible
Accounts may only be established by Collateral Agent in its reasonable credit
judgment (determined in accordance with customary credit considerations) based
on either: (i) an event, condition or other circumstance arising
after the date hereof, or (ii) an event, condition or other circumstance
existing on the date hereof to the extent Collateral Agent has no written
notice thereof from Borrower prior to the date hereof, in either case under
clause (i) or (ii) which adversely affects or could reasonably be expected to
adversely affect the Accounts in the good faith determination of Collateral
Agent.  Any Accounts which are not
Eligible Accounts shall nevertheless be part of the Collateral.

 

“Eligible Credit Card Receivables”:  Accounts due on a non-recourse basis from
major credit card processors (which, if due on account of a private label
credit card program, are deemed in the reasonable discretion of the Collateral
Agent to be eligible (determined in accordance with customary credit considerations)),
which accounts have been outstanding for no more than Five (5) Business Days.

 

 “Eligible Finished Goods
Inventory”: Eligible Inventory consisting of finished goods.

 

“Eligible Fixed Assets”: 
The Headquarters Facility to the extent that it is (a) owned by the
Borrowers, (b) subject to a Mortgage, (c) properly insured in accordance with
the provisions of Section 4.9, and (d) not encumbered by an Encumbrance
other than Permitted Encumbrances.

 

“Eligible Inventory”: 
Borrowers’ Inventory in the United States, at such locations, and of
such types, character, quality and quantities, as the Collateral Agent in its
reasonable discretion from time to time determines to be acceptable for
inclusion in the calculation of the Borrowing Base purposes (determined in
accordance with customary credit considerations), as to which the Collateral
Agent has a perfected security interest that is prior and superior to all
claims and all Encumbrances (other than Permitted Encumbrances, subject to the
Collateral Agent’s rights to establish Reserves therefore).  In no event shall Inventory purchased by a
Borrower out of the ordinary course or held by a Borrower whose common stock
has been purchased by a Borrower constitute Eligible Inventory until after the
results of an appraisal thereof satisfactory to Collateral Agent in its
discretion has been performed by an appraiser satisfactory to Collateral Agent
in its reasonable discretion and the determination thereof has been made by the
Collateral Agent in its reasonable discretion (determined in accordance with
customary credit considerations).

 

In no event, shall  “Eligible
Inventory” include: (i) any non-merchandise inventory (such as labels, bags,
and packaging materials); (ii) damaged goods, return to vendor merchandise,
packaways, consigned inventory, and other similar categories of Goods; (iii)
any Inventory located in any store of the Borrowers which has been closed for
business for more than 20 days in any fiscal quarter; and (iv) work in process.

 

15

 

“Eligible
In-Transit Inventory”: That portion of the Borrowers’
Inventory (without duplication of other Eligible Inventory and Eligible L/C
Inventory)  that meets the following
criteria, which criteria may be revised by the Collateral Agent in its
reasonable discretion (determined in accordance with customary credit
considerations) from time to time after the Closing Date:

 

(a)           such
Inventory currently is in transit (whether by vessel, air, or land) from a
location outside of the continental United States to one of the Borrower’s
Domestic Distribution Centers, which is expected to be delivered to such
Domestic Distribution Center and received by such Borrower within 30 days,

 

(b)           title
to such Inventory has passed to the Borrower,

 

(c)           such
Inventory is insured against types of loss, damage, hazards, and risks, and in
amounts, satisfactory to the Collateral Agent in its reasonable discretion,

 

(e)           such
Inventory either

 

(1)   is
the subject of a negotiable bill of lading that (x) is consigned to Lender
(either directly or by means of endorsements), (y) was issued by the carrier
respecting the subject Inventory, and (z) either is (I) in the possession of
Collateral Agent or a customs broker or (II) if such Inventory was the subject
of a documentary L/C, the subject of a telefacsimile copy that Collateral Agent
has received from the Issuer which issued the LC and as to which Collateral
Agent also has received a confirmation from such Issuer that such document is
in-transit by air-courier to Collateral Agent or a customs broker, or

 

(2)   is
the subject of a negotiable cargo receipt and is not the subject of a bill of
lading (other than a negotiable bill of lading consigned to, and in the
possession of, a consolidator or Collateral Agent, or their respective agents)
and such negotiable cargo receipt is (x) consigned to Collateral Agent (either
directly or by means of endorsements), (y) that was issued by a consolidator
respecting the subject Inventory, (z) that either is (I) in the possession of
Collateral Agent or a customs broker, or (II) if such Inventory was the subject
of a documentary L/C, the subject of a telefacsimile copy that Collateral Agent
has received from the Issuer which issued the LC and as to which Collateral
Agent also has received a confirmation from such Issuer that such document is
in-transit by air-courier to Collateral Agent or a customs broker, and

 

(f)            Borrower
has provided a Borrowing Base Certificate to Collateral Agent that certifies
that, to the best knowledge of Borrower, such Inventory meets all of Borrower’s
representations and warranties contained in the

 

16

 

Loan Documents
concerning Eligible Inventory, that Borrower knows of no reason why such
Inventory would not be accepted by the Borrower when it is delivered to
Borrower, and that the shipment as evidenced by the documents conforms to the
related order documents.

 

“Eligible L/C Inventory”: 
That portion of the Borrowers’ Inventory (without duplication of other
Eligible Inventory and Eligible In-Transit Inventory) the purchase of which is
supported by a documentary L/C and which is expected to be delivered to such
Domestic Distribution Center and received by such Borrower within 30 days, provided that

 

(a)           Such
Inventory is of such types, character, quality and quantities as the Collateral
Agent in its reasonable discretion (determined in accordance with customary
credit considerations) from time to time determines to be Eligible Inventory;
and

 

(b)           The
documentary L/C which relate to such shipment names the Collateral Agent as
consignee of the subject Inventory and the Collateral Agent has control over
the documents which evidence ownership of the subject Inventory (such as by the
providing to the Collateral Agent of a Customs Brokers Agreement to the
Collateral Agent).

 

“Eligible
Liquid Collateral”:  Each of
the following:

 

(i)  a money market fund whose assets consist
entirely of cash, securities with maturities of 180 days or less from the date
of acquisition issued or fully guaranteed or insured as to payment of principal
and interest by the United States Treasury, and certificates of deposit with
maturities of 365 days or less from the date of acquisition issued by a
FDIC-insured financial institution;

 

(ii)  certificates of deposit with maturities of 365
days or less from the date of acquisition issued by a FDIC-insured financial
institution;

 

(iii)  securities with maturities of 180 days or less
from the date of acquisition issued or fully guaranteed or insured as to
payment of principal and interest by the United States Treasury; and

 

(iv)  senior unsecured bonds of a domestic corporate
issuer rated at least A- by a rating agency acceptable to the Collateral Agent
with maturities of 2 years or less from the date of acquisition;

 

in each case only to the
extent (i) subject to the Collateral Agent’s first priority, perfected, valid,
and enforceable security interest to secure the Liabilities; (ii) immediately
available to the Collateral Agent; (iii) not subject to any restriction on
their use (other than in favor of Collateral

 

17

 

Agent; and (iv) either
held by FNB or by another financial institution acceptable to the Collateral
Agent with whom the Collateral Agent and the applicable Borrower have agreed to
a written control agreement in form and substance satisfactory to Collateral
Agent.

 

“Eligible
Raw Materials Inventory”: Eligible Inventory consisting of
raw materials .

 

“Employee Benefit Plan”: 
As defined in ERISA.

 

“Encumbrance”:  Each of
the following:

 

(a)           Any
security interest, mortgage, pledge, hypothecation, lien, attachment, or charge
of any kind (including any agreement to give any of the foregoing); the
interest of a lessor under a Capital Lease; conditional sale or other title
retention agreement; sale of Accounts or Chattel Paper; or other arrangement
pursuant to which any Person is entitled to any preference or priority with
respect to the property or assets of another Person or the income or profits of
such other Person or which constitutes an interest in property to secure an
obligation; each of the foregoing whether consensual or non-consensual and
whether arising by way of agreement, operation of law, legal process or
otherwise.

 

(b)           The
filing of any financing statement under the UCC or comparable law of any
jurisdiction.

 

“End Date”:  The date
upon which both (a) all Liabilities have been indefeasibly paid in full and (b)
all obligations of the Agents and Lenders to make loans and advances and to
provide other financial accommodations to the Borrowers hereunder shall have
been irrevocably terminated.

 

“Environmental Laws”: 
All of the following:

 

(a)           Any
and all federal, state, local or municipal laws, rules, orders, regulations,
statutes, ordinances, codes, decrees or requirements which regulate or relate
to, or impose any standard of conduct or liability on account of or in respect
to environmental protection matters, including, without limitation, Hazardous
Materials, as are now or hereafter in effect.

 

(b)           The
common law relating to damage to Persons or property from Hazardous Materials.

 

“Equipment”:  Includes,
without limitation, Obligors’ Goods which qualify as “equipment” as defined in
the UCC.

 

18

 

“ERISA”:  The Employee
Retirement Income Security Act of 1974, as amended, together with all orders,
regulations and interpretations thereunder or related thereto.

 

“ERISA Affiliate”:  Any
Person which is under common control with the Obligors within the meaning of
Section 4001 of ERISA or is part of a controlled group including the Obligors
and which would be treated as a single employer under Section 414(b), (c), (m),
and (o) of the Internal Revenue Code of 1986, as amended.

 

“Events of Default”: 
Defined in Article X.  Each
reference to an “Event of Default” is to an Event of Default that has not duly
waived in writing by the Administrative Agent. 
In the event of such due waiver, the so-waived Event of Default shall be
deemed never to have occurred, other than with respect to any post-default
interest which accrued prior to such waiver and with respect to any
reimbursement obligation in respect of any Costs of Collection.

 

“Excess Availability”: 
The difference of (a) Availability minus (b) all
then past due obligations of the Borrowers (other than those being contested in
good faith for which adequate reserves have been established by Borrowers),
including accounts payable which are beyond customary trade terms and rent
obligations for leases which are beyond applicable grace periods.

 

“Exempt DDA”:  A
depository account maintained by any Obligor, the only contents of which may be
transfers from the Operating Account and actually used solely (i) for petty
cash purposes; or (ii) for payroll and payroll taxes, together with such other
depository accounts agreed to by Collateral Agent in writing as constituting an
Exempt DDA.

 

“Financial
Covenant Adjusted Availability”: The sum of:

 

(i)            The
lesser of (a) Borrowing Base A; or (b)
the sum that the Lead Borrower and those Obligors that are Restricted
Subsidiaries (as defined in the Indenture Agreement) are permitted to incur as
Indebtedness (as defined in the Indenture Agreement) hereunder on a
consolidated basis without violating the Indenture Agreement.

 

Minus

 

(ii)           The
aggregate unpaid balance of the Loan Account

 

Minus

 

(iii)          The
aggregate undrawn Stated Amount of all then outstanding L/C’s.

 

“First Agreement”: 
That certain Loan and Security Agreement dated May 24, 1998, by and
between Lead Borrower, Cave Springs and Fleet Capital Corporation,
successor-by-assignment to Fleet Retail Group, Inc., as amended.

 

19

 

“Fiscal Year”:  Each
Twelve (12) month accounting period of the Borrowers, which ends on September
30th of each year.

 

“Fixed Charge Coverage Ratio”:  For any twelve month period, the ratio of
Borrowers’ consolidated (a) EBITDA minus non-financed Capital
Expenditures minus the payment of any dividends or other distributions
on capital stock of the Lead Borrower (except distributions in such stock), to
(b) scheduled cash interest expense, plus scheduled principal payments
on account of current maturities of long term Indebtedness, plus,
without duplication, payments for the scheduled redemption or acquisition of
Securities, plus income taxes paid in cash, all as determined in
accordance with GAAP.

 

“Fixtures”:  Has the
meaning given that term in the UCC.

 

“FNB”:  Fleet National
Bank.

 

“GAAP”:  Principles
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, provided, however, in the event of a Material Accounting Change,
then unless otherwise specifically agreed to by the Lead Borrower and the
Administrative Agent, (a) the Lead Borrower’s compliance with the financial
performance covenants imposed pursuant to Section 5.12 shall be
determined as if such Material Accounting Change had not taken place and (b)
the Lead Borrower shall include, with its monthly, quarterly, and annual
financial statements a schedule, certified by its chief financial officer, on
which the effect of such Material Accounting Change to the statement with which
provided shall be described.

 

“General Intangibles”: 
Includes, without limitation, “general intangibles” as defined in the
UCC; and also all: rights to payment for credit extended; deposits; amounts due
to the Obligors; credit memoranda in favor of the Obligors; warranty claims;
tax refunds and abatements; insurance refunds and premium rebates; all means
and vehicles of investment or hedging, including, without limitation, options,
warrants, and futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any settlement or other
agreement; payments or right to receive payments on account of any transfer of
any interest in any Leasehold Interest; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission; licenses;
franchises; license agreements, including all rights of the Obligors to enforce
the foregoing; permits, certificates of convenience and necessity, and similar
rights granted by any governmental authority; patents, patent applications,
patents pending, and other intellectual property; internet addresses and domain
names; developmental ideas and concepts; proprietary processes; blueprints,
drawings, designs, diagrams, plans, reports, and charts; catalogs; manuals;
technical data; computer software programs (including the source and object
codes therefor), computer

 

20

 

records, computer
software, rights of access to computer record service bureaus, service bureau
computer contracts, and computer data; tapes, disks, semi-conductors chips and
printouts; trade secrets rights, copyrights, copyrightable materials, copyright
registrations and applications, mask work rights and interests, and derivative
works and interests; user, technical reference, and other manuals and
materials; trade names, trademarks, service marks, and all goodwill relating
thereto; registrations, applications for registration of the foregoing; and all
other intangible property of the Obligors in the nature of intellectual
property; proposals; cost estimates, and reproductions on paper, or otherwise,
of any and all concepts or ideas, and any matter related to, or connected with,
the design, development, manufacture, sale, marketing, leasing, or use of any
or all property produced, sold, or leased, by the Obligors or credit extended
or services performed, by the Obligors, whether intended for an individual
customer or the general business of the Obligors, or used or useful in connection
with research and development by the Obligors.

 

“Goods”:  Has the
meaning given that term in the UCC.

 

“Gross Margin”:  With
respect to the subject accounting period for which it is being calculated, the
decimal equivalent of the following:

 

Sales (Minus) Cost of
Goods Sold

Sales

 

“Hazardous Materials”: 
Any (a) hazardous materials, hazardous waste, hazardous or toxic
substances or petroleum products, which (as to any of the foregoing) are
defined or regulated as a hazardous material in or under any Environmental Law
and (b) oil in any physical state.

 

“Headquarters Facility”: 
The Obligors’ headquarters building and related real estate located at
456 North Fifth Street, Philadelphia, Pennsylvania  19123.

 

“Import Landing Costs”: 
To the extent not included in the Stated Amount of an L/C, Landing Costs
for Inventory, the purchase of which is supported by such L/C, or customs,
duty, freight, and other out-of-pocket costs and expenses which will be
expended to “land” in transit Inventory and which is not included in invoices
for prepaid Inventory.

 

“Indebtedness”:  All
indebtedness and obligations of or assumed by any Person on account of or in
respect to any of the following:

 

(a)           Money
borrowed (including any indebtedness which is non-recourse to the credit of
such Person but which is secured by an Encumbrance on any asset of such Person)
whether or not evidenced by a promissory note, bond, debenture or other written
obligation to pay money;

 

21

 

(b)           Any
reimbursement obligations and other liabilities of such Person with respect to
surety bonds (whether bid, performance or otherwise) letter of credit or
acceptance transactions (including, without limitation, the Stated Amount of
all outstanding letters of credit and acceptances issued for the account of
such Person, and (without duplication) any amount for which such Person would
be obligated to provide reimbursement or for which such Person is liable in
connection with a letter of credit or acceptance transaction;

 

(c)           The
provision of recourse in connection with the sale or discount of Accounts or
Chattel Paper of such Person;

 

(d)           On
account of recourse or repayment obligations with respect to deposits or
advances;

 

(e)           As
lessee under Capital Leases;

 

(f)            In
connection with any sale and leaseback transaction.

 

(g)           All
obligations with respect to redeemable stock and redemption or repurchase
obligations under any equity securities issued by such Person.

 

“Indebtedness” also includes:

 

(a)           Indebtedness
of others secured by an Encumbrance on any asset of such Person, whether or not
such Indebtedness is assumed by or is a personal liability of such Person.

 

(b)           Any
guaranty, endorsement, suretyship or other undertaking pursuant to which that
Person may be liable on account of any obligation of any third party other than
on account of the endorsement of checks and other items in the ordinary course.

 

(c)           The
Indebtedness of a partnership or joint venture in which such Person is a
general partner or joint venturer.

 

“Indemnified Person”: 
Defined in Section 14.13.

 

“Indenture Agreement”: 
That certain Indenture Agreement dated as of August 5, 2002, by and
between the Lead Borrower, as Issuer, Cave Springs, Inc., eSpeciality Brands,
LLC, Dan Howard Industries, Inc., Mother’s Stores, Inc., as subsidiary
guarantors, and J.P. Morgan Trust Company, National Association, as trustee, as
amended, modified, or supplemented from time to time.

 

22

 

“Index Business Day”: 
Any day which is both a Business Day and a day on which the principal
market in LIBOR deposits in London in which FNB or its successors participate
is open for dealings in United States Dollar deposits.

 

“Index Loan”:  Any
Revolving Credit Loan which bears interest at an Index Rate.

 

“Index Margin”:  As
determined pursuant to the applicable section of the Margin Pricing Grid set
forth in Section 2.11(f), for loans initiated on or after the date when
so set, that is to say Index contracts in effect
at the time of increases/decreases in margin will remain in effect at the
margin originally utilized when the contract was opened.  The margin in effect at a given time will
apply to contracts opened at that time, and shall be based upon the Margin
Pricing Grid.

 

“Index Offer Rate”: 
With respect to any Index Loan, the rate per annum (rounded upwards, if
necessary, to the next 1/100 of 1%) as determined by the Administrative Agent
to be the highest prevailing rate per annum at which deposits on U.S. Dollars
are offered to FNB or its successors, by first-class banks in the LIBOR market
in which FNB or its successors participates at or about 11:00 a.m. (London
Time) Two (2) Index Business Days before the first day of the Interest Period
for the subject Index Loan, for a deposit approximately in the amount of the
subject loan for a period of time approximately equal to such Interest
Period.  Such rate shall be determined on
the basis of the highest offered rates for deposits in U.S. Dollars, for a
period of time comparable to such Index Loan, which appears on Page 3750 on the
Dow Jones Market Service (formerly known as Telerate) as of 11:00 a.m. London
time on the day which is Two (2) Business Days preceding the first day of such
Index Loan; provided, however, if the rate described above does not appear on
the Dow Jones Market Service on any applicable interest determination date, the
Index Offer Rate shall be the highest rate (rounded upwards, if necessary, to
the nearest one hundred-thousandth of a percentage point) determined on the
basis of the offered rates for deposits in U.S. Dollars for a period of time
comparable to such Index Loan which are offered by four major banks in the
London interbank market at approximately 11:00 a.m. London time, on the day
that is Two (2) Business Days preceding the first day of such Index Loan as
selected by the Administrative Agent.  If
such rate is unavailable, the rate for that date will be determined on the
basis of the highest rates quoted for loans in U.S. Dollars to leading European
banks for a period of time comparable to such Index Loan, offered by major
banks in New York City at approximately 11:00 a.m. New York City time, on the
day that is Two (2) Business days preceding the first day of such Index Loan.  In the event that the Index Offer Rate for an
Index Loan cannot be determined through any of the methods provided above, it
will be determined in whatever manner Administrative Agent may reasonably
determine or if Administrative Agent deems that it cannot be determined, the
Index Offer Rate will be unavailable.

 

“Index Rate”:  That per
annum rate (calculated on a 365/366-day year and actual days elapsed) equal to
the Index Offer Rate plus the Index Margin except that, in the

 

23

 

event that the
Administrative Agent determines that any Lender may be subject to the Reserve
Percentage, the “Index Rate” shall mean, with respect to any Index Loans then
outstanding (from the date on which that Reserve Percentage first became
applicable to such loans), and with respect to all Index Loans thereafter made,
an interest rate per annum equal the sum of (a) plus (b), where:

 

(a) is the decimal
equivalent of the following fraction:

 

Index Offer Rate

1 minus Reserve
Percentage

 

(b) is the applicable
Index Margin.

 

“Instruments”:  Has the
meaning given that term in the UCC.

 

“Interest Payment Date”: 
With reference to:

 

(a)           Each
Index Loan: the earlier of the last day of the Interest Period relating thereto
or quarterly, whichever is earlier, and the Termination Date and the End Date.

 

(b)           Each
Base Margin Loan: the last Business Day of each month in arrears; the
Termination Date; and the End Date.

 

“Interest Period”:

 

(a)           With
respect to each Index Loan: subject to Subsection (b), below, the period
commencing on the date of the making or continuation of, or conversion to, the
subject Index Loan and ending on the day that corresponds numerically to such
date, One (1), Two (2), Three (3), or Six (6) months thereafter, as the Lead
Borrower may elect by irrevocable notice (pursuant to Section 2.5(b)) to
the Administrative Agent.

 

(b)           The
setting of Interest Periods is in all instances subject to the following:

 

(i)            Any
Interest Period for a Index Loan which would otherwise end on a day that is not
a Index Business Day shall be extended to the next succeeding Index Business
Day, unless that succeeding Index Business Day is in the next calendar month,
in which event such Interest Period shall end on the last Index Business Day of
the month during which the Interest Period ends.

 

(ii)           Subject
to Subsections (iii) and (iv), below, any Interest Period applicable to a Index
Loan, which Interest Period begins on a day for which there is no numerically
corresponding day in the

 

24

 

calendar month during
which such Interest Period ends, shall end on the last Index Business Day of
the month during which that Interest Period ends.

 

(iii)          Any
Interest Period which would otherwise end after the Revolving Credit
Termination Date shall end on the Revolving Credit Termination Date.

 

(iv)          
The Lead Borrower shall not select, renew, or convert any interest rate for a
Revolving Credit Loan such that, in addition to interest at the Base Margin
Rate, there are more than Six (6) Interest Periods applicable to Index Loans at
any one time.

 

“Inventory”:  Includes,
without limitation, “inventory” as defined in the UCC and also all:  packaging, advertising, and shipping
materials related to any of the foregoing, and all names or marks affixed or to
be affixed thereto for identifying or selling the same; Goods held for sale or
lease or furnished or to be furnished under a contract or contracts of sale or
service by the Obligors, or used or consumed or to be used or consumed in the
Obligors’ business; Goods of said description in transit: returned, repossessed
and rejected Goods of said description; and all Documents (whether or not
negotiable) which represent any of the foregoing.

 

“Inventory Advance Rate”: 
The following percentages for the applicable category of Eligible
Inventory:

 

	
  Type of Eligible

  Inventory

  	
   

  	
  Percentage

  	
   

  
	
  Eligible Raw
  Materials Inventory

  	
   

  	
  88

  	
  %

  
	
  Eligible
  Finished Goods Inventory

  	
   

  	
  88

  	
  %

  
	
  Eligible L/C
  Inventory

  	
   

  	
  88

  	
  %

  
	
  Eligible
  In-Transit Inventory

  	
   

  	
  88

  	
  %

  

 

provided, however,
in the event that at any time or from time to time the ratio of the Inventory
Advance Rate to the Appraised Inventory Liquidation Percentage exceeds the ratio of the Inventory Advance Rate to the
Starting Inventory Liquidation Percentage, then the Inventory Advance Rate
shall be reduced to the extent required so that the ratio of the Inventory
Advance Rate (after giving effect

 

25

 

to such adjustment) to
the Appraised Inventory Liquidation Percentage equals
the ratio of the Inventory Advance Rate to the Starting Inventory Liquidation
Percentage.

 

“Inventory Reserves”: 
Such reserves as may be established from time to time by the Collateral
Agent in the Collateral Agent’s reasonable discretion with respect to the
determination (determined in accordance with customary credit considerations)
of the saleability, at Retail, of the Eligible Inventory or which reflect such
other factors as affect the market value of the Eligible Inventory.  Without limiting the generality of the
foregoing, Inventory Reserves may include (but are not limited to) reserves
based on the following:

 

(i)            Obsolescence
(based upon Inventory on hand beyond a given number of days).

 

(ii)           Seasonality.

 

(iii)          Shrinkage.

 

(iv)          Imbalance.

 

(v)           Change
in Inventory character.

 

(vi)          Change
in Inventory composition.

 

(vii)         Change
in Inventory mix.

 

(viii)        Markdowns
(both permanent and point of sale)

 

(ix)           Retail
mark ons and markups inconsistent with prior period practice and performance;
industry standards; current business plans; or advertising calendar and planned
advertising events.

 

(x)            Return
to vendors.

 

(xi)           Damage.

 

(xii)          Inventory
in the possession of any bailee.

 

(xiii)         Design
room Inventory.

 

“Investment Property”: 
Has the meaning given that term in the UCC.

 

“Issuer”:  The issuer
of any L/C.

 

“Landlord State”: 
Initially Washington, Virginia, and Pennsylvania and such other states
in which a landlord’s claim for rent has priority over the Encumbrances of the
Collateral Agent in the Collateral.

 

26

 

“L/C”:  Any letter of
credit, the issuance of which is procured by the Administrative Agent for the
account of any Borrower and any acceptance made on account of such letter of
credit, including without limitation, any letter of credit presently issued by
FNB, including without limitation any letter of credit issued under the First
Agreement and the Special Purpose Letter of Credit.

 

“Lease”:  Any lease or
other agreement, no matter how styled or structured, pursuant to which any
Obligor is entitled to the use or occupancy of any space.

 

“Leasehold Interest”: 
Shall mean the Obligors’ leasehold estate or interest in each of the
properties subject to a Lease at or upon which any Obligor conducts business,
offers any Inventory for sale, or maintains any of the Collateral, whether or
not for retail sale, together with the Obligors’ interest in any of the
improvements and fixtures located upon or appurtenant to each such estate or
interest, including without limitation, any rights of the Obligor to payment,
proceeds or value of any kind or nature realized upon the sale, transfer or
assignment of any such estate or interest, whether or not such sale, assignment
or transfer occurs during any case commenced under the Bankruptcy Code.

 

“Lender’s
Special Counsel”: Shall mean counsel retained by the Lenders
other than the Agent.

 

“Letter-of-Credit Rights”: 
Has the meaning given that term in the UCC and also refers to any right
to payment or performance under an L/C, whether or not the beneficiary has
demanded or is at the time entitled to demand payment or performance.

 

“Liabilities”: 
Includes, without limitation, the following:

 

(a)           All
and each of the following, whether now existing or hereafter arising under this
Agreement or under any of the other Loan Documents:

 

(i)            Any
and all direct and indirect liabilities, debts, and obligations of the Obligors
to any Agent or the Lenders, each of every kind, nature, and description.

 

(ii)           Each
obligation to repay any loan, advance, indebtedness, note, obligation,
overdraft, or amount now or hereafter owing by the Obligors to any Agent or the
Lenders, (including all future advances whether or not made pursuant to a
commitment by any Agent or the Lenders), whether or not any of such are
liquidated, unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature, or description,
or by reason of any cause of action which any Agent or the Lenders, may hold
against the Obligors.

 

27

 

(iii)          All
notes and other obligations of the Obligors now or hereafter assigned to or
held by any Agent or the Lenders, each of every kind, nature, and description.

 

(iv)          All
interest, fees, and charges and other amounts which may be charged by any Agent
or the Lenders, to the Obligors and/or which may be due from the Obligors to
any Agent or the Lenders, from time to time.

 

(v)           All
costs and expenses incurred or paid by any Agent or the Lenders, in respect of
any agreement between the Obligors and any Agent or the Lenders, or instrument
furnished by the Obligors to any Agent or Lenders (including, without
limitation, Costs of Collection, attorneys’ reasonable fees, including
reasonable fees and expenses of Lenders’ Special Counsel), and all court and
litigation costs and expenses).

 

(vi)          Any
and all covenants of the Obligors to or with any Agent or the Lenders, and any
and all obligations of the Obligors to act or to refrain from acting in accordance
with any agreement between the Obligors and any Agent or the Lenders, or
instrument furnished by the Obligors to any Agent or the Lenders.

 

(vii)         Each
of the foregoing as if each reference to “Agent,” were to each Affiliate of
such Agent and each of the foregoing as if each reference to “Lenders,” were to
each Affiliate of the Lenders.

 

(b)           Any
and all direct or indirect liabilities, debts, and obligations of the Obligors
to any Agent or the Lenders or any Affiliate of any Agent or Affiliate of the
Lenders, each of every kind, nature, and description owing on account of any
service or accommodation provided to, or for the account of any Obligors
pursuant to this or any other Loan Document, including cash management services
and the issuances of L/C’s, including without limitation the Special Purpose
Credit.

 

“Liquidation”:  The
exercise, by the Collateral Agent, of those rights accorded to the Collateral
Agent under the Loan Documents as a creditor of the Obligors following and on
account of the occurrence of an Event of Default looking towards the
realization on the Collateral. 
Derivations of the word “Liquidation” (such as “Liquidate”) are used
with like meaning in this Agreement.

 

“Liquid Collateral Investments”: The Borrower’s Investment
Property in which the Collateral Agent holds a first priority (other than a
prior security interest held by the securities intermediary maintaining a
securities account in which the Investment Property is maintained, to the
extent such prior security interest

 

28

 

secures the securities
intermediary’s customary fees and charges), perfected, valid, and enforceable
lien and security interest to secure the Liabilities, which are not subject to
any restriction on their use (other than restrictions in favor of Collateral
Agent).

 

“Loan Account”: 
Defined in Section 2.8.

 

“Loan Documents”:  This
Agreement, each instrument and document executed and/or delivered as
contemplated by Article III, below (including without limitation the fee
letters by and between any of the Agents and the Borrowers or any of the
Lenders and the Borrowers) and each other instrument or document from time to
time executed and/or delivered in connection with the arrangements contemplated
hereby or in connection with any transaction with any Agent or any Affiliate of
any Agent, including, without limitation, any transaction which arises out of
any cash management (including any ACH transfer arrangements), depository,
investment, letter of credit (including, without limitation, the Special
Purpose Credit), or interest rate protection, or equipment leasing services
provided by any Agent or any Affiliate of any Agent, as each may be amended
from time to time.

 

“Margin Adjustment Date”: 
As defined in Section 2.11(f).

 

“Margin Pricing Grid”: 
Provides for quarterly adjustment to the interest rate to be charged on
Revolving Credit Loans based upon the level of Pricing Adjusted Availability
then existing and is shown in Section 2.11(f).

 

“Master Letter of Credit Agreement”:  Defined in Section 2.18(d).

 

“Material Accounting Change”: 
Any change in GAAP applicable to accounting periods subsequent to the
Borrowers’ fiscal year most recently completed prior to the execution of this
Agreement, if such change has a material effect on the Borrowers’ financial
condition or operating results, as reflected on financial statements and
reports prepared by or for the Borrowers, when compared with such condition or
results as if such change had not taken place, or where preparation of the
Borrowers’ statements and reports in compliance with such change results in the
breach of a financial performance covenant imposed pursuant to Section 5.12,
where such a breach would not have occurred if such change had not taken place
or visa versa.

 

“Material
Adverse Effect”: (a)
Any material adverse change in the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or otherwise) of the
Obligors (taken as a whole), (b) the material impairment of the ability of
any Obligors to perform its Liabilities, or of the Agent’s ability to enforce
the Liabilities or realize upon any portion of the Collateral, or (c) a
material impairment of the priority of the liens with respect to the
Collateral.

 

29

 

“Maturity Date”:   October
15, 2009, or if such day is not a Business Day, the next succeeding Business
Day.

 

“Mortgage”:  Includes,
but not limited to, that certain existing mortgage as described in Section
8.3, as the same may be amended, modified, renewed, extended, replaced,
restated or substituted from time to time, executed by the Lead Borrower and
PIDC Financing Corporation in favor of the Collateral Agent, for the benefit of
the Lenders.

 

“Mortgaged Property”: 
Includes the Headquarters Facility and any Real Estate which is subject
to any Mortgage.

 

“Notice Address”:         With
respect to the Administrative Agent, as provided in Section 12.1.

 

With respect to the
Collateral Agent, as provided in Section 12.1.

 

With respect to any
Lender, as indicated adjacent to such Lender’s signature at the foot of this
Agreement.  With respect to any Person
who becomes a Lender hereafter pursuant to Section 7.2 of the Agency Agreement,
as indicated in the Assignment and Acceptance of such Person.

 

Each Notice Address is
subject to change as provided in Section 12.1.

 

“Obligor”: 
Individually, each Guarantor and each Borrower, and, “Obligors”, collectively, the Borrower and Guarantors.

 

“Operating Account”:  
Defined in Section 7.3(a)(iii).

 

“Overloan”:
A loan, advance, or providing of credit support (such as the issuance of any
L/C) to the extent that, at the time it is made, it exceeds Availability
immediately prior to the making of such loan, advance, or providing of credit
support.

 

“Participant”:  Defined
in Section 14.16.

 

“Payment Intangible”: 
Has the meaning given that term in the UCC and also refers to any
general intangible under which the Account Debtor’s primary obligation is a
monetary obligation.

 

“Percentage Commitment”: 
As set forth on EXHIBIT 2.22,
annexed hereto, reflecting, with respect to any Lender, the ratio of (i) the
amount of the Dollar Commitment of such Lender to (ii) the aggregate amount of
the Dollar Commitments of all Lenders (as such percentage may change in
accordance with the provisions of this Agreement).

 

“Permissible Overloans”: 
Defined in the Agency Agreement.

 

30

 

“Permitted Acquisition”:
Any acquisition by Borrowers, whether by purchase, merger or otherwise, of all
or substantially all of the assets of, of more than 50% of the capital stock
of, or a business line or a division of, any Person; provided:

 

(i)            immediately
prior to, and after giving effect thereto, no Suspension Event or Event of
Default shall have occurred and be continuing or would result therefrom;

 

(ii)           all
transactions in connection therewith shall be consummated in accordance with
all applicable laws and in conformity with all applicable governmental
authorizations;

 

(iii)          all
of the capital stock acquired or otherwise issued by such Person or any newly
formed Subsidiary of a Borrower in connection with such acquisition shall be
pledged to Collateral Agent, for the benefit of Lenders, pursuant hereto, and
Borrowers shall have taken, or caused to be taken, as of the date such Person
becomes a Subsidiary of Borrowers, each of the Permitted Acquisition
Requirements; and

 

(v)           all
Persons, assets or divisions acquired shall be in the retail business or such
other lines of business as may be consented to by Administrative Agent.

 

“Permitted
Acquisition Requirements”: The Borrowers (a) immediately
causing any new Subsidiary to become a Borrower or guarantor hereunder, as
determined by the Administrative Agent, by executing and delivering to
Administrative Agent a counterpart agreement acceptable to Administrative Agent
in its discretion, (b) immediately thereupon, causing the Collateral Agent to
hold in such acquired assets or capital stock a first priority perfected
Collateral Interest (subject only to Permitted Encumbrances) to secure the
Liabilities and (c) taking all such actions and executing and delivering, or
causing to be executed and delivered, all such documents, instruments,
agreements, and certificates as Agent may require in its discretion.

 

“Permitted Creation”:
Any creation by Borrowers of a Person wholly-owned by Borrowers, provided:

 

(i)            immediately
prior to, and after giving effect thereto, no Suspension Event or Event of
Default shall have occurred and be continuing or would result therefrom;

 

(ii)           all
transactions in connection therewith shall be consummated in accordance with
all applicable laws and in conformity with all applicable governmental
authorizations;

 

(iii)          all
of the capital stock acquired or otherwise issued by such Person or any newly
formed Subsidiary of a Borrower in connection with such acquisition shall be
pledged to Collateral Agent, for the benefit of Lenders, pursuant hereto, and
Borrowers shall have taken, or caused to be taken, as 

 

31

 

of the date such Person becomes a Subsidiary of
Borrowers, each of the Permitted Creation Requirements; and

 

(v)           all
Persons, assets or divisions created shall be in the retail business or such
other lines of business as may be consented to by Administrative Agent.

 

“Permitted
Creation Requirements” The Borrowers (a) immediately causing
any new Subsidiary to become a Borrower or guarantor hereunder, as determined
by the Administrative Agent, by executing and delivering to Administrative
Agent a counterpart agreement acceptable to Administrative Agent in its
discretion, (b) immediately thereupon, causing the Collateral Agent to hold in
such acquired assets or capital stock a first priority perfected Collateral
Interest (subject only to Permitted Encumbrances) to secure the Liabilities and
(c) taking all such actions and executing and delivering, or causing to be
executed and delivered, all such documents, instruments, agreements, and
certificates as Agent may require in its discretion.

 

“Permitted Encumbrances”: 
The following:

 

(a)           Encumbrances
in favor of the Collateral Agent.

 

(b)           Those
Encumbrances (if any) listed on EXHIBIT 4.7,
annexed hereto.

 

(c)           Liens
securing the payment of taxes, either not yet overdue or the validity of which
is being contested in good faith by the Obligors and for which the Obligors
have established adequate cash reserve; non-consensual statutory liens (other
than liens securing the payment of taxes) arising in the ordinary course
of  Obligors’ business to the extent such
liens secure (i) indebtedness that is not overdue, or (ii) indebtedness
relating to claims or liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or are being
contested by the Obligors in good faith by appropriate proceedings diligently
pursued, in each instance prior to the commencement of foreclosure or other
similar proceedings and provided that adequate reserves therefor have been set
aside on the  Obligors’ books (provided, however, that
the inclusion of any of the foregoing as “Permitted Encumbrances” shall not
affect their respective relative priorities vis a vis the security interests
created herein), or (iii) zoning restrictions, easements, licenses, covenants
and other restrictions affecting the use of real property.

 

(d)           Deposits
under workmen’s compensation, unemployment insurance and social security laws,
or to secure the performance of bids, tenders, contracts (other than for the
repayment of borrowed 

 

32

 

money) or leases, or to
secure statutory obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds arising in the ordinary course of business.

 

(e)           Landlord’s
liens arising by operation of law where waivers have not been obtained.

 

(f)            Purchase
money security interests or capitalized equipment leases on any Equipment
acquired or held by the Obligors and securing Indebtedness incurred or assumed
for the purpose of financing all or any part of the cost of acquiring such
Equipment; provided  however
that (i) any such Encumbrance attaches to such property concurrently with or
within twenty (20) days after the acquisition thereof, (ii) such Encumbrance
attaches solely to the Equipment so acquired in such transaction, and (iii) the
principal amount of the Indebtedness secured thereby does not exceed 100% of
the cost of such Equipment; provided, however, that with respect to any
Indebtedness on account of purchase money security interests or capitalized
leases on or of such Equipment that arises during a period in which (x) the
outstanding principal amount of Indebtedness arising after the date hereof on
account of purchase money security interests or capitalized equipment leases on
or of such Equipment exceeds (y) $5,000,000 (the “Excess Indebtedness”), the
holder of any such Excess Indebtedness shall have agreed that the Collateral
Agent shall have the right to utilize, at no cost or expense to the Agents or
Lenders (other than a pro rated amount for the period in which the Collateral
Agent is utilizing such Equipment), such Equipment to the extent necessary or
appropriate to sell, lease or otherwise dispose of the Collateral, such
agreement to be in form and substance satisfactory to the Collateral Agent in
its sole discretion, provided further, that the foregoing proviso shall
not apply to any Equipment that is located in the headquarters portion, and not
the Domestic Distribution Center portion, of the Headquarters Facility.

 

(g)           Purchase
money security interests on any Acquired Real Property and securing
Indebtedness incurred or assumed for the purpose of financing all or any part
of the cost of acquiring such Acquired Real Property; provided
however that (i) any such Encumbrance
attaches to such Acquired Real Property concurrently with or within twenty (20)
days after the acquisition thereof, (ii) such Encumbrance attaches solely to
the Acquired Real Property so acquired in such transaction or the improvements
and fixtures thereon, and (iii) the principal amount of the Indebtedness
secured thereby does not exceed 100% of the cost of such Acquired 

 

33

 

Real Property, together
with the improvements and fixtures thereon.

 

(h)           Purchase
money security interests on any improvements or fixtures on Acquired Real
Property securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such improvements or fixtures on the
Acquired Real Property; provided  however that (i) any such Encumbrance attaches to such
improvements or fixtures on the Acquired Real Property concurrently with or
within twenty (20) days after the acquisition thereof, (ii) such Encumbrance
attaches solely to Acquired Real Property or the improvements or fixtures thereon,
and (iii) the principal amount of the Indebtedness secured thereby does not
exceed 100% of the cost of the Acquired Real Property, together with the
improvements and fixtures thereon .

 

(i) Inclusive of those
Encumbrances (if any) listed on EXHIBIT 4.7 in
favor of landlords, liens or security interests held by the Borrowers’
landlords for up to a maximum of ten (10) store locations in the aggregate.

 

“Permitted
Store Openings/Closings”: See Section 4.6(d)(ii).

 

“Person”:  Any  individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, entity, party or foreign or United
States government (whether federal, state, county, city, municipal or otherwise),
including, without limitation, any instrumentality, division, agency, body or
department thereof.

 

“PIDA”:
Pennsylvania Industrial Development Authority, a body corporate and politic.

 

“PIDA
Mortgage”: The existing mortgage held by PIDA on the
Headquarters Facility.

 

“PIDC
Financing Corporation”: PIDC Financing Corporation, a
Pennsylvania non-profit corporation.

 

“Pricing
Adjusted Availability”: The sum of:

 

(i)            The
sum of (a) the lesser of (I) Borrowing Base A;
or (II) the sum that the Lead Borrower and those Obligors that are Restricted
Subsidiaries (as defined in the Indenture Agreement) are permitted to incur as
Indebtedness (as defined in the Indenture Agreement) hereunder on a
consolidated basis without violating the Indenture Agreement; plus (b) the
average amount of Liquid Collateral Investments for the applicable fiscal
quarter (for purposes of the calculation of this average amount, any “overnight
funds” consisting of Liquid Collateral Investments shall be included only on
the date of purchase of such overnight funds).

 

34

 

Minus

 

(ii)           The
aggregate unpaid balance of the Loan Account

 

Minus

 

(iii)          The
aggregate undrawn Stated Amount of all then outstanding L/C’s.

 

“Proceeds”:  Includes,
without limitation, “Proceeds” as defined in the UCC (defined below), and
proceeds of all Collateral.

 

“Pro Forma Fixed Charge Coverage Ratio”: For any twelve month
period, the ratio of Borrowers’ consolidated (a) EBITDA during such period minus
projected Non-Financed Capital Expenditures for the following twelve month
period minus projected Distributions for the following twelve month
period, to (b) projected cash interest expense for the following twelve month
period, plus projected principal payments on account of current
maturities of long term Indebtedness for the following twelve month period, plus
projected income taxes paid in cash for the following twelve month period, all
as determined in accordance with GAAP. 
Any projections used in computing Pro Forma Fixed Charge Coverage Ratio
shall be determined by the Borrowers and acceptable to the Administrative Agent
in its reasonable discretion.

 

“Property”:  Any
interest in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible.

 

“Pro Rata”:           (a) With
respect to any Lender vis à vis any other Lender, a fraction (expressed as a
percentage), the numerator of which shall be the amount of such Lender’s Dollar
Commitment and the denominator of which shall be the aggregate of all of the
Lenders’ Dollar Commitments, as adjusted from time to time in accordance with
the provisions of Section 7.1 of the Agency Agreement, provided
that, if all Loan Commitments have been terminated, the numerator
shall be the unpaid amount of such Lender’s Loans and its interest in L/C
exposure and the denominator shall be the aggregate unpaid principal amount of
all unpaid Loans and L/C exposure.

 

“Real Estate”: 
Includes all real property including the Headquarters Facility, owned or
leased (as lessee or sublessee) by the Borrowers or any of their Subsidiaries.

 

“Real Estate Advance Rate”: 
Sixty Percent (60%).

 

“Receipts”:  All cash,
cash equivalents, checks, and credit card slips and receipts as arise out of
the sale of the Collateral.

 

“Receivables Collateral”: 
That portion of the Collateral which consists of rights to payment.

 

35

 

“Regulatory Change”: 
Defined in Section 2.21(c).

 

“Requirement of Law”: 
As to any Person:

 

(a)           (i)
All statutes, rules, regulations, orders, or other requirements having the
force of law and (ii) all court orders and injunctions, arbitrator’s decisions,
and/or similar rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court, tribunal, panel,
or other body which has or claims jurisdiction over such Person, or any
property of such Person, or of any other Person for whose conduct such Person
would be responsible.

 

(b)           That
Person’s charter, certificate of incorporation, articles of organization,
and/or other organizational documents, as applicable; and

 

(c)           That
Person’s by-laws and/or other instruments which deal with corporate or similar
governance, as applicable.

 

“Reserve Percentage”:  
The decimal equivalent of that rate applicable to a Lender under
regulations issued from time to time by the Board of Governors of the Federal
Reserve System for determining the maximum reserve requirement of that Lender
with respect to “LIBOR liabilities” as defined in such regulations.  The Reserve Percentage applicable to a
particular Index Loan shall be based upon that in effect during the subject
Interest Period, with changes in the Reserve Percentage which take effect
during such Interest Period to take effect (and to consequently change any
interest rate determined with reference to the Reserve Percentage) if and when
such change is applicable to such loans.

 

“Reserves”:  The
following: Availability Reserves and Inventory Reserves.

 

“Revolving Credit”:  
Defined in Section 2.1(a).

 

“Revolving Credit Commitment Fee”:   Defined in Section 2.12.

 

“Revolving Credit Early Termination Fee”:   Defined in Section 2.15.

 

“Revolving Credit Loans”: 
Defined in Section 2.1(a).

 

“Revolving Credit Loan Ceiling”:   $60,000,000, provided that at the written
request of the Borrowers, and with the prior written consent of the
Administrative Agent in its sole discretion, the Revolving Credit Loan Ceiling
shall be increased an additional $15,000,000, in increments of $2,500,000  up to a maximum Revolving Credit Loan Ceiling of
$75,000,000.  Notwithstanding the
foregoing, the Revolving Credit Loan Ceiling shall at no time exceed the amount
that the Indenture Agreement permits Borrowers and the Restricted Subsidiaries
(as 

 

36

 

defined
in the Indenture) to incur as Indebtedness (as defined in the Indenture)
hereunder at such time.

 

“Revolving Credit Note”: 
Defined in Section 2.9.

 

“Revolving Credit Obligations”:  The aggregate of the Borrowers’ liabilities,
obligations, and indebtedness of any character on account of or in respect to
the Revolving Credit.

 

“Second
Mortgage Cap”: The amount as might be agreed to from time to
time between the Collateral Agent and PIDA as constituting the extent of the
mortgage lien evidenced by the PIDA Mortgage, subject to further reduction upon
Collateral Agent’s determination that the holder of the PIDA Mortgage has
agreed in writing to further limitations on the extent of its mortgage lien in
the Headquarters Facility.

 

“Security”:  Shall have
the same meaning as in Section 2(1) of the Securities Act of 1933, as amended.

 

“Series A
Preferred Stock”: 
All shares of Series A Preferred Stock of the Lead Borrower
that were issued and then redeemed by the Lead
Borrower which shares continue to be held as of the date
hereof by certain holders pending presentation by such
holders of proper documentation to the Lead Borrower required to receive
payment in respect of such redemption.

 

“Special
Purpose Credit”: Shall mean the letter of credit issued under
that certain Letter of Credit and Reimbursement Agreement dated as of July 1,
1998 among the Lead Borrower, Fleet Capital Corporation, as
successor-in-interest to the Administrative Agent as Lender, and Fleet National
Bank, related to those certain $4,000,000 Philadelphia Authority for Industrial
Development Variable/Fixed Rate Federally Taxable Economic Development Bonds
(Mothers Work, Inc. Project) Series of 1995, as it may be or may have been
amended, modified, restated, supplemented, replaced, or substituted.

 

“Starting
Inventory Liquidation Percentage”: That percentage reflected
on page 4 of the Inventory Valuation and Review with respect to the Borrowers,
with a report date of August 30, 2004, prepared by GB Asset Advisors, LLC, to
reflect the appraiser’s projection of the “[c]onsolidated net recovery
(liquidation value) as a percentage of cost including raw materials”.

 

“Stated Amount”:  The
maximum amount for which an L/C may be honored, less any amounts already drawn
thereunder.

 

“Subordinated Debt”: 
Includes  unsecured Indebtedness of
Borrowers that is subordinated to the Liabilities in a manner, under terms and
subject to a written agreement satisfactory to Administrative Agent.

 

37

 

“Subsidiary”:  Any
corporation of which more than Fifty Percent (50%) of the outstanding capital
stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at the time stock of any
other class of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned by any Obligor, or any partnership, joint venture or limited liability
company of which more than fifty percent (50%) of the outstanding equity
interests are at the time, directly or indirectly, owned by any Obligor or any
partnership of which any Obligor is a general partner.

 

“Supporting Obligation”: 
Has the meaning given that term in the UCC and also refers to a
Letter-of-Credit Right or secondary obligation which supports the payment or
performance of an Account, Chattel Paper, a Document, a General Intangible, an
Instrument, or Investment Property.

 

“Survey”:  In relation
to the Headquarters Facility, an instrument survey dated as of a date within a
reasonable period prior to the satisfaction of the Third Mortgage Conditions
which shall show the location of all buildings, structures, easements and
utility lines on such Headquarters Facility, shall be sufficient to remove the
survey exception from the applicable title policy, shall show that all
buildings and structures are within the lot lines of the Headquarters Facility,
shall not show any encroachments by others, shall show the zoning district or
districts in which the Headquarters Facility is located, shall show any flood
hazard district as established by the Federal Emergency Management Agency or
any successor agency or equivalent of any other governmental authority and
shall show whether the Headquarters Facility is located in any flood plain,
flood hazard or wetland protection district established by any Governmental
Authority.

 

“Surveyor Certificate”: 
In relation to the Headquarters Facility, a certificate executed by the
surveyor who prepared such Survey dated as of date within a reasonable period
prior to the satisfaction of the Third Mortgage Conditions and containing such
information relating to such Headquarters Facility as the Collateral Agent may
require, such certificate to be satisfactory to the Collateral Agent in form
and substance.

 

 “Suspension Event”:  Any occurrence, circumstance, or state of
facts with respect to a Borrower which (a) is an Event of Default; or (b) would
become an Event of Default if any requisite notice were given and/or any
requisite period of time were to run and such occurrence, circumstance, or
state of facts were not cured within any applicable grace period.

 

“Sweep
Period”: Defined in Section 7.3(c).

 

“Sweep
Suspension”: Defined in Section 7.3(c).   

 

38

 

 “SwingLine Lender”:  FNB or its successor, or another financial
institution designated by the Administrative Agent.

 

“SwingLine Loan Ceiling”: 
$10,000,000.

 

“SwingLine Loans”: 
Defined in Section 2.7(a).

 

“SwingLine Note”: 
Defined in Section 2.7(c).

 

“Tax”:   In relation to
any Index Loans and the applicable Index Rate, any tax, levy, impost, duty,
deduction, withholding or charges of whatever nature required to be paid by the
Agent and/or (ii) to be withheld or deducted from any payment otherwise
required hereby to be made by the Borrowers to the Agent; provided,
that the term “Tax” shall not include any taxes imposed upon the net income of
the Agent.

 

“Termination Date”: 
The earliest of (a) the Maturity Date; or (b) the occurrence of any
event described in Section 10.11, below; or (c) the date set as the Termination
Date in a notice by the Administrative Agent to the Lead Borrower on account of
the occurrence of any Event of Default other than as described in Section
10.11, below; or (d) the date of the Borrowers’ termination of the Lenders’
commitments to advance Revolving Credit Loans hereunder.

 

“Third
Mortgage Conditions”: 
The satisfaction of all of the following conditions on any date:

 

(a)  No Event of Default shall have occurred that
is continuing;

 

(b)  The representations and warranties of the
Obligors contained in this Agreement shall be true and correct (except to the
extent that such representations and warranties expressly relate to an earlier
date);

 

(c)  All other documents, instruments,
certificates and information as the Collateral Agent or its counsel reasonably
requests shall have been delivered to Lender by Obligors;

 

(d)  The Obligors shall have paid all of the
Collateral Agent’s out-of-pocket expenses, including reasonable attorneys’ fees
in connection with the transactions contemplated hereby and the matters
referred to herein and the other Loan Documents, including, without implied
limitation, the Third Mortgage Conditions;

 

(e)  The Collateral Agent, the Lead Borrower and
PIDCFC shall have recorded an amendment to the Mortgage in form and substance
satisfactory to the Collateral Agent (the “Mortgage Amendment”) to secure all
Liabilities under this Agreement, without limitation (such Liabilities, to the
extent they exceed the existing obligations secured by the Mortgage, the
“Additional Mortgage 

 

39

 

Obligations”).  The Additional Mortgage Obligations shall be
secured as a third priority mortgage interest in the Mortgaged Property subject
and subordinate only to (i) the existing interest of Collateral Agent under the
Mortgage, and (ii) up to the Second Mortgage Cap, the interest of PIDA under
the PIDA Mortgage.

 

(f)  PIDA shall have amended its existing
Subordination Agreement with Collateral Agent (as successor in interest to
Fleet Capital Corporation) in order to confirm the effect of the Mortgage
Amendment and its relative priority of the obligation secured by the Mortgage
and the PIDA Mortgage as described above and to determine the Second Mortgage
Cap;

 

(g)  Borrower shall have provided copies or
originals as appropriate of the resolutions of the board of directors of the
Lead Borrower, PIDA, and PIDCFC and any other usual evidence of authority and
incumbency for the Lead Borrower, PIDA, and PIDCFC to enter into all documents
related to the Third Mortgage Conditions;

 

(h)  An endorsement to the existing loan policy of
title insurance issued with respect to the Mortgaged Property in an amount and
from a title insurance company satisfactory to Collateral Agent and subject to
only such exceptions as may be acceptable to Collateral Agent and confirming
that real estate taxes are paid through the date of such policy;

 

(i)  Copies of UCC, tax lien and other searches
reasonably requested by the Collateral Agent in all appropriate search offices,
together with termination statements, mortgage discharges, and other discharges
of all liens and security interests other than those consented to by the Collateral
Agent in its discretion;

 

(j)  Copies of all consents or approvals that may
required in connection with the transactions contemplated by the Third Mortgage
Conditions;

 

(k)  An updated Surveyor’s Certificate evidencing
no material changes at the Headquarters Facility and the date of the existing
Survey, or, if applicable, an update of the Survey showing all material changes
at the Mortgaged Property; and

 

(l)  In the event that the Third Mortgage
Conditions have not occurred on or before February 28, 2005, updated
environmental reports reasonably requested by and satisfactory to the
Collateral Agent in its discretion.

 

  “Transfer”:  Wire transfer pursuant to the wire transfer
system maintained by the Board of Governors of the Federal Reserve Board, or as
otherwise may be agreed to from time to time by the Administrative Agent. Wire
instructions may be changed in the same manner that Notice Addresses may be
changed pursuant to Section 12.1 of this 
Agreement, except that no change of the wire instructions for Transfers
to the Administrative Agent shall be effective without the consent of the
Administrative Agent.

 

40

 

“UCC”:  The Uniform
Commercial Code as presently in effect in New York as used herein in the
context of any definitions; otherwise, as in effect from time to time is New
York.

 

“Unused Line Fee”:  
Defined in Section 2.14.

 

“Voting Stock”: 
Includes securities of any class or classes of a corporation the holders
of which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).

 

ARTICLE
II. - THE REVOLVING CREDIT

 

2.1  Establishment of Revolving Credit.

 

(a)  The Lenders 
hereby establish a revolving line of credit (the “Revolving
Credit”) in the Borrowers’ favor pursuant to which the Lenders,
acting through the Administrative Agent, 
shall make loans and advances and otherwise provide financial
accommodations to and for the account of the Borrowers until the Maturity Date
its Pro Rata share of advances (each, a “Revolving Credit
Loan”) as provided herein in each
instance equal to its applicable Percentage Commitment of  Availability, up to a maximum amount of its
applicable Dollar Commitment.  The
obligations of each Lender hereunder shall be several and not joint.

 

(b)  Loans, advances, and financial accommodations
under the Revolving Credit shall be made with reference to the Borrowing Base
and shall be subject to Availability. 
The Borrowing Base and Availability shall be determined by the
Collateral Agent by reference to Borrowing Base Certificates furnished as
provided in Section 5.4 below (subject to Reserves established by the
Collateral Agent):

 

(c)  The commitment of each Lender to provide such
loans, advances, and financial accommodations is subject to Section 2.2.

 

(d)  The proceeds of borrowings under the
Revolving Credit shall be used solely for working capital purposes, debt
prepayments, Distributions, Capital Expenditures and other general corporate
purposes of the Borrowers, all solely to the extent permitted by this
Agreement.  No proceeds of a borrowing
under the Revolving Credit may be used, nor shall any be requested, with a view
towards the accumulation of any general fund or funded reserve of the Borrowers
other than in the ordinary course of the Borrowers’ business and consistent
with the provisions of this Agreement.

 

2.2  Advances in Excess of Borrowing Base (Overloans).

 

(a)  No Lender has any obligation to make any loan
or advance, or otherwise to provide any credit to or for the benefit of the
Borrowers where the result of such loan, advance, or credit is an Overloan
except in respect to Permissible Overloans which the Agents deem prudent.

 

41

 

(b)  The Lenders’ obligations, among themselves,
are subject to Section 3.3 of the Agency Agreement (which relates to
each Lender’s making amounts available to the Administrative Agent) and to
Sections 6.1(d) and 6.5(a) of the Agency Agreement (which relate to Permissible
Overloans).

 

(c)  The Lenders’ providing of an Overloan on any
one occasion does not affect the obligations of the Borrowers hereunder (such
as the Borrowers’ obligation to immediately repay any amount which otherwise
constitutes an Overloan) nor shall it obligate the Lenders to do so on any
other occasion.

 

2.3  Risks of Value of Collateral.

 

Any reference to a given asset in connection with the
making of loans, credits, and advances and the providing of financial
accommodations under the Revolving Credit and/or the monitoring of compliance
with the provisions hereof shall not be deemed a determination by any Agent or
the Lenders relative to the actual value of the asset in question.  All risks concerning the value of the
Collateral are and remain upon the Obligors. 
All Collateral secures the prompt, punctual, and faithful performance of
the Liabilities and, with respect to the Guarantor, secures its Liabilities,
whether or not relied upon by the Agents in connection with the making of loans,
credits, and advances and the providing of financial accommodations under the
Revolving Credit.

 

2.4  Commitment to Make Revolving Credit Loans and Support Letters of
Credit.

 

Subject to the provisions of this Agreement, the
Lenders shall make a loan or advance under the Revolving Credit and the
Administrative Agent shall endeavor to have an L/C issued for the account of
the Borrowers, in each instance if duly and timely requested by the Lead
Borrower as provided herein provided that:

 

(a)  No Overloan is then outstanding and none will
result therefrom.

 

(b)  No Suspension Event or Event of Default has
occurred or would result therefrom.

 

2.5  Revolving Credit Loan Requests.

 

(a)  Requests for loans and advances under the
Revolving Credit or for the continuance or conversion of an interest rate
applicable to a Revolving Credit Loan may be requested by the Lead Borrower in
such manner as may from time to time be reasonably acceptable to the
Administrative Agent.

 

(b)  Subject to the provisions of this Agreement,
the Lead Borrower may request a Revolving Credit Loan and elect an interest
rate and Interest Period to be applicable to that Revolving Credit Loan by
giving notice to the Administrative Agent by no later than the following:

 

42

 

(i)            If
such Revolving Credit Loan is to be or is to be converted to a Base Margin
Loan: By 1:00 p.m. on the Business Day on which the subject Revolving Credit
Loan is to be made or is to be so converted . 
Base Margin Loans requested by the Lead Borrower, other than those
resulting from the conversion of an Index Loan, shall not be less than
$10,000.00.

 

(ii)           If
such Revolving Credit Loan is to be or is to be converted to an Index
Loan:  By 1:00 p.m., three (3) Index
Business Days before the commencement of any new Interest Period or the end of
the then applicable Interest Period. 
Index Loans and conversions to Index Loans shall each be not less than
$1,000,000.00 and in increments of $500,000.00 in excess of such minimum.

 

(iii)          Any
Index Loan which matures while a Suspension Event or Event of Default exists,
may be converted, at the option of the Administrative Agent, to a Base Margin
Loan notwithstanding any notice from the Lead Borrower that such Revolving
Credit Loan is to be continued as an Index Loan.

 

(c)  Any request for a Revolving Credit Loan or
for the continuance or conversion of a Revolving Credit Loan which is made
after the applicable deadline therefor, as set forth above, shall be deemed to
have been made at the opening of business on the then next Business Day or
Index Business Day, as applicable, unless the Administrative Agent, in its
discretion, determines to deem it to have been made earlier.  Each request for a Revolving Credit Loan or
for the conversion of a Revolving Credit Loan shall be made in such manner as
may from time to time be acceptable to the Administrative Agent.

 

(d)  Intentionally omitted.

 

(e)  The Lead Borrower may request that the
Administrative Agent cause the issuance of L/C’s for the account of the
Borrowers as provided in Section 2.18.

 

(f)  The Administrative Agent may rely on any
request for a loan or advance, or other financial accommodation under the
Revolving Credit which the Administrative Agent, in good faith, believes to
have been made by a Person duly authorized to act on behalf of the Lead
Borrower and may decline to make any such requested loan or advance, or
issuance, or to provide any such financial accommodation pending the
Administrative Agent’s being furnished with such documentation concerning that
Person’s authority to act as may be satisfactory to the Administrative
Agent.  As an accommodation to Borrowers,
Administrative Agent may in its discretion permit telephonic requests for Revolving
Credit Loans and electronic transmittal of instructions, authorizations,
agreements or reports to Administrative Agent by Borrowers,

 

43

 

provided that
Administrative Agent only shall accept or act upon telephonic or electronic
communications from an authorized representative of Lead Borrower, or such
other individuals identified by Lead Borrower from time to time in a written
notice delivered to Administrative Agent. 
Administrative Agent and Lenders shall have no liability to Borrowers
for any loss or damage suffered by Borrowers as a result of Administrative
Agent’s honoring of any requests, execution of any instructions, authorizations
or agreements or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Administrative Agent by an
authorized representative of Borrowers, and Administrative Agent shall have no
duty to verify the origin of any such communication or the authority of the
Person sending it.

 

(g)  A request by the Lead Borrower for loan or
advance or other financial accommodation under the Revolving Credit shall be
irrevocable and shall constitute certification by each Borrower that as of the
date of such request, each of the following is true and correct:

 

(i)            There
has been no material adverse change in the Borrowers’ financial condition
(taken as a whole) from the most recent financial information furnished
Administrative Agent or any Lender pursuant to this Agreement.

 

(ii)           Each
representation, not relating to a specific date, which is made herein or in any
of the Loan Documents is then true and correct in all material respects as of
and as if made on the date of such request (except (A) to the extent of changes
resulting from transactions contemplated or permitted by this Agreement or the
other Loan Documents and changes occurring in the ordinary course of business
which singly or in the aggregate would not reasonably be expected to have a
Material Adverse Effect and (B) to the extent that such representations and
warranties expressly relate to an earlier date).

 

(iii)          No
Suspension Event or Event of Default has occurred which is continuing.

 

(h)  If, at any time or from time to time, a
Suspension Event or Event of Default exists which is continuing,

 

(i)            The
Administrative Agent may suspend the Revolving Credit immediately, in which
event neither the Administrative Agent nor the Lenders shall be obligated
during such suspension to make any loans or advances or to provide any
financial accommodation hereunder or to seek the issuance of any L/C.

 

(ii)           The
Administrative Agent may suspend the right of the Lead Borrower to request any
Index Loan or to convert any Base Margin Loan to an Index Loan.

 

44

 

2.6  Making Of Revolving Credit Loans.

 

(a)  A loan or advance under the Revolving
Credit  shall be made by the Transfer of
the proceeds of such loan or advance to the Operating Account or as otherwise
instructed by the Lead Borrower.

 

(b)  A loan or advance shall be deemed to have
been made under the Revolving Credit (and the Borrowers shall be indebted to
the Agent or Lenders for the amount thereof immediately) upon the
Administrative Agent’s initiation of the Transfer of the proceeds of such loan
or advance in accordance with the Lead Borrower’s instructions (if such loan or
advance is of funds requested by the Lead Borrower) or the charging of the
amount of such loan to the Loan Account (in all other circumstances).

 

(c)  There shall not be any recourse to or
liability of the Agent or Lenders (except to the extent caused by the gross
negligence or willful misconduct of the Agent or Lenders as determined by a
court of competent jurisdiction), on account of:

 

(i)            Any
delay in the making of any loan or advance requested under the Revolving
Credit.

 

(ii)           Any
delay by any bank or other depository institution in treating the proceeds of
any such loan or advance as collected funds.

 

(iii)          Any
delay in the receipt, and/or any loss, of funds which constitute a loan or
advance under the Revolving Credit, the wire transfer of which was properly
initiated by the Agent or Lenders in accordance with wire instructions provided
to the Administrative Agent by the Lead Borrower).

 

2.7  SwingLine Loans.

 

(a)  For ease of administration of Revolving
Credit Loans, Revolving Credit Loans which are Base Margin Loans may be made by
the Administrative Agent, in its capacity as the SwingLine Lender (in the
aggregate, the “SwingLine Loans”) in accordance
with the procedures set forth in this Agreement for the making of Revolving
Credit Loans. The unpaid principal balance of the SwingLine Loans shall not at
any one time be in excess of the SwingLine Loan Ceiling (which SwingLine Loan
Ceiling is subject to amendment from time to time, by reasonable advance notice
by the Administrative Agent to the Lead Borrower).

 

(b)  The aggregate unpaid principal balance of
SwingLine Loans shall bear interest at the rate applicable to Base Margin Loans
and shall be repayable as a Revolving Credit Loan under the Revolving Credit.

 

(c)  The Borrower’s obligation to repay SwingLine
Loans may be evidenced by a Note in the form of EXHIBIT 2.7
(“SwingLine Note”), executed by the
Borrowers and payable to the Administrative Agent.  Neither the original nor a copy of the
SwingLine Note shall be required  to
establish or prove any Liability.   Upon
the Lead Borrower being provided with an 

 

45

 

affidavit (which shall include an indemnity reasonably satisfactory to
the Lead Borrower) from the Administrative Agent to the effect that the
SwingLine Note has been lost, mutilated, or destroyed, the Borrowers shall
execute and deliver a replacement of any SwingLine Note to the Administrative
Agent.

 

(d)  For all purposes of this Loan Agreement, the
SwingLine Loans and the Borrower’s obligations to the Administrative Agent
constitute Revolving Credit Loans and are secured as “Liabilities”.

 

(e)  SwingLine Loans may be subject to periodic
settlement with the Lenders.

 

2.8  The Loan Account.

 

(a)  An account (“Loan Account”)
shall be opened on the books of the Administrative Agent in which a record
shall be kept of all loans and advances made under the Revolving Credit.

 

(b)  The Administrative Agent may also keep a
record (either in the Loan Account or elsewhere, as the Administrative Agent
may from time to time elect) of all interest, fees, service charges, costs,
expenses, and other debits owed to the Agent and the Lender on account of the
Liabilities and of all credits against such amounts so owed.

 

(c)  All credits against the Liabilities shall be
conditional upon receipt of final payment to the Administrative Agent and the
Lenders of the items giving rise to such credits.  The amount of any item credited against the
Liabilities which is charged back against the Agent or the Lenders for any
reason or is not so paid shall be a Liability and shall be added to the Loan
Account, whether or not the item so charged back or not so paid is returned.

 

(d)  Except as otherwise provided herein, all
fees, service charges, costs, and expenses for which the Borrowers are
obligated hereunder are payable on demand. 
In the determination of Availability, the Administrative Agent may deem
fees, service charges, accrued interest (except for interest charged on Index
Loans, which, unless charged earlier, shall be charged on the Interest Payment
Date), and other payments which will be due and payable between the date of
such determination and the first day of the then next succeeding month as
having been advanced under the Revolving Credit whether or not such amounts are
then due and payable.

 

(e)  The Administrative Agent, without the request
of the Lead Borrower, may advance under the Revolving Credit any interest, fee,
service charge, or other payment to which the Agent or any Lender is entitled
from the Borrowers pursuant hereto and may charge the same to the Loan Account
notwithstanding that such amount so advanced may result in Borrowing Base being
exceeded.  Any amount which is added to the
principal balance of the Loan Account as provided in this Section 2.8(e)
shall bear interest, at the interest rate then and thereafter applicable to
Base Margin Loans.  Such action on the
part of the Administrative Agent shall not constitute a waiver of the
Administrative Agent’s right or the Borrowers’ obligations under Section
2.10(b).

 

46

 

(f)  Any statement rendered by the Agent or the
Lenders to the Borrowers concerning the Liabilities shall, in the absence of
manifest error, be considered correct and accepted by the Borrowers and shall
be conclusively binding upon the Borrowers unless the Lead Borrower provides
the Administrative Agent with written objection thereto within Twenty (20) days
from the mailing of such statement, which written objection shall indicate,
with particularity, the reason for such objection.  In the absence of manifest error, the Loan
Account and the Agent’s and Lenders’ books and records concerning the loan
arrangement contemplated herein and the Liabilities shall be prima facie
evidence and proof of the items described therein.

 

2.9  The Revolving Credit Note.

 

The Borrowers’ obligation to repay loans and advances
under the Revolving Credit, with interest as provided herein, may be evidenced
by a Note or Notes (each, individually, and collectively, in the aggregate, a “Revolving Credit Note”) in the form of EXHIBIT
2.9, annexed hereto, executed by the
Lead Borrower and the other Borrowers, payable to the applicable Lender.  Neither the original nor a copy of any
Revolving Credit Note shall be required, however, to establish or prove any
Liability.  Upon the Lead Borrower being
provided with an affidavit (which shall include an indemnity reasonably
satisfactory to the Lead Borrower) from any Lender to the effect that a Revolving
Credit Note has been lost, mutilated, or destroyed, the Lead Borrower and the
other Borrowers shall execute and deliver a replacement thereof to such Lender.

 

2.10                Payment of the Loan Account.

 

(a)  The Borrowers may
repay all or any portion of the principal balance of the Loan Account from time
to time until the Termination Date, without premium or penalty except as
expressly set forth herein.

 

(b)  The Borrowers, without notice or demand from
the Administrative Agent, shall pay the
Administrative Agent that amount, from time to time, which is necessary so that
there is no Overloan outstanding.

 

(c)  The Borrowers shall
repay the then entire unpaid balance of the Revolving Credit and all other
Liabilities on the Termination Date.

 

(d)  The Administrative Agent shall cause
payments, pursuant to Sections 2.10(a) and 2.10(b), to be applied
in accordance with Section 7.5(a) of this Agreement, provided that the
Administrative Agent shall cause those application of payments (if any),
pursuant to Sections 2.10(a) and 2.10(b) against Index Loans then
outstanding in such manner as results in the least cost to the Borrowers, but
shall not have any affirmative obligation to do so nor liability on account of
the Administrative Agent’s failure to have done so.  In no event shall action or inaction taken by
the Administrative Agent excuse the Borrowers from any indemnification
obligation under Section 2.10(e).

 

(e)  Upon the request of the Administrative Agent,
each Borrower, jointly and severally, shall indemnify the Agent and Lenders and
hold the Agent and Lenders harmless from 

 

47

 

and against any loss, cost or expense (including loss of anticipated
profits) which the Agent or Lenders may sustain or incur (including, without
limitation, by virtue of acceleration after the occurrence of any Event of
Default) as a consequence of any of the following:

 

(i)            Default
by the Borrowers in payment of the principal amount of or any interest on any
Index Loan as and when due and payable, including any such loss or expense
arising from interest or fees payable by the Agent or Lenders in order to
maintain its Index Loans.

 

(ii)           Default
by the Borrowers in making a borrowing or conversion  after the Borrowers has given (or is deemed
to have given) a request for a Revolving Credit Loan or a request to convert a
Revolving Credit Loan from one applicable interest rate to another.

 

(iii)          The
making of any payment on an Index Loan or the making of any conversion of any
such Loan to a Base Margin Loan on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by the Agent and Lenders as “breakage fees”.

 

2.11                Interest On Revolving Credit Loans.

 

(a)  Each Revolving Credit Loan which consists of
a Base Margin Loan shall bear interest at the Base Margin Rate (determined
based upon a 365/366-day year and actual days elapsed), unless and until it is
made as, or is converted to, an Index Loan pursuant to Section 2.5 hereof.

 

(b)  Each Revolving Credit Loan which consists of
an Index Loan shall bear interest at the applicable Index Rate (determined
based upon a 365/366-day year and actual days elapsed).

 

(c)  Subject to, and in accordance with, the
provisions of this Agreement, the Lead Borrower may cause all or a part of the
unpaid principal balance of Revolving Credit Loans to bear interest at the Base
Margin Rate or the Index Rate as specified from time to time by the Lead
Borrower.

 

(d)  The Lead Borrower shall not select, renew, or
convert any interest rate for a Revolving Credit Loan such that there are more
than Six (6) Interest Periods applicable to the outstanding Index Loans at any
one time.

 

(e)  The Borrowers shall pay accrued and unpaid
interest on each Revolving Credit Loan in arrears on the applicable Interest
Payment Date therefor.  Following the
occurrence and during the continuance of any Event of Default (and whether or
not the Agent exercises the Agent’s rights on account thereof), all Revolving
Credit Loans shall bear interest, at the option of the Agent, at rate which is
the aggregate in the case of Base Margin Loan, of the then applicable 

 

48

 

Base Margin Rate plus Two Percent (2.00%) per annum, and in the
case of Index Loans, the then applicable Index Rate plus Two Percent (2.00%)
per annum.

 

(f)  The Index Margin and Base Margin shall be
reset for each fiscal quarter as of the first (1st) day of such
fiscal quarter (the “Margin Adjustment Date”)
based upon the Margin Pricing Grid set forth below for the prior fiscal
quarter, subject to the provisions in the definitions of “Base Margin” and
“Index Margin”:

 

MARGIN
PRICING GRID

 

	
  Tier

  	
   

  	
  Pricing Adjusted

  Availability*

  	
   

  	
  INDEX

  MARGIN

  (Percentage)

  	
   

  	
  BASE

  MARGIN

  (Percentage)

  	
   

  
	
  I

  	
   

  	
  >$35,000,000

  	
   

  	
  1.25

  	
  %

  	
  0.00

  	
  %

  
	
  II

  	
   

  	
  >$17,500,000 and <
  $35,000,000

  	
   

  	
  1.50

  	
  %

  	
  0.00

  	
  %

  
	
  III

  	
   

  	
  <$17, 500,000

  	
   

  	
  1.75

  	
  %

  	
  0.00

  	
  %

  

 

*Pricing Adjusted
Availability will be determined based upon a Certificate by an Authorized
Officer delivered to the Administrative Agent no later than ten (10) days after
the end of each fiscal quarter certifying as to average Pricing Adjusted
Availability maintained for the prior fiscal quarter.  If there is a change in the applicable Index
Margin or Base Margin, the Administrative Agent and Borrower agree that all
such changes shall be retroactive to the Margin Adjustment Date.  Failure of the Administrative Agent to
receive such Certificate within the time frame specified shall, in addition to any
other remedy provided for in this Agreement, result in an increase in the Index
Margin and the Base Margin to the highest level set forth in the foregoing
grid, until next Margin Adjustment Date following receipt of such Certificate
demonstrating that such an increase is not required.  If an Event of Default has occurred and is
continuing at the time any reduction in the Index Margin and Base Margin is to
be implemented, that reduction shall be deferred until the next Margin
Adjustment Date following the date on which such Event of Default is waived or
cured.

 

2.12                Revolving Credit Commitment Fee.

 

As compensation
for the respective commitments of the Lenders at the execution of this
Agreement to make loans and advances to the Borrowers under the Revolving
Credit and as compensation for the Lenders’ maintenance of sufficient funds
available for such purpose, the Lenders shall 
have earned as of the Closing Date the “Revolving
Credit Commitment Fee” in the amount set forth in the Agent’s Fee
Letter.

 

49

 

2.13                Intentionally
Omitted.

 

2.14                Unused Line Fee.

 

In addition to any other fee to be paid by the
Borrowers on account of the Revolving Credit, the Borrowers shall pay the
Administrative Agent, for the benefit of the Lenders, an “Unused Line
Fee”.  The Unused Line Fee
shall equal Two-Tenths of One Percent (0.20%) per annum of the average
difference, during the fiscal quarter just ended (or relevant period with
respect to the payment being made on the Termination Date) between the
Revolving Credit Loan Ceiling and the sum of (i) the unpaid principal balance
of the Loan Account and (ii) the Stated Amount of L/Cs.  The Unused Line 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.

 

2.15                Early
Termination Fee.

 

In the event that the Termination Date occurs, for any
reason, prior to the Maturity Date, the Borrowers shall pay to the
Administrative Agent, for the benefit of the Lenders, the “Revolving
Credit Early Termination Fee” determined and payable as follows:

 

(a)  One-Half of One Percent (0.50%) of the
Revolving Credit Loans as in effect immediately prior to such termination or
reduction in the event termination occurs prior to October 15, 2006; or

 

(b)  Three-Eighths of One Percent (0.375%) of the
Revolving Credit Loans as in effect immediately prior to such termination or
reduction in the event termination occurs on or after October 15, 2006, but
prior to October 15, 2007; or

 

(c)  Zero Percent (0.00%) of the Revolving Credit
Loans as in effect immediately prior to such termination or reduction in the
event termination occurs on or after October 15, 2007.

 

Notwithstanding the
foregoing, the Administrative Agent and Lenders agree to waive the Revolving
Credit Early Termination Fee in the event that the Borrowers refinance the
Revolving Credit with Bank of America, N.A. or any of its Affiliates, it being understood that, neither Bank of America, N.A. nor
any of its Affiliates are hereby committing to provide such refinancing.

 

2.16                Concerning Fees.

 

The Borrowers shall not
be entitled to any credit, rebate or repayment of the Revolving Credit
Commitment Fee, Unused Line Fee, Revolving Credit Early Termination Fee, or
other fee earned by the Agent or Lenders pursuant to this Agreement or any Loan
Document notwithstanding any termination of this Agreement or suspension or
termination of the Agent’s or Lenders’ obligation to make loans and advances
hereunder.

 

2.17                Intentionally
Omitted.

 

50

 

2.18                Procedures For Issuance Of L/C’s.

 

(a)  The Lead Borrower may request that the
Administrative Agent cause the issuance of L/C’s for the account of the
Borrower.  Each such request shall be in
such manner as may from time to time be acceptable to the Administrative Agent.

 

(b)  The Administrative Agent will endeavor to
cause the issuance of any L/C so requested by the Lead Borrower, provided that, at the time that the request is made, the
Revolving Credit has not been suspended as provided in Section 2.5(h)
and if so issued:

 

(i)            The
aggregate Stated Amount of all L/C’s then outstanding (giving effect to the
issuance of the requested L/C), does not exceed 
Thirty Million Dollars ($30,000,000);

 

(ii)           The
expiry of the requested L/C is not later than the earlier of Thirty (30) days
prior to the Maturity Date or the following:

 

(A)          For
standby L/C’s: One (1) year from initial issuance.

 

(B)           For
documentary L/C’s: One hundred (120) days from issuance; and

 

(iii)          an
Overloan will not result from the issuance of the subject L/C.

 

(c)  Unless otherwise agreed between the Lead
Borrower and the Administrative Agent, the Issuer of all L/C’s shall be FNB and
any successor to FNB.

 

(d)  The Lead Borrower shall also execute such
other documentation to apply for and support the issuance of an L/C as may be
required by FNB or its successor or any other 
Issuer, including, without limitation, in respect of the Special Purpose
Credit. This Agreement shall control any conflict between this Agreement and any
such documentation.

 

(e)           There
shall not be any recourse to, nor liability of, the Agent or Lenders on account
of

 

(i)            Any
delay or refusal by an Issuer to issue an L/C; or

 

(ii)           Any
action or inaction of an Issuer on account of or in respect to, any L/C.

 

(f)  The Borrowers shall reimburse the Issuer for
the amount of any honoring of a drawing under an L/C on the same day on which
such honoring takes place. The Borrowers authorize the Administrative Agent and
the Issuer to charge Borrowers’ Operating Account for such purpose.  In the event the funds in the Operating
Account are not sufficient, the Administrative Agent or Lenders, without the
request of the Lead Borrower, may advance under the Revolving Credit (and charge
to the Loan Account) the amount of any honoring of any L/C and other amount for
which the Borrowers, the Lenders, the Agent, or the Issuer becomes obligated on
account of, or in respect to, any L/C. 
Such advance shall be made whether or not a 

 

51

 

Suspension Event exists or such advance would result in an
Overloan.  Such action shall not
constitute a waiver of the Administrative Agent’s rights under Section
2.10(b) hereof.

 

2.19                Fees For L/C’s.

 

(a)  The Borrowers shall pay to the Administrative
Agent a fee, for the benefit of the Lenders, on account of each L/C procured by
the Administrative Agent, quarterly in arrears, and on the Termination Date and
on the End Date, equal to the following:

 

(i)            For
standby L/C’s:   (a) For the first $8,500,000
of the Stated Amount of such standby L/Cs, the applicable Index Margin less
One-Half of One Percent (0.50%) per annum, of the Stated Amount of such standby
L/Cs, and (b) for the excess, if any, over $8,500,000, the applicable Index
Margin, of the Stated Amount of such standby L/Cs, in each case payable on the
Stated Amount of each outstanding standby L/C quarterly in arrears on the first
day of each fiscal quarter.

 

(ii)           For
documentary L/C’s:  The applicable Index
Margin less One-Half of One Percent (0.50%) per annum, payable on the weighted
average of the Stated Amount of such documentary L/C outstanding at any time
during the period since the then most recent payment of such fee, payable
quarterly in arrears, on the first day of each fiscal quarter, and on the End
Date.

 

(iii)          Notwithstanding
Subsections (i) and (ii), above, following the occurrence of any Event of
Default (and whether or not the Administrative Agent exercises the
Administrative Agent’s rights on account thereof), the above fees, at the
option of the Administrative Agent, shall be Two Percent (2.00%) per annum
above the applicable rates above.

 

(b)  In addition to the fee to be paid as provided
in Section 2.19(a), above, the Borrowers shall pay to the Administrative
Agent (or to the Issuer, if so requested by Administrative Agent), on demand,
all issuance, processing, negotiation, amendment, and administrative fees and
other amounts charged by the Issuer on account of, or in respect to, any L/C.

 

(c)  If any change in any law, executive order or
regulation, or any directive of any administrative or governmental authority
(whether or not having the force of law), or in the interpretation thereof by
any court or administrative or governmental authority charged with the
administration thereof, shall either:

 

(i)            impose,
modify or deem applicable any reserve, special deposit or similar requirements
against letters of credit heretofore or hereafter issued by any Issuer or with
respect to which the Agent, the

 

52

 

Lenders or any
Issuer has an obligation to lend to fund drawings under any L/C; or

 

(ii)           impose
on any Issuer any other condition or requirements relating to any such letters
of credit;

 

and the result of any event referred to in Section 2.19(c)(i)
or 2.19(c)(ii), above, shall be to increase the cost to the Agent, the
Lenders or any Issuer issuing or maintaining any L/C (which increase in cost
shall be the result of such Issuer’s reasonable allocation among that Issuer’s
letter of credit customers of the aggregate of such cost increases resulting
from such events), then, upon demand by the Administrative Agent and delivery
by the Administrative Agent to the Lead Borrower of a certificate of an officer
of the Administrative Agent or the subject Issuer describing such change in
law, executive order, regulation, directive, or interpretation thereof, its
effect on such Issuer, and the basis for determining such increased costs and
their allocation, the Borrowers shall immediately pay to the Administrative
Agent, from time to time as specified by the Administrative Agent, such amounts
as shall be sufficient to compensate the Agent, the Lenders or the subject
Issuer for such increased cost.  Any
Issuer’s determination of costs incurred under Section 2.19(c)(i) or 2.19(c)(ii),
above, and the allocation, if any, of such costs among the Borrowers and other
letter of credit customers of such Issuer, if done in good faith and made on an
equitable basis and in accordance with such officer’s certificate, shall be
conclusive and binding on the Borrowers.

 

2.20                Concerning L/C’s.

 

(a)  None of the Issuer, the Issuer’s
correspondents, or any advising, negotiating, or paying bank with respect to
any L/C shall be responsible in any way for:

 

(i)            The
performance by any beneficiary under any L/C of that beneficiary’s obligations
to any Borrower.

 

(ii)           The
form, sufficiency, correctness, genuineness, authority of any person signing,
falsification, or the legal effect of, any documents called for under any L/C
if such documents on their face appear to be in order.

 

(b)  The Issuer may honor, as complying with the
terms of any L/C and of any drawing thereunder, any drafts or other documents
otherwise in order, but signed or issued by an administrator, executor,
conservator, trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, liquidator, receiver, or other legal representative of
the party authorized under such L/C to draw or issue such drafts or other
documents.

 

(c)  Unless the Lead Borrower on behalf of itself
and the other Borrowers instructs any Issuer otherwise, in the particular
instance, the Lead Borrower hereby authorizes any Issuer to:

 

(i)            Select
an advising bank;

 

53

 

(ii)           Select
a paying bank; and

 

(iii)          Select
a negotiating bank.

 

(d)  All directions, correspondence, and funds
transfers relating to any L/C are at the risk of the Borrowers.  The Issuer shall have discharged the Issuer’s
obligations under any L/C or the drawing thereunder which includes payment
instructions if the Issuer initiates the method of payment called for thereby
(or initiates any other commercially reasonable and comparable method). None of
the Agent, the Lenders or the Issuer shall have any responsibility for any
inaccuracy, interruption, error, or delay in transmission or delivery by post,
telegraph or cable, or for any inaccuracy of translation, excepting gross
negligence or willful misconduct.

 

(e)  The Agent’s, the Lenders’ and the Issuer’s
rights, powers, privileges and immunities specified in or arising under this
Agreement are in addition to any heretofore or at any time hereafter otherwise
created or arising, whether by statute or rule of law or contract.

 

(f)  Except to the extent otherwise expressly provided
hereunder or agreed to in writing by the Issuer and the Lead Borrower, the L/C
will be governed by either, at the election of the Issuer, the Uniform Customs
and Practice for Documentary Credits, International Chamber of Commerce,
Publication No. 500, and any subsequent revisions thereof, or the International
Standby Practices - ISP 98, International Chamber of Commerce Publication, No
590, and subsequent revisions thereto.

 

The obligations of the
Borrowers under this Agreement with respect to L/C’s are absolute,
unconditional, and irrevocable and shall be performed strictly in accordance
with the terms hereof under all circumstances, whatsoever including, without
limitation, the following:

 

(i)            Any
lack of validity or enforceability or restriction, restraint, or stay in the
enforcement of this Agreement, any L/C, or any other agreement or instrument
relating thereto;

 

(ii)           Any
amendment or waiver of, or consent to the departure from, any L/C;

 

(iii)          The
existence of any claim, set-off, defense, or other right which the Borrowers
may have at any time against the beneficiary of any L/C; and

 

(iv)          Any
good faith honoring of a drawing under any L/C, which drawing possibly could
have been dishonored based upon a strict construction of the terms of the L/C.

 

2.21                Changed
Circumstances.

 

(a)  Subject to the provisions of this Agreement,
the Borrowers shall have the option (A) as of any date, to convert all or any
part of Base Margin Loans to, or request that new Revolving Credit Loans be
made as, Index Loans of various Interest Periods, (B) as of the last 

 

54

 

day of any Interest Period, to continue all or any portion of the
relevant Index Loans as Index  Loans; (C)
as of the last day of any Interest Period, to convert all or any portion of the
Index Loans to Base Margin Loans; and (D) at any time, to request new Revolving
Credit Loans as Base Margin Loans; provided, that Revolving Credit Loans may
not be continued as or converted to Index Loans, if the continuation or
conversion thereof would violate the provisions of Sections 2.21(b) or 2.21(c)
of this Agreement or if an Event of Default has occurred and is continuing.

 

(b)  The Administrative Agent’s determination of
the Index Rate as provided above shall be conclusive.  Furthermore, if the Administrative Agent or
the Lenders determines, in good faith (which determination shall be
conclusive), prior to the commencement of any Interest Period that (A) U.S.
Dollar deposits of sufficient amount and maturity for funding the Revolving
Credit Loans are not available to the Administrative Agent or the Lenders in
the London Interbank Eurodollar market in the ordinary course of business, or
(B) by reason of circumstances affecting the London Interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the rate of interest to
be applicable to the Revolving Credit Loans requested by the Borrowers to be
Index Loans or the Revolving Credit Loans bearing interest at the rates set
forth in this Agreement shall not represent the effective pricing to the
Administrative Agent for U.S. Dollar deposits of a comparable amount for the
relevant period (such as for example, but not limited to, official reserve
requirements required by Regulation D to the extent not given effect in
determining the rate), the Administrative Agent shall promptly notify the Lead
Borrower and (1) all existing Index Loans shall convert to Base Margin Loans
upon the end of the applicable Interest Period, and (2) no additional Index
Loans shall be made until such circumstances are cured.

 

(c)  If, after the date hereof, the introduction
of, or any change in any applicable law, treaty, rule, regulation or guideline
or in the interpretation or administration thereof by any governmental authority
or any central bank or other fiscal, monetary or other authority having
jurisdiction over the Agent, the Lenders or their respective lending offices (a
“Regulatory Change”), shall, in the
opinion of counsel to the Agent or the Lenders, make it unlawful for the Agent
or the Lenders to make or maintain Index Loans, then the Administrative Agent
shall promptly notify the Lead Borrower and (A) the Index Loans shall
immediately convert to Base Margin Loans on the last Business Day of the then
existing Interest Period or on such earlier date as required by law and (B) no
additional Index Loans shall be made until such circumstance is cured.

 

(d)  If, for any reason, an Index Loan is paid
prior to the last Business Day of any Interest Period or if an Index Loan does
not occur on a date specified by the Lead Borrower in its request (other than
as a result of a default by the Agent or the Lenders), the Borrowers agree to
indemnify the Agent and the Lenders against any loss (including any loss on
redeployment of the deposits or other funds acquired by the Agent or the
Lenders to fund or maintain such Index Rate Loan) cost or expense incurred by
the Agent or the Lenders as a result of such prepayment or failure to occur.

 

(e)  If any Regulatory Change (whether or not having
the force of law) shall (A) impose, modify or deem applicable any assessment,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of or loans by, or any other 

 

55

 

acquisition of funds or disbursements by, the Agent or the Lenders; (B)
subject the Agent, the Lenders or the Index Loans to any Tax or change the
basis of taxation of payments to the Agent or the Lenders of principal or
interest due from the Borrowers to the Agent or the Lenders hereunder (other
than a change in the taxation of the overall net income of the Agent or the
Lenders); or (C) impose on the Agent or the Lenders any other condition
regarding the Index Loans or the Agent’s or Lenders’ funding thereof, and the
Administrative Agent or Lenders shall determine (which determination shall be
conclusive) that the result of the foregoing is to increase the cost to the
Agent or the Lenders of making or maintaining the Index Loans or to reduce the
amount of principal or interest received by the Agent or Lenders hereunder,
then the Borrowers shall pay to the Agent or the Lenders, on demand, such
additional amounts as the Administrative Agent or the Lenders shall, from time
to time, determine are sufficient to compensate and indemnify the Agent or
Lenders from such increased cost or reduced amount.  Each Lender will use reasonable efforts to
designate a different lending office for the Liabilities if such designation
will avoid the need for, or reduce the amount of such compensation and will
not, in the reasonable opinion of such Lender (including, without limitation,
by reason of any economic, legal, or regulatory cost or disadvantage that such
Lender may bear or suffer by reason of such designation).

 

(f)  The Agent and Lenders shall receive payments
of amounts of principal of and interest with respect to the Index Loans free
and clear of, and without deduction for, any Taxes.  If (A) the Agent or any Lender shall be subject
to any Tax in respect of any Index Loans or any part thereof or, (B) the
Borrowers shall be required to withhold or deduct any Tax from any such amount,
the Index Rate applicable to such Index Loans shall be adjusted by the
Administrative Agent or such Lender to reflect all additional costs incurred by
the Agent or such Lender in connection with the payment by the Agent or such
Lender or the withholding by the Borrowers of such Tax and the Borrowers shall
provide the Agent or such Lender with a statement detailing the amount of any
such Tax actually paid by the Borrowers. Determination by the Administrative
Agent or such Lender of the amount of such costs shall be conclusive absent
manifest error.  If after any such
adjustment any part of any Tax paid by the Agent or such Lender is subsequently
recovered by the Agent or such Lender, the Agent or such Lender, as applicable,
shall reimburse the Borrowers to the extent of the amount so recovered.  A certificate of an officer of the
Administrative Agent or such Lender setting forth the amount of such recovery
and the basis therefor shall be conclusive absent manifest error.

 

2.22                Lenders’
Commitments.

 

(a)  Subject to Section 7.1 of the Agency
Agreement (which provides for assignments and assumptions of commitments), each
Lender’s “Percentage Commitment”, and “Dollar Commitment” is set forth on EXHIBIT
2.22(a).

 

(b)  The obligations of each Lender are several
and not joint.  No Lender shall have any
obligation to make any loan or advance under the Revolving Credit in excess of
the lesser of the following:

 

(i)            that
Lender’s Percentage Commitment of the subject loan or advance or of
Availability; and

 

56

 

(ii)           that
Lender’s unused Dollar Commitment.

 

(c)  No Lender shall have any liability to the
Borrowers on account of the failure of any other Lender to provide any loan or
advance under the Revolving Credit nor any obligation to make up any shortfall
which may be created by such failure.

 

(d)  The Dollar Commitments, Percentage
Commitments, and identities of the Lenders may be changed, from time to time by
the reallocation or assignment of Dollar Commitments and Percentage Commitments
amongst the Lenders or with other Persons who become “Lenders”, provided, however unless
an Event of Default has occurred (in which event, no consent of the Lead
Borrower is required) any assignment to a Person not then a Lender shall be
subject to the prior written consent of the Lead Borrower (not to be
unreasonably withheld), which consent will be deemed given unless the Lead
Borrower provides the Administrative Agent with written objection, not more
than Five (5) Business Days after the Administrative Agent shall have given the
Lead Borrower written notice of a proposed assignment.

 

(e)  Upon written notice given the Lead Borrower
from time to time by the Administrative Agent, of any assignment or allocation
referenced in Section 2.22(d):

 

(i)            The
Lead Borrower and the other Borrowers, if required by the Administrative Agent,
shall execute one or more Revolving Credit Notes (which notes shall replace any
Revolving Credit Notes theretofore provided by the Borrowers) to reflect such
changed Dollar Commitments, Percentage Commitments, and identities and shall
deliver such Revolving Credit Notes to the Administrative Agent (which promptly
thereafter shall cancel and deliver to the Lead Borrower the Revolving Credit
Notes so replaced, if any).   In the
event that the Administrative Agent does not require the delivery of Revolving
Credit Notes or that in the event that a Revolving Credit Note is to be
exchanged following its acceleration or the entry of an order for relief under
the Bankruptcy Code with respect to the Borrowers, the Administrative Agent, in
lieu of causing the Lead Borrower to execute one or more new Revolving Credit
Notes, may issue the Administrative Agent’s Certificate confirming the
resulting Dollar Commitments and Percentage Commitments.

 

(ii)           Such
change shall be effective from the effective date specified in such written
notice and any Person added as a Lender shall have all rights and privileges of
a Lender hereunder thereafter as if such Person had been a signatory to this
Agreement and any other Loan Document to which a Lender is a signatory and any
Person removed as a Lender shall be relieved of any obligations or
responsibilities of a Lender hereunder thereafter.

 

57

 

2.23                Designation of Lead Borrower as Borrowers’ Agent.

 

(a)  Each Borrower hereby irrevocably designates
and appoints the Lead Borrower as that Borrower’s agent to obtain loans and
advances under the Revolving Credit, the proceeds of which shall be available
to each Borrower for those uses as those set forth in this Agreement.  As the disclosed principal for its agent,
each Borrower shall be obligated to the Agent and Lenders on account of loans
and advances so made as if made directly by the Agent or Lenders to that
Borrower, notwithstanding the manner by which such loans and advances are
recorded on the books and records of the Lead Borrower and of any Borrower.

 

(b)  Each Borrower recognizes that credit
available to it under the Revolving Credit 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 Liabilities 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.

 

(d)  The proceeds of each loan and advance
provided under the Revolving Credit which is requested by the Lead Borrower
shall be deposited into the Operating Account or as otherwise indicated by the
Lead Borrower.  The Lead Borrower shall
cause the transfer of the proceeds thereof to the Borrower(s) on whose behalf
such loan and advance was obtained.  The
Agent and Lenders shall not have any obligation to assure the proper
application of such proceeds.

 

ARTICLE
III. — CONDITIONS PRECEDENT:

 

As a condition to the effectiveness of this Agreement,
the establishment of the Revolving Credit, the procurement of the initial L/C
issued hereunder, and the making of the first loan under the Revolving Credit,
each of the documents respectively described in Sections 3.1 through and
including 3.4 (each in form and substance satisfactory to the Agent) shall have
been delivered to the Agent, and the conditions respectively described in
Sections 3.5 through and including 3.9, shall have been satisfied as of the
Closing Date:

 

3.1  Corporate Due Diligence.

 

(a)  A Certificate of corporate good standing
issued with respect to each Obligor by the Secretary of State of the State in
which that Obligor was organized.

 

(b)  Certificates of qualification to do business
as a foreign corporation, issued by the Secretary(ies) of State of each State
in which such  Obligor’s conduct of
business or ownership of assets of requires such qualification, except where
the failure to so qualify would not have a Material Adverse Effect.

 

(c)  A Certificate of each  Obligor’s respective Secretary as to the due
adoption and continued effectiveness of, each corporate resolution adopted in
connection with the establishment of the loan arrangement contemplated by the
Loan Documents and attesting to the 

 

58

 

true signatures of each Person authorized as a signatory to any of the
Loan Documents, such certificate to set forth the text of each such resolution
in an attachment thereto.

 

3.2  Opinion.

 

An opinion of counsel to the Obligors in form and
substance satisfactory to the Agent.

 

3.3  Officers’ Certificates.

 

Certificates executed by the Chief Executive Officer,
President or Chief Financial Officer of each Obligor stating that the
representations and warranties made by such Obligor to the Agent in the Loan
Documents are true and complete as of the date of such certificate, and that no
event has occurred which is or which, solely with the giving of notice or
passage of time (or both), would be an Event of Default.

 

3.4  Additional Documents.

 

Such additional instruments and documents as the Agent
or its counsel reasonably may require or request including, without limitation,
the following:

 

(a)  Loan Documents.  Each of the Loan Documents shall have been
duly executed and delivered by the respective parties thereto shall be in full
force and effect and shall be in form and substance satisfactory to Agent.

 

(b)  Assignment. An assignment of Fleet
Capital Corporation’s right, title and interest in and to the First Agreement.

 

(c)  Agency Agreement.  An executed copy of the Agency Agreement
dated as of the Closing Date, by and between the Administrative Agent, the
Collateral Agent and the Lenders.

 

(d)  Certificates of Insurance.  (a) A certificate of insurance from an
independent insurance broker dated as of the Closing Date, identifying
insurers, types of insurance, insurance limits, policy terms and otherwise
describing the insurance obtained in accordance with this Agreement, and (b)
copies of all policies evidencing such insurance.

 

(e)  Blocked Account Agreements.

 

(i)  Duly executed and delivered Blocked Account
Agreement by and between Collateral Agent, Lead Borrower and Bank One, N.A., in
form and substance satisfactory to Collateral Agent,

 

(ii)  Intentionally Omitted;

 

59

 

(iii)  Duly executed and delivered Blocked Account
Agreement by and between Collateral Agent, Lead Borrower and Wells Fargo Bank,
N.A., in form and substance satisfactory to Collateral Agent;

 

(iv)  Duly executed and delivered Blocked Account
Agreement by and between Collateral Agent, Lead Borrower and Fleet National
Bank, in form and substance satisfactory to Collateral Agent; and

 

(v)  Duly executed and delivered Blocked Account
Agreement by and between Collateral Agent, Lead Borrower and Bank of America,
N.A., in form and substance satisfactory to Collateral Agent.

 

(f)  Credit Card Notifications.  Delivery of notification, executed on behalf
of the Borrowers, to each of the Borrowers’ credit card processors of notice
(in form satisfactory to Collateral Agent), which notice provides that payment
of all credit card charges submitted by the Borrowers to that processor and any
other amount payable to the Borrowers by such processor shall be directed to
the Operating Account or as otherwise designated from time to time by the
Collateral Agent.

 

(g)  Borrowing Base Certificate.  Delivery of the initial Borrowing Base
Certificate dated as of the Closing Date.

 

(h)  Financial Projections.  Delivery of financial projections and
business assumptions for the following fiscal year after the Closing Date in
form and substance satisfactory to Administrative Agent.

 

(i)  Letter Agreement.  Delivery of the Letter Agreement by and
between the Obligors, Administrative Agent and Collateral Agent regarding the
Leased Department Agreements, Marketing Partnership Agreements, Licensing
Agreements and Internet Agreements, in form and substance satisfactory to the
Administrative Agent.

 

(j)  Pledge Agreements.  (i) 
Delivery of the Pledge Agreement from Mothers Work, Inc. to the Collateral
Agent, for stock in Cave Springs, Inc., and up to 66% of the stock in Mothers
Work Canada, Inc., in form and substance satisfactory to the Collateral Agent;
and (ii) Delivery of the Pledge Agreement from Mothers Work Canada, Inc. to the
Collateral Agent, for up to 66% of the stock in stock in Maternity Factory
Warehouse Centre, Inc., in form and substance satisfactory to the Collateral
Agent.

 

(k)  Collateral Agent’s Fee Letter.  Side Letter dated as of the Closing Date by
and between the Collateral Agent and the Borrowers.

 

(l)  Trademark Security Agreement.  Duly executed and delivered Trademark
Security Agreement dated as of the Closing Date, by and between Obligors and
Collateral Agent.

 

(m)  Landlord Waivers.  Duly executed and delivered Collateral Access
Agreements for the Domestic Distribution Centers.

 

60

 

(n)  Environmental Site Assessment.  Delivery of an environmental site assessment
in form and substance and from environmental consultants satisfactory to
Collateral Agent, with respect to the Eligible Fixed Assets.

 

(o)  Guaranties.  Delivery of the Guaranty by Mothers Work
Canada, Inc. in favor of the Collateral Agent and Administrative Agent for the
benefit of the Lenders, in form and substance satisfactory to Collateral Agent.

 

(p)  Lender’s Fee Letter.  Side Letter dated as of the Closing Date by
and between the Lender and the Borrowers.

 

(q)  Assignment of Mortgage.  Delivery of an Assignment of Original
Mortgage for the Headquarters Facility from Fleet Capital Corporation to Fleet
Retail Group, Inc., in form and substance satisfactory to Collateral Agent.

 

(r)  Customs Broker Agreement.  (i) 
Delivery of a Customs Broker Agreement by and between Lead Borrower and
Barthco International, in form and substance satisfactory to Collateral Agent;
(ii) Delivery of a Customs Broker Agreement by and between Lead Borrower and
Jose David Gonzalez, in form and substance satisfactory to Collateral Agent;
(iii) Delivery of a Customs Broker Agreement by and between Lead Borrower and
Excel, in form and substance satisfactory to Collateral Agent; and (iv)
Delivery of a Customs Broker Agreement by and between Lead Borrower and Garden
City Customs Services, in form and substance satisfactory to Collateral Agent.

 

(s)  DDA Notifications.  Delivery of notification, executed on behalf
of a Borrower, to each depository institution in which any DDA is maintained
(in form satisfactory to Collateral Agent).

 

(t)  Title Policy.  An endorsement to the existing
loan policy of title insurance issued with respect to the Mortgaged Property in
an amount and from a title insurance company satisfactory to Collateral Agent
and subject to only such exceptions as may be acceptable to Collateral Agent
and confirming that real estate taxes are paid through the date of such policy;

 

3.5  Representations and Warranties.

 

Each of the representations made by or on behalf of
the Obligors in this Agreement or in any of the other Loan Documents or in any
other report, statement, document, or paper provided by or on behalf of the
Borrowers shall be true and complete as of the date as of which such
representation or warranty was made, except to the extent it specifically
relates solely to an earlier date.

 

3.6  Minimum Day One Excess Availability.

 

After giving effect to the first funding  under the Revolving Credit, all then held
checks (if any), accounts payable which are beyond credit terms then accorded
the Borrowers, overdrafts, any charges to the Loan Account made in connection
with the establishment of the

 

61

 

credit facility contemplated hereby; and L/C’s to be issued at, or
immediately subsequent to, such establishment, Excess Availability shall not be
less than $30,000,000.

 

3.7  All Fees and Expenses Paid.

 

All fees due at or immediately after the first funding
under the Revolving Credit and all costs and expenses incurred by the Agent and
Lenders in connection with the establishment of the credit facility
contemplated hereby (including the reasonable fees and expenses of counsel to
the Agent and Lenders) shall have been paid in full.

 

3.8  No Borrower Default.

 

No Suspension Event or Event of Default has occurred
which is continuing.

 

3.9  No Adverse Change.

 

No event shall have occurred or failed to occur, which
occurrence or failure is or could have a materially adverse effect upon the
Borrowers’ financial condition when compared with such financial condition or
circumstances at June 30, 2004.

 

3.10                Validity
of Liens.

 

All filings, recordings, deliveries of instruments and
other actions necessary or desirable in the opinion of the Collateral Agent to
protect and preserve such Collateral Interests shall have been duly
effected.  The Collateral Agent shall
have received evidence thereof in form and substance satisfactory to the
Collateral Agent.

 

3.11                Documents.

 

No document shall be
deemed delivered to the Agent until received and accepted by the Agent at its
offices in Boston, Massachusetts or at such other office as any Agent may
advise Obligors in writing.  Under no
circumstances shall this Agreement take effect until executed and accepted by
the Agent at said office.

 

ARTICLE IV. - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:

 

To induce the Agent and Lenders to establish the
credit facility contemplated herein and to make loans and advances and to
provide financial accommodations under this Agreement (each of which loans
shall be deemed to have been made in reliance thereupon) the Obligors, in
addition to all other representations, warranties, and covenants made by the
Obligors in any other Loan Document, represents, warrants, and covenants as
follows:

 

4.1  Payment and Performance of Liabilities.

 

The Obligors shall pay each Liability when due (or
when demanded, if payable on demand) and shall promptly, punctually, and
faithfully perform each other Liability.

 

62

 

4.2  Due Organization. Corporate Authorization. No Conflicts.

 

(a)  The exact name of each Obligors, as set forth
in each Obligor’s organizational documents, is set forth in EXHIBIT 4.2 hereof. 
Each Obligor presently is and shall hereafter remain in good standing as
the type of entity indicated on EXHIBIT 4.2
hereof and be duly organized under the laws of the state of its incorporation
indicated in EXHIBIT 4.2 hereof and shall
hereafter remain duly qualified and in good standing in every other State in
which, by reason of the nature or location of that  Obligor’s assets or operation of that  Borrower’s business, such qualification may
be necessary, except where the failure to so qualify or be in good standing
would not have a Material Adverse Effect. 
EXHIBIT 4.2 accurately describes the
corporate structure of the Obligors and any Affiliates, including the identity
of shareholders holding more than 25% of the issued and outstanding stock
having the right to vote, limited and general partners, or members, as the case
may be.

 

(b)  Each Affiliate of the Obligors is listed on EXHIBIT  4.2. The Lead
Borrower shall provide the Administrative Agent with prior written notice of
any entity’s becoming or ceasing to be an Affiliate (provided, however, that
with respect to any Affiliate that become or cease to become Affiliate solely
due to issuances or exchanges of the publicly-traded stock of the Lead
Borrower, the Lead Borrower shall provide the Administrative Agent with written
notice thereof on or before the thirtieth (30th) day of the next
month thereafter).

 

(c)  No Obligor shall change its State of
incorporation or its taxpayer identification number without twenty-one (21)
days prior written notice to Administrative Agent and its counsel, provided
that no such change shall occur unless no Suspension Event has occurred that is
continuing.

 

(d)  Each Obligor has all requisite corporate
power and authority to execute and deliver all Loan Documents to which the
Obligor is a party and has and will hereafter retain all requisite corporate
power to perform all Liabilities.

 

(e)  The execution and delivery by each Obligor or
by the Lead Borrower of each Loan Document on behalf of each Obligor that is a
party thereto, such  Obligor’s
consummation of the transactions contemplated by such Loan Documents
(including, without limitation, the creation of Collateral Interests by such
Obligor to secure the Liabilities), such Borrower’s performance under such Loan
Document, the borrowings hereunder, and the use of the proceeds thereof:

 

(i)            Have
been duly authorized by all necessary corporate action on the part of such
Obligor;

 

(ii)           Do
not, and will not, contravene in any material respect any provision of any
Requirement of Law or material obligation of such Obligor; and

 

(iii)          Will
not result in the creation or imposition of, or the obligation to create or
impose, any Encumbrance upon any assets of such Obligor pursuant to any
Requirement of Law or obligation of such Obligor, except pursuant to the Loan
Documents.

 

63

 

(f)  The Loan Documents have been duly executed
and delivered by the Lead and the other Borrowers or by the Lead Borrower on
behalf of itself and the other Borrowers and by the Guarantor, as the case may
be and are the legal, valid and binding obligations of the Obligors,
enforceable against the Obligors in accordance with their respective terms, except
to the extent enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, or other similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity.

 

4.3  Trade Names.

 

(a)  EXHIBIT 4.3 is
a listing of:

 

(i)            All
names under which each Obligor has conducted its business within the past Five
(5) years, and

 

(ii)           All
entities and/or persons with whom each Obligor ever consolidated or merged
within the past five (5) years, or from whom each Obligor ever acquired in a
single transaction or in a series of related transactions substantially all of
such entity’s or Person’s assets within the past five (5) years.

 

(b)  The Lead Borrower will provide the
Administrative Agent with not less than twenty-one (21) days prior written
notice (with reasonable particularity) of any change to any  Obligor’s name from that under which such
Obligor is conducting its business at the execution of this Agreement and such
Obligor will not effect such change unless no Suspension Event has occurred
that is continuing.

 

4.4  Infrastructure.

 

(a)  The Obligor have and will maintain a
sufficient infrastructure to conduct their business as presently conducted and
as contemplated to be conducted as described in the Business Plan.

 

(b)  Each Obligor owns and possesses, or has the
right to use (and will hereafter own, possess, or have such right to use) all
patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person
necessary for the  Obligors’ conduct of
the  Obligor’ business.

 

(c)  The conduct by the Obligors of the  Obligors’ business does not presently infringe
(nor will the Obligors conduct their business in the future so as to infringe)
the patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, or other intellectual or proprietary property of any third Person.

 

64

 

4.5  GUARANTOR.

 

The Guarantor will not
conduct any business in the United States or hold any assets in the United
States, other than (i) holding the leases for certain stores in Canada that
sell the Borrowers’ inventory; and (ii) holding assets in the corporate
headquarters portion of the Headquarters Facility.

 

4.6  Locations.

 

(a)  The Collateral, and the books, records, and
papers of the Obligors pertaining thereto, are kept and maintained solely at
the Obligors’ chief executive offices and those locations which are listed on EXHIBIT 4.6(a), which includes, with respect to each such
location, the name and address of the landlord on the Lease which covers such
location (or an indication that the Obligors own the subject location) and of
all service bureaus with which any such records are maintained.  The Obligors shall supplement EXHIBIT 4.6(a) on a monthly basis after the date hereof to
reflect any Permitted Store Openings/Closings, additional Domestic Distribution
Centers (for which prior notice has been given pursuant to the definition
thereof), or new chief executive offices.

 

(b)  The Obligors shall not remove any of the
Collateral from such chief executive office or those locations listed on EXHIBIT 4.6(a) except to:

 

(i)            accomplish
the Costa Rican Transaction;

 

(ii)           accomplish
sales of Inventory in the ordinary course of business;

 

(iii)          move
Inventory from one such location to another such location;

 

(iv)          utilize
such of the Collateral as is removed from such locations in the ordinary course
of business (such as motor vehicles); or

 

(v)           move
Inventory from one store to another store in connection with Permitted Store
Openings/Closings.

 

(c)  The Borrowers shall use their reasonable
efforts to provide the Collateral Agent with Landlord Waivers or subordinations,
in substantially the form annexed hereto as EXHIBIT
4.6(c) for each of the Borrowers’
locations in any of the Landlord States or the chief executive office (if it is
not located in the Headquarters Facility) or any new Domestic Distribution
Center.  The Collateral Agent may
establish an Availability Reserve for each such location as to which such a
waiver is not so delivered, which Availability Reserve shall be reduced or
eliminated upon delivery of a waiver for such location.

 

(d)  The Borrowers will not:

 

(i)            Execute,
alter, modify, or amend any Lease for the Headquarters Facility or the Domestic
Distribution Facilities, unless such alteration, modification or amendment is
for more economically favorable terms for the Borrowers.

 

65

 

(ii)           Commit
to, or open or close any location at which the Borrowers maintains, offers for
sales, or stores any of the Collateral, except that (A) the Borrowers may open
or close, in their business judgment, locations within department or specialty
stores or other locations in which a Borrower leases or licenses a portion of
the space in such store; and (B) the Borrowers may: (I) open, during any Fiscal
Year, new stores in an amount not to exceed Twenty Percent (20%) of the number
of stores (other than locations within department or specialty stores or other
locations in which a Borrower leases or licenses a portion of the space in such
store) existing as of the first day of such Fiscal Year (including stores that
have closed since such first day), and (II) close, during any Fiscal Year,
stores in an amount not to exceed Twenty Percent (20%) of the number of stores
(other than locations within department or specialty stores or other locations
in which a Borrower leases or licenses a portion of the space in such store)
existing as of the first day of such Fiscal Year (not including stores that
have opened since such first day) (“Permitted Store Openings/Closings”).

 

(e)  No tangible personal property of the
Borrowers is in the care or custody of any third party or stored or entrusted
with a bailee or other third party and none shall hereafter be placed under
such care, custody, storage, or entrustment, except (i) as otherwise disclosed
pursuant to, or permitted by, this Section 4.6, (ii) for Inventory located in
department or specialty stores or other locations in which a Borrower leases or
licenses a portion of the space in such store; (iii) for goods in control of a
customs broker, which has entered into a Customs Brokers Agreement, (iv) for
work-in-progress at contractors (whether or not in the United States), and
(iii) to the extent such goods do not constitute Eligible Inventory, Eligible
In-Transit Inventory or Eligible L/C Inventory, any raw materials at
contractors (whether or not in the United States), finished goods out for
re-working, and goods in transit.

 

4.7  Title To Assets.

 

(a)  The Obligors are, and shall hereafter remain,
the owners of the Collateral free and clear of all Encumbrances other than
Encumbrances or exceptions to ownership listed on EXHIBIT
4.7(a) and other Permitted
Encumbrances. The Obligors do not and shall not have possession of any property
on consignment to the Obligors.

 

(b)  The Obligors shall not acquire or obtain the
right to use any Equipment in which Equipment any third party has an interest
(notwithstanding that the acquisition or right to use of such Equipment is
otherwise permitted by this Agreement), except for:

 

(i)            Equipment
which is merely incidental to the conduct of the Obligors’ business.

 

66

 

(ii)           Equipment
subject to (a) Capital Leases or purchase money security interests comprised in
each case of Permitted Encumbrances; and (b) operating leases.

 

(c)  The Obligors do not have any goods, documents
of title or other Collateral in the custody, control, or possession of a third
party, except as set forth in EXHIBIT 4.7(d) and
except for goods located in the United States in transit to a location of the
Borrowers permitted herein or in the ordinary course of business of the
Obligors in the possession of the carrier transporting such goods.  In the event that any goods, documents of the
title or other Collateral are at any time after the date hereof in the custody,
control or possession of any other person not referred to in EXHIBIT 4.7(d) or such carriers, Obligors shall promptly
notify the Collateral Agent thereof in writing. 
Promptly upon Collateral Agent’s request, the Obligors shall deliver to
the Agent a collateral access agreement, in form and substance acceptable to
the Collateral Agent in its sole discretion, duly authorized, executed and
delivered by such person and Borrowers.

 

(d)  EXHIBIT 4.7(d) is
a schedule of all customs brokers employed by the Obligors for the transport of
goods in the ordinary course of the business of the Obligors.  The Obligors shall not employ any other
customs brokers unless (i) the Obligors have provided the Collateral Agent with
thirty (30) days prior notice thereof and (ii) such customs broker has executed
and delivered to the Collateral Agent a Customs Broker Agreement.  The Collateral Agent shall not give notice to
any of the Obligors’ customs brokers to follow the instructions of the
Collateral Agent as provided in any Customs Brokers Agreement except upon or
following the occurrence and during the continuance of an Event of Default.

 

4.8  Indebtedness.

 

(a)  The Obligors do not and shall not hereafter
have any Indebtedness with the exceptions of:

 

(i)            Any
Indebtedness on account of the Revolving Credit;

 

(ii)           The
Indebtedness (if any) listed on EXHIBIT  4.8, annexed hereto;

 

(iii)          Indebtedness
for Equipment or Real Estate secured by purchase money security interests or
purchase money liens that are Permitted Encumbrances;

 

(iv)          Capital
Leases that are Permitted Encumbrances for the acquisition of Equipment or Real
Estate;

 

(v)           Subordinated
Debt, and any other Indebtedness up to the aggregate amount of $5,000,000;

 

67

 

(vi)          Indebtedness
of Guarantor to Borrowers up to the amount equal to Fifteen Million Dollars
($15,000,000) less the amount of any capital
contributions or other investments by Borrowers to Guarantor or its
Subsidiaries made after the date hereof, in the aggregate;

 

(vii)         Any
Indebtedness related to the redemption of the Series A Preferred Stock; and

 

(viii)        Any
Indebtedness between any of the Borrowers.

 

provided, that,
the amount of any Capital Leases and Indebtedness for Equipment is in
compliance with the provision on Capital Expenditures set forth in EXHIBIT 5.12(a).

 

(b)  The Obligors shall not permit more than 25%
of that portion of the aggregate of their Indebtedness for the purchase of
goods or services which is not the subject of a good faith dispute to remain
unpaid more than 30 days beyond then current trade terms provided to the
subject Borrower by the supplier of such goods and services.

 

(c)           Obligors
shall not prepay other Indebtedness (other than the Liabilities), except as
follows: (i) in an amount up to $50,000,000 in the aggregate following the
Closing Date, provided that (A) no Suspension Event or Event of Default has
occurred which is continuing at the time of such payment, and (B) pro forma
Excess Availability is at least $15,000,000 at the time of such payment and immediately
after giving effect to such prepayment, or (ii) in an unlimited amount in the
aggregate following the Closing Date, provided that (A) no Suspension Event or
Event of Default has occurred which is continuing at the time of such payment,
and (B) pro forma Excess Availability is at least $25,000,000 at the time of
such payment and immediately after giving effect to such prepayment, provided
that none of the limits and requirements set forth in this clause (c) shall
apply to the repurchase of any remaining shares of Series A Preferred Stock in
an amount not to exceed $1,050,000 in the aggregate (without duplication of the
permitted repurchases set forth in Section 4.20).

 

(d)           Except
for prepayments permitted under Section 4.8(c), the Borrowers shall not make
any payment of any part or all of any Subordinated Debt or take any other
action or omit to take any other action in respect of any Subordinated Debt in
contravention of the written terms of any instrument evidencing such
Subordinated Debt, or enter into any agreement (written or oral) which could in
any way be considered to amend, modify or terminate any instrument or agreement
evidencing or relating to Subordinated Debt.

 

4.9  Insurance.

 

(a)  EXHIBIT  4.9, is a schedule of all insurance policies owned by the
Obligors or under which the Obligors are the named insured.  Each of such policies is in full force and
effect.  The Obligors are not in material
default or violation of any such policy and, to theObligor’s knowledge, no
issuer is in material default or violation of any such policy.

 

68

 

(b)  The Obligors shall have and maintain at all
times insurance covering such risks, in such amounts, containing such terms, in
such form, and for such periods customary for entities in similar industries
and in similar locations as Obligors, and written by such companies as may be
reasonably satisfactory to the Agent.

 

(c)  All insurance carried by the Obligors shall
provide for a minimum of thirty (30) days’ written notice of cancellation to
the Collateral Agent and all such insurance which covers the Collateral shall
include an endorsement in favor of the Collateral Agent that is reasonably
acceptable to the Collateral Agent.

 

(d)  The coverage reflected on EXHIBIT  4.9 presently
satisfies the foregoing requirements, it being recognized by the
Obligors, however, that such requirements may change hereafter to
reflect changing circumstances.

 

(e)  The Obligors shall furnish the Agent from
time to time with certificates or other evidence reasonably satisfactory to the
Agent regarding compliance by the Borrowers with the foregoing requirements.

 

(f)  In the event of the failure by the Obligors
to maintain insurance as required herein, the Collateral Agent, at its option,
may obtain such insurance, provided, however, the Collateral Agent’s obtaining of such insurance
shall not constitute a cure or waiver of any Event of Default occasioned by the
Obligors’ failure to have maintained such insurance.

 

(g)  The Lead Borrower shall advise the Collateral
Agent of each claim in excess of $1,000,000 (or, following the occurrence and
during the continuance of an Event of Default, $100,000) made by any Obligor
under any policy of insurance which covers the Collateral and will permit the Collateral
Agent, at the Collateral Agent’s option in each instance, to the exclusion of
the Obligors, to conduct the adjustment of each such claim in excess of such
amounts (and, at the Collateral Agent’s option in each instance, of all claims
following the occurrence of any Event of Default).  Upon and following the occurrence and during
the continuation of an Event of Default, the Obligors hereby appoint the
Collateral Agent as the Obligors’ attorney in fact to obtain, adjust, settle,
and cancel any insurance described in this section and to endorse in favor of
the Collateral Agent any and all drafts and other instruments with respect to
such insurance.  The within appointment,
being coupled with an interest, is irrevocable until this Agreement is terminated
by a written instrument executed by a duly authorized officer of the Collateral
Agent. The Agent shall not be liable on account of any exercise pursuant to
said power except where there has been a final judicial determination (in a
proceeding in which the Agent had an opportunity to be heard) that such
exercise was conducted in a grossly negligent manner or in willful
misconduct.  The Administrative Agent may
apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Administrative Agent may
determine.

 

4.10                Licenses; Material Contracts.

 

EXHIBIT 4.10 is a schedule of
all presently effective material agreements and licenses, distributorships,
franchises, and similar agreements, copies of which have previously been

 

69

 

delivered (in final, executed form, subject to such
exceptions as are satisfactory to the Administrative Agent) to the
Administrative Agent.  Each agreement,
license, distributorship, franchise, and similar agreement issued to the
Obligor, or to which the Obligor is a party is in full force and effect in each
case except those the failure of which to be in full force and effect do not
have a Material Adverse Effect.  No party
to any such license or agreement is in default or violation thereof in each
case except those the default or violation of which do not have a Material
Adverse Effect. The Obligors have not received any notice or threat of
cancellation of any such license or agreement.

 

4.11                Leases.

 

EXHIBIT  4.11
is a schedule of all presently effective Capital Leases and includes a list of
all other presently effective Leases. 
Each of such Leases and Capital Leases is in full force and effect.  No party to any such Lease or Capital Lease
is in default or violation of any such Lease or Capital Lease and none of the
Obligors have received any notice or threat of cancellation of any such Lease
or Capital Lease which in any such case could reasonably be expected to have a
Material Adverse Effect.  After the
occurrence and during the continuance of an Event of Default, the Obligors
hereby authorize the Agent at any time and from time to time to contact any of
the Obligors’ landlords in order to confirm the continued compliance by any
Obligor with the terms and conditions of the Lease(s) between such Borrower and
that landlord and to discuss such issues, concerning such Obligor’s occupancy
under such Lease(s), as the Agent may reasonably determine.

 

4.12                Requirements
of Law.

 

The Obligors are in compliance with, and shall
hereafter comply with and use their respective assets in compliance with, all
Requirements of Law except where the failure of such compliance will not have a
Material Adverse Effect.  No Obligor has
received any notice of any violation of any Requirement of Law (other than of a
violation which has no Material Adverse Effect, or any such violations that
have been cured or otherwise remedied).

 

4.13                Labor Relations.

 

(a)  No Obligor has been and is presently a party
to any collective bargaining or other labor contract.

 

(b)  There is not presently pending and, to the
Obligors’ knowledge, there is not threatened any of the following:

 

(i)            Any
strike, slowdown, picketing, work stoppage, or employee grievance process;

 

(ii)           Any
proceeding against or affecting any Obligor relating to the alleged violation
of any Requirement of Law pertaining to labor relations or National Labor
Relations Board, the Equal Employment Opportunity Commission, or any comparable
governmental body, organizational activity, or other labor or

 

70

 

employment dispute
against or affecting any Obligor, which, if determined adversely to such
Obligor could not have a Material Adverse Effect;

 

(iii)          Any
lockout of any employees by any Obligor, (and no such action is contemplated by
any Obligor); or

 

(iv)          Any
application for the certification of a collective bargaining agent.

 

(c)  No work stoppage or other labor dispute
exists, and, to Obligors’ knowledge, no event has occurred or circumstance
exists that could provide the basis for any work stoppage or other labor
dispute.

 

(d)  Each Obligor:

 

(i)            (A)
Has complied in all material respects with all Requirements of Law relating to
employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, and occupational safety and health, except such
noncompliance which would not reasonably be expected to have a Material Adverse
Effect; and (B) has complied in all material respects with all Requirements of
Law relating to collective bargaining, the payment of social security and
similar taxes, and plant closing.

 

(ii)           Is
not liable for the payment of more than a de minimus
amount of compensation, damages, taxes, fines, penalties, or other amounts,
however designated, for such Obligor’s failure to comply with any Requirement
of Law referenced in Section 4.12.

 

4.14                Maintain
Properties.

 

Each Obligor shall:

 

(a)  Keep the Collateral in good order and repair
(ordinary reasonable wear and tear and insured casualty excepted);

 

(b)  Not suffer or cause the waste or destruction
of any material part of the Collateral;

 

(c)  Not use any of the Collateral in material
violation of any policy of insurance thereon; and

 

(d)  Not sell, lease, or otherwise dispose of any
of the Collateral, other than the following:

 

(i)            The
Costa Rican Transaction;

 

71

 

(ii)           The
sale of Inventory in compliance with this Agreement;

 

(iii)          The
disposal of Equipment which is obsolete, worn out, or damaged beyond repair,
which Equipment is replaced to the extent necessary to preserve or improve the
operating efficiency of such Borrower;

 

(iv)          The
turning over to the Agent of all Receipts as provided herein; and

 

(v)           The
sale, lease, or disposition of Collateral in connection with the movement of
Inventory from one store to another store in connection with Permitted Store
Openings/Closings.

 

4.15                Taxes.

 

(a)  Each Obligor has filed, or caused to be
filed, in a timely manner all Federal, state and other material tax returns,
reports and declarations which are required to be filed by it.  All information in such tax returns, reports
and declarations is complete and accurate in all material respects.  Each Obligor has paid or caused to be paid
all taxes due and payable or claimed due and payable in any assessment received
by it, which, if unpaid, would result in a material Encumbrance on any of its
properties or assets, except taxes the validity of which are being contested in
good faith by appropriate proceedings diligently pursued and available to such
Borrower and with respect to which adequate reserves in conformity with GAAP
have been set aside on its books. 
Adequate provision has been made for the payment of all accrued and
unpaid Federal, state, county, local, foreign and other taxes whether or not
yet due and payable and whether or not disputed.

 

(b)  No agreement is extant which waives or
extends any statute of limitations applicable to the right of the Internal
Revenue Service or any state taxing authority to assert a deficiency or make
any other claim for or in respect to any Federal or state taxes.  No issue has been raised in any such
examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open
for examination, assessment, or claim by any Federal or state or local taxing
authority.

 

(c)  Except as disclosed on EXHIBIT 4.15,
there are no examinations of or with respect to the Obligors presently being
conducted by the Internal Revenue Service or any other taxing authority.

 

(d)  The Obligors have, and hereafter shall: pay,
as they become due and payable, all taxes and unemployment contributions and
other charges of any kind or nature levied, assessed or claimed against any
Obligor or the Collateral by any person or entity whose claim could result in
an Encumbrance upon any asset of any Obligor or by any governmental authority
(other than taxes and charges being contested in good faith and for which
adequate reserves have been established); properly exercise any trust
responsibilities imposed upon the Obligors by

 

72

 

reason of withholding
from employees’ pay or by reason of the Obligors’ receipt of sales tax or other
funds for the account of any third party; timely make all contributions and
other payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Obligors; and timely file all tax and other returns
and other reports with each governmental authority to whom the Obligors are
obligated to so file, except in those cases where extensions have been granted
or are permitted of which the Obligors have given the Administrative Agent
written notice.

 

(e)  At its option, the Agent may, but shall not
be obligated to, pay any taxes, unemployment contributions, and any and all
other charges levied or assessed upon the Obligors or the Collateral by any
person or entity or governmental authority (provided that, if no Liabilities
(other than Liabilities solely attributable to the L/C’s) are outstanding, then
Agent may pay such amounts only if the Obligors have not paid them when due),
and make any contributions or other payments on account of the Obligors’ Employee
Benefit Plan as the Agent, in the Agent’s discretion, may deem necessary or
desirable, to protect, maintain, preserve, collect, or realize upon any or all
of the Collateral or the value thereof or any right or remedy pertaining
thereto, provided, however,
the Agent’s making of any such payment shall not constitute a cure or waiver of
any Event of Default occasioned by the Obligors’ failure to have made such
payment.

 

4.16                No Margin Stock or Securities.

 

The Obligors are
not engaged in the business of extending credit for the purpose of purchasing
or carrying any margin stock (within the meaning of Regulations U, T, and X of
the Board of Governors of the Federal Reserve System of the United
States).  No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.

 

4.17                ERISA.

 

Neither the Obligors nor any ERISA Affiliate ever has
or hereafter shall:

 

(a)  Violate or fail to be in material compliance
with Employee Benefit Plan maintained by the Obligors;

 

(b)  Except as set forth in EXHIBIT 4.17, fail timely to file all reports and filings required by
ERISA to be filed by the Borrowers;

 

(c)  Engage in any “prohibited transactions” or
“reportable events” (respectively as described in ERISA);

 

(d)  Engage in, or commit, any act such that a tax
or penalty could be imposed upon the Obligors on account thereof pursuant to
ERISA;

 

(e)  Accumulate any material funding deficiency
within the meaning of ERISA;

 

(f)  Terminate any Employee Benefit Plan such that
a lien could be asserted against any assets of the Obligors on account thereof
pursuant to ERISA; or

 

73

 

(g)  Be a member of, contribute to, or have any
obligation under any Employee Benefit Plan which is a multiemployer plan within
the meaning of Section 4001(a) of ERISA.

 

4.18                Hazardous Materials and Environmental Compliance.

 

(a)  The Obligors have never:

 

(i)            Been
legally responsible for any release or threat of release of any Hazardous
Material; or

 

(ii)           Received
notification of any release or threat of release of any Hazardous Material from
any site or vessel occupied or operated by the Borrowers and/or of the incurrence
of any expense or loss in connection with the assessment, containment, or
removal of any release or threat of release of any Hazardous Material from any
such site or vessel.

 

(b)  The Obligors shall:

 

(i)            Dispose
of any Hazardous Material only in compliance with all Environmental Laws; and

 

(ii)           Not
store on any site or vessel occupied or operated by the Obligors and not
transport or arrange for the transport of any Hazardous Material, except if
such storage or transport is in the ordinary course of the Obligors’ business
and is in compliance with all Environmental Laws.

 

(c)  The Lead Borrower shall provide the
Administrative Agent with written notice upon obtaining knowledge of any
expense or loss incurred by any governmental authority or other Person in
connection with the assessment, containment, or removal of any Hazardous
Material, for which expense or loss the Borrowers may be liable.

 

(d)  The Borrowers have taken all necessary steps
to investigate the past and present condition and usage of the Headquarters
Facility and the Domestic Distribution Facilities and the operations conducted
thereon and, based upon such diligent investigation, has determined that:

 

(i)            none
of the Borrowers, their Subsidiaries or any operator of the Headquarters Facility
and the Domestic Distribution Facilities or any operations thereon is in
violation, or alleged violation, of any judgment, decree, order, law, license,
rule or regulation pertaining to environmental matters, including without
limitation, those arising under the Resource Conservation and Recovery Act (“RCRA”), the Comprehensive Environmental Response,

 

74

 

Compensation and
Liability Act of 1980 as amended (“CERCLA”), the
Superfund Amendments and Reauthorization Act of 1986 (“SARA”),
the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act, or any state, local or foreign law, statute, regulation,
ordinance, order or decree relating to health, safety or the environment
(hereinafter “Environmental Laws”), which
violation would have a material adverse effect on the environment or a Material
Adverse Effect, provided that for operators or operation prior to the time that
Borrowers owned or operated such real estate, said representation shall be
limited to Borrower’s knowledge;

 

(ii)           neither
the Borrowers nor any of their Subsidiaries has received notice from any third
party including, without limitation, any Governmental Authority, (A) that any
one of them has been identified by the United States Environmental Protection
Agency (“EPA”) as a potentially responsible
party under CERCLA with respect to a site listed on the National Priorities
List, 40 C.F.R. Part 300 Appendix B; (B) that any hazardous waste, as defined
by 42 U.S.C. §6903(5), any hazardous substances as defined by 42 U.S.C.
§9601(14), any pollutant or contaminant as defined by 42 U.S.C. §9601(33) and
any toxic substances, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws (“Hazardous
Substances”) which any one of them has generated, transported or
disposed of has been found at any site at which a Governmental Authority has
conducted or has ordered that any Borrowers or any of their Subsidiaries
conduct a remedial investigation, removal or other response action pursuant to
any Environmental Law; or (iii) that it is or shall be a named party to any
claim, action, cause of action, complaint, or legal or administrative
proceeding (in each case, contingent or otherwise) arising out of any third
party’s incurrence of costs, expenses, losses or damages of any kind whatsoever
in connection with the release of Hazardous Substances;

 

(iii)        except
as set forth on EXHIBIT 4.18 attached hereto: (A)
no portion of the Headquarters Facility and the Domestic Distribution
Facilities has been used for the handling, processing, storage or disposal of
Hazardous Substances except in accordance with applicable Environmental Laws;
and no underground tank or other underground storage receptacle for Hazardous
Substances is located on any portion of the Headquarters Facility and the
Domestic Distribution Facilities; (B) in the course of any activities conducted
by the Borrowers, their Subsidiaries or operators of its properties,

 

75

 

no Hazardous Substances
have been generated or are being used on the Headquarters Facility and the
Domestic Distribution Facilities except in accordance with applicable
Environmental Laws; (C) there have been no releases (i.e. any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) or threatened releases
of Hazardous Substances on, upon, into or from the properties of the Borrowers
or their Subsidiaries, which releases would have a material adverse effect on
the value of any of the Headquarters Facility and the Domestic Distribution
Facilities or adjacent properties or the environment; (iv) to the best of the
Borrowers’ knowledge, there have been no releases on, upon, from or into any
real property in the vicinity of any of the Headquarters Facility and the
Domestic Distribution Facilities which, through soil or groundwater
contamination, may have come to be located on, and which would have a material adverse
effect on the value of, the Headquarters Facility and the Domestic Distribution
Facilities ; and (v) in addition, any Hazardous Substances that have been
generated on any of the Headquarters Facility and the Domestic Distribution
Facilities have been transported offsite only by carriers having an
identification number issued by the EPA (or the equivalent thereof in any
foreign jurisdiction), treated or disposed of only by treatment or disposal
facilities maintaining valid permits as required under applicable Environmental
Laws, which transporters and facilities have been and are, to the best of the
Borrowers’ knowledge, operating in compliance with such permits and applicable
Environmental Laws provided that for purposes of this clause (iii), representations
relating to real property for a period prior to the operation or occupation by
Borrowers shall be to Borrowers’ knowledge; and

 

(iv)        none
of the Borrowers and their Subsidiaries, any Mortgaged Property or the
Headquarters Facility and the Domestic Distribution Facilities is subject to
any applicable Environmental Law requiring the performance of Hazardous
Substances site assessments, or the removal or remediation of Hazardous
Substances, or the giving of notice to any Governmental Authority or the recording
or delivery to other Persons of an environmental disclosure document or
statement by virtue of the transactions set forth herein and contemplated
hereby, or as a condition to the recording of any Mortgage or to the
effectiveness of any other transactions contemplated hereby.

 

76

 

4.19                Litigation.

 

Except as described in EXHIBIT 4.19
there is not presently pending or threatened by or against any Obligor any
suit, action, proceeding, or investigation which, if determined adversely to
such Obligor, would have a Material Adverse Effect.

 

4.20                Dividends; Investments; Corporate Action.

 

(a)  The Obligors shall not, except as set forth
in EXHIBIT 4.20:

 

(i)  Pay any cash dividend or make any other
distribution in respect of any class of the Obligors’ capital stock (except as
permitted in Section 4.20(b));

 

(ii)  Redeem, retire, purchase, or acquire any
Obligor’s capital stock or Securities, except as permitted under Section
4.20(b), and, in any event, unless such stock repurchases are approved by the
Lead Borrower’s Board of Directors and be no be less favorable to the Borrowers
than those which would have been charged and imposed in an arms length
transaction;

 

(iii)  Invest in or purchase any stock or securities
or rights to purchase any such stock or securities, of any corporation or other
entity (except (A) in Eligible Liquid Collateral, (B) investments (including,
without limitation, capital contributions and loans) to Guarantor or its
Subsidiaries, in an aggregate amount not to exceed Fifteen Million Dollars
($15,000,000) (without duplication of the advances permitted under Section
4.21(e) hereof); and (C) as permitted in Section 4.20(c));

 

(iv)  Merge or consolidate or be merged or
consolidated with or into any other corporation or other entity (except as
permitted in Section 4.20(c));

 

(v)  Consolidate any of the Obligors’ operations
with those of any other corporation or other entity (other than with any other
present or future Obligor) (except as part of a Permitted Acquisition or
Permitted Creation);

 

(vi)  Organize any Affiliate (except as permitted
in Section 4.20(c)), or create any Affiliate, except pursuant to a Permitted
Creation;

 

(vii)  Subordinate any debts or obligations owed to
the Obligors by any third party to any other debts owed by such third party to
any other Person;

 

(viii)  Acquire any assets other than in the ordinary
course and conduct of the Obligors’ business as conducted at the execution of
this Agreement (except as permitted in Section 4.20(c)); or

 

(ix)  Make any Loans except as permitted in Section
4.21.

 

(b)  Borrowers may make dividends, distributions
and common stock buybacks (i) in an amount up to $20,000,000 in the aggregate
following the Closing Date, provided that (A) no Suspension Event or Event of
Default has occurred which is continuing at the time of such dividend,
distribution, or buyback, and (B) Excess Availability is at least $15,000,000
at the

 

77

 

time of such dividend,
distribution, or buyback and immediately after giving effect to paying such
dividends, making such distribution and/or making such buybacks, or (ii) in an
unlimited aggregate amount following the Closing Date, provided that (A) no
Suspension Event or Event of Default has occurred which is continuing at the
time of such dividend, distribution, or buyback, and (B) Borrowers’
Consolidated pro forma Excess Availability is at least $25,000,000 at the time
of such dividend, distribution, or buyback and immediately after giving effect
to paying such dividends, making such distribution and/or buying back such
common stock, provided further that the pro forma Excess Availability
requirements set forth in this clause (b) shall not apply to the repurchase of
any remaining shares of Series A Preferred Stock in an amount not to exceed
$1,050,000 in the aggregate (without duplication of the permitted repurchases
set forth in Section 4.8).

 

(c)  So long as there is no Suspension Event that
has occurred or would occur as a result thereof, the Borrowers may make
Permitted Acquisitions and Permitted Creations, provided, that, the aggregate
amount of consideration for all Permitted Acquisitions and Permitted Creations
(including all Indebtedness incurred, repaid or assumed in connection with all
acquisitions occurring after the Closing Date and net of cash and cash
equivalents acquired), cash paid, and capital stock issued or expended in
respect of all such acquisitions after the Closing Date shall not exceed
$40,000,000 (exclusive of any consideration delivered to another Borrower,
whether such Borrower is now a Borrower or becomes a Borrower prior to delivery
of such consideration (whether in the form of cash of capital stock)) in the
aggregate following the Closing Date, and provided, further, that:

 

(i) if
the aggregate amount of consideration for all Permitted Acquisitions and
Permitted Creations (including all Indebtedness incurred, repaid or assumed in
connection with Permitted Acquisitions and Permitted Creations occurring after
the Closing Date and net of cash and cash equivalents acquired), cash paid, and
capital stock issued or expended in respect of all such Permitted Acquisitions
and Permitted Creations after the Closing Date is equal to or less than
$15,000,000 (exclusive of any consideration delivered to another Borrower,
whether such Borrower is now a Borrower or becomes a Borrower prior to delivery
of such consideration (whether in the form of cash of capital stock)), then the
Borrowers shall demonstrate to the reasonable satisfaction of the
Administrative Agent that: (A) Pro Forma  Fixed Charge
Coverage Ratio shall be at least 1.10 to 1.00 immediately after giving effect
to such Permitted Acquisition or Permitted Creation, as applicable, and (B) pro
forma Excess Availability shall be at least $15,000,000 immediately after
giving effect to such Permitted Acquisition or Permitted Creation, as
applicable; and

 

(ii) in all other cases,
then the Borrowers shall demonstrate to the reasonable satisfaction of the
Administrative Agent that: (A) Pro Forma
Fixed Charge Coverage Ratio shall be at least 1.30 to 1.00 immediately
after giving effect to such Permitted Acquisition or Permitted Creation, as
applicable, and (B) pro forma Excess Availability shall be at least $25,000,000
immediately after giving effect to such Permitted Acquisition or Permitted
Creation, as applicable.

 

78

 

4.21                Loans.

 

The Obligors shall not make any loans or advances to,
nor acquire the Indebtedness of, any Person, provided,
however, the foregoing does not prohibit any of the following:

 

(a)  Advance payments made to the Obligors’
suppliers in the ordinary course; and

 

(b)  Advances to the Obligors’ officers,
employees, and salespersons with respect to reasonable expenses to be incurred
by such officers, employees, and salespersons for the benefit of the Obligors,
which expenses are properly substantiated by the person seeking such advance
and properly reimbursable by the Obligors.

 

(c)  Additional advances to the Obligors’ officers
approved by the board of directors of the Obligors, in an amount not more than
$1,000,000 in the aggregate.

 

(d)  Advances from a Borrower to another Borrower.

 

(e)  Advances to Guarantors and their
Subsidiaries, in an aggregate amount not to exceed Fifteen Million Dollars
($15,000,000) (without duplication of the investments permitted under Section
4.20(a)(iii)(B)).

 

4.22                Protection
of Assets.

 

The Agent may in its discretion from time to time,
discharge any tax or Encumbrance on any of the Collateral, or take any other
action which the Agent may deem necessary or desirable to repair, insure,
maintain, preserve, collect, or realize upon any of the Collateral.  The Agent shall not have any obligation to
undertake any of the foregoing and shall have no liability on account of any
action so undertaken except where there is a specific finding in a judicial
proceeding (in which the Agent has had an opportunity to be heard), from which
finding no further appeal is available, that the Agent had acted in actual bad
faith or in a grossly negligent manner. 
The Borrowers shall pay to the Administrative Agent, on demand, or the
Administrative Agent, in its discretion, may add to the Loan Account, all amounts
paid or incurred by the Agent pursuant to this Section 4.22.  The obligation of the Borrowers to pay such
amounts is a Liability.

 

4.23                Line of Business.

 

The Obligors shall not engage in any business other
than the business in which it is currently engaged or a business reasonably
related thereto.

 

4.24                Affiliate
Transactions.

 

The Obligors shall
not make any payment, nor give any value to any Affiliate except for goods and
services actually purchased by the Obligors from, or sold by the Borrowers to,
such Affiliate for a price and on terms which shall be no be less favorable to
the Borrowers than those which would have been charged and imposed in an arms
length transaction, provided, however, that under no circumstances shall
investments, loans, and capital contributions from

 

79

 

Borrowers in or to
Guarantors, or their Subsidiaries, including, without limitation, Maternity Factory Warehouse Centre, Inc., exceed,
in the aggregate, Fifteen Million Dollars ($15,000,000) (inclusive of the
investments permitted under Section 4.20(a)(iii)(B) and the capital
contributions and loans permitted under Section 4.20(e) hereof).

 

4.25                Further
Assurances.

 

(a)  Other than property and assets in Canada and
as otherwise provided in this Agreement, the Obligors are not the owner of, nor
have they any interest in, any property or asset in which a Collateral Interest
is required to be granted hereunder which, immediately upon the satisfaction of
the conditions precedent to the effectiveness of the credit facility contemplated
hereby (Article III) will not be subject to perfected Collateral Interests in
favor of the Collateral Agent (subject only to Permitted Encumbrances) to
secure the Liabilities.

 

(b)  The Obligors will not hereafter acquire any
asset or any interest in property in which a Collateral Interest is required to
be granted hereunder which is not, immediately upon such acquisition, subject
to such a perfected Collateral Interest in favor of the Collateral Agent
(subject only to Permitted Encumbrances) to secure the Liabilities.

 

(c)  The Obligors shall execute and deliver to the
Agent such instruments, documents, and papers, and shall do all such things
from time to time hereafter as the Agent may reasonably request to carry into
effect the provisions and intent of this Agreement; to protect and perfect the
Agent’s Collateral Interests in the Collateral; and to comply with all
applicable statutes and laws; and facilitate the collection of the Receivables
Collateral.  The Obligors shall execute
all such instruments as may be reasonably required by the Agent with respect to
the recordation and/or perfection of the Collateral Interests created or
contemplated herein.

 

(d)  The Obligors hereby designate the Agent as
and for the Obligors’ true and lawful attorney, with full power of
substitution, to sign and file any financing statements in order to perfect or
protect the Agent’s Collateral Interests in the Collateral.

 

(e)  A carbon, photographic, or other reproduction
of this Agreement or of any financing statement or other instrument executed
pursuant to this Section 4.25 shall be sufficient for filing to perfect
the security interests granted herein.

 

4.26                Adequacy
OF Disclosure.

 

(a)  All financial statements furnished to the
Agent or the Lenders by the Obligors have been prepared in accordance with GAAP
consistently applied and present fairly the Consolidated condition of the
Obligors at the date(s) thereof and the Consolidated results of operations and
cash flows of the Obligors for the period(s) covered subject,
in the case of interim financials, to normal year end adjustments.  There has been no change in the financial
condition, results of operations, or cash flows of the Obligors since the
date(s) of such financial statements, other than changes in the ordinary course
of business, which changes have not been materially adverse, either singularly
or in the aggregate.

 

80

 

(b)  The Obligors do not have any contingent
obligations or obligation under any Lease or Capital Lease which is not noted
in the Obligors’ most recent Consolidated financial statements furnished to the
Agent or the Lenders prior to the execution of this Agreement which would have
a Material Adverse Effect.

 

(c)  No document, instrument, agreement, or paper
now or hereafter given the Agent or the Lenders by or on behalf of the Obligors
or any guarantor of the Liabilities in connection with the execution of this
Agreement by the Agent or Lenders contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make the statements therein not misleading.  There is no fact known to the Borrowers which
has, or which, in the foreseeable future could have, a material adverse effect
on the financial condition of the Obligors or any such guarantor which has not
been disclosed in writing to the Agent or Lenders.

 

4.27                No Restrictions on Liabilities.

 

No Obligor shall enter into or become subject to,
directly or indirectly, any agreement (other than the Indenture, as in effect
as of the date hereof and without giving effect to any subsequent amendment,
modification, replacement, or substitution thereof) prohibiting or restricting
(other than with respect to Permitted Encumbrances), in any manner (including,
without limitation, by way of covenant, representation, or event of default)
any of the following:

 

(a)  The granting of Collateral Interests in favor
of the Agent on any asset of any Obligor; or

 

(b)  The incurrence of any of the Liabilities.

 

4.28                Other Covenants.

 

No Obligor shall indirectly do or cause to be done any
act which, if done directly by such Obligor or Obligors, would breach any
covenant contained in this Agreement.

 

ARTICLE V. - FINANCIAL
REPORTING AND PERFORMANCE COVENANTS:

 

5.1  Maintain Records.

 

The Obligors shall:

 

(a)  At all times, keep proper books of account,
in which full, true, and accurate entries shall be made of all of the Obligors’
transactions, all in accordance with GAAP applied consistently with prior periods
to fairly reflect the financial condition of the Obligors at the close of, and
its results of operations for, the periods in question.

 

(b)  Timely provide the Agent with those financial
reports, statements, and schedules required by this Article V or otherwise,
each of which reports, statements and

 

81

 

schedules shall be
prepared, to the extent applicable, in accordance with GAAP applied
consistently with prior periods to fairly reflect the financial condition of
the Obligors at the close of, and its results of operations for, the period(s)
covered therein.

 

(c)  At all times, keep accurate current records
of the Collateral including, without limitation, accurate current stock, cost,
and sales records of its Inventory, accurately and sufficiently itemizing and
describing the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.

 

(d)  At all times, retain independent certified
public accountants who are reasonably satisfactory to the Administrative Agent
and instruct such accountants to fully cooperate with, and be available to, the
Administrative Agent to discuss the Obligors’ financial performance, financial
condition, operating results, controls, and such other matters, within the
scope of the retention of such accountants, as may be raised by the
Administrative Agent.

 

(e)  Not change their respective fiscal years, tax
identification numbers, or state of incorporation, except as set forth herein.

 

5.2  Access to Records.

 

(a)  The Obligors shall accord the Agent and the
Agent’s representatives access from time to time as the Agent and such
representatives may require to all properties owned by or over which any
Obligor has control.  The Agent and such
representatives shall have the right, and the Obligors will permit the Agent
and the Agent’s representatives from time to time (upon prior notice and during
normal business hours, if prior to the occurrence and continuance of a
Suspension Event) as Agent and such representatives may request, to examine,
inspect, copy, and make extracts from any and all of the Obligors’ books,
records, electronically stored data, papers, and files.  The Obligors shall make all of the Obligors’
copying facilities available to the Agent and the Agent’s representatives.

 

(b)  The Obligors hereby authorize the Agent and
the Agent’s representatives to:

 

(i)            Subject
to Section 14.26, inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Obligors,
whether maintained by Obligors or by any service bureau, contractor,
accountant, or other person, and directs any such service bureau, contractor,
accountant, or other person who maintains such information for the Obligor
fully to cooperate with the Agent and the Agent’s representatives with respect
thereto.

 

(ii)           Verify
at any time the Collateral or any portion thereof, including upon and following
the occurrence and during the continuance of any Suspension Event: verification
with Account Debtors, and/or with the Borrowers’ computer billing companies,
collection agencies, and accountants and to sign the name of the Obligors on

 

82

 

any
notice to the Obligors’ Account Debtors or verification of the Collateral.

 

5.3  Immediate Notice to Agent.

 

(a)  The Lead Borrower shall provide the
Administrative Agent and Collateral Agent with written notice promptly upon the
occurrence of any of the following events, which written notice shall be with
reasonable particularity as to the facts and circumstances in respect of which
such notice is being given:

 

(i)            Any
change in the Authorized Officers.

 

(ii)           The
completion of any physical count of all or a material portion of the Obligor’s
Inventory (together with a copy of the results thereof certified by the Lead
Borrower).

 

(iii)          Any
cessation by the Obligors of their making payment to its creditors generally as
the Obligors’ debts become due.

 

(iv)          Any
failure by the Obligors to pay rent at any forty or more of the Borrowers’
locations, which failure continues for more than Ten (10) days following the
last day on which such rent was payable.

 

(v)           Any
material adverse change in the business, operations, or financial affairs of
the Obligors.

 

(vi)          The
existence of any Suspension Event or Event of Default.

 

(vii)         Any
decision on the part of any Obligor to discharge the Obligors’ present
independent accountants or any withdrawal or resignation by such independent
accountants from their acting in such capacity.

 

(viii)        Any
litigation which, if determined adversely to the Obligors, could be reasonably
expected to have a Material Adverse Effect.

 

(ix)           Any
violation of any Environmental Law that the Obligors or any of their
Subsidiaries reports in writing or is reportable by such Person in writing (or
for which any written report supplemental to any oral report is made) to any
Governmental Authority and upon becoming aware thereof, of any inquiry,
proceeding, investigation, or other action, including a notice from any agency
of potential environmental liability, of any Governmental Authority.

 

(b)  The Lead Borrower shall:

 

83

 

(i)            Provide
the Administrative Agent, when so distributed, with copies of any materials
distributed to the shareholders of any Obligor (qua
such shareholders).

 

(ii)           At
the reasonable request of the Administrative Agent, from time to time, provide
the Agent with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio advertising).

 

(iii)          Provide
the Administrative Agent, when received by the Obligors, with a copy of any
management letter or similar communications from any accountant of the
Obligors.

 

5.4  Borrowing Base Certificate.

 

The Lead Borrower shall provide the Collateral Agent
by 11:30 a.m., on the tenth Business Day of each month, with a “Borrowing Base
Certificate” (in the form of EXHIBIT  5.4 as such form may be revised from time to time by the
Collateral Agent), reflecting the Obligor’s condition on the last Business Day
of the reporting period immediately prior to the date when furnished, provided
that, for any week that Excess Availability is less than $10,000,000, the Lead
Borrower shall provide the Agent by 11:30 a.m., weekly, on the Second (2nd)
Business Day of the following week, with such Borrowing Base Certificate
reflecting the Borrower’s condition on the last Business Day of the prior week.
Such Certificate shall be signed by an Authorized Officer and may be sent to
the Agent by facsimile or email (with electronic signature) transmission.

 

5.5  Weekly Reports.

 

In the event that a Borrowing Base Certificate is
required weekly, then, in addition, on a weekly basis, on Tuesday of each week
(as of the then immediately preceding Saturday) the Lead Borrower shall provide
the Collateral Agent with a flash inventory and accounts receivable collateral
report (each in such form as may be specified from time to time by the
Collateral Agent). Such report may be sent to the Collateral Agent by facsimile
transmission, provided that the original thereof is forwarded to the Collateral
Agent on the date of such transmission.

 

5.6  Monthly Reports.

 

(a)  Monthly, the Lead Borrower shall provide the
Collateral Agent with original counterparts of the following (each in such form
as the Collateral Agent from time to time may specify):

 

(i)            Within
Fifteen (15) days of the end of the previous month:

 

(A)          A
“Stock Ledger Report”.

 

(B)           A
“General Ledger Inventory Report”.

 

84

 

(C)           Reconciliation
between stock ledger and general ledger as of the end of the subject month.

 

(D)          A
leased department inventory report (for locations within department or specialty
stores or other locations in which a Borrower leases or licenses a portion of
the space in such store).

 

(E)           L/C
inventory and in-transit inventory report (if in the Borrowing Base).

 

(F)           A
“General Ledger Accounts Receivable Report”.

 

(G)           A
“General Ledger Other Accounts Receivable Report”.

 

(H)          An
aging of the Borrowers’ Accounts.

 

(I)            
An aging of the Borrowers’ accounts payable.

 

(J)            Third
party statements as to Eligible Liquid Collateral and Liquid Collateral
Investments.

 

(K)          A
Gross Margin reconciliation.

 

(L)           A
store activity report.

 

(ii)           Within
Thirty (30) days of the end of the previous month:

 

(A)          The
Officer’s Compliance Certificate described in Section 5.9.

 

(B)           An
internally prepared financial statement of the Borrowers’ financial condition and
the results of its operations for, the period ending with the end of the
subject month, which financial statement shall include, at a minimum, a
consolidated balance sheet, income statement, cash flow and comparison to the
Business Plan, which statement shall be certified by the Lead Borrower’s chief
financial officer or chief operating officer as fairly presenting the financial
position of the Borrowers in accordance with GAAP (subject to year-end audit
adjustments).

 

(C)           In
addition, if Accounts in an aggregate face amount in excess of $500,000 become
newly ineligible because they fall within one of the specified categories of
ineligibility set forth in the definition of Eligible Accounts or otherwise

 

85

 

established by
Administrative Agent, Borrowers shall notify the Administrative Agent of such
occurrence no later than the sixth Business Day following such occurrence and
the Borrowing Base shall thereupon be adjusted to reflect such occurrence.

 

(b)  For purposes of Section 5.6(a)(i),
above, the first “previous month” in respect of which the items required by
that Section shall be provided shall be September 2004, and for purposes of Section
5.6(a)(ii), above, the first “previous month” in respect of which the items
required by that Section shall be provided shall be August 2004.

 

(c)  Until otherwise requested by the
Administrative Agent, the items required by Sections 5.6(a)(i), and
5.6(a)(ii)(C) may be delivered in electronic format.

 

5.7  Quarterly Reports.

 

Quarterly, within Forty Five (45) days following the
end of each of the Borrower’s first three fiscal quarters, the Borrowers shall
provide the Agent with an original counterpart of a management prepared
financial statement of the Borrowers for the period from the beginning of the
Borrowers’ then current fiscal year through the end of the subject quarter,
with comparative information for the same period of the previous fiscal year,
which statement shall include, at a minimum, a consolidated balance sheet,
income statement (if requested, on a company specific and on a “consolidating”
basis), statement of changes in shareholders’ equity, and cash flows and
comparisons for the corresponding quarter of the then immediately previous
year, as well as to the Business Plan.

 

5.8    Annual Reports.

 

(a)  Annually, within 90 days following the end of
the Borrowers’ fiscal year, the Lead Borrower shall furnish the Agent with the
following:

 

(i)            Borrowers’
Consolidated annual financial statement, which statement shall have been
prepared by, and bear the unqualified opinion of, the Borrowers’ independent
certified public accountants (i.e. said statement shall be “certified” by such
accountants) and shall include, at a minimum (with comparative information for
the then prior fiscal year) a balance sheet, income statement, statement of
changes in shareholders’ equity, and cash flows; and

 

(ii)           The
Officer’s Compliance Certificate described in Section 5.9.

 

(b)  Each annual statement shall be accompanied by
such accountant’s certificate indicating that, in conducting the audit for such
annual statement, nothing came to the attention of such accountants to believe
that any Suspension Event relating to the financial performance covenants
imposed pursuant to Section 5.12
had occurred during the subject fiscal year (or if one or more had occurred,
the facts and circumstances thereof).

 

86

 

5.9  Officers’ Certificates.

 

(a)  The Lead Borrower shall cause its Authorized
Officer to certify, in the form attached hereto as EXHIBIT 5.9 (the
“Officer’s Compliance Certificate”) in
connection with those monthly and annual statements to be furnished pursuant to
this Agreement that:

 

(i)            Such
statement was prepared in accordance with GAAP consistently applied and
presents fairly the financial condition of the Borrowers at the close of, and
the results of the Borrowers’ operations and cash flows for, the period(s)
covered, subject, however
to the following:

 

(A)          usual
year end adjustments (this exception shall not be included in the Certificate
which accompanies such annual statement).

 

(B)           Material
Accounting Changes (in which event, such certificate shall include a schedule
(in reasonable detail) of the effect of each such Material Accounting Change)
not previously specifically taken into account in the determination of the
financial performance covenant imposed pursuant to Section 5.12.

 

(ii)           No
Suspension Event or Event of Default has occurred which is continuing, or if
such event has occurred, its nature (in reasonable detail) and the steps (if
any) being taken or contemplated by the Borrowers to be taken on account
thereof.

 

(iii)          The
Borrowers were in compliance (or had failed to comply) as of the date of the
applicable statement with each of the financial performance covenants included
in Section 5.12 hereof; such certification to be accompanied by
calculations demonstrating such compliance or failure to comply.

 

5.10                Inventories, Appraisals,
and Audits.

 

(a)  The Collateral Agent may, at the expense of
the Borrowers, participate in and/or observe each inventory and any cycle count
of the Collateral which is undertaken on behalf of the Borrowers (provided that
any expenses of Collateral Agent for which Collateral Agent seeks reimbursement
shall be reasonable expenses).  No
Borrower may, without the prior written consent of the Collateral Agent, change
the methodology to be followed in connection with the conduct of and reporting
on the results of such inventory from the methodology employed by the Borrowers
as of the date of this Agreement.

 

(b)  The Borrowers, at their expense, shall cause
each store location, warehouse, and distribution center to have not less than
One (1) physical inventory or cycle count in each Twelve (12) month period to be
undertaken consistent with current practice, while this

 

87

 

Agreement is in effect
(the scheduling of which shall be subject to the Collateral Agent’s reasonable
discretion), conducted by such inventory takers as are reasonably satisfactory
to the Collateral Agent and following such methodology as may be reasonably
satisfactory to the Agent.

 

(i)            The
Lead Borrower shall provide the Collateral Agent with a copy of the preliminary
results of each such inventory (as well as of any other physical inventory
undertaken by the Borrowers) within Ten (10) days after its completion.

 

(ii)           The
Lead Borrower shall provide the Collateral Agent with a reconciliation of the
results of each such inventory (as well as of any other physical inventory
undertaken by the Borrowers) to the Borrowers’ books and records within Thirty
(30) days following the completion of such inventory.

 

(iii)          The
Collateral Agent, in its discretion, following the occurrence of and during the
continuance of a Suspension Event, may cause such additional inventories to be
taken as the Collateral Agent determines (each, at the expense of the
Borrowers).

 

(c)  The Collateral Agent contemplates obtaining
up to One (1) appraisal (at the expense of the Borrower) of the Borrowers’
Inventory during each Twelve (12) month period during which this Agreement is
in effect, each conducted by such appraisers as are satisfactory to the
Collateral Agent,  and contemplates obtaining
up to One (1) additional appraisal (at the expense of the Borrowers) during any
Twelve (12) month period in which Excess Availability falls below $20,000,000
at any time,  but in its discretion, may
obtain additional appraisals of the Borrowers’ Inventory and Real Estate in the
event it deems it reasonably necessary in its discretion (such additional
appraisals, if not conducted after and during the continuance of an Event of
Default, shall be at Collateral Agent’s expense).

 

(d)  The Collateral Agent contemplates conducting
One (1) commercial finance audit (at the expense of the Borrowers) of the
Borrowers’ books and records during each Twelve (12) month period during which
this Agreement is in effect and contemplates conducting up to One (1)
additional commercial finance audit (at the expense of the Borrowers) during
any Twelve (12) month period in which Excess Availability falls below
$20,000,000 at any time, but in its discretion, may obtain more in the event it
deems it reasonably necessary in its discretion (such additional commercial finance
audits, if not conducted after and during the continuance of an Event of
Default, shall be at Collateral Agent’s expense).

 

5.11                Additional Financial Information.

 

(a)  In addition to all other information required
to be provided pursuant to this Article V, the Lead Borrower promptly shall
provide the Agent (and any guarantor of the Liabilities), such other and
additional information concerning the Obligors, the Collateral, the operation
of the Obligors’ business, and the Obligors’ financial condition, including
financial

 

88

 

reports and statements
(including supporting schedules), as the Agent may from time to time reasonably
request from the Lead Borrower.

 

(b)  The Lead Borrower may
provide the Agent, from time to time hereafter, with updated forecasts of the
Obligors’ anticipated performance and operating results.

 

(c)  The Lead Borrower shall, no later than Thirty
(30) days prior to the end of each of the Borrowers’ fiscal years, furnish the
Administrative Agent with a draft updated and extended forecast (which forecast
shall be proposed by the Lead Borrower to become the Business Plan as provided
in clause (5.11(d) below) which shall go out at least through the end of the
then next fiscal year and shall include a Consolidated income statement,
balance sheet, and statement of cash flow, by month, as well as components of
the Borrowing Base and shall include assumptions as are reasonably satisfactory
to the Agent, each prepared in conformity with GAAP and consistent with the
Borrowers’ then current practices, and the Lead Borrower shall, no later than
Sixty (60) days after the end of each of the Borrowers’ fiscal years, furnish
the Agent with a final updated and extended forecast which shall go out at least
through the end of the then next fiscal year and shall include a Consolidated
income statement, balance sheet, and statement of cash flow, by month, as well
as components of the Borrowing Base and shall include assumptions as are
reasonably satisfactory to the Agent, each prepared in conformity with GAAP and
consistent with the Borrowers’ then current practices,.

 

(d)  The Administrative Agent, following the
receipt of any of such forecast, may, but shall not be under any obligation to,
accept in writing such forecast (in which event, such forecast shall become the
Business Plan).

 

(e)  Intentionally omitted.

 

(f)  Promptly after the sending or filing thereof,
as the case may be, the Obligors shall deliver to the Administrative Agent
copies of any proxy statements, financial statements or reports which Obligors
have sent to shareholders qua shareholders and copies of any regular, periodic
and special reports or registration statements which Obligors file with the
Securities and Exchange Commission of any governmental authority which may be
substituted therefore, or any national securities exchange.

 

(g)  The Obligors recognize that all appraisals,
inventories, analysis, financial information, and other materials which the
Agent may obtain, develop, or receive with respect to the Obligors is
confidential to the Agent and that, except as otherwise provided herein, the
Obligors are not entitled to receipt of any of such appraisals, inventories,
analysis, financial information, and other materials, nor copies or extracts
thereof or therefrom.

 

5.12                Financial Performance Covenants.

 

The Borrowers shall observe and comply with those
financial performance covenants set forth on EXHIBIT
5.12(a) certain of which covenants are based on the Business Plan
set forth on EXHIBIT 5.12(b).  Compliance with such financial performance
covenants shall be made as if no Material Accounting Changes had been made
(other than any Material Accounting Changes

 

89

 

specifically taken into account in the setting of such
covenants).  The Administrative Agent may
determine the Borrowers’ compliance with such covenants based upon financial
reports and statements provided by the Lead Borrower to the Administrative
Agent (whether or not such financial reports and statements are required to be
furnished pursuant to this Agreement) as well as by reference to interim
financial information provided to, or developed by, the Administrative Agent.

 

ARTICLE VI. - USE AND COLLECTION OF COLLATERAL:

 

6.1  Use of Inventory Collateral.

 

(a)  The Borrowers shall not engage in any sale of
the Inventory other than for fair consideration in the conduct of the
Borrowers’ business in the ordinary course and shall not engage in sales or
other dispositions to creditors, sales or other dispositions in bulk, or any
use of any of the Inventory in breach of any provision of this Agreement.

 

(b)  No sale of Inventory shall be on consignment,
approval, or under any other circumstances such that, with the exception of the
Borrowers’ customary return policy applicable to the return of Inventory
purchased by the Borrowers’ retail customers in the ordinary course, such
Inventory may be returned to the Borrowers without the consent of the Agent.

 

6.2  Inventory Quality.

 

All Inventory now owned or hereafter acquired by the
Borrowers is and will be of good and merchantable quality and free from defects
(other than defects within customary trade tolerances or for purchases of
“irregular” Inventory in accordance with current practices).

 

6.3  Adjustments and Allowances.

 

The Borrowers may grant such allowances or other
adjustments to the Borrowers’ Account Debtors (exclusive of extending the time
for payment of any Account or Account Receivable, which shall not be done
except in the ordinary course of the Borrowers’ business) as the Borrowers may
reasonably deem to accord with sound business practice, provided,
however, upon the occurrence and during
the continuance of an Event of Default, the authority granted the Borrowers
pursuant to this Section 6.3 may be limited or terminated by the
Collateral Agent at any time in the Collateral Agent’s discretion.

 

6.4  Validity of Accounts.

 

(a)  The amount of each Account shown on the
books, records, and invoices of the Borrowers represented as owing by each
Account Debtor is and will be the correct amount actually owing by such Account
Debtor and shall have been fully earned by performance by the Borrowers.

 

90

 

(b)  Upon and following the occurrence and during
the continuance of any Suspension Event, the Collateral Agent from time to time
may verify the Receivables Collateral directly with the Borrowers’ Account
Debtors, such verification to be undertaken in keeping with commercially
reasonable commercial lending standards.

 

(c)  The Borrowers have no knowledge of any
impairment of the validity or collectibility of any material portion of the
Accounts (and no knowledge of any impairment of the validity or collectibility
of any of the Eligible Accounts or Eligible Credit Card Receivables) and the
Lead Borrower shall notify the Collateral Agent of any such fact immediately
after any Borrower becomes aware of any such impairment.

 

(d)  Except with respect to performance bonds in
respect of construction contracts, up to an aggregate maximum of $2,500,000,
for which the sole collateral is the Borrower’s cash, the Borrowers shall not
post any bond to secure any Borrowers’ performance under any agreement to which
any Borrower is a party nor cause any surety, guarantor, or other third party
obligee to become liable to perform any obligation of any Borrower (other than
to the Agent) in the event of such Borrower’s failure so to perform.

 

6.5  Notification to Account Debtors.

 

The Collateral Agent shall have the right (upon and
following the occurrence and during the continuance of any Suspension Event) to
notify any of the Borrowers’ Account Debtors to make payment directly to the
Collateral Agent and to collect all amounts due on account of the Collateral.

 

ARTICLE VII. -  CASH MANAGEMENT; PAYMENT OF
LIABILITIES:

 

7.1  Depository Accounts.

 

(a)  Annexed hereto as EXHIBIT 7.1
is a Schedule of all present DDA’s, which includes, with respect to each
depository (i) the name and address of that depository; (ii) the account number(s)
of the account(s) maintained with such depository; and (iii) a contact person
at such depository.

 

(b)  The Lead Borrower shall deliver the following
to the Collateral Agent, as a condition to the effectiveness of this Agreement:

 

(i)            With
respect to DDA’s that are not Blocked Accounts, the Operating Account, or
Exempt DDA’s, notification, executed on behalf of the Obligors, to each
depository institution with which any DDA is maintained, in form satisfactory
to the Collateral Agent of the Collateral Agent’s interest in such DDA.

 

91

 

(ii)           With
respect to DDA’s that are Blocked Accounts or the Operating Account, a Blocked
Account Agreement with any depository institution at which such accounts are
maintained.

 

(c)  The Obligors will not establish any DDA
hereafter (other than an Exempt DDA) unless, contemporaneous with such
establishment, the Lead Borrower delivers the following to the Collateral
Agent:

 

(i)            With
respect to DDA’s that are not Blocked Accounts, the Operating Account, or
Exempt DDA’s, notification to the depository at which such DDA is established
if the same would have been required pursuant to Section 7.1(b)(i) if
the subject DDA were open at the execution of this Agreement; and

 

(ii)           With
respect to DDA’s that are Blocked Accounts or the Operating Account, a Blocked
Account Agreement executed on behalf of the depository at which such DDA is
established if the same would have been required pursuant to Section
7.1(b)(ii) if the DDA were open at the execution of this Agreement.

 

7.2  Credit Card Receipts.

 

(a)  Annexed hereto as EXHIBIT
7.2, is a Schedule which describes all
arrangements to which the Obligors are a party with respect to the payment to
the Obligors of the proceeds of credit card charges for sales by the Obligors.

 

(b)  The Obligors shall deliver to the Collateral
Agent, as a condition to the effectiveness of this Agreement, notification,
executed on behalf of the Obligors, to each of the Obligors’ credit card
clearinghouses and processors of notice (in form satisfactory to the Collateral
Agent), which notice provides that payment of all credit card charges submitted
by the Obligors to that clearinghouse or other processor and any other amount
payable to the Obligors by such clearinghouse or other processor shall be
directed to the Operating Account, or if a Sweep Period is effect, as otherwise
designated from time to time by the Collateral Agent.  The Obligors shall not change such direction
or designation except upon and with the prior written consent of the Collateral
Agent.

 

7.3  The Concentration, Blocked, and Operating Accounts.

 

(a)  The following checking accounts have been or
will be established (and are so referred to herein):

 

(i)            The
“Concentration Account”: Established by
the Administrative Agent with Fleet National Bank.

 

(ii)           The
“Blocked Account(s)”: Established by
each of the Obligors with (A) Bank One, N.A., Wells Fargo Bank, N.A., Bank of
America, N.A., and FNB, and, upon 60 days’ prior written notice

 

92

 

from the
Collateral Agent to the Lead Borrower, Wachovia Bank, N.A. (provided, that the
accounts at Wachovia Bank. N.A. shall not be Blocked Accounts, notwithstanding
such 60-day notice, if after the Lead Borrower has used best efforts to cause
Wachovia Bank, N.A. to enter into a Blocked Account Agreement acceptable to the
Collateral Agent, Wachovia Bank, N.A. has not entered into such an agreement)
or (B) any other banks satisfactory to the Administrative Agent, into which
deposits from other DDA’s must be directed and from which the Obligors shall not
make disbursements other than to the Operating Account or the Concentration
Account.

 

(iii)          The
“Operating Account”:  Established by each of the Obligors with
Fleet National Bank, from which only disbursements may be made and into which
advances under the Revolving Credit may be deposited or deposits from the
Blocked Account(s) may be made.

 

(b)  The contents of each DDA and of the Blocked
Account constitutes Collateral and Proceeds of Collateral. The contents of the
Concentration Account constitutes the Administrative Agent’s property.

 

(c)  The Obligors shall not establish any Blocked
Account hereafter except upon not less than thirty (30) days written notice to
the Collateral Agent and the delivery to the Collateral Agent of a Blocked
Account Agreement with respect thereto.

 

(d)  The Obligors shall pay all fees and charges
of, and maintain such impressed balances as may be required by the depository
in which any account is opened as required hereby (even if such account is
opened by and/or is the property of the Agent).

 

(e)  Notwithstanding anything to the contrary
contained in this Section 7.3 or elsewhere in this Agreement, each
Blocked Account Agreement shall provide (except as the Collateral Agent may
otherwise agree in writing) that, until Collateral Agent has notified the
financial institution maintaining such Blocked Account in writing to forward by
daily sweep all amounts in the applicable Blocked Account to the Concentration
Account, all amounts in the applicable Blocked Account shall be forwarded
pursuant to the instructions of the applicable Obligor given to the depository
institution maintaining such Blocked Account from time to time.  Collateral Agent shall be entitled to give
the aforementioned notification to such financial institution, or to request
that the Obligors deliver such a notification to such financial institution
under Section 7.3(f), at any time after either (i) the occurrence and during
the continuance of an Event of Default, or (ii) except as specified in Section
7.3(g)(1), Excess Availability on any day is less than $10,000,000 (the period
during which the Collateral Agent may give such a notice, a “Sweep Period”); provided,
however, that, subject to the following sentence, each Sweep Period will
be suspended within Five (5) Business Days of: 
(y) Agent’s and Lenders’ written waiver of any relevant Event of
Default; or (z) Borrowers’ Excess Availability exceeding $20,000,000 for Sixty
(60) consecutive days (a “Sweep Suspension”).  A Sweep Suspension will be permitted to occur
only Two (2) times during the effectiveness of this Agreement, such that in the
event that

 

93

 

Excess Availability is
less than $10,000,000 or an Event of Default occurs after a second Sweep
Suspension has occurred, no Sweep Suspension will be effective and the Sweep
Period shall continue in effect.

 

(f)  Except as set forth in Section 7.3(g)(1), the
Obligors agree that, at any time or from time to time during a Sweep Period
that the Collateral Agent requests that the Obligors deliver to such a
financial institution an instruction to forward by daily sweep all amounts in
the applicable Blocked Account to the Concentration Account, the Obligors shall
immediately upon such a request deliver such an instruction to such financial
institution and deliver a written copy thereof to the Collateral Agent.

 

(g)  Notwithstanding anything to the contrary in
Sections 7.3(e) or 7.3(f), with respect to the Lead Borrower’s Blocked Accounts
numbered 1417650388 and 1000008202 at the Bank of America, N.A., the Collateral
Agent agrees that:

 

(1) if
a Sweep Period is triggered solely by an event under clause (ii) of Section
7.3(e) above, then the Collateral Agent shall, prior to sending the instruction
described in Section 7.3(e) to Bank of America, N.A., request that the Obligors
deliver such an instruction, and the Collateral Agent shall, in such a
circumstance, itself send such an instruction to Bank of America, N.A. only if
the Obligors have failed to demonstrate to Collateral Agent, prior to 5:00 p.m.
(Boston time) on the Business Day following the date of such request, that the
Obligors have delivered the requested instruction; and

 

(2) if
the Collateral Agent itself has delivered an instruction to Bank of America,
N.A. to forward by daily sweep all amounts in the applicable Blocked Account to
the Concentration Account, the Collateral Agent agrees that if and when either
or both of the two (2) permitted Sweep Suspensions becomes effective, it shall
thereafter, at the request of the Lead Borrower, and until the commencement of
a subsequent Sweep Period, either: (a) instruct the Bank of America to cause
amounts at such Blocked Accounts to be redirected to the Operating Account,
instead of the Concentration Account; (b) subject to Bank of America, N.A.’s
agreement to do so, enter into a new Blocked Account Agreement with the Bank of
America, N.A. substantially in the form of the Blocked Account Agreement dated
as of or about even date herewith, with such changes thereto as may be
reasonably requested by the parties, with respect to the such Blocked Accounts
or new Blocked Accounts at Bank of America, N.A.; or (c) take such other steps
to redirect amounts at such Blocked Accounts to the Operating Account or as the
Lead Borrower and the Collateral Agent may otherwise agree in writing in their
sole discretion.

 

7.4  Proceeds and Collection of Accounts.

 

(a)  All Receipts constitute Collateral and
proceeds of Collateral and shall be held in trust by the Obligors for the
Collateral Agent, shall not be commingled with any of the Obligors’ other
funds, and shall be deposited and/or transferred only to a Blocked Account, the
Operating Account, or the Concentration Account, or another DDA permitted
hereunder (and, in

 

94

 

such case, only if the
funds in such DDA are deposited and/or transferred to a Blocked Account,
Operating Account, or Concentration Account).

 

(b)  The Obligors shall cause the ACH or wire
transfer to a Blocked Account or the Operating Account, as designated by
Collateral Agent (or, during any Sweep Period, shall permit the Agent to cause
such daily ACH or wire transfers to a Blocked Account or the Operating
Account), no less frequently than weekly (and, during any Sweep Period, no less
frequently than daily) (and whether or not there is then an outstanding balance
in the Loan Account) of the following:

 

(i)            The
contents of each DDA (other than any Exempt DDA, the Blocked Accounts, or the
Operating Account).  Each such transfer
to be net of any minimum balance, not to exceed $2,500 multiplied by the number
of stores from which receipts are deposited into such DDA, as may be required
to be maintained in the subject DDA by the bank at which such DDA is
maintained.

 

(ii)           The
proceeds of all credit card charges not otherwise provided for pursuant hereto.

 

Telephone advice
(confirmed by written notice) shall be provided to the Collateral Agent on each
Business Day on which any such transfer is made.

 

(c)  During any Sweep Period, whether or not any
Liabilities are then outstanding, the Borrowers shall cause the daily ACH or
wire transfer to the Concentration Account, or as otherwise designated by
Collateral Agent (or shall permit the Collateral Agent to cause such daily ACH
or wire transfers to the Concentration Account or as otherwise designated by
Collateral Agent),  of then entire ledger
balance of each Blocked Account or the Operating Account, net of such minimum
balance, not to exceed $2,500, as may be required to be maintained in the
Blocked Account or the Operating Account by the depository which the Blocked
Account or the Operating Account is maintained.

 

(d)  In the event that, notwithstanding the provisions
of this Section 7.4, the Obligors receive or otherwise have dominion and
control of any Receipts, or any proceeds or collections of any Collateral, such
Receipts, proceeds, and collections shall be held in trust by the Obligors for
the Collateral Agent and shall not be commingled with any of the Obligors’
other funds or deposited in any account of the Borrowers other than as set
forth herein or as instructed by the Collateral Agent.

 

7.5  Payment of Liabilities.

 

(a)  On each Business Day, the Administrative
Agent shall apply the then collected balance, if any, of the Concentration
Account (net of fees charged, and of such minimum balances as may be required
by the bank at which the Concentration Account is maintained) first, towards
the unpaid balance of SwingLine Loans, second, towards the unpaid balance of
the Loan Account and third towards all other Liabilities.

 

95

 

(b)  The following rules 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 notice of such deposit is
available to the Administrative Agent by 2:00 p.m. on that Business Day.

 

(ii)           Funds
paid to the 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 notice of such
payment is available to the Agent by 2:00 p.m. on that Business Day.

 

(iii)          If
notice of a deposit to the Concentration Account (Section 7.5(b)(i)) or
payment (Section 7.5(b)(ii)) is not available to the Agent until after
2:00 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)          All
deposits to the Concentration Account and other payments to the Agent are
subject to clearance and collection.

 

(c)  The Administrative Agent shall transfer to
the Operating Account any surplus in the Concentration Account remaining after
the application towards the Liabilities referred to in Section 7.5(a),
above (less those amount which are to be netted out, as provided therein) provided, however, in the event that a Suspension Event or
Event of Default exists and/or one or more L/C’s are then outstanding, then the
Agent may establish a funded reserve of up to 110% of the aggregate Stated
Amounts of such L/C’s.  Such funded
reserve shall either be (i) returned to the Borrowers provided
that, no Suspension Event or Event of Default exists or (ii) applied
towards the Liabilities following Acceleration.

 

7.6  The Operating Account and Disbursement Account.

 

Except as otherwise specifically provided in, or
permitted by, this Agreement, all checks shall be drawn by the Borrowers upon,
and other disbursements shall be made by the Borrowers solely from, the
Operating Account or Exempt DDAs.

 

ARTICLE VIII. -  GRANT OF SECURITY INTEREST:

 

8.1  Grant of Security Interest.

 

To secure the Obligors’ prompt, punctual, and faithful
performance and payment of all and each of the Liabilities, each Obligor hereby
grants to the Collateral Agent, for the benefit of the Agents and the Lenders,
a continuing security interest in and to, and assigns to the Collateral

 

96

 

Agent certain assets as set forth below of the
Obligors, and each item thereof, whether now owned or now due, or in which in
which that Obligor has an interest, or hereafter acquired, arising, or to
become due, or in which that Obligor obtains an interest, and all products,
Proceeds, substitutions, and accessions of or to any of the following (all of
which, together with any other property in which the Agent may in the future be
granted a security interest, is referred to herein as the “Collateral”):

 

(a)  All Accounts.

 

(b)  All Inventory.

 

(c)  All General Intangibles.

 

(d)  All Chattel Paper.

 

(e)  All Leasehold Interests.

 

(f)  The Headquarters Facility, together with all
Fixtures in connection therewith or located thereon.

 

(g)  All Letter-of-Credit Rights.

 

(h)  All Payment Intangibles.

 

(i)  All Supporting Obligations.

 

(j)  All books, records, and information relating
to the Collateral and/or to the operation of the Obligors’ business, and all
rights of access to such books, records, and information, and all property in
which such books, records, and information are stored, recorded, and
maintained.

 

(k)  All Investment Property, Instruments,
Documents, Documents of Title, Deposit Accounts, policies and certificates of
insurance, deposits, impressed accounts, compensating balances, money, cash, or
other property.

 

(l)  All commercial tort claims.

 

(m)  All insurance proceeds, refunds, and premium
rebates, including, without limitation, proceeds of fire and credit insurance,
whether any of such proceeds, refunds, and premium rebates arise out of any of
the foregoing ( 8.1(a) through 8.1(m) ) or otherwise.

 

(n)  All supporting obligations and all present
and future liens, security interests, rights, remedies, title and interest in,
to and in respect of Accounts and other Collateral, including (i) rights and
remedies relating to guaranties, contracts of suretyship, letter of credit and
credit and other insurance related to the Collateral, (ii) rights of stoppage
in transit, replevin, repossession, reclamation and other rights and remedies
of an unpaid vendor, lien or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect thereto,

 

97

 

or otherwise representing
or evidencing, Accounts or other Collateral, including returned, repossessed
and reclaimed goods, and (iv) deposits by and property of Account Debtors or
other persons securing the obligations of Account Debtors.

 

8.2  Extent and Duration of Security Interest.

 

The security interest created and granted herein is in
addition to, and supplemental of, any security interest previously granted by
the Obligors to the Agent and shall continue in full force and effect
applicable to all Liabilities until all Liabilities have been paid and/or
satisfied in full, the Commitment of the Lenders to make loans and other
financial accommodations has been terminated, and the security interest granted
herein is specifically terminated in writing by a duly authorized officer of
the Collateral Agent.

 

8.3  Perfection of Security Interests.

 

(a)  Each of the Obligors agrees to take all
action that the Collateral Agent may request as a matter of nonbankruptcy law
to perfect and protect the Collateral Agent’s Collateral Interest in the
Collateral and for such Collateral Interest to obtain the priority therefore
contemplated hereby, including, without limitation, executing and delivering
such documents and instruments, financing statements, obtaining such notices
and assents of third parties, obtaining governmental approvals and providing
such other instruments and documents in recordable form as the Collateral Agent
may request.  Obligors irrevocably and
unconditionally authorize the Collateral Agent to file at any time and from
time to time such financing statements with respect to the Collateral naming
the Collateral Agent or its designee as the secured party and Obligors as
debtors, as Collateral Agent may require, together with any amendment and
continuations with respect thereto, that (a) indicate the Collateral (i) as
“all assets of such Obligor” or words of similar effect, regardless of whether
any particular asset comprised in the Collateral falls within the scope of
Article 9 of the Uniform Commercial Code of the State of New York or such
jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (b) provide any other information required by part 5 of Article 9
of the Uniform Commercial Code of any jurisdiction for the sufficiency or
filing office acceptance of any financing statement or amendment, including (i)
whether such Obligor is an organization, the type of organization and any
organization identification number issued to such Obligor and, (ii) in the case
of a financing statement filed as a fixture filing, if any, a sufficient
description of real property to which the Collateral relates.  Such Obligor agrees to furnish any such
information to the Collateral Agent promptly upon the Agent’s request.  Obligors hereby authorize Collateral Agent to
adopt on behalf of Obligors any symbol required for authenticating any
electronic filing.  In no event shall
Obligors at any time file, or permit or cause to be filed,  any correction statement or termination
statement with respect to any financing statement (or amendment or continuation
with respect thereto) naming Collateral Agent or its designee as secured party
and Obligors as debtors.

 

(b)  No Obligor has any Chattel Paper (whether
tangible or electronic) or instruments as of the date hereof.  In the event that any Obligor shall be
entitled to or shall receive any Chattel Paper or instrument after the date
hereof, such Obligor or the Lead Obligor shall promptly notify Collateral Agent
thereof in writing.  Promptly upon the
receipt thereof by or

 

98

 

on behalf of such Obligor
(including by any agent or representative), such Obligor or the Lead Borrower
shall deliver, or cause to be delivered to Collateral Agent, all tangible
Chattel Paper and instruments that such Obligor or may at any time acquire,
accompanied by such instruments of transfer or assignment duly executed in
blank as Collateral Agent may from time to time specify, in each case except as
Collateral Agent may otherwise agree.  At
Collateral Agent’s option, such Obligor or the Lead Borrower shall, or
Collateral Agent may at any time on behalf of such Obligor, cause the original
of any such instrument or Chattel Paper to be conspicuously marked in a form
and manner acceptable to Collateral Agent with the following legend referring
to Chattel Paper or instruments as applicable: “This [chattel
paper][instrument] is subject to the security interest of [name of Collateral
Agent] and any sale, transfer, assignment or encumbrance of this [chattel
paper][instrument] violates the rights of such secured party.”

 

(c)  In the event that any Obligor shall at any
time hold or acquire an interest in any electronic Chattel Paper or any
“transferable record” (as such term is defined in Section 201 of the Federal
Electronic Signatures in Global and National Commerce Act or in Section 16 of
the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction), such Obligor or the Lead Borrower shall promptly notify
Collateral Agent thereof in writing. 
Promptly upon Collateral Agent’s request, such Obligor or the Lead
Borrower shall take, or cause to be taken, such actions as Collateral Agent may
reasonably request to give Collateral Agent control of such electronic Chattel
Paper under Section 9-105 of the UCC and control of such transferable record
under Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or, as the case may be, Section 16 of the Uniform Electronic
Transactions Act, as in effect in such jurisdiction.

 

(d)  Except as set forth on Exhibit 8.3(d), no
Obligor owns or holds, directly or indirectly, beneficially or as record owner
or both, any Investment Property, as of the date hereof, or has any investment
account, securities account, commodity account or other similar account with
any bank or other financial institution or other securities intermediary or
commodity intermediary as of the date hereof.

 

(i)            In
the event that any Obligor shall be entitled to or shall at any time after the
date hereof hold or acquire any certificated securities, such Obligor or the
Lead Borrower shall promptly endorse, assign and deliver the same to Collateral
Agent, accompanied by such instruments of transfer or assignment duly executed
in blank as Collateral Agent may from time to time specify.  If any securities, now or hereafter acquired
by any Obligor are uncertificated and are issued to any Obligor or its nominee
directly by the issuer thereof, such Obligor shall immediately notify
Collateral Agent thereof and shall as Collateral Agent may specify, either (A)
cause the issuer to agree to comply with instructions from Collateral Agent as
to such securities, without further consent of such Obligor or such nominee, or
(B) arrange for Collateral Agent to become the registered owner of the
securities.

 

99

 

(ii)           No
Obligor shall, directly or indirectly, after the date hereof open, establish or
maintain any investment account, securities account, commodity account or any
other similar account (other than a deposit account) with any securities
intermediary or commodity intermediary unless each of the following conditions
is satisfied:  (A)  Collateral Agent shall have received not less
than Five (5) Business Days prior written notice of the intention of a Obligor
to open or establish such account which notice shall specify in reasonable
detail and specificity acceptable to Collateral Agent the name of the account,
the owner of the account, the name and address of the securities intermediary
or commodity intermediary at which such account is to be opened or established,
the individual at such intermediary with whom such Obligor is dealing and the
purpose of the account, (B) the securities intermediary or commodity
intermediary (as the case may be) where such account is opened or maintained
shall be acceptable to Collateral Agent, and (C) on or before the opening of
such investment account, securities account or other similar account with a
securities intermediary or commodity intermediary, such Obligor or the Lead
Borrower shall as Collateral Agent may specify either (1) execute and deliver,
and cause to be executed and delivered to Collateral Agent, an investment
property control agreement (in form and substance acceptable to the Collateral
Agent in its reasonable discretion)  with
respect thereto duly authorized, executed and delivered by such Obligor or the
Lead Borrower and such securities intermediary or commodity intermediary or (2)
arrange for Collateral Agent to become the entitlement holder with respect to
such investment property on terms and conditions acceptable to Collateral
Agent.

 

(e)  No Obligor is the beneficiary or otherwise
entitled to any Letter of Credit Rights as of the date hereof.  In the event that any Obligor shall be
entitled to or shall receive any Letter of Credit Rights, such Obligor or the
Lead Borrower shall promptly notify Collateral Agent thereof in writing.  Such Obligor or the Lead Borrower shall
immediately, as Collateral Agent may specify, either (i) deliver, or cause to
be delivered to Collateral Agent, with respect to any such letter of credit,
banker’s acceptance or similar instrument, the written agreement of the issuer
and any other nominated person obligated to make any payment in respect thereof
(including any confirming or negotiating bank), in form and substance satisfactory
to Collateral Agent, consenting to the assignment of the proceeds of the letter
of credit to Collateral Agent by such Obligor and agreeing to make all payments
thereon directly to Collateral Agent or as Collateral Agent may otherwise
direct or (ii) cause Collateral Agent to become, at such Obligor’s expense, the
transferee beneficiary of the letter of credit, banker’s acceptance or similar
instrument (as the case may be).

 

(f)  No Obligor has any commercial tort claims as
of the date hereof.  In the event that
any Obligor shall at any time after the date hereof have any commercial tort
claims, such 

 

100

 

Obligor or the Lead
Borrower shall promptly notify Collateral Agent thereof in writing, which
notice shall (i) set forth in reasonable detail the basis for and nature of
such commercial tort claim and (ii) include the express grant by such Obligor
to Collateral Agent of a security interest in such commercial tort claim (and
the proceeds thereof).  In the event that
such notice does not include such grant of a security interest, the sending
thereof by such Obligor to Collateral Agent shall be deemed to constitute such
grant to Collateral Agent.  Upon the
sending of such notice, any commercial tort claim described therein shall
constitute part of the Collateral and shall be deemed included therein.  Without limiting the authorization of Agent
otherwise provided herein or otherwise arising by the execution by Obligors of
this Agreement, Agent is hereby irrevocably authorized from time to time and at
any time to file such financing statements naming Agent or its designee as
secured party and Obligors as debtors, or any amendments to any financing
statements, covering any such commercial tort claim as Collateral. In addition,
Obligors shall promptly upon Agent’s request, execute and deliver, or cause to
be executed and delivered,  to Agent such
other agreements, documents and instruments as Agent may require in connection
with such commercial tort claim.

 

(g)  The Obligors hereby covenant and agree that
each Leasehold Interest shall at all times be free and clear of all liens,
claims and encumbrances of any nature or description (other than Permitted
Encumbrances) and no other creditor of the estate (secured or unsecured) shall
be entitled to encumber any Leasehold Interest without the express written
consent of the Collateral Agent.

 

(h)  The due and punctual payment
and performance of the Obligations shall also be secured by the Encumbrance
created by the Mortgage upon the Headquarters Facility of Lead Borrower
described therein.

 

(i)            Notwithstanding anything herein to
the contrary, the Obligors (I) may hold assets consisting of Chattel Paper,
Letter of Credit Rights, and commercial tort claims in an aggregate amount not
to exceed $50,000 in which the Collateral Agent’s security interest has not
been perfected; and (II) may hold assets consisting of Investment Property in
an aggregate amount not to exceed $10,000 in which the Collateral Agent’s
security interest has not been perfected.

 

ARTICLE IX. - COLLATERAL AGENT AS BORROWERS’ ATTORNEY-IN-FACT:

 

9.1  Appointment as
Attorney-In-Fact.

 

The Obligors hereby irrevocably constitutes and
appoints the Collateral Agent as the Obligor’s true and lawful attorney, with
full power of substitution, following the occurrence and during the continuance
of an Event of Default, to convert the Collateral into cash at the sole risk,
cost, and expense of the Obligors, but for the ratable benefit of the
Collateral Agent. The rights and powers granted the Collateral Agent by this
appointment include but are not limited to the right and power, following the
occurrence and during the continuance of an Event of Default, to:

 

101

 

(a)  Prosecute, defend, compromise, or release any
action relating to the Collateral.

 

(b)  Sign change of address forms to change the
address to which the Obligors’ mail is to be sent to such address as the
Collateral Agent shall designate; receive and open the Obligors’ mail; remove
any Receivables Collateral and Proceeds of Collateral therefrom and turn over
the balance of such mail either to the Obligors or to any trustee in
bankruptcy, receiver, assignee for the benefit of creditors of the Obligors, or
other legal representative of the Obligors whom the Collateral Agent determines
to be the appropriate person to whom to so turn over such mail.

 

(c)  Endorse the name of the Obligors in favor of
the Collateral Agent upon any and all checks, drafts, notes, acceptances, or
other items or instruments; sign and endorse the name of the Obligors on, and
receive as secured party, any of the Collateral, any invoices, schedules of
Collateral, freight or express receipts, or bills of lading, storage receipts,
warehouse receipts, or other documents of title respectively relating to the
Collateral.

 

(d)  Sign the name of the Obligors on any notice
to the Obligors’ Account Debtors or verification of the Receivables Collateral;
sign the Obligors’ name on any Proof of Claim in Bankruptcy against Account
Debtors, and on notices of lien, claims of mechanic’s liens, or assignments or
releases of mechanic’s liens securing the Accounts.

 

(e)  Take all such action as may be necessary to
obtain the payment of any letter of credit and/or banker’s acceptance of which
any Obligor is a beneficiary.

 

(f)  Repair, manufacture, assemble, complete,
package, deliver, alter or supply goods, if any, necessary to fulfill in whole
or in part the purchase order of any customer of the Borrowers.

 

(g)  Use, license or transfer any or all General
Intangibles of the Obligors.

 

9.2  No Obligation to Act.

 

The Collateral Agent shall not be obligated to do any
of the acts or to exercise any of the powers authorized by Section 9.1
herein, but if the Collateral Agent elects to do any such act or to exercise
any of such powers, it shall not be accountable for more than it actually
receives as a result of such exercise of power, and shall not be responsible to
the Obligors for any act or omission to act except for any act or omission to
act as to which there is a final determination made in a judicial proceeding
(in which proceeding the Collateral Agent has had an opportunity to be heard)
which determination includes a specific finding that the subject act or
omission to act had been grossly negligent or in actual bad faith.

 

ARTICLE X. -  EVENTS OF DEFAULT:

 

The occurrence of any event described in this Article
X respectively shall constitute an “Event of Default”
herein.  Upon the occurrence of any Event
of Default described in Section 10.11,

 

102

 

any and all Liabilities shall become due and payable
without any further act on the part of the Agent. Upon the occurrence of any
other Event of Default, the Administrative Agent may by written notice to the
Lead Borrower declare any and all Liabilities immediately due and payable and
thereupon any and all such Liabilities shall become immediately due and
payable.  The occurrence of any Event of
Default shall also constitute, without notice or demand, a default under all
other agreements between the Agent or Lenders and the Obligors and instruments
and papers heretofore, now or hereafter given the Agent or Lenders.

 

10.1        Failure to Pay Revolving Credit.

 

The failure by the Obligors to pay any amount when due
under the Revolving Credit.

 

10.2        Failure To Make Other Payments.

 

The failure by the Obligors to pay when due (or upon
demand, if payable on demand) any payment Liability other than under the
Revolving Credit.

 

10.3        Failure to Perform Covenant or Liability (No Grace
Period).

 

The failure by the Obligors to promptly, punctually,
faithfully and timely perform, discharge, or comply with any covenant or
Liability not otherwise described in Section 10.1 or Section 10.2 hereof, and
included in any of the following provisions hereof:

 

	
   

  	
  Section

  	
  Relates to:

  
	
   

  	
   

  	
   

  
	
   

  	
  4.3(b)

  	
  Notice of Name Change

  
	
   

  	
   

  	
   

  
	
   

  	
  4.6

  	
  Location of Collateral

  
	
   

  	
   

  	
   

  
	
   

  	
  4.7

  	
  Title to Assets

  
	
   

  	
   

  	
   

  
	
   

  	
  4.8 

  	
  Indebtedness 

  
	
   

  	
   

  	
   

  
	
   

  	
  4.9

  	
  Insurance Policies

  
	
   

  	
   

  	
   

  
	
   

  	
  4.15

  	
  Pay taxes

  
	
   

  	
   

  	
   

  
	
   

  	
  4.20

  	
  Dividends, Investments,
  Corporate Actions

  
	
   

  	
   

  	
   

  
	
   

  	
  4.24

  	
  Affiliate Transactions

  
	
   

  	
   

  	
   

  
	
   

  	
  4.25

  	
  Further Assurances

  
	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Use of Collateral

  
	
   

  	
   

  	
   

  
	
   

  	
  Article V

  	
  Reporting Requirements
  and 

  

 

103

 

	
   

  	
   

  	
  Financial Performance
  Covenants

  
	
   

  	
   

  	
   

  
	
   

  	
  Article VII

  	
  Cash Management

  

 

 

10.4        Failure to Perform Covenant or Liability
(Grace Period).

 

The failure by the Obligors, within Thirty (30) days
following the earlier of the  Obligors’
knowledge of a breach of any covenant or Liability not described in any of Sections
10.1, 10.2, or 10.3 or of the Lead Borrower’s receipt of
written notice from the Administrative Agent of the breach of any of those
Sections.

 

10.5        Misrepresentation.

 

The determination by the Administrative Agent that any
representation or warranty at any time made by the Obligors to the Agent was
not true or complete in all material respects when given.

 

10.6        Acceleration of Other Debt. Breach of Lease.

 

(a)  The occurrence of any event such that any
Indebtedness of the Obligors in excess of $1,000,000 to any creditor other than
the Agent could be accelerated (whether or not the subject creditor takes any
action on account of such occurrence).

 

(b)  The occurrence of any of the following with
respect to Leases on which any Borrower is the lessee or is obligated:

 

(i)            An
aggregate of more than $50,000 in rent is then overdue, except to the extent
being contested in good faith and for which adequate reserves have been
established by such Obligor.

 

(ii)           Default
and the expiry of any applicable grace period with respect to more than Ten
(10) Leases of retail stores, except if the existence of such default is
disputed in good faith by the Obligors and the applicable landlord has been
stayed or agreed in writing to forbear from instituting proceedings to recover
possession of the leased premises or otherwise terminate the subject Lease or
Obligors’ rights to peaceful possession of the subject premises.

 

(iii)          Default
and the expiry of any applicable grace period of any Lease of any warehouse or
distribution center.

 

104

 

10.7        Default Under Other Agreements.

 

The occurrence of any breach or default under any
agreement (including any Loan Document other than this Loan Agreement) between
the Agent and the Obligors or instrument given by the Obligors to the Agent and
the expiry, without cure, of any applicable grace period (notwithstanding that
the subject Agent may not have exercised all or any of its rights on account of
such breach or default).

 

10.8        Intentionally Omitted.

 

10.9        Attachment; Judgment; Restraint of Business.

 

(a)  The service of process upon the Agent or the
Lenders or any Participant seeking to attach, by trustee, manse, or other
process, any of an  Obligor’s funds on
deposit with, or assets of such Obligor in the possession of, the Agent or the
Lenders or such Participant.

 

(b)  The entry of any judgment against any Obligor
or group of Obligors (which, if a money judgment, is in excess of $1,000,000
singly, or in the aggregate), which judgment is not satisfied (if a money
judgment) or appealed from (with execution or similar process stayed) within
any applicable appeal period.

 

(c)  The entry of any order or the imposition of
any other process having the force of law, the effect of which is to restrain
in any material way the conduct by any Obligor of its business in the ordinary
course.

 

10.10      Business Failure.

 

Any act by, against, or relating to any Obligor, or
its property or assets, which act constitutes the determination, by such
Obligor, to initiate a program of partial or total self-liquidation;
application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to court action or otherwise, over all, or
any part of any  Obligor’s property; the
granting of any trust mortgage or execution of an assignment for the benefit of
the creditors of any Obligor, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for any Obligor; the
offering by or entering into by any Obligor of any composition, extension, or
any other arrangement seeking relief from or extension of the debts of such
Obligor; or the initiation of any judicial or non-judicial proceeding or
agreement by, against, or including any Obligor which seeks or intends to
accomplish a reorganization or arrangement with creditors; and/or the
initiation by or on behalf of such Obligor of the liquidation or winding up of
all or any part of such  Obligor’s
business or operations.

 

10.11      Bankruptcy.

 

The failure by any Obligor to generally pay its debts
as they mature; adjudication of bankruptcy or insolvency relative to any
Obligor; the entry of an order for relief or similar order with respect to any
Obligor in any proceeding pursuant to the Bankruptcy Code or any other federal
bankruptcy law; the filing of any complaint, application, or petition by any
Obligor initiating any matter in which such Obligor is or may be granted any
relief from the debts of that Obligor pursuant to the Bankruptcy Code or any
other insolvency statute or procedure; the filing 

 

105

 

of any complaint, application, or petition against any
Obligor initiating any matter in which the Obligor is or may be granted any
relief from the debts of that Obligor pursuant to the Bankruptcy Code or any
other insolvency statute or procedure.

 

10.12      Default by Guarantor or Affiliate.

 

The occurrence of any of the foregoing Events of
Default with respect to any guarantor or endorser, or surety of the
Liabilities, or the occurrence of any of the foregoing Events of Default with
respect to any Subsidiary, or Affiliate (other than an Affiliate that is an
Affiliate solely due to ownership of the Lead Borrower’s publicly-traded stock)
of any Obligor, as if such guarantor, endorser, surety, Subsidiary, or
Affiliate were the “ Obligor “ described therein.

 

10.13      Indictment - Forfeiture.

 

The indictment of, or institution of any legal process
or proceeding against, any Obligor or any member of any Obligor’s senior
management, under any federal, state, municipal, and other civil or criminal
statute, rule, regulation, order, or other requirement having the force of law
where the relief, penalties, or remedies sought or available include the
forfeiture of any property of any Obligor and/or the imposition of any stay or
other order, the effect of which could be to restrain in any material way the
conduct by that Obligor of its business in the ordinary course.

 

10.14      Termination of Guaranty.

 

The termination or attempted termination (other than a
mere request for consent to termination) of any guaranty by any guarantor of
the Liabilities.

 

10.15      Challenge to Loan Documents.

 

(a)  Any challenge by or on behalf of any Borrower
or any guarantor of the Liabilities 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.

 

(b)  Any determination by any court or any other
judicial or government authority that any Loan Document is not enforceable
strictly in accordance with the subject Loan Document’s terms or which voids,
avoids, limits, or otherwise adversely affects any security interest created by
any Loan Document or any payment made pursuant thereto.

 

10.16      Intentionally Omitted.

 

10.17      Change in Control.

 

Any Change in Control.

 

10.18      Uninsured Losses.

 

106

 

Any material loss, theft,
damage or destruction of any of the Collateral not fully covered (subject to
such deductibles as Administrative Agent and Lenders shall have permitted) by
insurance.

 

10.19      ERISA.

 

A reportable event shall
occur which Agent, in its sole discretion, shall determine in good faith
constitutes grounds for the termination by the Pension Benefit Guaranty
Corporation of any Plan or for the appointment by the appropriate United Stated
district court of a trustee for any Plan, or if any Plan shall be terminated in
a “distress termination” pursuant to Section 4041(c) or any such trustee shall
be requested or appointed, or if any 
Obligor is in “default” (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan resulting from such  Obligor’s complete or partial withdrawal
from such Plan.

 

ARTICLE XI. - RIGHTS AND REMEDIES UPON DEFAULT:

 

Upon the occurrence of any Event of Default described
in Section 10.11 and upon Acceleration, and at all times thereafter, the
Agent shall have the following rights and remedies in addition to all of the
rights, remedies, powers, privileges, and discretions available to Agent prior
to the occurrence of an Event of Default.

 

11.1        Rights of Enforcement.

 

The Collateral Agent shall have all of the rights and
remedies of a secured party upon default under the UCC, in addition to which
the Collateral Agent shall have all and each of the following rights and
remedies:

 

(a)  To give notice to any bank at which any DDA
or Blocked Account is maintained and in which Proceeds of Collateral are
deposited, to turn over such Proceeds directly to the Collateral Agent.

 

(b)  To give notice to any of the Obligors’
customs brokers to follow the instructions of the Collateral Agent as provided
in any Customs Brokers Agreement.

 

(c)  To collect the Receivables Collateral with or
without the taking of possession of any of the Collateral.

 

(d)  To take possession of all or any portion of
the Collateral.

 

(e)  To sell, lease, or otherwise dispose of any
or all of the Collateral, in its then condition or following such preparation
or processing as the Collateral Agent deems advisable and with or without the
taking of possession of any of the Collateral.

 

(f)  To conduct one or more going out of business
sales which include the sale or other disposition of the Collateral.

 

107

 

(g)  To apply the Receivables Collateral or the
Proceeds of the Collateral towards (but not necessarily in complete
satisfaction of) the Liabilities.

 

(h)  To exercise all or any of the rights,
remedies, powers, privileges, and discretions under all or any of the Loan
Documents.

 

11.2        Sale of Collateral.

 

(a)  Any sale or other disposition of the
Collateral may be at public or private sale upon such terms and in such manner
as the Collateral Agent deems advisable, having due regard to compliance with
any statute or regulation which might affect, limit, or apply to the Collateral
Agent’s disposition of the Collateral.

 

(b)  The Collateral Agent, in the exercise of the
Collateral Agent’s rights and remedies upon default, may conduct one or more
going out of business sales, in the Collateral Agent’s own right or by one or
more agents and contractors. Such sale(s) may be conducted upon any premises
owned, leased, or occupied by any Obligor. 
The Collateral Agent and any such agent or contractor, in conjunction
with any such sale, may augment the Inventory with other goods (all of which
other goods shall remain the sole property of the Collateral Agent or such
agent or contractor).  Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Collateral Agent or such agent
or contractor and neither the Obligors nor any Person claiming under or in
right of the Obligors shall have any interest therein.

 

(c)  Unless the Collateral is perishable or threatens
to decline speedily in value, or is of a type customarily sold on a recognized
market (in which event the Collateral Agent shall provide the Lead Borrower
with such notice as may be practicable under the circumstances), the Collateral
Agent shall give the Lead Borrower at least Ten (10) days prior written notice
of the date, time, and place of any proposed public sale, and of the date after
which any private sale or other disposition of the Collateral may be made.  The Obligors agree that such written notice
shall satisfy all requirements for notice to the Obligors which are imposed
under the UCC or other applicable law with respect to the exercise of the
Collateral Agent’s rights and remedies upon default.

 

(d)  The Collateral Agent or the Lenders may
credit bid and may purchase the Collateral, or any portion of it at any sale
held under this Article XI.

 

(e)  If any of the Collateral is sold, leased, or
otherwise disposed of by the Collateral Agent on credit, the Liabilities shall
not be deemed to have been reduced as a result thereof unless and until payment
is finally received thereon by the Collateral Agent.

 

11.3        Occupation of Business Location.

 

In connection with the Collateral Agent’s exercise of
the Collateral Agent’s rights under this Article XI, the Collateral Agent may
enter upon, occupy, and use any premises owned or occupied by any Obligor, and
may exclude the Obligors from such premises or portion thereof as

 

108

 

may have been so entered upon, occupied, or used by
the Collateral Agent.  The Collateral
Agent shall not be required to remove any of the Collateral from any such
premises upon the Agent’s taking possession thereof, and may render any Collateral
unusable to the Obligors.  In no event
shall the Agent be liable to the Obligors for use or occupancy by the
Collateral Agent of any premises pursuant to this Article XI, nor for any
charge (such as wages for the  Obligors’
employees and utilities) incurred in connection with the Collateral Agent’s
exercise of the Agent’s Rights and Remedies.

 

11.4        Grant of Nonexclusive License.

 

Each Obligor hereby grants to the Collateral Agent a
royalty free nonexclusive irrevocable license to use, apply, and affix any
trademark, trade name, logo, or the like in which that Obligor now or hereafter
has rights, such license being with respect to the Collateral Agent’s exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.

 

11.5        Assembly of Collateral.

 

The Collateral Agent may require the Obligors to
assemble the Collateral and make it available to the Collateral Agent at the
Obligors’ sole risk and expense at a place or places which are reasonably
convenient to both the Collateral Agent and Obligors.

 

11.6        Rights and Remedies.

 

The rights, remedies, powers, privileges, and
discretions of the Agent hereunder, under any other Loan Document or under
applicable law (herein, the “Agent’s Rights and
Remedies”) shall be cumulative and not exclusive of any rights or
remedies which it would otherwise have. 
No delay or omission by the Agent in exercising or enforcing any of the
Agent’s Rights and Remedies shall operate as, or constitute, a waiver thereof.  No waiver by the Agent of any Event of
Default or of any default under any other agreement shall operate as a waiver
of any other default hereunder or under any other agreement.  No single or partial exercise of any of the
Agent’s Rights or Remedies, and no express or implied agreement or transaction
of whatever nature entered into between the Agent and any person, at any time,
shall preclude the other or further exercise of the Agent’s Rights and
Remedies.  No waiver by the Agent of any
of the Agent’s Rights and Remedies on any one occasion shall be deemed a waiver
on any subsequent occasion, nor shall it be deemed a continuing waiver.  The Agent’s Rights and Remedies  may be exercised at such time or times and in
such order of preference as the Agent may determine. The Agent’s Rights and
Remedies may be exercised without resort or regard to any other source of
satisfaction of the Liabilities.

 

109

 

ARTICLE XII. - NOTICES:

 

12.1        Notice Addresses.

 

All notices, demands, and other communications made in
respect of this Agreement (other than a request for a loan or advance or other
financial accommodation under the Revolving Credit) shall be made to the
following addresses, each of which may be changed upon Seven (7) days written
notice to all others given by certified mail, return receipt requested:

 

	
   

  	
  If to the Agent:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fleet Retail Group,
  Inc.

  
	
   

  	
   

  	
  40 Broad Street

  
	
   

  	
   

  	
  Boston, MA 02109

  
	
   

  	
   

  	
  Attention: Sally A.
  Sheehan, Managing Director

  
	
   

  	
   

  	
  Fax: (617) 434-4185

  
	
   

  	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  	
  Brown Rudnick Berlack
  Israels LLP

  
	
   

  	
   

  	
  One Financial Center

  
	
   

  	
   

  	
  Boston, MA 02111

  
	
   

  	
   

  	
  Attention: Andrew P.
  Strehle, Esquire

  
	
   

  	
   

  	
  Fax: 617 856-8201

  
	
   

  	
   

  	
   

  
	
   

  	
  If to the Lenders:

  
	
   

  	
   

  	
  Fleet Retail Group,
  Inc.

  
	
   

  	
   

  	
  40 Broad Street

  
	
   

  	
   

  	
  Boston, MA 02109

  
	
   

  	
   

  	
  Attention: Sally A.
  Sheehan, Managing Director

  
	
   

  	
   

  	
  Fax: (617) 434-4185

  
	
   

  	
   

  	
   

  
	
   

  	
  If to the Obligors:

  
	
   

  	
   

  	
  c/o Lead Borrower

  
	
   

  	
   

  	
  Mothers Work, Inc.

  
	
   

  	
   

  	
  456 North Fifth Street

  
	
   

  	
   

  	
  Philadelphia, PA 19123

  
	
   

  	
   

  	
  Attention: Edward M.
  Krell, Chief Financial Officer

  
	
   

  	
   

  	
  Fax: (215) 923-0975

  
	
   

  	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  	
  Pepper Hamilton LLP

  
	
   

  	
   

  	
  3000 Two Logan Square

  
	
   

  	
   

  	
  Eighteenth and Arch
  Streets

  
	
   

  	
   

  	
  Philadelphia, PA
  19103-2799

  
	
   

  	
   

  	
  Attention: David G.
  Smith, Esquire

  
	
   

  	
   

  	
  Fax: (215) 981-4750

  

 

110

 

12.2        Notice Given.

 

(a)  Except as otherwise specifically provided
herein, notices shall be deemed made and correspondence received, as follows
(all times being local to the place of delivery or receipt):

 

(i)            By
mail: the sooner of when actually received or Three (3) days following deposit
in the United States mail, postage prepaid.

 

(ii)           By
recognized overnight express delivery: the Business Day following the day when
sent.

 

(iii)          By
Hand: If delivered on a Business Day after 9:00 a.m. and no later than Three
(3) hours prior to the close of customary business hours of the recipient, when
delivered.  Otherwise, at the opening of
the then next Business Day.

 

(iv)          By
Facsimile transmission (which must include a header on which the party sending
such transmission is indicated): If sent on a Business Day after 9:00 a.m. and
no later than Three (3) hours prior to the close of customary business hours of
the recipient, One (1) hour after being sent. 
Otherwise, at the opening of the then next Business Day.

 

(b)  Rejection or refusal to accept delivery and
inability to deliver because of a changed address or facsimile number for which
no due notice was given shall each be deemed receipt of the notice sent.

 

(c)  Collateral Agent will give the Lead Borrower notice
of its intention to foreclose on its security interests by recognized overnight
express delivery.

 

ARTICLE XIII. - TERM:

 

13.1        Termination of Revolving Credit.

 

The Revolving Credit shall remain in effect (subject
to suspension as provided in Section 2.5(h) hereof) until the
Termination Date.

 

13.2        Actions On Termination.

 

On the Termination Date, the Borrowers shall pay the
Administrative Agent (whether or not then due), in immediately available funds,
all then Liabilities including, without limitation: the entire balance of the
Loan Account (including the unpaid principal balance of the Revolving Credit
Loans); any then remaining installments of the Revolving Credit Commitment Fee;
any payments due on account of the indemnification obligations included in Section
2.10(e); any accrued and unpaid Unused Line Fee; and all unreimbursed costs
and expenses of Agent for which the Borrowers are responsible; and shall make
such arrangements concerning any L/C’s then outstanding are reasonably
satisfactory to the Administrative Agent. 
Until such payment, all

 

111

 

provisions of this Agreement, other than those
contained in Article II which place an obligation on the Agent to make any
loans or advances or to provide financial accommodations under the Revolving
Credit or otherwise, shall remain in full force and effect until all
Liabilities shall have been paid in full. 
The release by the Collateral Agent of the Collateral Interests granted
the Agent by the Obligors hereunder may be upon such conditions and
indemnifications as the Collateral Agent may require.

 

ARTICLE XIV. - GENERAL:

 

14.1        Protection of Collateral.

 

The Agent has no duty as to the collection or
protection of the Collateral beyond the safe custody of such of the Collateral
as may come into the possession of the Agent.

 

14.2        Publicity.

 

The Administrative Agent, at its expense, may issue a
“tombstone” notice of the establishment of the credit facility contemplated by
this Agreement and may make reference to the Obligors (and may utilize any logo
or other distinctive symbol associated with the Borrowers) in connection with
any advertising, promotion, or marketing undertaken by the Administrative
Agent.

 

14.3        Successors and Assigns.

 

This Agreement shall be binding upon the Obligors and
the Obligors’ representatives, successors, and assigns and shall inure to the
benefit of the Agent and the Lenders and their respective successors and
assigns, provided, however,
no trustee or other fiduciary appointed with respect to the Obligors shall have
any rights hereunder.  In the event that
the Agent or Lenders assigns or transfers its rights under this Agreement, the
assignee shall thereupon succeed to and become vested with all rights, powers,
privileges, and duties of such assignor hereunder and such assignor shall
thereupon be discharged and relieved from its duties and obligations hereunder.

 

14.4        Severability.

 

Any determination that any provision of this Agreement
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity, legality, or enforceability of
such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.

 

14.5        Amendments; Course of Dealing.

 

(a)  This Agreement and the other Loan Documents
incorporate all discussions and negotiations between the Obligors, the Agent
and the Lenders, either express or implied, concerning the matters included
herein and in such other instruments, any custom, usage, or course of dealings
to the contrary notwithstanding.  No such
discussions, negotiations, custom, usage, or

 

112

 

course of dealings shall
limit, modify, or otherwise affect the provisions thereof.  No failure by the Agent or Lenders to give
notice to the Lead Borrower of the Obligors’ having failed to observe and
comply with any warranty or covenant included in any Loan Document shall
constitute a waiver of such warranty or covenant or the amendment of the
subject Loan Document.  No change made by
the Agent to the manner by which Availability is determined shall obligate the
Agent to continue to determine Availability in that manner.

 

(b)  The Obligors may undertake any action
otherwise prohibited hereby, and may omit to take any action otherwise required
hereby, upon and with the express prior written consent of the Agent. No
consent, modification, amendment, or waiver of any provision of any Loan
Document shall be effective unless executed in writing by or on behalf of the
party to be charged with such modification, amendment, or waiver (and if such
party is the Agent then by a duly authorized officer thereof).  Notwithstanding the foregoing sentence, any
increase in the Revolving Credit Loan Ceiling, up to a maximum of $75,000,000,
shall be deemed effective upon and with express written consent of the
Borrowers and the Administrative Agent and those Lenders that agree in writing
to increase their Revolving Credit Commitments in connection with such
increase. Any modification, amendment, or waiver provided by the Administrative
Agent shall be in reliance upon all representations and warranties theretofore
made to the Administrative Agent by or on behalf of the Borrowers (and any
guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.

 

14.6        Power of Attorney.

 

In connection with all powers of attorney included in
this Agreement, the Obligors hereby grant unto the Agent full power to do any
and all things necessary or appropriate in connection with the exercise of such
powers as fully and effectually as the Obligors might or could do, hereby ratifying
all that said attorney shall do or cause to be done by virtue of this
Agreement.  No power of attorney set
forth in this Agreement shall be affected by any disability or incapacity
suffered by the Obligors and each shall survive the same. All powers conferred
upon the Agent by this Agreement, being coupled with an interest, shall be
irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Agent.

 

14.7        Application of Proceeds.

 

The proceeds of any collection, sale, or disposition
of the Collateral, or of any other payments received hereunder, shall be
applied towards the Liabilities in such order and manner as the Administrative
Agent determines in its sole discretion, consistent, however, with the
provisions of this Agreement and the Agency Agreement.  The Obligors shall remain liable for any
deficiency remaining following such application.

 

14.8        Increased Costs.

 

If the Administrative Agent or Lenders shall have
determined that the adoption of any law, rule or regulation regarding capital
adequacy, or any change therein or in the interpretation

 

113

 

or application thereof, or compliance by the Agent or
Lenders with any request or directive regarding capital adequacy (whether or
not having the force of law) from any central bank or governmental authority
enacted after the date hereof, does or shall have the effect of reducing the
rate of return on such party’s capital as a consequence of its obligations
hereunder to a level below that which the Agent or Lenders could have achieved
but for such adoption, change or compliance (taking into consideration the
Agent’s or Lenders’ policies with respect to capital adequacy) by a material
amount, then from time to time, after submission by the Administrative Agent or
Lenders to the Lead Borrower of a written demand therefor (“Capital Adequacy Demand”) together with the certificate
described below, the Borrowers shall pay to the Agent or Lenders, as applicable,
such additional amount or amounts (“Capital Adequacy Charge”)
as will compensate the Agent or Lenders for such reduction, such Capital
Adequacy Demand to be made with reasonable promptness following such
determination.  A certificate of the
Administrative Agent or Lenders claiming entitlement to payment as set forth
above shall be conclusive.  Such
certificate shall set forth the nature of the occurrence giving rise to such
reduction, the amount of the Capital Adequacy Charge to be paid to the Agent or
Lenders, and the method by which such amount was determined.  In determining such amount, the
Administrative Agent or Lenders may use any reasonable averaging and
attribution method, applied on a non-discriminatory basis.

 

14.9        Costs and Expenses of the Agent and Lenders.

 

The Borrowers shall pay from time to time on demand
all Costs of Collection and all reasonable costs, expenses, and disbursements
of (including attorneys’ reasonable fees and expenses) which are incurred by
the Agent and Lenders in connection with the preparation, negotiation,
execution, and delivery of this Agreement and of any other Loan Documents, and
all other reasonable costs, expenses, and disbursements which may be incurred
connection with or in respect to the credit facility contemplated hereby or
which otherwise are incurred with respect to the Liabilities.

 

(a)  The Borrowers shall pay on from time to time
on demand all reasonable costs and expenses (including reasonable attorneys’
fees and expenses) incurred by the Agent and all reasonable costs and expenses
(including reasonable attorney’s fees and expenses) incurred by the Lenders to
the Lenders’ Special Counsel, following the occurrence of any Event of Default.

 

(b)  The Borrowers authorize the Administrative
Agent to pay all such fees and expenses and in the Administrative Agent’s
discretion, to add such fees and expenses to the Loan Account.

 

(c)  The undertaking on the part of the Borrowers
in this Section 14.9 shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Agent in favor of the
Borrowers, other than a termination, release, or discharge which makes specific
reference to this Section 14.9.

 

114

 

14.10      Copies and Facsimiles.

 

This Agreement and all documents which relate thereto,
which have been or may be hereinafter furnished the Agent or the Lenders may be
reproduced by the Agent or Lenders by any photographic, microfilm, xerographic,
digital imaging, or  other process, and
such Person making such reproduction may destroy any document so
reproduced.  Any such reproduction shall
be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made in the regular course of business).
Any facsimile which bears proof of transmission shall be binding on the party
which or on whose behalf such transmission was initiated and likewise shall be
so admissible in evidence as if the original of such facsimile had been
delivered to the party which or on whose behalf such transmission was received.

 

14.11      New York Law.

 

This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the law of the State of New York.

 

14.12      Consent to Jurisdiction.

 

(a)  Each Obligor agrees that any legal action,
proceeding, case, or controversy against the Obligors with respect to any Loan
Document may be brought in the Supreme Court for New York County or in the
United States District Court, Southern District of New York, sitting in New
York City, New York, or the Superior Court of Suffolk County, Massachusetts or
in the United States District Court, District of Massachusetts, sitting in
Boston, Massachusetts, as the Agent may elect in the Agent’s sole
discretion.  By execution and delivery of
this Agreement, each Borrower, for itself and in respect of its property,
accepts, submits, and consents generally and unconditionally, to the
jurisdiction of the aforesaid courts.

 

(b)  Each Obligor WAIVES
personal service of any and all process upon it, and irrevocably consents to
the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by certified mail,
postage prepaid, to Lead Borrower at Lead Borrower’s address for notices as
specified herein, such service to become effective Five (5) Business Days after
such mailing.

 

(c)  Each Obligor WAIVES
any objection based on forum non conveniens and any objection to venue of any
action or proceeding instituted under any of the Loan Documents and consents to
the granting of such legal or equitable remedy as is deemed appropriate by the
Court.

 

(d)  Nothing herein shall affect the right of the
Agent to bring legal actions or proceedings in any other competent
jurisdiction.

 

(e)  Each Obligor agrees that any action commenced
by any Borrower asserting any claim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Suffolk County, Massachusetts or in the United States District Court,
District of Massachusetts, sitting in Boston, Massachusetts, and that such
Courts shall have exclusive jurisdiction with respect to any such action.

 

115

 

14.13      Indemnification.

 

The Obligors shall indemnify, defend, and hold the
Agent and Lenders and any Participant and any of their respective employees,
officers, or agents (each, an “Indemnified Person”)
harmless of and from any claim brought or threatened against any Indemnified
Person by the Borrowers, any guarantor or endorser of the Liabilities, or any
other Person (as well as from attorneys’ reasonable fees, expenses, and disbursements
in connection therewith) on account of the relationship of any Obligor or of
any other guarantor or endorser of the Liabilities (each of claims which may be
defended, compromised, settled, or pursued by the Indemnified Person with
counsel of the Agent’s or Lenders’ or Participant’s (as the case may be)
selection, but at the expense of the Obligors) other than any claim as to which
a final determination is made in a judicial proceeding (in which the Agent,
Lenders and any other Indemnified Person has had an opportunity to be heard),
which determination includes a specific finding that the Indemnified Person
seeking indemnification had acted in a grossly negligent manner or in actual
bad faith.  This indemnification shall
survive payment of the Liabilities and/or any termination, release, or
discharge executed by the Agent or Lenders in favor of the Obligors, other than
a termination, release, or discharge duly executed on behalf of the Agent or
Lenders which makes specific reference to this Section 14.13.

 

14.14      Rules of Construction.

 

The following rules of construction shall be applied
in the interpretation, construction, and enforcement of this Agreement and of
the other Loan Documents:

 

(a)  Unless otherwise specifically provided for
herein, interest and any fee or charge which is stated as a per annum
percentage shall be calculated based on a 365/366 day year and actual days
elapsed.

 

(b)  Words in the singular include the plural and
words in the plural include the singular.

 

(c)  Any reference, herein, to a circumstance or
event’s having “more than a de minimis
adverse effect” and any similar reference is to a circumstance or event which
(x) in a well-managed enterprise, would receive the active attention of senior
management with a view towards it being reversed or remedied; or (y) if not
reversed or remedied, could reasonably be expected to lead to its becoming a
material adverse effect.

 

(d)  Cross references to Sections in this
Agreement begin with the Article in which that Section appears and then the
Section to which reference is made. (For example, a reference to “Section 5.6”
is to subsection 6, which appears in Article V of this Agreement).

 

(e)  Titles, headings (indicated by being underlined
or shown in Small Capitals) and any Table of Contents are solely for
convenience of reference; do not constitute a part of the instrument in which
included; and do not affect such instrument’s meaning, construction, or effect.

 

(f)  The words “includes” and “including” are not
limiting.

 

116

 

(g)  Text which follows the words “including,
without limitation” (or similar words) is illustrative and not limiting.

 

(h)  Except where the context otherwise requires
or where the relevant subsections are joined by “or”, compliance with any
Section or provision of any Loan Document which constitutes a warranty or
covenant requires compliance with all subsections (if any) of that Section or
provision.  Except where the context
otherwise requires, compliance with any warranty or covenant of any Loan
Document which includes subsections which are joined by “or” may be
accomplished by compliance with any of such subsections.

 

(i)  Text which is shown in italics,
shown in bold, shown IN ALL CAPITAL LETTERS, or
in any combination of the foregoing, shall be deemed to be conspicuous.

 

(j)  The words “may not” are prohibitive and not
permissive.

 

(k)  The word “or” is not exclusive.

 

(l)  Any reference to a Person’s “knowledge” (or
words of similar import) are to such Person’s knowledge assuming that such
Person has undertaken reasonable and diligent investigation with respect to the
subject of such “knowledge” (whether or not such investigation has actually
been undertaken).

 

(m)  Terms which are defined in one section of any
Loan Document are used with such definition throughout the instrument in which
so defined.

 

(n)  The symbol “$” refers to United States
Dollars.

 

(o)  Unless limited by reference to a particular
Section or provision, any reference to “herein”, “hereof”, or “within” is to
the entire Loan Document in which such reference is made.

 

(p)  References to “this Agreement” or to any
other Loan Document is to the subject instrument as amended to the date on
which application of such reference is being made.

 

(q)  Except as otherwise specifically provided,
all references to time are to Boston time.

 

(r)  In the determination of any notice, grace, or
other period of time prescribed or allowed hereunder:

 

(i)            Unless
otherwise provided (I) the day of the act, event, or default from which the
designated period of time begins to run shall not be included and the last day
of the period so computed shall be included unless such last day is not a
Business Day, in which event the last day of the relevant period shall be the
then next Business Day and (II) the period so computed shall end at 5:00 p.m.
on the relevant Business Day.

 

117

 

(ii)           The
word “from” means “from and including”.

 

(iii)          The
words “to” and “until” each mean “to, but excluding”.

 

(iv)          The
word “through” means “to and including”.

 

(s)  The Loan Documents shall be construed and
interpreted in a harmonious manner and in keeping with the intentions set forth
in Section 19.15 hereof, provided, however, in the event of any
inconsistency between the provisions of this Agreement and any other Loan
Document, the provisions of this Agreement shall govern and control.

 

14.15      Intent.

 

It is intended that:

 

(a)  This Agreement take effect as a sealed
instrument.

 

(b)  The scope of the Collateral Interests created
by any Obligor to secure the Liabilities be broadly construed in favor of the
Agent and that they cover all assets of each Borrower.

 

(c)  All Collateral Interests created in favor of
the Agent at any time and from time to time by any Obligor secure all
Liabilities, whether now existing or contemplated or hereafter arising.

 

(d)  Except as specifically limited herein, all
reasonable costs, expenses, and disbursements incurred by the Agent and, to the
extent provide herein, the Lenders, in connection with such Person’s
relationship(s) with the Obligors shall be borne by the Obligors.

 

14.16      Participations.

 

The Agent or Lenders may sell participations to one or
more financial institutions  (a “Participant”) all or a portion of the Agent’s or Lenders’
rights and obligations under this Agreement, provided, however, that except
with the consent of the Borrowers (which may not be unreasonably withheld or
delayed), the only rights granted to the
participant pursuant to such participation arrangements with respect to
waivers, amendments or modifications of the Loan Documents shall be the rights
to approve waivers, amendments or modifications that would reduce the principal
of or the interest rate on any Loans, extend the term or increase the amount of
the Commitment of such Lender as it relates to such participant, increase the
availability of Loans or L/C’s to the Borrowers, reduce the amount of any fees
to which such participant is entitled, or extend any regularly scheduled payment
date for principal or interest. 
No such sale of a participation shall relieve the Agent or Lenders from
the Agent’s or Lenders’ obligations hereunder.

 

118

 

14.17      Right of Set-Off.

 

Any and all deposits or other sums at any time
credited by or due to the Obligors from the Agent, Lenders or any Participant
or from any Affiliate of any of the foregoing, and any cash, securities,
instruments or other property of the Obligors in the possession of any of the foregoing,
whether for safekeeping or otherwise (regardless of the reason such Person had
received the same), to the extent permitted by law, shall at all times
constitute security for all Liabilities and for any and all obligations of the
Obligors to the Agent, Lenders or any Participant or such Affiliate and may be
applied or set off against the Liabilities and against such obligations at any
time, whether or not such are then due and whether or not other collateral is
then available to the Agent.

 

14.18      Pledges To Federal Reserve Banks.

 

Nothing included in this Agreement shall prevent or
limit the Agent or Lenders, to the extent that the Agent or Lenders is subject
to any of the twelve Federal Reserve Banks organized under §4 of the Federal
Reserve Act (12 U.S.C. §341) from pledging all or any portion of that Agent’s
or Lenders’ interest and rights under this Agreement, provided,
however, neither such pledge nor the enforcement thereof shall
release the Agent or Lenders from their respective obligations hereunder or
under any of the Loan Documents.

 

14.19      Maximum Interest Rate.

 

Regardless of any provision of any Loan Document, the
Agent and Lenders shall not be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. 
Any payment which is made which, if treated as interest on a Liability
would result in such interest’s exceeding such maximum rate shall be held, to
the extent of such excess, as additional collateral for the Liabilities as if
such excess were “Collateral.”

 

14.20      Waivers.

 

(a)  Each Borrower (and all guarantors, endorsers,
and sureties of the Liabilities) make each of the waivers included in Section
14.20(b), below, knowingly, voluntarily, and intentionally, and understands
that Agent and Lenders, in establishing the facilities contemplated hereby and
in providing loans and other financial accommodations to or for the account of
the Borrowers as provided herein, whether not or in the future, is relying on
such waivers.

 

(b)  EACH BORROWER, AND EACH SUCH GUARANTOR,
ENDORSER, AND SURETY RESPECTIVELY WAIVES THE
FOLLOWING:

 

(i)            Except
as otherwise specifically required hereby, notice of non-payment, demand,
presentment, protest and all forms of demand and notice, both with respect to
the Liabilities and the Collateral.

 

(ii)           Except
as otherwise specifically required hereby, the right to notice and/or hearing
prior to the Agent’s  exercising of the
Agent’s rights upon default.

 

119

 

(iii)          THE
RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE  AGENT OR LENDER IS OR BECOMES A PARTY
(WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE AGENT OR
LENDER OR IN WHICH THE AGENT OR LENDER IS JOINED AS A PARTY LITIGANT), WHICH
CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST
OR BETWEEN ANY BORROWER OR ANY OTHER PERSON AND THE AGENT OR LENDER LIKEWISE
WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).

 

(iv)          Any
defense, counterclaim, set-off, recoupment, or other basis on which the
amount of any Liability, as stated on the books and records of the Agent or
Lenders, could be reduced or claimed to be paid otherwise than in accordance
with the tenor of and written terms of such Liability.

 

(v)           Any
claim to consequential, special, or punitive damages.

 

14.21      Counterparts.

 

This Agreement, any of the Loan Documents, and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which, when so executed and delivered, shall be deemed an original, but all of
which counterparts together shall constitute but one agreement.

 

14.22      Electronic Submissions.

 

Upon not less than Thirty (30) days’ prior written
notice (the “Approved Electronic Form Notice”),
the Agent may permit or require that any of the documents, certificates, forms,
deliveries or other communications, authorized, required or contemplated by
this Agreement or the Loan Documents, be submitted to the Agent in “Approved Electronic Form” (as hereafter defined), subject to
any reasonable terms, conditions and requirements in the applicable Approved
Electronic Forms Notice.  For purposes
hereof “Electronic Form” means e-mail, e-mail
attachments, data submitted on web-based forms or any other communication
method that delivers machine readable data or information to the Agent, and “Approved Electronic Form” means an Electronic Form that has
been approved in writing by the Agent (which approval has not been revoked or
modified by the Agent) and sent to the Borrowers in an Approved Electronic Form
Notice.  Except as otherwise specifically
provided in the applicable Approved Electronic Form Notice, any submissions
made in an applicable Approved Electronic Form shall have the same force and
effect that the same submissions would have had if they had been submitted in
any other applicable form authorized, required or contemplated by this
Agreement or the Loan Documents.

 

120

 

14.23      Fleet Retail Group, Inc. as Agent.

 

The Lenders have appointed the Agent as their agent to
act on their behalf under the credit facility pursuant to the terms of the “Agency Agreement”, so referred to herein, between the
Lenders and the Agent.  If at any time
the Lenders or the Agent elects to terminate the agency relationship, the
Lenders or the Agent shall give Thirty (30) days written notice of such event
to the Lead Borrower.  Thereafter, all
rights and obligations of the Agent contained in this Agreement and the other
Loan Documents shall revert to the Lenders or another Agent, if appointed by
the Lenders.

 

14.24      Joint Borrower Provisions.

 

(a)  Each Borrower represents to the Agent and
Lenders that it is an integral part of a consolidated enterprise, and that each
Borrower 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 that are Borrowers.

 

(b)  Each Borrower is, and at all times shall be,
jointly and severally liable for each and every one of the Liabilities
hereunder, regardless of which Borrower requested, received, used, or directly
enjoyed the benefit of the extensions of credit hereunder.  All of the Collateral shall secure all of the
Liabilities.  Each Borrower’s Liabilities
are independent obligations and are absolute and unconditional.  Each Borrower, to the extent permitted by
law, hereby waives any defense to such Liabilities that may arise by reason of
the disability or other defense or cessation of liability of any other Borrower
for any reason other than payment in full. 
Each Borrower also waives any defense to such Liabilities that it may
have as a result of the Agent’s election of or failure to exercise any right,
power, or remedy, including, without limitation, the failure to proceed first
against such other Borrower or any security it holds for such other Borrower’s
Liabilities under any Loan Document, if any. 
Without limiting the generality of the foregoing, each Borrower
expressly waives all demands and notices whatsoever (except for any demands or
notices, if any, that such Borrower expressly is entitled to receive pursuant
to the terms of any Loan Document), and agrees that the Agent may, without
notice (except for such notice, if any, as such Borrower expressly is entitled
to receive pursuant to the terms of any Loan Document) and without releasing the
liability of such Borrower, extend for the benefit of any other Borrower the
time for making any payment, waive or extend the performance of any agreement
or make any settlement of any agreement for the benefit of any other Borrower,
and may proceed against each Borrower, directly and independently of any other
Borrower, as such obligee may elect in accordance with this Agreement.

 

(c)  Each Borrower acknowledges that the
Liabilities of such Borrower undertaken herein or in the other Loan Documents,
and the grants of security interests and liens by such Borrower to secure
Liabilities of the other Borrower could be construed to consist, at least in
part, of the guaranty of Liabilities of the other Borrower and, in full
recognition of that fact, each Borrower consents and agrees as hereinafter set
forth in the balance of this Section 14.24.  The consents, waivers, and agreements of the
Borrowers that are contained in the balance of this Section 14.24 are
intended to deal with the suretyship aspects of the transactions evidenced by

 

121

 

the Loan Documents (to
the extent that a Borrower may be deemed a guarantor or surety for the
Liabilities of another Borrower) and thus are intended to be effective and
applicable only to the extent that any Borrower has agreed to answer for the
Liabilities of another Borrower or has granted a lien or security interest in
Collateral to secure the Liabilities of another Borrower.  Conversely, the consents, waivers, and
agreements of the Borrowers that are contained in the balance of this Section
14.24 shall not be applicable to the direct Liabilities of a Borrower with
respect to credit extended directly to such Borrower, and shall not be
applicable to security interests or liens on Collateral of a Borrower given to
directly secure direct Liabilities of such Borrower where no aspect of guaranty
or suretyship is involved.  Each Borrower
consents and agrees that the Lenders may, at any time and from time to time,
without notice or demand, whether before or after any actual or purported
termination, repudiation or revocation of this Agreement by any one or more
Borrowers, and without affecting the enforceability or continuing effectiveness
hereof as to such Borrower, in accordance with the terms of the Loan
Documents:  (a) supplement, restate,
modify, amend, increase, decrease, extend, renew, accelerate or otherwise
change the time for payment or the terms of the Liabilities or any part thereof,
including any increase or decrease of the rate(s) of interest thereon;
(b) supplement, restate, modify, amend, increase, decrease or waive, or
enter into or give any agreement, approval or consent with respect to, the
Liabilities or any part thereof, or any of the Loan Documents or any security
or guarantees granted or entered into by any Person(s) other than such
Borrower, or any condition, covenant, default, remedy, right, representation or
term thereof or thereunder; (c) accept new or additional instruments,
documents or agreements in exchange for or relative to any of the Loan
Documents or the Liabilities or any part thereof, (d) accept partial
payments on the Liabilities; (e) receive and hold additional security or
guarantees for the Liabilities or any part thereof, (f) release, reconvey,
terminate, waive, abandon, fail to perfect, subordinate, exchange, substitute,
transfer or enforce any security or guarantees, and apply any security and
direct the order or manner of sale thereof as the Lenders in their sole and
absolute discretion may determine; (g) release any other Person
(including, without limitation, any other Borrower) from any personal liability
with respect to the Liabilities or any part thereof, (h) with respect to
any Person other than such Borrower (including, without limitation, any other
Borrower), settle, release on terms satisfactory to the Lenders or by operation
of applicable laws or otherwise liquidate or enforce any Liabilities and any
security therefor or guaranty thereof in any manner, consent to the transfer of
any security and bid and purchase at any sale; or (i) consent to the
merger, change or any other restructuring or termination of the corporate or
partnership existence of any other Borrower or any other Person, and
correspondingly agree, in accordance with all applicable provisions of the Loan
Documents, to the restructure of the Liabilities, and any such merger, change,
restructuring or termination shall not affect the liability of any Borrower or
the continuing effectiveness hereof, or the enforceability hereof with respect
to all or any part of the Liabilities.

 

(d)  Upon the occurrence and during the
continuance of any Event of Default, the Agent may enforce the Loan Documents
independently as to each Borrower and independently of any other remedy the
Agent at any time may have or hold in connection with the Liabilities, and it
shall not be necessary for the Agent to marshal assets in favor of any Borrower
or any other Person or to proceed upon or against or exhaust any security or
remedy before proceeding to enforce this Agreement or any other Loan
Documents.  Each Borrower expressly
waives any 

 

122

 

right to require the
Agent to marshal assets in favor of any Borrower or any other Person or to
proceed against any other Borrower or any Collateral provided by any Person,
and agrees that the Agent may proceed against Borrowers or any Collateral in
such order as they shall determine in their sole and absolute discretion,
subject to the terms hereof.

 

(e)  The Agent may file a separate action or
actions against any Borrower, whether action is brought or prosecuted with
respect to any security or against any other Person, or whether any other
Person is joined in any such action or actions. 
Each Borrower agrees, for itself, that the Agent and any other Borrower,
or any Affiliate of any other Borrower (other than such Borrower itself), may
deal with each other in connection with the Liabilities or otherwise, or alter
any contracts or agreements now or hereafter existing between any of them, in
any manner whatsoever, all without in any way altering or affecting the
continuing efficacy as to such Borrower of the Loan Documents.

 

(f)  The Agent’s rights hereunder shall be
reinstated and revived, and the enforceability of this Agreement shall
continue, with respect to any amount at any time paid on account of the
Liabilities which thereafter shall be required to be restored or returned by
the Agent (including, without limitation, the restoration or return of any
amount pursuant to a court order or judgment (whether or not final or
non-appealable), or pursuant to a good faith settlement of a pending or
threatened avoidance or recovery action, or pursuant to good faith compliance
with a demand made by a Person believed to be entitled to pursue an avoidance
or recovery action (such as a bankruptcy trustee or a Person having the
avoiding powers of a bankruptcy trustee, or similar avoiding powers), and
without requiring the Agent to oppose or litigate avoidance or recovery demands
or actions that it believes in good faith to be meritorious or worthy of
settlement or compliance, or pursue or exhaust appeals), all as though such
amount had not been paid.  The rights and
priorities of the Agent created or granted herein and the enforceability of the
Loan Documents at all times shall remain effective to cover the full amount of
all the Liabilities even though the Liabilities, including any part thereof or
any other security or guaranty therefor, may be or hereafter may become invalid
or otherwise unenforceable as against any Borrower and whether or not any other
Borrower shall have any personal liability with respect thereto.

 

(g)  To the maximum extent permitted by applicable
law, each Borrower, for itself, expressly waives any and all defenses now or
hereafter arising or that otherwise might be asserted by reason of (a) any
disability or other defense of any other Borrower with respect to the
Liabilities or with respect to the enforceability of the Agent’s security
interest in or Encumbrance on any collateral securing any of the Liabilities
(including, without limitation, the Collateral), (b) the unenforceability
or invalidity of any security or guaranty for the Liabilities or the lack of
perfection or continuing perfection or failure of priority of any security for
the Liabilities, (c) the cessation for any cause whatsoever of the
liability of any other Borrower (other than by reason of the full payment and
performance of all Liabilities), (d) any failure of the Agent to give
notice of sale or other disposition of Collateral to any other Borrower or any
other Person other than such waiving Borrower, or any defect in any notice that
may be given to any other Borrower for any other Person other than such waiving
Borrower, in connection with any sale or disposition of any collateral securing
the Liabilities or any of them (including, without limitation, the Collateral),
(e) any failure of the Agent to comply with applicable law in connection
with the sale or other

 

123

 

disposition of any
collateral or other security for any Liabilities that is owned by another
Borrower or by any other Person other than such waiving Borrower, including any
failure of the Agent to conduct a commercially reasonable sale or other
disposition of any such collateral or other security for any Liabilities,
(f) any act or omission of the Agent or others that directly or indirectly
results in or aids the discharge or release of any other Borrower, or the
Liabilities of any other Borrower, or any security or guaranty therefor, by
operation of law or otherwise, or (g) any law which provides that the
obligation of a surety or guarantor must neither be larger in amount nor in
other respects more burdensome than that of the principal or which reduces a
surety’s or guarantor’s obligation in proportion to the principal
obligation.  Until such time, if any, as
all of the Liabilities (other than contingent Liabilities and indemnities which
survive repayment of the Loans) have been paid and performed in full and no
portion of any commitment of the Lenders to any Borrower under any Loan
Document remains in effect, no Borrower shall have any right of subrogation,
contribution, reimbursement or indemnity, and each Borrower expressly waives
any right to enforce any remedy that the Agent now have or hereafter may have
against any other Person and waives the benefit of, or any right to participate
in, any collateral now or hereafter held by the Agent.  Except to the extent expressly provided for
in any Loan Document, each Borrower expressly waives, to the maximum extent
permitted by applicable law, all rights or entitlements to presentments,
demands for payment or performance, notices of nonpayment or nonperformance,
protests, notices of protest, notices of dishonor and all other notices or
demands of any kind or nature whatsoever with respect to the Liabilities, and
all notices of acceptance of the Loan Documents or of the existence, creation
or incurring of new or additional Liabilities.

 

(h)  Each Borrower hereby agrees to keep each
other Borrower fully apprised at all times as to the status of its business,
affairs, finances, and financial condition, and its ability to perform its
Liabilities under the Loan Documents, and in particular as to any adverse
developments with respect thereto.  Each
Borrower 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 Borrower, and of the ability of each other Borrower to perform its
Liabilities under the Loan Documents, and in particular as to any adverse
developments with respect to any thereof. 
Each Borrower 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 Agent shall have no duty to inform any Borrower of any
information pertaining to the business, affairs, finances, or financial
condition of any other Borrower, or pertaining to the ability of any other Borrower
to perform its Liabilities 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 Borrowers to continue to be jointly and severally liable for, or to
provide Collateral for, Liabilities of one or more of the other Borrowers.  To the fullest extent permitted by applicable
law, each Borrower hereby expressly waives any duty of the Agent to inform any
Borrower of any such information.

 

(i)  Borrowers and each of them warrant and agree
that each of the waivers and consents set forth herein are made after
consultation with legal counsel and with full knowledge of their significance
and consequences, with the understanding that events giving rise to any defense
or right waived may diminish, or otherwise adversely affect rights that
Borrowers otherwise may have against other Borrowers, the Agent or others, or
against Collateral, and that, under the circumstances, the waivers and consents
herein given are reasonable.  If any of
the

 

124

 

waivers or consents
herein is determined to be contrary to any applicable law or public policy,
such waivers and consents shall be effective to the maximum extent permitted by
law.

 

14.25      Transitional Arrangements.

 

This Agreement shall, on
and as of the Closing Date, supersede that certain Loan and Security Agreement
dated as of April 24, 1998 among Mothers Work, Inc., Cave Springs, Inc., and
certain other entities from time to time party thereto as borrowers, and Fleet
Retail Group, Inc., as assignee of Fleet Capital Corporation, as lender (the
“First Agreement”), in its entirety, except as provided in this Section
14.25.  On the Closing Date, the rights
and obligations of the parties under the First Agreement shall be subsumed
within and governed by this Agreement , provided, however,

 

(a)    that each of the “ Loans” (as defined in
the First Agreement) outstanding under the First Agreement on the Closing Date
shall continue to bear interest up to the Closing Date at the rate at which
they bear interest under the First Agreement and, on and after the Closing
Date, all of such Loans under the First Agreement shall be converted to
Revolving Credit Loans hereunder and shall bear interest at the rates set forth
hereunder;

 

(b)    that any Letter of Credit outstanding under
the First Agreement on the Closing Date shall for the purposes of this
Agreement, together with the Special Purpose Credit, be a L/C hereunder;

 

(c)    that each and every other Loan Document
under the First Agreement  shall, unless
explicitly restated, substituted or replaced in connection herewith, continue
in full force and effect and that any and all references therein to the First
Agreement shall be deemed to constitute references to this Agreement; and

 

(d)   all fees, letter of credit fees and other
fees and expenses owing or accruing under or in respect of the First Agreement
shall be calculated as of the Closing Date (prorated in the case of any
fractional periods), and shall be paid in accordance with the method and on the
dates, specified in the First Agreement, as if the Restated Agreement were
still in effect.

 

14.26      Confidentiality.

 

(a)  Obligors and each Lender will maintain, as
confidential (other than to their respective attorneys, agents, accountants,
participants and prospective participants) all of the following:

 

(i)            Proprietary
approaches, techniques, and methods of analysis which are applied by any Agent
in the administration of the credit facility 
contemplated by this Agreement.

 

125

 

(ii)           Proprietary
forms and formats utilized by any Agent in providing reports to the Lenders
pursuant hereto, which forms or formats are not of general currency.

 

(b)           Agent and each Lender will maintain,
as confidential (other than to their respective attorneys, agents, accountants,
participants and prospective participants) all confidential information
provided by the Obligors pursuant to the Loan Documents, other than any
information which becomes known to the general public through services or
sources other than that Agent or Lender.

 

(c)           Nothing included herein shall
prohibit the disclosure of any such information as may be required to be
provided by judicial process or by regulatory authorities having jurisdiction
over any party to this Agreement.

 

[REMAINDER OF PAGE
INTENTIONALLY BLANK]

 

126

 

	
   

  	
  Signature Page to Loan and
  Security Agreement

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MOTHERS WORK, INC.

  
	
   

  	
   

  	
  (“Lead
  Borrower”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ Edward M. Krell

  	
   

  
	
   

  	
   

  	
  Print Name: Edward M.
  Krell

  
	
   

  	
   

  	
  Title: Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CAVE SPRINGS, INC.

  
	
   

  	
   

  	
  (a “Borrower”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ Edward M. Krell

  	
   

  
	
   

  	
   

  	
  Print Name: Edward M.
  Krell

  
	
   

  	
   

  	
  Title: Chief Financial
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MOTHERS WORK CANADA, INC.

  
	
   

  	
   

  	
  (a “Guarantor”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ Edward M. Krell

  	
   

  
	
   

  	
   

  	
  Print Name: Edward M.
  Krell

  
	
   

  	
   

  	
  Title: Treasurer

  
						

 

127

 

	
   

  	
  Signature Page to Loan and
  Security Agreement

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FLEET RETAIL GROUP, INC.

  
	
   

  	
   

  	
  (“Lender”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ Sally A. Sheehan

  	
   

  
	
   

  	
   

  	
  Print Name: Sally A.
  Sheehan

  
	
   

  	
   

  	
  Title: Managing
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FLEET RETAIL GROUP, INC.

  
	
   

  	
   

  	
  (“Administrative
  Agent”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ Sally A. Sheehan

  	
   

  
	
   

  	
   

  	
  Print Name: Sally A.
  Sheehan

  
	
   

  	
   

  	
  Title: Managing
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FLEET RETAIL GROUP, INC.

  
	
   

  	
   

  	
  (“Collateral
  Agent”)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/ Sally A. Sheehan

  	
   

  
	
   

  	
   

  	
  Print Name: Sally A.
  Sheehan

  
	
   

  	
   

  	
  Title: Managing
  Director

  
								

 

1

 

EXHIBIT 5.12(a)

 

Financial
Covenants

 

This Exhibit is attached
to and made part of that certain  Loan
and Security Agreement between Fleet Retail Group,  Inc., as Administrative Agent, Collateral
Agent, and Lender, the other Lenders party thereto, and Mothers Work, Inc., as
Lead Borrower, and the other Borrowers and Guarantors party thereto, dated as
of October 15, 2004.  Capitalized terms
used in this Exhibit and not separately defined herein shall have the meanings
ascribed under the Loan and Security Agreement.

 

1)  Fixed Charge Coverage Ratio

 

At any time or from time
to time that either: (a) Excess Availability is less than $10,000,000 on any
day; or (b) average Financial Covenant Adjusted Availability for any calendar
month is less than $15,000,000, then the 
Borrowers shall have maintained, for the period of twelve consecutive
months, taken as a whole, ending on the last day of the then most recently
ended month, a Fixed Charge Coverage Ratio of not less than the following
during the periods set forth below:

 

	
  Period

  	
   

  	
  Minimum
  Fixed Charge Coverage Ratio

  
	
  For each period of
  twelve consecutive months ending on each month from and after the period of
  twelve consecutive months ending on August 31, 2004 through and including the
  period of twelve consecutive months ending on September 30, 2006

  	
   

  	
  1.000 to 1.000

  
	
   

  	
   

  	
   

  
	
  For each period of
  twelve consecutive months ending on each month from and after the period of
  twelve consecutive months ending on October 31, 2006 through and including
  the period of twelve consecutive months ending on September 30, 2007

  	
   

  	
  1.025 to 1.000

  
	
   

  	
   

  	
   

  
	
  For each period of
  twelve consecutive months ending on each month from and after the period of
  twelve consecutive months ending on October 31, 2007 through and including
  the period of twelve consecutive months ending on September 30, 2008

  	
   

  	
  1.050 to 1.000

  
	
   

  	
   

  	
   

  
	
  For each period of
  twelve consecutive months ending on each month from and after the period of
  twelve consecutive months ending on October 31, 2008

  	
   

  	
  1.100 to 1.000

  

 

1

 

2)  Capital Expenditures

 

Borrowers may incur
Capital Expenditures in their discretion, provided that:

 

(A) for any fiscal year
as to which the Borrowers’ projected pro forma Excess Availability, as provided
under Section 5.11(c), is at least $10,000,000 at all times and for which
average Financial Covenant Adjusted Availability, on calendar-month basis, is
at least $15,000,000 at all times, this Section (2) shall not limit the
Borrowers’ incurrence of  Capital
Expenditures in their discretion, unless actual Excess Availability falls below
$10,000,000 at any time or actual average Financial Covenant Adjusted
Availability for any calendar month during such fiscal year falls below
$15,000,000 during such fiscal year (in which case clause (B) shall apply); and

 

(B) during any fiscal
year in which Excess Availability actually falls below $10,000,000 on any day
or average Financial Covenant Adjusted Availability for any calendar month
actually falls below $15,000,000 or is projected, pursuant to the projections
provided under Section 5.11(c), to fall below $10,000,000 on any day or average
Financial Covenant Adjusted Availability for any calendar month is projected,
pursuant to the projections provided under Section 5.11(c) to fall below $15,000,000,
Borrowers shall not permit Capital Expenditures to exceed $35,000,000.

 

If, for any fiscal year
in which clause (B) applies, the Borrowers actually incur less than $35,000,000
in Capital Expenditures, the Borrowers may, in addition to the $35,000,000 that
Borrowers may incur in the following year, incur additional Capital
Expenditures in an amount equal to the lesser of (i) Fifty Percent (50%) of the
unused amount of Capital Expenditures (below the $35,000,000 maximum) from the
previous fiscal year, or (ii) $10,000,000.

 

2Exhibit
10.1

 

APPENDIX E

 

ELECTRO
SCIENTIFIC INDUSTRIES, INC. 

2004 STOCK INCENTIVE PLAN

 

1.     Purpose. 
The purpose of this 2004 Stock Incentive Plan (the “Plan”) is to enable
Electro Scientific Industries, Inc. (the “Company”) to attract and retain the
services of selected employees, officers and directors of the Company or any
parent or subsidiary of the Company.  For
purposes of this Plan, a person is considered to be employed by or in the
service of the Company if the person is employed by or in the service of any
entity (the “Employer”) that is either the Company or a parent or subsidiary of
the Company.

 

2.     Shares Subject to the Plan.  Subject to adjustment as provided below and
in Section 12, the shares to be offered under the Plan shall consist of
Common Stock of the Company (“Common Stock”), and the total number of shares of
Common Stock that may be issued under the Plan shall be 3,000,000 shares plus
any shares that at the time the Plan is approved by shareholders are available
for grant under the Company’s 1989 Stock Option Plan, 1996 Stock Incentive Plan
and 2000 Stock Option Incentive Plan, which plans were previously approved by
shareholders of the Company, and the Company’s 2000 Stock Option Plan, which
plan was not previously approved by the Company’s shareholders (collectively,
the “Prior Plans”), or that may subsequently become available for grant under
any of the Prior Plans through the expiration, termination, forfeiture or
cancellation of grants.  If an option,
stock appreciation right or Performance-Based Award granted under the Plan
expires, terminates or is canceled, the unissued shares subject to that option,
stock appreciation right or Performance-Based Award shall again be available
under the Plan.  If shares awarded as a
bonus pursuant to Section 9 or sold pursuant to Section 10 under the
Plan are forfeited to or repurchased by the Company, the number of shares
forfeited or repurchased shall again be available under the Plan.

 

3.     Effective Date and Duration of Plan.

 

3.1           Effective Date.  The Plan shall become effective as of
July 15, 2004.  No awards shall be
made under the Plan until the Plan is approved by shareholders of the Company
in accordance with rules of The Nasdaq Stock Market.

 

3.2           Duration.  The Plan shall continue in effect until all
shares available for issuance under the Plan have been issued and all
restrictions on the shares have lapsed. 
The Board of Directors may suspend or terminate the Plan at any time
except with respect to options, Performance-Based Awards, stock appreciation
rights, and shares subject to restrictions then outstanding under the
Plan.  Termination shall not affect any
outstanding options, Performance-Based Awards, stock appreciation rights or any
right of the Company to repurchase shares or the forfeitability of shares
issued under the Plan.

 

 

4.     Administration.

 

4.1           Board of Directors.  The Plan shall be administered by the Board
of Directors of the Company, which shall determine and designate the
individuals to whom awards shall be made, the amount of the awards and the
other terms and conditions of the awards.  Subject to the provisions of the Plan, the
Board of Directors may adopt and amend rules and regulations relating to
administration of the Plan, advance the lapse of any waiting period, accelerate
any exercise date, waive or modify any restriction applicable to shares (except
those restrictions imposed by law) and make all other determinations in the
judgment of the Board of Directors necessary or desirable for the
administration of the Plan.  The
interpretation and construction of the provisions of the Plan and related
agreements by the Board of Directors shall be final and conclusive.  The Board of Directors may correct any defect
or supply any omission or reconcile any inconsistency in the Plan or in any
related agreement in the manner and to the extent it deems expedient to carry
the Plan into effect, and the Board of Directors shall be the sole and final
judge of such expediency.

 

4.2           Committee.  The Board of Directors may delegate to any committee
of the Board of Directors (the “Committee”) any or all authority for
administration of the Plan.  If authority
is delegated to the Committee, all references to the Board of Directors in the
Plan shall mean and relate to the Committee, except (i) as otherwise provided
by the Board of Directors and (ii) that only the Board of Directors may amend
or terminate the Plan as provided in Sections 3 and 13.

 

5.     Types of Awards; Eligibility; Limitations.

 

5.1           Types of Awards, Eligibility.  The Board of Directors may, from time to
time, take the following actions, separately or in combination, under the
Plan:  (i) grant Incentive Stock Options,
as defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the “Code”), as provided in Sections 6.1, 6.2 and 8; (ii) grant options
other than Incentive Stock Options (“Non-Statutory Stock Options”) as provided
in Sections 6.1, 6.3 and 8; (iii) grant stock appreciation rights as
provided in Sections 7 and 8; (iv) award stock bonuses (including bonuses
in the form of restricted stock units) as provided in Section 9; (v) sell
shares subject to restrictions as provided in Sections 10; (vi) award
Performance-Based Awards as provided in Section 11.  Awards may be made to employees, including
employees who are officers or directors, and to non-employee directors;
provided, however, that only employees of the Company or any parent or
subsidiary of the Company (as defined in subsections 424(e) and 424(f) of
the Code) are eligible to receive Incentive Stock Options under the Plan.  The Board of Directors shall select the
individuals to whom awards shall be made and shall specify the action taken
with respect to each individual to whom an award is made.

 

5.2           Per Employee Share Limitations.  No employee may be granted options and/or
stock appreciation rights for more than an aggregate of 500,000 shares of
Common Stock in any calendar year; provided, however, that to the extent the
annual limitation is not fully used in any year for an employee, any shares not
used may be added to the number of shares for which options and/or stock
appreciation rights may be granted to that employee in any future year.

 

5.3           Prohibition on Option Repricing.  Except as provided in Section 11,
without the prior approval of the Company’s shareholders, an option issued
under the Plan may

 

 

not
be repriced by lowering the option exercise price or by cancellation of an
outstanding option with a subsequent replacement or regrant of an option with a
lower exercise price.

 

5.4           Maximum Number of Shares Issuable
Upon Exercise of ISOs.   The maximum aggregate number of shares of
Common Stock that may be issued under the Plan upon exercise of Incentive Stock
Options shall be equal to the sum of 3,000,000 shares plus any shares that
at July 15, 2004 are available for grant under the Prior Plans or that may
subsequently become available for grant under any of the Prior Plans through
the expiration, termination, forfeiture or cancellation of grants, which number
will not exceed 9,568,684 shares.

 

6.     Stock Options.

 

6.1           General Rules Relating to Options.

 

6.1-1        Terms of Grant.  The Board of
Directors may grant options under the Plan. 
With respect to each option grant, the Board of Directors shall
determine the number of shares subject to the option, the exercise price, the
period of the option, the time or times at which the option may be exercised
and whether the option is an Incentive Stock Option or a Non-Statutory Stock
Option.  At the time of the grant of an
option or at any time thereafter, the Board of Directors may provide that an
optionee who exercised an option with Common Stock of the Company shall
automatically receive a new option to purchase additional shares equal to the
number of shares surrendered and may specify the terms and conditions of such
new options.

 

6.1-2        Nontransferability.  Each
Incentive Stock Option and, unless otherwise determined by the Board of
Directors, each other option granted under the Plan by its terms (i) shall be
nonassignable and nontransferable by the optionee, either voluntarily or by
operation of law, except by will or by the laws of descent and distribution of
the state or country of the optionee’s domicile at the time of death, and (ii)
during the optionee’s lifetime, shall be exercisable only by the optionee.

 

6.1-3        Purchase of Shares.  Unless the Board of Directors determines
otherwise, on or before the date specified for completion of the purchase of
shares pursuant to an option exercise, the optionee must pay the Company the
full purchase price of those shares in cash or by check or, with the consent of
the Board of Directors, in whole or in part, in Common Stock of the Company
valued at fair market value, restricted stock or other contingent awards
denominated in either stock or cash, promissory notes and other forms of
consideration.  Unless otherwise
determined by the Board of Directors, any Common Stock provided in payment of
the purchase price must have been previously acquired and held by the optionee
for at least six months.  The fair market
value of Common Stock provided in payment of the purchase price shall be the
closing price of the Common Stock last reported before the time payment in
Common Stock is made or, if earlier, committed to be made, if the Common Stock
is publicly traded, or another value of the Common Stock as specified by the
Board of Directors.  No shares shall be
issued until full payment for the shares has been made, including all amounts
owed for tax withholding.  With the
consent of the Board of Directors, an optionee may request the Company to apply
automatically the shares to be received upon the exercise of a portion of a
stock option (even though stock certificates have not yet been issued) to
satisfy the purchase price for additional portions of the option.

 

 

6.1-4        Limitations on Grants to Non-Exempt Employees.  Unless
otherwise determined by the Board of Directors, if an employee of the Company
or any parent or subsidiary of the Company is a non-exempt employee subject to
the overtime compensation provisions of Section 7 of the Fair Labor
Standards Act (the “FLSA”), any option granted to that employee shall be
subject to the following restrictions: 
(i) the option price shall be at least 85 percent of the fair
market value, as described in Section 6.2-4, of the Common Stock subject
to the option on the date it is granted; and (ii) the option shall not be
exercisable until at least six months after the date it is granted; provided,
however, that this six-month restriction on exercisability will cease to apply
if the employee dies, becomes disabled or retires, there is a change in
ownership of the Company, or in other circumstances permitted by regulation,
all as prescribed in Section 7(e)(8)(B) of the FLSA.

 

6.2           Incentive Stock Options.  Incentive Stock Options shall be subject to
the following additional terms and conditions:

 

6.2-1        Limitation on Amount of Grants.  If
the aggregate fair market value of stock (determined as of the date the option
is granted) for which Incentive Stock Options granted under this Plan (and any
other stock incentive plan of the Company or its parent or subsidiary
corporations, as defined in subsections 424(e) and 424(f) of the Code) are
exercisable for the first time by an employee during any calendar year exceeds
$100,000, the portion of the option or options not exceeding $100,000, to the
extent of whole shares, will be treated as an Incentive Stock Option and the
remaining portion of the option or options will be treated as a Non-Statutory
Stock Option.  The preceding sentence
will be applied by taking options into account in the order in which they were
granted.  If, under the $100,000
limitation, a portion of an option is treated as an Incentive Stock Option and
the remaining portion of the option is treated as a Non-Statutory Stock Option,
unless the optionee designates otherwise at the time of exercise, the optionee’s
exercise of all or a portion of the option will be treated as the exercise of
the Incentive Stock Option portion of the option to the full extent permitted
under the $100,000 limitation.  If an
optionee exercises an option that is treated as in part an Incentive Stock
Option and in part a Non-Statutory Stock Option, the Company will designate the
portion of the stock acquired pursuant to the exercise of the Incentive Stock
Option portion as Incentive Stock Option stock by issuing a separate
certificate for that portion of the stock and identifying the certificate as
Incentive Stock Option stock in its stock records.

 

6.2-2        Limitations on Grants to 10 percent Shareholders.  An
Incentive Stock Option may be granted under the Plan to an employee possessing
more than 10 percent of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary (as defined in
subsections 424(e) and 424(f) of the Code) only if the option price is at
least 110 percent of the fair market value, as described in
Section 6.2-4, of the Common Stock subject to the option on the date it is
granted and the option by its terms is not exercisable after the expiration of
five years from the date it is granted.

 

6.2-3        Duration of Options.  Subject
to Sections 6.2-2, 8.1 and 8.2, Incentive Stock Options granted under the
Plan shall continue in effect for the period fixed by the Board of Directors,
except that by its terms no Incentive Stock Option shall be exercisable after
the expiration of 10 years from the date it is granted.

 

 

6.2-4        Option Price.  The option price per
share shall be determined by the Board of Directors at the time of grant.  Except as provided in Section 6.2-2, the
option price shall not be less than 100 percent of the fair market value
of the Common Stock covered by the Incentive Stock Option at the date the
option is granted.  The fair market value
shall be the closing price of the Common Stock last reported on the date the
option is granted, if the stock is publicly traded, or another value of the
Common Stock as specified by the Board of Directors.

 

6.2-5        Limitation on Time of Grant.  No
Incentive Stock Option shall be granted on or after the tenth anniversary of
the last action by the Board of Directors adopting the Plan or approving an
increase in the number of shares available for issuance under the Plan, which
action was subsequently approved within 12 months by the shareholders.

 

6.2-6        Early Dispositions.  If
within two years after an Incentive Stock Option is granted or within
12 months after an Incentive Stock Option is exercised, the optionee sells
or otherwise disposes of Common Stock acquired on exercise of the Option, the
optionee shall within 30 days of the sale or disposition notify the
Company in writing of (i) the date of the sale or disposition, (ii) the amount
realized on the sale or disposition and (iii) the nature of the disposition
(e.g., sale, gift, etc.).

 

6.3           Non-Statutory Stock Options.  Non-Statutory
Stock Options shall be subject to the following terms and conditions, in
addition to those set forth in Sections 6.1 and 8.

 

6.3-1        Option Price.  The option price for
Non-Statutory Stock Options shall be determined by the Board of Directors at
the time of grant and may be any amount determined by the Board of Directors.

 

6.3-2        Duration of Options.  Non-Statutory
Stock Options granted under the Plan shall continue in effect for the period
fixed by the Board of Directors, except that no Non-Statutory Option shall be
exercisable after the expiration of 10 years from the date it is granted.

 

7.     Stock Appreciation Rights.

 

7.1           Grant.  Stock appreciation rights may be granted
under the Plan by the Board of Directors, subject to such rules, terms, and
conditions as the Board of Directors prescribes.  The Board of Directors may provide that stock
appreciation rights may be granted in substitution for stock options granted
under the Plan.  With respect to each
grant, the Board shall determine the number of shares subject to the stock
appreciation right, the exercise price of the stock appreciation right, the
period of the stock appreciation right, and the time or times at which the
stock appreciation right may be exercised. 
Stock appreciation rights shall continue in effect for the period fixed
by the Board of Directors.

 

7.2           Stock Appreciation Rights Granted in
Connection with Options. 
If a stock appreciation right is granted in connection with an option,
the stock appreciation right shall be exercisable only to the extent and on the
same conditions that the related option could be exercised.  Upon exercise of a stock appreciation right,
any option or portion thereof to which the stock appreciation right relates
terminates.  If a stock appreciation
right is granted in connection

 

 

with
an option, upon exercise of the option, the stock appreciation right or portion
thereof to which the grant relates terminates.

 

7.3           Exercise.  Each stock appreciation right shall entitle
the holder, upon exercise, to receive from the Company in exchange therefor an
amount equal in value to the excess of the fair market value on the date of
exercise of one share of Common Stock of the Company over the exercise price as
determined by the Board of Directors (or, in the case of a stock appreciation
right granted in connection with an option, the option price per share under
the option to which the stock appreciation right relates), multiplied by the
number of shares covered by the stock appreciation right, or portion thereof,
that is surrendered.  Payment by the
Company upon exercise of a stock appreciation right may be made in Common Stock
valued at fair market value, in cash, or partly in Common Stock and partly in
cash, all as determined by the Board of Directors.  For this purpose, the fair market value of
the Common Stock shall be the closing price of the Common Stock last reported
before the time of exercise, or such other value of the Common Stock as
specified by the Board of Directors.

 

7.4           Fractional Shares.  No fractional shares shall be issued upon
exercise of a stock appreciation right. 
In lieu thereof, cash may be paid in an amount equal to the value of the
fraction or, if the Board of Directors shall determine, the number of shares
may be rounded downward to the next whole share.

 

7.5           Nontransferability.   Each stock appreciation right granted in
connection with an Incentive Stock Option and, unless otherwise determined by
the Board of Directors, each other stock appreciation right granted under the
Plan, by its terms shall be nonassignable and nontransferable by the holder,
either voluntarily or by operation of law, except by will or by the laws of
descent and distribution of the state or country of the holder’s domicile at
the time of death, and each stock appreciation right by its terms shall be
exercisable during the holder’s lifetime only by the holder.

 

8.     Exercise of Options and Stock Appreciation Rights.

 

8.1           Exercise.  Except as provided in Section 8.2 or as
determined by the Board of Directors, no option or stock appreciation right
granted under the Plan may be exercised unless at the time of exercise the
holder is employed by or in the service of the Company and shall have been so
employed or provided such service continuously since the date the option or
stock appreciation right was granted. 
Except as provided in Sections 8.2 and 12, options and stock
appreciation rights granted under the Plan may be exercised from time to time
over the period stated in each option or stock appreciation right in amounts
and at times prescribed by the Board of Directors, provided that options and
stock appreciation rights may not be exercised for fractional shares.  Unless otherwise determined by the Board of
Directors, if a holder does not exercise an option or stock appreciation right
in any one year for the full number of shares to which the holder is entitled
in that year, the holder’s rights shall be cumulative and the holder may
acquire those shares in any subsequent year during the term of the option or
stock appreciation right.

 

 

8.2           Termination of Employment or Service.

 

8.2-1        General Rule.  Unless
otherwise determined by the Board of Directors, if a holder’s employment or
service with the Company terminates for any reason other than because of total
disability or death as provided in Sections 8.2-2 and 8.2-3, his or her option
or stock appreciation right may be exercised at any time before the expiration
date of the option or stock appreciation right or the expiration of
3 months after the date of termination, whichever is the shorter period,
but only if and to the extent the holder was entitled to exercise the option or
stock appreciation right at the date of termination.

 

8.2-2        Termination Because of Total Disability.   Unless otherwise determined by the Board of
Directors, if a holder’s employment or service with the Company terminates
because of total disability, his or her option or stock appreciation right may
be exercised at any time before the expiration date of the option or stock
appreciation right or before the date 12 months after the date of
termination, whichever is the shorter period, but only if and to the extent the
holder was entitled to exercise the option or stock appreciation right at the
date of termination.  The term “total
disability” means a medically determinable mental or physical impairment that
is expected to result in death or has lasted or is expected to last for a
continuous period of 12 months or more and that, in the opinion of the
Company and two independent physicians, causes the holder to be unable to
perform his or her duties as an employee, director or officer of the Employer
and unable to be engaged in any substantial gainful activity.  Total disability shall be deemed to have
occurred on the first day after the two independent physicians have furnished
their written opinion of total disability to the Company and the Company has
reached an opinion of total disability.

 

8.2-3        Termination Because of Death.  Unless otherwise determined by the Board of
Directors, if a holder dies while employed by or providing service to the
Company, his or her option or stock appreciation right may be exercised at any
time before the expiration date of the option or stock appreciation right or
before the date 12 months after the date of death, whichever is the shorter
period, but only if and to the extent the holder was entitled to exercise the
option or stock appreciation right at the date of death and only by the person
or persons to whom the holder’s rights under the option or stock appreciation
right shall pass by the holder’s will or by the laws of descent and
distribution of the state or country of domicile at the time of death.

 

8.2-4        Amendment of Exercise Period Applicable to Termination.  The Board of Directors may at any time extend
the 3-month and 12-month exercise periods any length of time not longer than
the original expiration date of the option or stock appreciation right.  The Board of Directors may at any time
increase the portion of an option or stock appreciation right that is
exercisable, subject to terms and conditions determined by the Board of
Directors.

 

8.2-5        Failure to Exercise Option or Stock Appreciation Right.  To the extent that the option or
stock appreciation right of any deceased holder or any holder whose employment
or service terminates is not exercised within the applicable period, all
further rights to purchase shares pursuant to the option or stock appreciation
right shall cease and terminate.

 

8.2-6        Leave of Absence.  Absence on leave approved by the Employer or
on account of illness or disability shall not be deemed a termination or
interruption of

 

 

employment
or service.  Unless otherwise determined
by the Board of Directors, vesting of options and stock appreciation rights
shall continue during a medical, family or military leave of absence or other
leave approved by the Employer, whether paid or unpaid, and vesting of options
and stock appreciation rights shall be suspended during any other unpaid leave
of absence.

 

8.3           Notice of Exercise or Surrender.  Unless the Board of Directors determines
otherwise, shares may be acquired pursuant to an option or stock appreciation
right granted under the Plan only upon the Company’s receipt of written notice
from the holder of the holder’s binding commitment to purchase shares,
specifying the number of shares the holder desires to acquire under the option
or stock appreciation right and the date on which the holder agrees to complete
the transaction, and, if required to comply with the Securities Act of 1933,
containing a representation that it is the holder’s intention to acquire the
shares for investment and not with a view to distribution.  Unless the Board of Directors determines
otherwise, cash may be paid upon surrender of a stock appreciation right
granted under the Plan only upon the Company’s receipt of written notice from
the holder of the holder’s binding commitment to surrender the stock
appreciation right, specifying the number of shares subject to the stock
appreciation right being surrendered and the date on which the holder agrees to
complete the surrender.

 

8.4           Tax Withholding.  Each holder who has exercised an option
or stock appreciation right shall, immediately upon notification of the amount
due, if any, pay to the Company in cash or by check amounts necessary to
satisfy any applicable federal, state and local tax withholding
requirements.  If additional
withholding is or becomes required (as a result of exercise of an option or
stock appreciation right or as a result of disposition of shares acquired
pursuant to exercise of an option or stock appreciation right) beyond any
amount deposited before delivery of the certificates, the holder shall pay such
amount, in cash or by check, to the Company on demand.  If the holder fails to pay the amount
demanded, the Company or the Employer may withhold that amount from other
amounts payable to the holder, including salary, subject to applicable
law.  With the consent of the Board
of Directors, a holder may satisfy this obligation, in whole or in part, by
instructing the Company to withhold from the shares to be issued upon exercise
or by delivering to the Company other shares of Common Stock; provided,
however, that the number of shares so withheld or delivered in connection with
an option exercise shall not exceed the minimum amount necessary to satisfy the
required withholding obligation.

 

8.5           Reduction of Reserved Shares.  Upon the exercise of an option or stock
appreciation right, the number of shares reserved for issuance under the Plan
shall be reduced by the number of shares issued upon exercise of the option or
stock appreciation right.  Cash payments
of stock appreciation rights shall not reduce the number of shares of Common
Stock reserved for issuance under the Plan.

 

9.     Stock Bonuses.  The Board of Directors may award shares under
the Plan as stock bonuses, including restricted stock units that provide for
delivery of Common Stock at a later date. 
Shares awarded as a bonus shall be subject to the terms, conditions and
restrictions determined by the Board of Directors.  The restrictions may include restrictions
concerning transferability and forfeiture of the shares awarded, together with
any other restrictions determined by the Board of Directors.  The Board of Directors may require the recipient
to sign

 

 

an
agreement as a condition of the award, but may not require the recipient to pay
any monetary consideration other than amounts necessary to satisfy tax
withholding requirements.  The agreement
may contain any terms, conditions, restrictions, representations and warranties
required by the Board of Directors.  The
certificates representing the shares awarded shall bear any legends required by
the Board of Directors.  The Company may
require any recipient of a stock bonus to pay to the Company in cash or by
check upon demand amounts necessary to satisfy any applicable federal, state or
local tax withholding requirements.  If
the recipient fails to pay the amount demanded, the Company or the Employer may
withhold that amount from other amounts payable to the recipient, including salary,
subject to applicable law.  With the
consent of the Board of Directors, a recipient may satisfy this obligation, in
whole or in part, by instructing the Company to withhold from any shares to be
issued or by delivering to the Company other shares of Common Stock; provided,
however, that the number of shares so withheld or delivered shall not exceed
the minimum amount necessary to satisfy the required withholding
obligation.  Upon the issuance of a stock
bonus, the number of shares reserved for issuance under the Plan shall be
reduced by the number of shares issued.

 

10.   Restricted Stock

 

10.1         Restricted Stock.  The Board of Directors may issue shares under
the Plan for any consideration (including promissory notes and services)
determined by the Board of Directors. 
Shares issued under the Plan shall be subject to the terms, conditions
and restrictions determined by the Board of Directors.  Subject to the provisions of the Plan, the
restrictions may include restrictions concerning transferability, repurchase by
the Company and forfeiture of the shares issued, together with any other
restrictions determined by the Board of Directors.  All Common Stock issued pursuant to this
Section 10.1 shall be subject to a Restricted Stock Agreement, which shall
be executed by the Company and the prospective recipient of the shares before
the delivery of certificates representing the shares.  The Agreement may contain any terms,
conditions, restrictions, representations and warranties required by the Board
of Directors.

 

10.2         Other Provisions.  The certificates representing shares of
restricted stock shall bear any legends required by the Board of
Directors.  The Company may require any
participant receiving restricted stock to pay to the Company in cash or by
check upon demand amounts necessary to satisfy any applicable federal, state or
local tax withholding requirements.  If
the participant fails to pay the amount demanded, the Company or the Employer
may withhold that amount from other amounts payable to the participant,
including salary, subject to applicable law. 
With the consent of the Board of Directors, a participant may satisfy
this obligation, in whole or in part, by instructing the Company to withhold
from any shares to be issued or by delivering to the Company other shares of
Common Stock; provided, however, that the number of shares so withheld or
delivered shall not exceed the minimum amount necessary to satisfy the required
withholding obligation.  Upon the
issuance of restricted stock, the number of shares reserved for issuance under
the Plan shall be reduced by the number of shares issued.

 

11.   Performance-Based Awards.  The Board of Directors may grant awards
intended to qualify as qualified performance-based compensation under
Section 162(m) of the Code and the regulations thereunder (“Performance-Based
Awards”).  Performance-Based Awards shall
be denominated at the time of grant either in Common Stock (“Stock Performance
Awards”) or in dollar amounts (“Dollar Performance Awards”).  Payment under a Stock Performance Award or

 

 

a
Dollar Performance Award shall be made, at the discretion of the Board of
Directors, in Common Stock (“Performance Shares”), or in cash or in any
combination thereof.  Performance-Based
Awards shall be subject to the following terms and conditions:

 

11.1         Award Period.  The
Board of Directors shall determine the period of time for which a
Performance-Based Award is made (the “Award Period”).

 

11.2         Performance Goals and Payment.  The
Board of Directors shall establish in writing objectives (“Performance Goals”)
that must be met by the Company or any subsidiary, division or other unit of
the Company (“Business Unit”) during the Award Period as a condition to payment
being made under the Performance-Based Award. 
The Performance Goals for each award shall be one or more targeted
levels of performance with respect to one or more of the following objective
measures with respect to the Company or any Business Unit:  earnings, earnings per share, stock price
increase, total shareholder return (stock price increase plus dividends),
return on equity, return on assets, return on capital, economic value added,
revenues, operating income, inventories, inventory turns, cash flows, or any of
the foregoing before the effect of acquisitions, divestitures, accounting
changes, and restructuring and special charges (determined according to
criteria established by the Board of Directors).  The Board of Directors shall also establish
the number of Performance Shares or the amount of cash payment to be made under
a Performance-Based Award if the Performance Goals are met or exceeded,
including the fixing of a maximum payment (subject to Section 11.4).  The Board of Directors may establish other
restrictions to payment under a Performance-Based Award, such as a continued
employment requirement, in addition to satisfaction of the Performance
Goals.  Some or all of the Performance
Shares may be issued at the time of the award as restricted shares subject to
forfeiture in whole or in part if Performance Goals or, if applicable, other
restrictions are not satisfied.

 

11.3         Computation of Payment.  During
or after an Award Period, the performance of the Company or Business Unit, as
applicable, during the period shall be measured against the Performance
Goals.  If the Performance Goals are not
met, no payment shall be made under a Performance-Based Award.  If the Performance Goals are met or exceeded,
the Board of Directors shall certify that fact in writing and certify the number
of Performance Shares earned or the amount of cash payment to be made under the
terms of the Performance-Based Award.

 

11.4         Maximum Awards.  No
participant may receive in any fiscal year Stock Performance Awards under which
the aggregate amount payable under the Awards exceeds the equivalent of
200,000 shares of Common Stock or Dollar Performance Awards under which
the aggregate amount payable under the Awards exceeds $4,000,000.

 

11.5         Tax Withholding.  Each
participant who has received Performance Shares shall, upon notification of the
amount due, pay to the Company in cash or by check amounts necessary to satisfy
any applicable federal, state and local tax withholding requirements.  If the participant fails to pay the amount
demanded, the Company or the Employer may withhold that amount from other
amounts payable to the participant, including salary, subject to applicable
law.  With the consent of the Board of
Directors, a participant may satisfy this obligation, in whole or in part, by
instructing the Company to withhold from any shares to be issued or by

 

 

delivering
to the Company other shares of Common Stock; provided, however, that the number
of shares so delivered or withheld shall not exceed the minimum amount
necessary to satisfy the required withholding obligation.

 

11.6         Effect on Shares Available.  The
payment of a Performance-Based Award in cash shall not reduce the number of
shares of Common Stock reserved for issuance under the Plan.  The number of shares of Common Stock reserved
for issuance under the Plan shall be reduced by the number of shares issued
upon payment of an award.  Cash payments
of Performance-Based Awards shall not reduce the number of shares of Common
Stock reserved for issuance under the Plan.

 

12.   Changes in Capital
Structure.

 

12.1         Stock Splits, Stock Dividends.  If
the outstanding Common Stock of the Company is hereafter increased or decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any stock split, combination of shares,
dividend payable in shares, recapitalization or reclassification, appropriate
adjustment shall be made by the Board of Directors in the number and kind of
shares available for grants under the Plan and in all other share amounts set
forth in the Plan.  In addition, the
Board of Directors shall make appropriate adjustment in the number and kind of
shares as to which outstanding options and stock appreciation rights, or
portions thereof then unexercised, shall be exercisable, so that the holder’s
proportionate interest before and after the occurrence of the event is
maintained.  Notwithstanding the
foregoing, the Board of Directors shall have no obligation to effect any
adjustment that would or might result in the issuance of fractional shares, and
any fractional shares resulting from any adjustment may be disregarded or
provided for in any manner determined by the Board of Directors.  Any such adjustments made by the Board of
Directors shall be conclusive.

 

12.2         Mergers, Reorganizations, Etc.  In
the event of a merger, consolidation, plan of exchange, acquisition of property
or stock, split-up, split-off, spin-off, reorganization or liquidation to which
the Company is a party or any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company (each, a “Transaction”), the Board of Directors
shall, in its sole discretion and to the extent possible under the structure of
the Transaction, select one of the following alternatives for treating
outstanding options and stock appreciation rights under the Plan:

 

12.2-1      Outstanding
options and stock appreciation rights shall remain in effect in accordance with
their terms.

 

12.2-2      Outstanding
options and stock appreciation rights shall be converted into options and stock
appreciation rights to purchase stock in one or more of the corporations,
including the Company, that are the surviving or acquiring corporations in the
Transaction.  The amount, type of
securities subject thereto and exercise price of the converted options and
stock appreciation rights shall be determined by the Board of Directors of the
Company, taking into account the relative values of the companies involved in
the Transaction and the exchange rate, if any, used in determining shares of
the surviving corporation(s) to be held by holders of shares of the Company
following the Transaction.  Unless
otherwise

 

 

determined
by the Board of Directors, the converted options and stock appreciation rights
shall be vested only to the extent that the vesting requirements relating to
options granted hereunder have been satisfied.

 

12.2-3      The
Board of Directors shall provide a period of 30 days or less before the
completion of the Transaction during which outstanding options and stock appreciation
rights may be exercised to the extent then exercisable, and upon the expiration
of that period, all unexercised options and stock appreciation rights shall
immediately terminate.  The Board of
Directors may, in its sole discretion accelerate the exercisability of options
and stock appreciation rights so that they are exercisable in full during that
period.

 

12.3         Dissolution of the Company.  In
the event of the dissolution of the Company, options and stock appreciation
rights shall be treated in accordance with Section 12.2-3.

 

12.4         Rights Issued by Another
Corporation.  The Board of Directors may also
grant options, stock appreciation rights, stock bonuses and Performance-Based
Awards and issue restricted stock under the Plan with terms, conditions and
provisions that vary from those specified in the Plan, provided that any such
awards are granted in substitution for, or in connection with the assumption
of, existing options, stock appreciation rights, stock bonuses,
Performance-Based Awards or restricted stock granted, awarded or issued by
another corporation and assumed or otherwise agreed to be provided for by the
Company pursuant to or by reason of a Transaction.

 

13.   Amendment of the Plan.  The Board of Directors may at any time modify
or amend the Plan in any respect.  Except
as provided in Section 12, however, no change in an award already granted shall
be made without the written consent of the holder of the award if the change
would adversely affect the holder.

 

14.   Approvals.  The Company’s obligations under the Plan are
subject to the approval of state and federal authorities or agencies with
jurisdiction in the matter.  The Company
will use its best efforts to take steps required by state or federal law or
applicable regulations, including rules and regulations of the Securities and
Exchange Commission and any stock exchange on which the Company’s shares may
then be listed, in connection with the grants under the Plan.  The foregoing notwithstanding, the Company
shall not be obligated to issue or deliver Common Stock under the Plan if such
issuance or delivery would violate state or federal securities laws.

 

15.   Employment and Service Rights.  Nothing in the Plan or any award pursuant to
the Plan shall (i) confer upon any employee any right to be continued in the
employment of an Employer or interfere in any way with the Employer’s right to
terminate the employee’s employment at will at any time, for any reason, with
or without cause, or to decrease the employee’s compensation or benefits, or
(ii) confer upon any person engaged by an Employer any right to be retained or
employed by the Employer or to the continuation, extension, renewal or
modification of any compensation, contract or arrangement with or by the
Employer.

 

16.   Rights as a Shareholder.  The recipient of any award under the Plan
shall have no rights as a shareholder with respect to any shares of Common
Stock until the date the recipient

 

 

becomes
the holder of record of those shares.  Except as otherwise expressly provided in the
Plan, no adjustment shall be made for dividends or other rights for which the
record date occurs before the date the recipient becomes the holder of record.

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