Document:

Exhibit 10.1

 

 

TUESDAY MORNING CORPORATION,

as Borrower

 

and

 

THE GUARANTORS PARTY HERETO

 

 

CREDIT AGREEMENT

 

Dated as of September 27, 2002

 

 

FLEET NATIONAL BANK,

as Administrative Agent and Issuing Lender,

 

WELLS FARGO BANK, N.A.,

as Syndication Agent,

 

LASALLE BANK, NATIONAL ASSOCIATION

U.S. BANK NATIONAL ASSOCIATION

WACHOVIA BANK, NATIONAL ASSOCIATION

as Documentation Agents

 

FLEET SECURITIES, INC.,

as Lead Arranger,

 

and

 

THE REVOLVING CREDIT LENDERS PARTY HERETO

 

 

 

TABLE OF
CONTENTS

 

This Table of
Contents is not part of the Credit Agreement to which it is attached but is
inserted for convenience of reference only.

 

	
  Section 1.

  	
  Definitions, Accounting Matters and Rules
  of Construction

  
	
   

  	
   

  
	
   

  	
  1.01

  	
  Certain Defined Terms

  
	
   

  	
  1.02

  	
  Accounting Terms and Determinations

  
	
   

  	
  1.03

  	
  Types of Loans

  
	
   

  	
  1.04

  	
  Rules of Construction

  
	
   

  	
   

  	
   

  
	
  Section 2.

  	
  Commitments, Loans, Notes, Prepayments,
  Replacement of Revolving Credit Lenders and Annual Cleandown

  
	
   

  	
   

  	
   

  
	
   

  	
  2.01

  	
  Loans

  
	
   

  	
  2.02

  	
  Borrowings

  
	
   

  	
  2.03

  	
  Letters of Credit

  
	
   

  	
  2.04

  	
  Extension of Revolving Credit Commitment
  Termination Date

  
	
   

  	
  2.05

  	
  Termination and Reductions of Commitments
  and Overadvance Period

  
	
   

  	
  2.06

  	
  Fees

  
	
   

  	
  2.07

  	
  Lending Offices

  
	
   

  	
  2.08

  	
  Several Obligations of Revolving Credit
  Lenders

  
	
   

  	
  2.09

  	
  Notes; Register

  
	
   

  	
  2.10

  	
  Optional Prepayments and Conversions or
  Continuations of Loans

  
	
   

  	
  2.11

  	
  Mandatory Prepayments

  
	
   

  	
  2.12

  	
  Replacement of Revolving Credit Lenders

  
	
   

  	
  2.13

  	
  Annual Cleandown

  
	
   

  	
   

  	
   

  
	
  Section 3.

  	
  Payments of Principal and Interest

  
	
   

  	
   

  	
   

  
	
   

  	
  3.01

  	
  Repayment of Loans

  
	
   

  	
  3.02

  	
  Interest

  
	
   

  	
   

  	
   

  
	
  Section 4.

  	
  Payments; Pro Rata Treatment; Computations;
  Etc.

  
	
   

  	
   

  	
   

  
	
   

  	
  4.01

  	
  Payments

  
	
   

  	
  4.02

  	
  Pro Rata Treatment

  
	
   

  	
  4.03

  	
  Computations

  
	
   

  	
  4.04

  	
  Minimum Amounts

  
	
   

  	
  4.05

  	
  Certain Notices

  
	
   

  	
  4.06

  	
  Non-Receipt of Funds by the Administrative
  Agent

  
	
   

  	
  4.07

  	
  Right of Setoff; Sharing of Payments, Etc.

  
	
   

  	
   

  	
   

  
	
  Section 5.

  	
  Yield Protection, Etc.

  
	
   

  	
   

  	
   

  
	
   

  	
  5.01

  	
  Additional Costs

  
	
   

  	
  5.02

  	
  Limitation on Types of Loans

  
	
   

  	
  5.03

  	
  Illegality

  
	
   

  	
  5.04

  	
  Treatment of Affected Loans

  
	
   

  	
  5.05

  	
  Compensation

  

 

i

 

	
   

  	
  5.06

  	
  Net Payments

  
	
   

  	
   

  	
   

  
	
  Section 6.

  	
  Guarantee

  
	
   

  	
   

  	
   

  
	
   

  	
  6.01

  	
  The Guarantee

  
	
   

  	
  6.02

  	
  Obligations Unconditional

  
	
   

  	
  6.03

  	
  Reinstatement

  
	
   

  	
  6.04

  	
  Subrogation; Subordination

  
	
   

  	
  6.05

  	
  Remedies

  
	
   

  	
  6.06

  	
  Continuing Guarantee

  
	
   

  	
  6.07

  	
  General Limitation on Guarantee Obligations

  
	
   

  	
   

  	
   

  
	
  Section 7.

  	
  Conditions Precedent

  
	
   

  	
   

  	
   

  
	
   

  	
  7.01

  	
  Effectiveness of This Agreement and Initial
  Extension of Credit Under This Agreement

  
	
   

  	
  7.02

  	
  Initial and Subsequent Extensions of Credit
  Under This Agreement

  
	
   

  	
   

  	
   

  
	
  Section 8.

  	
  Representations and Warranties

  
	
   

  	
   

  	
   

  
	
   

  	
  8.01

  	
  Corporate Existence

  
	
   

  	
  8.02

  	
  Financial Condition; Etc.

  
	
   

  	
  8.03

  	
  Litigation

  
	
   

  	
  8.04

  	
  No Breach; No Default

  
	
   

  	
  8.05

  	
  Action

  
	
   

  	
  8.06

  	
  Approvals

  
	
   

  	
  8.07

  	
  ERISA

  
	
   

  	
  8.08

  	
  Taxes

  
	
   

  	
  8.09

  	
  Investment Company Act; Public Utility
  Holding Company Act; Other Restrictions

  
	
   

  	
  8.10

  	
  Senior Subordinated Notes

  
	
   

  	
  8.11

  	
  Environmental Matters

  
	
   

  	
  8.12

  	
  Environmental Investigations

  
	
   

  	
  8.13

  	
  Use of Proceeds

  
	
   

  	
  8.14

  	
  Subsidiaries

  
	
   

  	
  8.15

  	
  Properties

  
	
   

  	
  8.16

  	
  Security Interest; Absence of Financing
  Statements

  
	
   

  	
  8.17

  	
  Compliance with Laws

  
	
   

  	
  8.18

  	
  True and Complete Disclosure

  
	
   

  	
  8.19

  	
  Solvency

  
	
   

  	
   

  	
   

  
	
  Section 9.

  	
  Covenants

  
	
   

  	
   

  	
   

  
	
   

  	
  9.01

  	
  Financial Statements, Etc.

  
	
   

  	
  9.02

  	
  Litigation, Etc.

  
	
   

  	
  9.03

  	
  Existence; Compliance with Law; Payment of
  Taxes; Inspection Rights; Performance of Obligations; Etc.

  
	
   

  	
  9.04

  	
  Insurance

  
	
   

  	
  9.05

  	
  Limitation on Lines of Business

  
	
   

  	
  9.06

  	
  Limitation on Fundamental Changes;
  Limitation on Acquisitions; Limitation on Dispositions

  
	
   

  	
  9.07

  	
  Limitation on Liens and Related Matters

  
	
   

  	
  9.08

  	
  Limitation on Indebtedness

  

 

ii

 

	
   

  	
  9.09

  	
  Limitation on Investments; Limitation on
  Creation of Subsidiaries

  
	
   

  	
  9.10

  	
  Limitation on Dividend Payments

  
	
   

  	
  9.11

  	
  Financial Covenants

  
	
   

  	
  9.12

  	
  Pledge of Additional Collateral

  
	
   

  	
  9.13

  	
  Security Interests

  
	
   

  	
  9.14

  	
  Compliance with Environmental Laws

  
	
   

  	
  9.15

  	
  Limitation on Prepayments of Senior
  Subordinated Notes, Etc.

  
	
   

  	
  9.16

  	
  Limitation on Transactions with Affiliates

  
	
   

  	
  9.17

  	
  Limitation on Accounting Changes;
  Limitation on Investment Company Status

  
	
   

  	
  9.18

  	
  Limitation on Modifications of Certain
  Documents, Etc.

  
	
   

  	
  9.19

  	
  Limitation on Certain Restrictions
  Affecting Subsidiaries

  
	
   

  	
  9.20

  	
  Additional Obligors

  
	
   

  	
  9.21

  	
  Limitation on Designated Senior
  Indebtedness

  
	
   

  	
  9.22

  	
  Limitation on Change of Principal Place of
  Business or Corporate Name

  
	
   

  	
  9.23

  	
  Replacement Documentation

  
	
   

  	
   

  	
   

  
	
  Section 10.

  	
  Events of Default

  
	
   

  	
   

  	
   

  
	
  Section 11.

  	
  The Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
  11.01

  	
  General Provisions

  
	
   

  	
  11.02

  	
  Indemnification

  
	
   

  	
  11.03

  	
  Consents Under Other Credit Documents

  
	
   

  	
  11.04

  	
  Collateral Sub-Agents

  
	
   

  	
  11.05

  	
  Other Agents

  
	
   

  	
   

  	
   

  
	
  Section 12.

  	
  Miscellaneous

  
	
   

  	
   

  	
   

  
	
   

  	
  12.01

  	
  Rights and Remedies

  
	
   

  	
  12.02

  	
  Notices

  
	
   

  	
  12.03

  	
  Expenses, Indemnification, Etc.

  
	
   

  	
  12.04

  	
  Amendments, Etc.

  
	
   

  	
  12.05

  	
  Successors and Assigns

  
	
   

  	
  12.06

  	
  Assignments and Participations

  
	
   

  	
  12.07

  	
  Survival

  
	
   

  	
  12.08

  	
  Captions

  
	
   

  	
  12.09

  	
  Counterparts; Interpretation; Effectiveness

  
	
   

  	
  12.10

  	
  Governing Law; Submission to Jurisdiction

  
	
   

  	
  12.11

  	
  Waivers

  
	
   

  	
  12.12

  	
  Confidentiality

  
	
   

  	
  12.13

  	
  Independence of Representations, Warranties and Covenants

  
	
   

  	
  12.14

  	
  Severability

  
	
   

  	
   

  	
   

  
	
  Signatures

  	
   

  

 

iii

 

	
  ANNEX A

  	
  -

  	
  Commitments

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 1.1(a)

  	
  -

  	
  Applicable Margins

  
	
  SCHEDULE 1.1(b)

  	
  -

  	
  Guarantors

  
	
  SCHEDULE 1.1(c)

  	
  -

  	
  Existing Letters of Credit

  
	
  SCHEDULE 8.2

  	
  -

  	
  Certain Contingent Obligations

  
	
  SCHEDULE 8.3

  	
  -

  	
  Litigation

  
	
  SCHEDULE 8.8

  	
  -

  	
  Certain Tax Matters

  
	
  SCHEDULE 8.11

  	
  -

  	
  Environmental Matters

  
	
  SCHEDULE 8.14

  	
  -

  	
  Subsidiaries of Borrower

  
	
  SCHEDULE 9.7

  	
  -

  	
  Certain Existing Liens

  
	
  SCHEDULE 9.8

  	
  -

  	
  Certain Indebtedness to Remain Outstanding

  
	
  SCHEDULE 9.9

  	
  -

  	
  Investments

  
	
  SCHEDULE 9.16

  	
  -

  	
  Existing Affiliate Agreements

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A-1

  	
  -

  	
  Form of Revolving Credit Note

  
	
  EXHIBIT A-2

  	
  -

  	
  Form of Swing Loan Note

  
	
  EXHIBIT B

  	
  -

  	
  Form of Intercompany Note

  
	
  EXHIBIT C-1

  	
  -

  	
  Form of Interest Rate Certificate

  
	
  EXHIBIT C-2

  	
  -

  	
  Form of Borrowing Base Certificate

  
	
  EXHIBIT D

  	
  -

  	
  Form of Security Agreement

  
	
  EXHIBIT E

  	
  -

  	
  Form of Notice of Assignment

  
	
  EXHIBIT F

  	
  -

  	
  Form of Mortgage

  
	
  EXHIBIT G

  	
  -

  	
  Form of Section 5.6 Certificate

  
	
  EXHIBIT H

  	
  -

  	
  Form of Notice of Borrowing

  
	
  EXHIBIT I

  	
  -

  	
  Form of Notice of Conversion/Continuation

  
	
  EXHIBIT J

  	
  -

  	
  Form of Subordination Provisions

  
	
  EXHIBIT K

  	
  -

  	
  Form of Joinder Agreement

  
	
  EXHIBIT L

  	
  -

  	
  Form of Compliance Certificate

  

 

iv

 

CREDIT AGREEMENT, dated as of September 27,
2002, among

 

TUESDAY
MORNING CORPORATION, a Delaware corporation (“Borrower,” which term
shall include its successors and assigns); and

 

the GUARANTORS
party hereto; and

 

each of the
REVOLVING CREDIT LENDERS that is a signatory hereto identified under the
caption “REVOLVING CREDIT LENDERS” on the signature pages hereto or that,
pursuant to Section 12.6(b), shall become a “Revolving Credit Lender” hereunder
(individually, a “Revolving Credit Lender” and, collectively, the “Revolving
Credit Lenders”); and

 

FLEET NATIONAL
BANK, as the issuer of Letters of Credit (in such capacity, together with its
successors in such capacity, the “Issuing Lender”) and as administrative
agent for the Revolving Credit Lenders (in such capacity, together with its
successors in such capacity, the “Administrative Agent”);

 

WELLS FARGO
BANK, N.A., as syndication agent (in such capacity, together with its
successors in such capacity, the “Syndication Agent”); and

 

LASALLE BANK,
NATIONAL ASSOCIATION, U.S. BANK NATIONAL ASSOCIATION, and WACHOVIA BANK,
NATIONAL ASSOCIATION, as Documentation Agents, (in such capacity, together with
their successors in such capacity, the “Documentation Agents”)

 

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

 

Section 1.               Definitions,
Accounting Matters and Rules of Construction

 

1.1           Certain Defined
Terms.  As used herein, the
following terms shall have the following meanings:

 

“Acquired
Indebtedness” shall mean Indebtedness incurred or assumed in connection
with an Acquisition permitted under Section 9.6(l) or Section 9.6(n), to the
extent the incurrence or assumption of Indebtedness in connection with such
Acquisition is not prohibited under Section 9.6(l) or Section 9.6(n); provided,
however, that such Indebtedness was outstanding prior to and was not
created in connection with or in contemplation of such Acquisition.

 

“Acquisition”
shall mean, with respect to any Person, any transaction or series of related
transactions for the direct or indirect (a) acquisition of all or substantially
all of the Property of any other Person, or of any business or division of any
other Person, (b) acquisition of in excess of 50% of the Equity Interests of
any other Person, or otherwise causing any other Person to become a Subsidiary
of such Person, or (c) merger or consolidation or any other combination with
any other Person.

 

“Additional
Collateral” see Section 9.12.

 

“Additional
Obligors” see Section 9.20.

 

“Administrative
Agent” see the introduction to this Agreement.

 

1

 

“Advance
Date” see Section 4.6.

 

“Affiliate”
shall mean, with respect to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person, or, in the case of any Revolving Credit Lender which is an investment
fund, the investment advisor thereof and any investment fund having the same
investment advisor. As used in this definition, “control” (including,
with its correlative meanings, “controlled by” and “under common
control with”) shall mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise).

 

“Affiliate
Transaction” see Section 9.16.

 

“Agreement”
shall mean this Credit Agreement, as amended from time to time.

 

“Alternate
Base Rate” shall mean for any day, a rate per annum that is equal to the
higher of (a) the Prime Rate or (b) the Federal Funds Rate.

 

“Alternate
Base Rate Loans” shall mean Loans that bear interest at rates based upon
the Alternate Base Rate.

 

“Applicable
Lending Office” shall mean, for each Revolving Credit Lender and for each
Type of Loan, the “Lending Office” of such Revolving Credit Lender (or of an
Affiliate of such Revolving Credit Lender) designated for such type of Loan on
the signature pages hereof or such other office of such Revolving Credit Lender
(or of an Affiliate of such Revolving Credit Lender) as such Revolving Credit
Lender may from time to time specify to the Administrative Agent and Borrower
as the office by which its Loans of such Type are to be made and maintained.

 

“Applicable
Margin” shall be (a) from the Closing Date to the date (the “Reset Date”)
Borrower shall have delivered to the Revolving Credit Lenders the financial
statements, the Interest Rate Certificate and the Compliance Certificate
required by Section 9.1 in respect of the fiscal quarter and fiscal year of
Borrower ending December 31, 2002, with respect to Alternate Base Rate Loans,
0.375% and with respect to LIBOR Loans, 1.875%, unless the Leverage Ratio at
the end of any fiscal quarter is at the level set forth for Tier I of Schedule
1.1(a), in which case the Applicable Margin shall be the percentages per
annum for each applicable Type of Loan set forth opposite Tier I of Schedule
1.1(a), and (b) thereafter, when the Leverage Ratio at the end of the most
recently ended fiscal quarter ending after the Reset Date is as set forth in Schedule
1.1(a), the percentage per  annum set forth opposite such
Leverage Ratio in Schedule 1.1(a). Any change in the Leverage Ratio
shall be effective to adjust the Applicable Margin as of the date of receipt by
the Administrative Agent of the Interest Rate Certificate most recently
delivered pursuant to Section 9.1(d). 
If Borrower fails to deliver the Interest Rate Certificates and
financial statements within the times specified in Sections 9.1(a), (b) and
(d), such ratio shall be deemed to be that set forth opposite Tier I of Schedule
1.1(a) until Borrower delivers such Interest Rate Certificates and
financial statements.

 

“Applicable
Revolving Credit Fee Percentage” shall mean 0.50% per  annum; provided,
however, that from and after the Reset Date, the Applicable Revolving
Credit Fee Percentage shall be, when the Leverage Ratio at the end of the most
recently ended fiscal quarter ending after the Reset Date is as set forth in Schedule
1.1(a), the percentage per  annum set forth opposite such
Leverage Ratio in Schedule 1.1(a). 
Any change in the Leverage Ratio shall be effective to adjust the
Applicable Revolving Credit Fee

 

2

 

Percentage as
of the date of receipt by the Administrative Agent of the Interest Rate
Certificate most recently delivered pursuant to Section 9.1(d).  If Borrower fails to deliver the Interest
Rate Certificates and financial statements within the times specified in
Sections 9.1(a), (b) and (d), such ratio shall be deemed to be that set forth
opposite Tier I of Schedule 1.1(a) until Borrower delivers such Interest Rate
Certificates and financial statements.

 

“Appraised
Inventory Liquidation Value” shall mean the product of (a) the aggregate
value of Eligible Inventory (net of Inventory Reserves) multiplied by (b) that percentage,
determined from the then most recent appraisal of the Borrower’s Inventory
undertaken by, or at the request of, the Administrative Agent, to reflect the
appraiser’s estimate of the net recovery on the Borrower’s Inventory in the
event of an in-store liquidation of that Inventory.

 

“Availability
Reserves” shall mean such reserves as the Administrative Agent from time to
time determines in the Administrative Agent’s discretion as being appropriate
to reflect the impediments to the Agents’ ability to realize upon the Pledged
Collateral.

 

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

 

“Benefit
Arrangement” shall mean at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.

 

“Borrower”
see the introduction to this Agreement.

 

“Borrowing
Base” shall mean, as at any date, (i) the lesser of (A) up to sixty five
percent (65%) of the aggregate value of Eligible Inventory (net of Inventory Reserves)
at said date or (B) up to eighty-five percent (85%) of the Appraised Inventory
Liquidation Value of Eligible Inventory (the lesser of (A) or (B) being
referred to as the “Normal Advance Rate”), minus (ii) Availability
Reserves; provided, however, that if no Event of Default has
occurred and is continuing, the Revolving Credit Lenders will, upon Borrower’s
request, make advances of up to the sum of (x) the Normal Advance Rate plus (y)
$20.0 Million (the “Increased Advance Rate”), minus (z) Availability
Reserves; provided, however, that the Increased Advance Rate
shall be in effect only during the Overadvance Period.

 

“Borrowing
Base Certificate” shall mean a certificate of a senior financial officer of
Borrower, substantially in the form of Exhibit C-2 and appropriately
completed.

 

“Business
Day” shall mean any day (a) on which commercial banks are not authorized or
required to close in Boston, Massachusetts or Dallas, Texas and (b) if such day
relates to a borrowing of, a payment or prepayment of principal of or interest
on, a Continuation or Conversion of or into, or an Interest Period for, a LIBOR
Loan or a notice by Borrower with respect to any such borrowing, payment,
prepayment, Continuation, Conversion or Interest Period, that is also a day on which
dealings in Dollar deposits are carried out in the London interbank market.

 

“Capital
Expenditures” shall mean, for any period, (a)  any direct or indirect (by way of acquisition of securities of a
Person or the expenditure of cash or the incurrences of Indebtedness)
expenditures made or costs incurred in respect of the purchase or other
acquisition, maintenance or repair (to the extent capitalized on the balance
sheet of such

 

3

 

Person) of
fixed or capital assets, and (b) Capital Lease Obligations incurred by the
Borrowers during such period, all of the foregoing as determined in accordance
with GAAP.  Notwithstanding the
foregoing, “Capital Expenditures” shall not include expenditures made with the
Net Available Proceeds of any Casualty Event or any Taking, Destruction, or
loss of title with respect to Real Property.

 

“Capital
Lease,” as applied to any Person, shall mean any lease of any Property by
that Person as lessee which, in conformity with GAAP, is required to be
classified and accounted for as a capital lease on the balance sheet of that
Person.

 

“Capital
Lease Obligations” shall mean, for any Person, all obligations of such
Person to pay rent or other amounts under a Capital Lease, and, for purposes of
this Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.

 

“Casualty
Event” shall mean, with respect to any Property (other than Real Property)
of any Person, any loss of or damage to, or any condemnation or other taking
of, such Property for which such Person or any of its Subsidiaries receives
insurance proceeds or proceeds of a condemnation award or other
compensation.  Casualty Event shall not
include any Taking or Destruction or loss of title to Real Property.

 

“CERCLA”
see Section 8.11.

 

“Change of
Control” shall mean any transaction or event (including, without
limitation, an issuance, sale or exchange of Equity Interests, a merger or
consolidation, or a dissolution or liquidation) occurring on or after the
Closing Date (whether or not approved by the board of directors of Borrower) as
a direct or indirect result of which: (a)(i) any “Person” or any “group” (as
such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended) (other than the Permitted Holders) shall (directly or
indirectly) beneficially own in the aggregate shares of Equity Interests of
Borrower having 33-1/3% or more of the aggregate voting power of all shares of
Equity Interests of Borrower at the time outstanding; provided, however,
that the foregoing shall be a Change of Control only if the Permitted Holders
beneficially own a lesser percentage of the aggregate voting power of all
shares of Equity Interests of Borrower at the time outstanding than such Person
or group or do not have the right or ability by voting power, contract or
otherwise to elect or designate for elections at least a majority of the board
of directors of Borrower; or (ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the board of
directors of Borrower (together with any new directors whose election by such
board of directors or whose nomination for election by the shareholders of
Borrower was approved by a vote of at least 66-2/3% of the directors of
Borrower then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
directors of Borrower then in office; or (b) any event or circumstance
constituting a “change of control” or other similar occurrence under
documentation evidencing or governing any Indebtedness of Borrower in a
principal amount in excess of $5.0 million (other than under the Credit
Documents) shall occur which results in an obligation of Borrower to prepay,
purchase, offer to purchase, redeem or defease all or a portion of such
Indebtedness.  For purposes of this
definition, the terms “beneficially own” and “group” shall have
the respective meanings ascribed to them pursuant to Section 13(d) of the
United States Securities Exchange Act of 1934.

 

4

 

“Closing
Date” shall mean the date upon which the conditions specified in Section
7.1 are satisfied (or waived in accordance with Section 12.4).

 

“Code”
shall mean the United States Internal Revenue Code of 1986, as amended.

 

“Collateral”
shall mean all of the Pledged Collateral and Mortgaged Real Property.

 

“Collateral
Account” see Section 4.1 of the Security Agreement.

 

“Consolidated
Adjusted Income Tax Expense” has the same meaning herein as the term
“Consolidated Income Tax Expense” in the Indenture as in effect on the date
hereof.  Specifically, the term
“Consolidated Adjusted Income Tax Expense” means, for any period, the provision
for federal, state, local and foreign income taxes of the Borrower and all
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP.

 

“Consolidated
Adjusted Interest Expense” has the same meaning herein as the term
“Consolidated Interest Expense” in the Indenture as in effect on the date
hereof. Specifically, the term “Consolidated Adjusted Interest Expense” means,
for any period, without duplication, (1) the sum of (a) the interest expense of
the Borrower and its Restricted Subsidiaries for such period, including,
without limitation, (i) amortization of debt discount, (ii) the net cost of
Swap Agreements (including amortization of discounts), (iii) the interest
portion of any deferred payment obligation and (iv) amortization of debt
issuance costs, plus (b) the interest component of Capital Lease Obligations of
the Borrower and its Restricted Subsidiaries during such period, plus (c) cash
dividends due (whether or not declared) on Preferred Stock by the Borrower and
any Restricted Subsidiary, plus (d) cash dividends due (whether or not
declared) on Redeemable Capital stock by the Borrower and any Restricted
Subsidiary, in each case as determined on a consolidated basis in accordance
with GAAP, less (2) interest on the Exchange Debentures (as defined in the
Indenture) outstanding on the Exchange Date (as defined in the Indenture) paid
in kind with Exchange Debentures and on Exchange Debentures so issued as
payment in kind interest, all in accordance with the Debenture Indenture (as
defined in the Indenture) as in effect on the issuance date of the notes under
the Indenture; provided that (x)
the Consolidated Adjusted Interest Expense attributable to interest on any
Indebtedness computed on a pro forma
basis and (A) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the
entire period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Borrower, a
fixed or floating rate of interest, shall be computed by applying at the option
of the Borrower, either the fixed or floating rate, and (y) in making such
computation, the Consolidated Adjusted Interest Expense attributable to
interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period; provided further that,
notwithstanding the foregoing, the interest rate with respect to any
Indebtedness covered by any Swap Agreement shall be deemed to be effective
interest rate with respect to such Indebtedness after taking into account such
Swap Agreement.

 

“Consolidated
Adjusted Non-Cash Charges” has the same meaning herein as the term
“Consolidated Non-Cash Charges” in the Indenture as in effect on the date
hereof. Specifically, the term “Consolidated Adjusted Non-Cash Charges” means,
for any period, the aggregate depreciation, amortization, depletion and other
non-cash expenses of the Borrower and any Restricted Subsidiary reducing
Consolidated Adjusted Net Income for

 

5

 

such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
non-cash charge that requires an accrual of or reserve for cash charges for any
future period).

 

“Consolidated
Adjusted Net Income” has the same meaning herein as the term “Consolidated
Adjusted Net Income” in the Indenture as in effect on the date hereof.
Specifically, the term “Consolidated Adjusted Net Income” shall mean, for any
period, the consolidated net income of the Borrower and its Restricted Subsidiaries
for such period, as determined in accordance with GAAP, adjusted by excluding,
without duplication, (a) any net after-tax extraordinary gains or losses (less
all fees and expenses relating thereto), (b) any net after-tax gains or losses
(less all fees and expenses relating thereto) attributable to asset
dispositions other than in the ordinary course of business, (c) the portion of
net income (or loss) of any Person (other than the Borrower or a Restricted
Subsidiary), including Unrestricted Subsidiaries, in which the Borrower or a
Restricted Subsidiary has an ownership interest, except to the extent of the
amount of dividends or other distributions actually paid to the Borrower or any
Restricted Subsidiary in cash dividends or distributions during such period,
(d) the net income (or loss) of any Person combined with the Borrower or any
Restricted Subsidiary on a “pooling of interests” basis attributable to any
period prior to the date of combination, and (e) the net income of any
Restricted Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary is not at the
date of determination permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Restricted
Subsidiary or its stockholders.

 

“Consolidated
EBITDA” shall mean, for any Measurement Period, the sum (without
duplication) of the amounts for such period of (a) Consolidated Net Income, (b)
income tax expense to the extent deducted in determining Consolidated Net
Income for such period, (c) Consolidated Interest Expense to the extent
deducted in determining Consolidated Net Income for such period, and (d) depreciation
expense and amortization expense to the extent deducted in determining
Consolidated Net Income for such period, each such item described in clauses
(b)-(d) determined in accordance with GAAP.

 

“Consolidated
Interest Expense” shall mean, for any period, for Borrower and its
Consolidated Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP) all interest expense during such period
(whether or not actually paid during such period), other than any non-cash interest
expense in respect of Indebtedness in the form of accretion of original issue
discount or pay-in-kind issuances of additional debt in lieu of cash interest
and other than amortization of financing fees.

 

“Consolidated
Minimum Interest Coverage Ratio” of the Borrower means, for any period, the
ratio of (a) the sum of Consolidated Adjusted Net Income and, to the extent
deducted in computing Consolidated Adjusted Net Income, Consolidated Adjusted
Interest Expense, Consolidated Adjusted Income Tax Expense and Consolidated
Adjusted Non-Cash Charges, in each case, for such period to (b) the
Consolidated Adjusted Interest Expense for such period.

 

“Consolidated
Net Income” shall mean, for any Measurement Period, the consolidated net
income (loss) of Borrower and its Consolidated Subsidiaries calculated on a
consolidated basis in accordance with GAAP.

 

“Consolidated
Rental Expense” shall mean, for any period, the aggregate amount of all
rents paid or to be incurred under all leases of Real Property of Borrower and
its

 

6

 

Consolidated
Subsidiaries as lessees (net of sublease income), calculated in accordance with
GAAP.

 

“Consolidated
Subsidiary” shall mean, for any Person, each Subsidiary of such Person
(whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated with the
financial statements of such Person in accordance with GAAP.

 

“Consolidated
Tangible Net Worth” shall mean, at any particular date, the difference of
(a) the aggregate book value of all of the assets (net of all applicable
reserves) of the Borrower which would, in accordance with GAAP, appear as
assets upon a consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries prepared as at such date, less (b) the sum of the
following:

 

(i)            without duplication, all proper
reserves which would, in accordance with GAAP, be classified as liabilities
upon a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries
as at such particular date;

 

(ii)           the Consolidated Total Liabilities as
at such particular date;

 

(iii)          all intangible assets (including,
without limitation, franchise, license, permits, copyrights, patents,
trademarks, trade names, goodwill, covenants not to compete, loan acquisition
fees and other like intangibles) of the Borrower and its Consolidated
Subsidiaries that are included within the consolidated balance sheet of such
parties as at such particular date;

 

(iv)          all obligations and liabilities owed
to the Borrower or its Consolidated Subsidiaries by any Affiliate or
stockholder or employee (or relative of any employee) of the Borrower or its
Consolidated Subsidiaries that are included as assets within the consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as at such
particular date; and

 

(v)           the value of any minority interests
in Subsidiaries.

 

“Consolidated
Total Liabilities” shall mean, at any particular date, all of the
liabilities of the Borrower and its Consolidated Subsidiaries which, in
accordance with GAAP, would be classified as a liability upon a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries prepared as at
such particular date.

 

“Contingent
Obligation” shall mean, as to any Person, any direct or indirect liability
of such Person, whether or not contingent, with or without recourse: (a) with
respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the “primary obligations”) of another Person (the “primary
obligor”), including any obligation of such Person (i) to purchase,
repurchase or otherwise acquire such primary obligations or any security
therefor, (ii) to advance or provide funds for the payment or discharge of any
such primary obligation, or to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (iv)
otherwise to assure or hold harmless the holder of any such primary obligation
against loss in respect thereof (each of (a)(i)-(iv), a “Guaranty Obligation”);
(b) with respect to any Surety Instrument (other than any Letter of Credit)

 

7

 

issued for the
account of such Person or as to which such Person is otherwise liable for
reimbursement of drawings or payments; (c) to purchase any materials, supplies
or other property from, or to obtain the services of, another Person if the
relevant contract or other related document or obligation requires that payment
for such materials, supplies or other property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or other
property is ever made or tendered, or such services are ever performed or
tendered; or (d) in respect of any Swap Contract; provided, however,
that the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection or standard contractual indemnities
entered into, in each case in the ordinary course of business.  The amount of any Contingent Obligation
shall (x) in the case of a Guaranty Obligation, be deemed equal to the stated
or determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof, and (y) in the case of
other Contingent Obligations, be equal to the maximum reasonably anticipated
liability in respect thereof.

 

“Continue,”
“Continuation” and “Continued” shall refer to the continuation
pursuant to Section 2.10 of a LIBOR Loan from one Interest Period to the next
Interest Period.

 

“Convert,”
“Conversion” and “Converted” shall refer to a conversion pursuant
to Section 2.10 of one Type of Loan into another Type of Loan, which may be
accompanied by the transfer by a Revolving Credit Lender (at its sole
discretion) of a Loan from one Applicable Lending Office to another.

 

“Covered
Taxes” see Section 5.6(a).

 

“Credit
Documents” shall mean this Agreement, the Notes, any Letter of Credit
Documents and any Security Documents, all of the foregoing whether executed and
delivered on or after the Closing Date.

 

“Creditor”
shall mean the Administrative Agent, the Issuing Lender, any Revolving Credit
Lender or any Affiliate of a Revolving Credit Lender party to a Swap Contract
with an Obligor.

 

“Debt
Issuance” shall mean the incurrence by any Obligor of any Indebtedness
after the Closing Date (other than as permitted by Section 9.8).

 

“Default”
shall mean an event that with notice or lapse of time or both would become an
Event of Default.

 

“Destruction”
shall mean any damage to, or loss or destruction of, any Real Property or
Mortgaged Real Property.  Destruction
shall not include any Casualty Event.

 

“Disposition”
shall mean (a) any conveyance, sale, lease, assignment, transfer or other
disposition (including by way of merger or consolidation and including any
sale-leaseback transaction) of any Property (including receivables and shares
of Equity Interests of any Subsidiary or joint venture of any Person) (whether
now owned or hereafter acquired) by any Obligor or any of its Subsidiaries to
any Person, (b) any issuance of any Equity Interests in any Subsidiary to any
Person other than Borrower or any Wholly Owned Subsidiary, and (c) any
liquidating or other non-ordinary course dividend or distribution received by
any Obligor or any of its Subsidiaries in respect of any joint venture or
similar enterprise, excluding, however, any Excluded Disposition.

 

8

 

“Disposition
Event”  shall mean the receipt by
any Obligor or any of its Subsidiaries of cash proceeds or cash distributions
of any kind from Property received in consideration for a Disposition.

 

“Disqualified
Capital Stock” shall mean, with respect to any Person, any Equity Interests
of such Person that, by its terms (or by the terms of any security into which
it is convertible or for which it is exchangeable), or upon the happening of
any event, matures (excluding any maturity as the result of an optional
redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof, in whole or in part, on or prior to March 31, 2007; provided,
however, that no Equity Interests issued to management of Borrower shall
be deemed Disqualified Capital Stock by virtue of the fact that they may be put
to Borrower upon the occurrence of certain events disclosed to the Revolving
Credit Lenders prior to the Closing Date.

 

“Dividend
Payment”  shall mean dividends (in
cash, Property or obligations) on, or other payments or distributions on
account of, or the setting apart of money for a sinking or other analogous fund
for, or the purchase, redemption, retirement or other acquisition of, any
shares of any Equity Interests of any Obligor or any of its Subsidiaries, or of
any Equity Rights, but excluding (a) dividends payable in respect of shares of
Equity Interests through the issuance of additional shares of Qualified Capital
Stock, (b) any redemption or exchange of any Equity Interests of such Obligor
through the issuance of Qualified Capital Stock of such Obligor and (c) cash
dividends paid in respect of any fractional shares that would otherwise be
issued as dividends.

 

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

 

“Domestic
Subsidiary” shall mean any Subsidiary that is not a Foreign Subsidiary.

 

“Eligible
Inventory” shall mean Inventory valued at lower of cost or market on a “first
in-first out” (“FIFO”) basis or based on specific identification with
respect to Inventory in the warehouse that constitutes first quality finished
goods, and that: (a) is not, in the Administrative Agent’s reasonable judgment,
obsolete or unmerchantable (it being understood that Borrower is in the
business of buying closeout or discontinued merchandise); (b) upon which the
Administrative Agent, for the benefit of the Revolving Credit Lenders, has a
first priority perfected security interest subject only to Prior Liens; and (c)
the Administrative Agent otherwise deems eligible as the basis for Revolving
Credit Loans based on such other credit and collateral considerations as the
Administrative Agent may from time to time establish in its reasonable discretion
consistent with its general policies and business judgment.  Without intending to limit the
Administrative Agent’s discretion to establish other criteria of eligibility,
no spare parts, packaging and shipping material, supplies, slow-moving or
obsolete Inventory, sample Inventory, scratched or dented Inventory, Inventory
in transit (unless it meets the requirements of clause (iii), below) , bill and
hold Inventory, returned or defective Inventory or Inventory delivered to
Borrower on consignment shall constitute Eligible Inventory.  Eligible Inventory shall not include
Inventory stored at locations other than those locations either owned by
Borrower or locations for which an appropriate UCC filing has been filed in the
appropriate offices to perfect the security interest in such Inventory.  Eligible Inventory shall not include (i)
Inventory with respect to which the representations and warranties set forth in
the Security Agreement applicable to Inventory are not true and correct in all
material respects; (ii) Inventory in respect of which the Security Agreement,
after giving effect to the related filings of financing

 

9

 

statements
that have then been made, if any, does not or has ceased to create a valid and
perfected first priority lien (subject to Prior Liens) or security interest in
favor of the Revolving Credit Lenders securing the Obligations and as to which
no other Liens exist, other than Permitted Liens; (iii) Inventory located
outside the United States which is being shipped to Borrower, other than any
such Inventory which meets each of the following conditions:  (A) such Inventory would otherwise qualify
as Eligible Inventory and would not be excluded by any other clause of this
definition, (B) such Inventory is in transit to Borrower on an F.O.B. shipping
basis, and (C) such Inventory is fully paid for by Borrower and fully insured
on terms acceptable to the Administrative Agent pursuant to insurance which
names the Administrative Agent as loss payee for the benefit of the Revolving
Credit Lenders, and the Administrative Agent, if it so requests, shall have
received (x) all negotiable instruments of title issued in connection with such
shipment or (y) a customs broker agency agreement reasonably acceptable to the
Administrative Agent; provided, however, that not more than $10.0
million of Inventory may be included at any time pursuant to this clause (iii);
and (iv) Inventory located outside the United States which is not being shipped
to Borrower unless arrangements for the granting and perfection of a security
interest in such Inventory have been made in a manner acceptable to the
Administrative Agent in its sole discretion. 
In addition, the buying, freight and distribution costs (“UNICAP
Costs”) and the product development expenses which are a component of the
cost of Inventory will not be considered as part of the value of the Inventory.

 

“Eligible
Person” shall mean (a) a commercial bank organized under the laws of the
United States, or any state thereof, and having a combined capital and surplus
of at least $100.0 million; (b) a commercial bank organized under the laws of
any other country that is a member of the Organization for Economic Cooperation
and Development (the “OECD”), or a political subdivision of any such
country, and having a combined capital and surplus in a dollar equivalent
amount of at least $100.0 million; provided, however, that such
bank is acting through a branch or agency located in the country in which it is
organized or another country that is also a member of the OECD; (c) an
insurance company, mutual fund entity which is regularly engaged in making,
purchasing or investing in loans or securities or other financial institution
organized under the laws of the United States, any state thereof, any other
country that is a member of the OECD or a political subdivision of any such
country with assets, or assets under management, in a dollar equivalent amount
of at least $100.0 million; (d) any Affiliate of a Revolving Credit Lender; and
(e) any other entity (other than a natural person) which is an “accredited
investor” (as defined in Regulation D under the United States Securities Act of
1933, as amended) which extends credit or buys loans as one of its regular
businesses including, but not limited to, insurance companies, mutual funds,
and investment funds.  With respect to
any Revolving Credit Lender that is a fund that invests in loans, any other
fund that invests in loans and is managed or advised by the same investment
advisor of such Revolving Credit Lender or by an Affiliate of such investment
advisor shall be treated as a single Eligible Person.

 

“Environmental
Claim” shall mean, with respect to any Person, any written notice, claim,
demand or other communication (collectively, a “claim”) by any other
Person alleging such Person’s liability for any costs, cleanup costs, response
or corrective action costs, damages to natural resources or other Property,
personal injuries, fines or penalties arising out of or resulting from (i) the
presence, Release or threatened Release into the environment, of any Hazardous
Material at any location, whether or not owned by such Person, or (ii) any
violation of any Environmental Law.  The
term “Environmental Claim” shall include any claim by any Person seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting

 

10

 

from the
presence of Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment.

 

“Environmental
Laws” shall mean any and all present and future applicable laws, rules or
regulations of any Governmental Authority, any orders, decrees, judgments or
injunctions and the common law in each case as now or hereafter in effect,
relating to pollution or protection of human health, safety or the environment,
including without limitation, ambient air, indoor air, soil, surface water,
ground water, wetlands, land or subsurface strata, including, without
limitation, those relating to Releases or threatened Releases of Hazardous
Materials into the environment, or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.

 

“Equity
Interests” shall mean, with respect to any Person, any and all shares,
interests, participations or other equivalents, including membership interests
(however designated, whether voting or non-voting), of capital of such Person,
including, if such Person is a partnership, partnership interests (whether
general or limited) and any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, such partnership, whether outstanding on the
Closing Date or issued after the Closing Date.

 

“Equity
Issuance” shall mean any of (a) any issuance or sale after the Closing Date
by any Obligor or Subsidiary or any direct or indirect parent of Borrower of
(x) any Equity Interests (including any Equity Interests issued upon exercise
of any Equity Rights) or any Equity Rights, or (y) any other security or
instrument representing an Equity Interest (or the right to obtain any Equity
Interest) in the issuing or selling Person, or (b) the receipt by Borrower or
any Subsidiary after the Closing Date of any capital contribution (whether or
not evidenced by any Equity Interest issued by the recipient of such
contribution) other than from Borrower or any Subsidiary, excluding (x) any
issuance of Equity Interests (or Equity Rights) to the seller or sellers in
consideration for an Acquisition, (y) the issuance of Equity Rights to
management and consultants of Borrower (and the exercise thereof) in an amount
not to exceed 10% (on a fully diluted basis) of the outstanding common Equity
Interests of Borrower, and (z) any issuance of Equity Interests by the Borrower
in connection with any secondary offering of Qualified Capital Stock by Madison
Dearborn Partners, Inc., Madison Dearborn Capital Partners II, L.P. or any of
their Affiliates (to the extent that the Borrower does not receive any Net
Available Proceeds therefrom).  For
purposes of this definition, a Person shall be deemed the “direct or indirect
parent” of Borrower only if such Person’s assets consist solely of Equity
Interests of Borrower or Equity Interests of another direct of indirect parent
of Borrower and if Borrower is directly or indirectly a Wholly Owned Subsidiary
of such Person; provided, however, that in no event, for purposes
of this definition, shall Madison Dearborn or any other fund managed or
sponsored by Madison Dearborn be the “direct or indirect parent” of Borrower.

 

“Equity
Rights” shall mean, with respect to any Person, any outstanding
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including any stockholders’ or voting trust agreements) for the
issuance, sale, registration or voting of, or outstanding securities
convertible into, any additional shares of Equity Interests of any class of
such Person.

 

“ERISA”
shall mean the United States Employee Retirement Income Security Act of 1974,
as amended.

 

11

 

“ERISA
Group” shall mean Borrower, any Subsidiary and all members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Code.

 

“Event of
Default” see Section 10.

 

“Excess
Availability” shall mean, at any time, (a) the lesser of (i) the Revolving
Credit Commitments in effect at such time or (ii) the Borrowing Base in effect
at such time minus (b) the sum of (i) the aggregate principal amount of
(without duplication) all Revolving Credit Loans then outstanding, plus
(ii) the aggregate principal amount of Swing Loans then outstanding, plus
(iii) the aggregate amount of all Letter of Credit Liabilities then
outstanding.

 

“Existing
Affiliate Agreements” see Section 9.16.

 

“Existing
Letters of Credit” means those letters of credit described on Schedule
1.1(c) hereto which have been issued by Fleet National Bank  under the Borrower’s existing credit
facility with, among others, Fleet National Bank.

 

“Extended
Revolving Credit Commitment Termination Date” shall mean March 27, 2007.

 

“Federal
Funds Rate” shall mean, for any day, the rate per annum (rounded upwards,
if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day; provided, however, that (a) if the day for which such rate
is to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate quoted to the Administrative Agent on such Business
Day on such transactions by three federal funds brokers of recognized standing,
as determined by the Administrative Agent.

 

“Fee Letter”
shall mean the Fee Letter dated as of July 17, 2002 by and among Fleet
Securities, Inc., Fleet National Bank and Borrower.

 

“Fixed
Charges” shall mean, for any period of calculation, the sum of (i)
Consolidated Interest Expense of Borrower and its Consolidated Subsidiaries,
(ii) the sum of all scheduled principal payments on any Indebtedness of
Borrower, and voluntary prepayments of Indebtedness (other than Revolving
Credit Loans unless and to the extent accompanied by a permanent reduction of
Revolving Credit Commitments), in  each
case to the extent made from internally generated funds of Borrower and the
Subsidiaries, and (iii) Consolidated Rental Expense.

 

“Foreign
Plan” see Section 8.7.

 

“Foreign
Subsidiary” shall mean any direct or indirect Subsidiary organized outside
of the United States as defined in Section 7701(a)(9) of the Code (or any
successor provision).

 

12

 

“Funding
Date” shall mean the date of the making of any extension of credit
hereunder (including the Closing Date).

 

“GAAP”
shall mean generally accepted accounting principles set forth as of the
relevant date in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies
with similar functions of comparable stature and authority within the U.S.
accounting profession), which are applicable to the circumstances as of the
date of determination.

 

“Governmental
Authority” shall mean any government or political subdivision of the United
States or any other country or any agency, authority, board, bureau, central
bank, commission, department or instrumentality thereof or therein, including,
without limitation, any court, tribunal, grand jury or arbitrator, in each case
whether foreign or domestic, or any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to such
government or political subdivision.

 

“Guarantee”
shall mean the guarantee of each Guarantor pursuant to Section 6.

 

“Guaranteed
Obligations” see Section 6.1.

 

“Guarantors”
shall mean each of the direct and indirect Domestic Subsidiaries of Borrower
listed on Schedule 1.1(b), and each direct and indirect Domestic
Subsidiary that guarantees the payment of the Obligations of Borrower hereunder
pursuant to Section 9.20 and the other Credit Documents.

 

“Guaranty
Obligation” see the definition of Contingent Obligation.

 

“Hazardous
Material” shall mean any pollutant, contaminant, toxic, hazardous or
extremely hazardous substance, constituent or waste, or any other constituent,
waste, material, compound or substance including, without limitation, petroleum
including crude oil or any fraction thereof, or any petroleum product, subject
to regulation under any Environmental Law.

 

“Increased
Advance Rate” see the definition of Borrowing Base.

 

“Increased
Facility Amount” shall mean an increase in the Revolving Credit Commitments
(whether by the Revolving Credit Lenders or New Lenders) of up to $25.0
Million.

 

“Indebtedness”
shall mean, for any Person, without duplication, (a) all indebtedness for
borrowed money of such Person; (b) all obligations issued, undertaken or
assumed by such Person as the deferred purchase price of Property or services
(other than trade payables and accrued expenses not overdue by more than 90
days incurred in the ordinary course of business on ordinary terms); (c) all
non-contingent reimbursement or payment obligations of such Person with respect
to Surety Instruments (such as, for example, unpaid reimbursement obligations
in respect of a drawing under a letter of credit); (d) all obligations of such
Person evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
Property or businesses; (e) all indebtedness of such Person created or arising
under any conditional sale or other title retention agreement, in either case
with respect to Property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession

 

13

 

or sale of
such Property); (f) all Capital Lease Obligations of such Person; (g) all net
obligations of such Person with respect to Swap Contracts (such obligations to
be equal at any time to the aggregate net amount that would have been payable
by such Person at the most recent fiscal quarter end in connection with the
termination of such Swap Contracts at such fiscal quarter end); (h) all amounts
required to be paid by such Person as a guaranteed payment to partners,
including any mandatory redemption of shares or interests; (i) all indebtedness
of other Persons referred to in clauses (a) through (h) above secured by (or
for which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in Property (including accounts
and contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such indebtedness; and (j) all
Contingent Obligations of such Person in respect of indebtedness or obligations
of others of the kinds referred to in clauses (a) through (i) above.  Indebtedness shall not include (i) accounts
extended by suppliers in the ordinary course on normal trade terms in
connection with the purchase of goods and services, (ii) obligations under
operating leases (as well as contingent obligations in respect thereof) or
(iii) wages, salaries, accrued vacations or deferred compensation.  The Indebtedness of any Person shall include
any Indebtedness of any partnership in which such Person is the general partner.

 

“Indemnitee”
see Section 12.3.

 

“Indenture”
shall mean the Indenture, dated as of December 29, 1997, among the Borrower,
the Subsidiary Guarantors named therein, and Harris Trust and Savings Bank, an
Illinois corporation, as Trustee, as in effect on the Closing Date.

 

“Initial
Revolving Credit Commitment Termination Date” shall mean March 27, 2006.

 

“Intercompany
Note” shall mean a promissory note substantially in the form of Exhibit
B.

 

“Interest
Period” shall mean, with respect to any LIBOR Loan, each period commencing
on the date such LIBOR Loan is made or Converted from an Alternate Base Rate
Loan or the last day of the next preceding Interest Period for such LIBOR Loan
and (subject to the requirements of Sections 2.1(a)(i) and (iii) and 2.10) ending
on the numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as Borrower may select as provided in Section 4.5,
except that each Interest Period that commences on the last Business Day of a
calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month. Notwithstanding the
foregoing:  (i) if any Interest Period
for any Revolving Credit Loan would otherwise end after the Revolving Credit
Commitment Termination Date, such Interest Period shall end on the Revolving
Credit Commitment Termination Date; (ii) each Interest Period that would
otherwise end on a day that is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (iii)
notwithstanding clause (i) above, no Interest Period shall have a duration of
less than one month and, if the Interest Period for any LIBOR Loan would
otherwise be a shorter period, such Loan shall not be available hereunder as a
LIBOR Loan for such period.

 

“Interest
Rate Certificate” shall mean an Officer’s Certificate substantially in the
form of Exhibit C-1, delivered pursuant to Section 9.1(d), demonstrating
in reasonable detail the calculation of the Leverage Ratio as of the last day
of the Measurement Period

 

14

 

then last
ended on or immediately prior to the date such certificate is required to be
delivered.

 

“Inventory”
shall include, without limitation, all of Borrower’s now owned or hereafter
acquired “inventory” as defined in the UCC and also all: (a) Goods (as such
term is defined in the UCC) which are leased by a Person as lessor; are held by
a Person for sale or lease or to be furnished under a contract of service; are
furnished by a Person under a contract of service; or consist of raw materials,
work in process, or materials used or consumed in a business; (b) Goods of said
description in transit; (c) Goods of said description which are returned,
repossessed and rejected; (d) packaging, advertising, and shipping materials
related to any of the foregoing; (e) all names, marks, and General Intangibles
(as such term is defined in the UCC) affixed or to be affixed or associated
thereto; and (f) Documents (as such term is defined in the UCC) which represent
any of the foregoing.

 

“Inventory
Reserves” shall mean, without duplication, such Reserves as may be
established from time to time by the Administrative Agent in the Administrative
Agent’s reasonable, good faith discretion with respect to the determination of
the saleability, at retail, of the Eligible Inventory or which reflect such
other factors as affect the market value of the Eligible Inventory.

 

“Investment”
shall mean, for any Person:  (a) the
acquisition (whether for cash, Property, services or securities or otherwise)
of Equity Interests, bonds, notes, debentures, partnership or other ownership
interests or other securities of any other Person; (b) the making of any
deposit with, or advance, loan or other extension of credit to, any other
Person (including the purchase of Property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such Property to
such Person); (c) any capital contribution to (by means of any transfer of cash
or other Property to others or any payment for Property or services for the
account or use of others) any other Person; (d) the entering into, or direct or
indirect incurrence, of any Contingent Obligation with respect to Indebtedness
or other liability of any other Person; (e) the entering into of any Swap
Contract; or (f) any agreement to make any Investment (including any “short
sale” or any sale of any securities at a time when such securities are not
owned by the Person entering into such sale).

 

“Issuing
Lender” shall mean Fleet National Bank, or any of its Affiliates, or such
other Revolving Credit Lender or Revolving Credit Lenders selected by the
Administrative Agent reasonably satisfactory to Borrower, as the issuer of
Letters of Credit under Section 2.3, together with its successors and assigns
in such capacity.

 

“Lead
Arranger” shall mean Fleet Securities, Inc.

 

“Lease”
shall mean any lease, sublease, franchise agreement, license, occupancy or
concession agreement.

 

“Letter of
Credit” see Section 2.3.

 

“Letter of
Credit Documents” shall mean, with respect to any Letter of Credit, collectively,
any other agreements, instruments, guarantees or other documents (whether
general in application or applicable only to such Letter of Credit) governing
or providing for (a) the rights and obligations of the parties concerned or at
risk with respect to such Letter of Credit or (b) any collateral security for
any of such obligations, each as the same may be modified and supplemented and
in effect from time to time.

 

15

 

“Letter of
Credit Interest” shall mean, for each Revolving Credit Lender, such
Revolving Credit Lender’s participation interest (or, in the case of the
Issuing Lender, the Issuing Lender’s retained interest) in the Issuing Lender’s
liability under Letters of Credit and such Revolving Credit Lender’s rights and
interests in Reimbursement Obligations and fees, interest and other amounts
payable in connection with Letters of Credit and Reimbursement Obligations.

 

“Letter of
Credit Liability” shall mean, without duplication, at any time and in
respect of any Letter of Credit, the sum of (a) the undrawn face amount of such
Letter of Credit, plus (b) the aggregate unpaid principal amount of all
Reimbursement Obligations of Borrower at such time due and payable in respect
of all drawings made under such Letter of Credit.

 

“Leverage
Ratio” shall mean, at any date, the ratio of (x) Total Debt at such date to
(y) Consolidated EBITDA for the Measurement Period ended on such date, or, if
such date is not the end of a fiscal quarter, the Measurement Period ended
immediately prior to such date.

 

“LIBOR Base
Rate” shall mean, with respect to any LIBOR Loan for any Interest Period
therefor, the rate per annum determined by the Administrative Agent
to be the arithmetic mean (rounded to the nearest 1/100th of 1%) of the offered
rates for deposits in Dollars with a term comparable to such Interest Period
that appears on the Telerate British Bankers Assoc. Interest Settlement Rates
Page (as defined below) at approximately 11:00 a.m., London, England time, on the
second full Business Day preceding the first day of such Interest Period; provided,
however, that if there shall at any time no longer exist a Telerate
British Bankers Assoc. Interest Settlement Rates Page, “LIBOR Rate”
shall mean, with respect to each day during each Interest Period pertaining to
LIBOR Loans comprising part of the same Borrowing, the rate per  annum
equal to the rate at which the Administrative Agent is offered deposits in
Dollars at approximately 11:00 a.m., London, England time, two Business Days
prior to the first day of such Interest Period in the London interbank market
for delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to its portion of the amount of
such LIBOR Loan to be outstanding during such Interest Period.  “Telerate British Bankers Assoc. Interest
Settlement Rates Page” shall mean the display designated as Page 3750 on
the Telerate System Incorporated Service (or such other page as may replace
such page on such service for the purpose of displaying the rates at which
Dollar deposits are offered by leading banks in the London interbank deposit
market).

 

“LIBOR
Loans” shall mean Loans that bear interest at rates based on rates referred
to in the definition of “LIBOR Base Rate” in this Section 1.1.

 

“LIBOR Rate”
shall mean, for any LIBOR Loan for any Interest Period therefor, a rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Administrative Agent to be equal to the LIBOR Base Rate for
such Loan for such Interest Period divided by 1 minus the Reserve Requirement
(if any) for such Loan for such Interest Period.

 

“Lien”
shall mean, with respect to any Property, any mortgage, lien, pledge, claim,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement in respect of such Property, including any easement,
right-of-way or other encumbrance on title to Real Property, other than
ordinary course rights of set-off of depositary banks.  For purposes of the Credit Documents, a
Person shall be

 

16

 

deemed to own
subject to a Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement (other than an operating lease)
relating to such Property.

 

“Loans”
shall mean the Revolving Credit Loans and the Swing Loans.

 

“Losses”
of any Person shall mean the losses, liabilities, claims (including those based
upon negligence, strict or absolute liability and liability in tort), damages,
reasonable expenses, obligations, penalties, actions, judgments, encumbrances,
liens, penalties, fines, suits, reasonable and documented costs or disbursements
of any kind or nature whatsoever (including reasonable fees and expenses of
counsel in connection with any Proceeding commenced or threatened in writing,
whether or not such Person shall be designated a party thereto) at any time
(including following the payment of the Obligations) incurred by, imposed on or
asserted against such Person.

 

“Majority
Revolving Credit Lenders” shall mean (a) Revolving Credit Lenders holding
at least fifty-one percent (51%) of the aggregate amount of the Revolving
Credit Commitments then outstanding, and (b) if the Revolving Credit
Commitments have been terminated, Revolving Credit Lenders holding at least
fifty-one percent (51%) of the sum of (without duplication) (i) the aggregate
principal amount of outstanding Revolving Credit Loans, plus (ii) the
aggregate amount of all Letter of Credit Liabilities.

 

“Margin
Stock” shall mean margin stock within the meaning of Regulations T, U and
X.

 

“Material
Adverse Change” shall mean a material adverse change or any condition or
event that could reasonably be expected to result in a material adverse change
in the business, assets, liabilities (contingent or otherwise), operations,
condition (financial or otherwise), solvency, properties or material agreements
or prospects of Borrower and its Subsidiaries, taken as a whole.

 

“Material
Adverse Effect” shall mean any of (a) a material adverse effect or any
condition or event that could reasonably be expected to result in a material
adverse effect on the business, assets, liabilities (contingent or otherwise),
operations, condition (financial or otherwise), solvency, properties or
material agreements or prospects of Borrower and its Subsidiaries, taken as a
whole, (b) a material adverse effect on the ability of the Obligors to
consummate in a timely manner the Transactions or to perform their obligations
under any Credit Document or (c) an adverse effect on the legality, binding
effect or enforceability of any material provision of any Credit Document or
affecting any material rights and remedies of the Revolving Credit Lenders
thereunder.

 

“Material
Plan”  means at any time a Plan or
Plans having aggregate Unfunded Liabilities in excess of $2.0 million as of the
end of its last annual valuation period.

 

“Measurement
Period” shall mean the most recent four full fiscal quarters of Borrower
for which financial statements have been provided pursuant to Section 9.1.

 

“Mortgage”
shall mean an agreement creating and evidencing a Lien on a Mortgaged Real
Property, which shall be substantially in the form of Exhibit F,
containing such schedules and including such additional provisions and other
deviations from such Exhibit as shall be necessary to conform such document to
applicable or local law or as shall be customary under local law, as the same
may at any time be amended, modified or supplemented in accordance with the
terms thereof and hereof.

 

17

 

“Mortgaged
Real Property” shall mean each Real Property which shall be subject to a
Mortgage delivered on the Closing Date or thereafter pursuant to Sections
9.6(m) or 9.12.

 

“Multiemployer
Plan” shall mean at any time an employee pension benefit plan within the
meaning of Section 4001(a)(3) of ERISA (a) to which any member of the ERISA
Group is then making or accruing an obligation to make contributions, (b) to
which any member of the ERISA Group has within the preceding five plan years
made contributions, including for these purposes any Person which ceased to be
a member of the ERISA Group during such five year period, or (c) with respect
to which Borrower or a Subsidiary could incur liability.

 

“NAIC”
shall mean the National Association of Insurance Commissioners.

 

“Net
Available Proceeds” shall mean:

 

(a)           in the case of any Disposition Event,
the amount of Net Cash Payments received by any Obligor or any of its
Subsidiaries in connection with such Disposition Event less deductions for
amounts applied to Indebtedness secured by Prior Liens on the asset sold, taxes
(including income taxes) and costs of sale;

 

(b)           in the case of any Casualty Event,
the aggregate amount of proceeds of insurance, condemnation awards and other
compensation received by any Obligor or any of its Subsidiaries in respect of
such Casualty Event net of (i) reasonable expenses incurred by such Obligor and
its Subsidiaries in connection therewith, (ii) repayments of Indebtedness to
the extent secured by a Prior Lien on such Property and (iii) any income and
transfer taxes payable by any Obligor or any of its Subsidiaries in respect of
such Casualty Event;

 

(c)           in the case of any Equity Issuance or
any Debt Issuance, the aggregate amount of all cash and other property received
by any Obligor and its Subsidiaries in respect thereof net of all reasonable
investment banking fees, discounts and commissions, legal fees, consulting
fees, accountants’ fees, underwriting discounts and commissions and other
customary fees and expenses, actually incurred and satisfactorily documented in
connection therewith;

 

(d)           in the case of any Taking or Destruction,
the Net Award or Net Proceeds, as applicable, resulting therefrom; and

 

(e)           with respect to any loss of title to
all or any portion of any Mortgaged Real Property or Real Property, any title
insurance proceeds resulting therefrom less the amount of any expenses
(including, without limitation, taxes) incurred in litigating, arbitrating,
compromising or settling any claim arising out of such loss of title.

 

“Net Award”
shall mean the proceeds, award or payment received by any Obligor or any of its
Subsidiaries in respect of any Taking, together with any interest thereon, less
the amount of any reasonable expenses (including, without limitation, any
taxes) incurred in litigating, arbitrating, compromising or settling any claim
arising out of any such Taking including repayments of any Indebtedness secured
by a Prior Lien.

 

18

 

“Net Cash
Payments” shall mean, with respect to any Disposition Event, the aggregate
amount of all cash payments (including any cash payments received by way of
deferred payment of principal pursuant to a note or installment receivable or
purchase price adjustment receivable or otherwise, but only as and when
received) received by any Obligor or any of its Subsidiaries directly or indirectly
in connection with such Disposition Event; provided, however,
that Net Cash Payments shall be net (without duplication) of (a) the amount of
all reasonable fees and expenses paid by any Obligor or any of its Subsidiaries
in connection with such Disposition Event (the “Relevant Disposition”);
(b) any repayments by any Obligor or any of its Subsidiaries of Indebtedness to
the extent that (i) such Indebtedness is secured by a Prior Lien on the
Property that is the subject of the Relevant Disposition and (ii) the
transferee of (or holder of a Lien on) such Property requires that such
Indebtedness be repaid as a condition to the purchase of such Property; and (c)
amounts required to be paid to any Person (other than any Obligor or any of its
Subsidiaries) owning a beneficial interest in the assets subject to such
Relevant Disposition.

 

“Net
Proceeds” shall mean the proceeds of any insurance or other payment
received by any Obligor or any of its Subsidiaries in connection with any
Destruction, less repayment of any Indebtedness secured by a Prior Lien, less
the amount of any reasonable expenses (including, without limitation, any
taxes) incurred in litigating, arbitrating, compromising or settling any claim
arising out of such Destruction and less the amount of any other reasonable
expenses incurred as a result of such Destruction.

 

“New
Lenders” shall mean any financial institutions reasonably acceptable to the
Administrative Agent who provide any or all of the Increased Facility Amount.

 

“Non-U.S.
Lender” see Section 5.6(b).

 

“Normal
Advance Rate” see the definition of Borrowing Base.

 

“Notes”
shall mean the Revolving Credit Notes and the Swing Loan Note.

 

“Notice of
Assignment” shall mean a notice of assignment pursuant to Section 12.6
substantially in the form of Exhibit E.

 

“Obligations”
shall mean all amounts, direct or indirect, contingent or absolute, of every
type or description, and at any time existing, owing to any Creditor pursuant
to the terms of any Credit Document or secured by any of the Security
Documents.

 

“Obligors”
shall mean Borrower and the Guarantors.

 

“Officer’s
Certificate” shall mean, as applied to any corporation, a certificate
executed on behalf of such corporation by its Chief Executive Officer, or one
of its Vice Presidents or its Chief Financial Officer in his or her official
(and not individual) capacity and without personal liability and which
certificate, if given with respect to the compliance with a condition precedent
to the making of any Loan or the taking of any other action hereunder, shall
include (a) a statement that the officer making or giving such Officer’s
Certificate has read such condition and any definitions or other provisions
contained in this Agreement relating thereto, and (b) a statement as to
whether, in the opinion of the signer (in his or her official, but not
individual, capacity), such condition has been complied with.

 

“Other
Taxes” see Section 5.6(c).

 

19

 

“Overadvance
Period” shall mean the period commencing on the Closing Date and ending on
the earlier of (i) November 30, 2002, or (ii) the date selected by the Borrower
in accordance with the provisions of Section 2.5(c) hereof.

 

“Participant”
see Section 12.6(c).

 

“Payor”
see Section 4.6.

 

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

 

“Permitted
Holders” shall mean Madison Dearborn and any of its Affiliates controlled
by Madison Dearborn.

 

“Permitted
Investments” shall mean, for any Person: 
(a) direct obligations of the United States of America, or of any agency
thereof, or obligations guaranteed as to principal and interest by the United
States of America, or by any agency thereof, in either case maturing not more
than one year from the date of acquisition thereof by such Person; (b) time
deposits, certificates of deposit, bankers’ acceptances (including eurodollar
deposits) issued by any bank or trust company organized or licensed under the
laws of the United States of America or any state thereof and having capital,
surplus and undivided profits of at least $500.0 million and a deposit rating
of investment grade; (c) commercial paper rated A-1 or better by Standard &
Poor’s Corporation or P-1 or better by Moody’s Investors Service, Inc.,
respectively, maturing not more than 270 days from the date of acquisition
thereof by such Person; and (d) money market mutual funds that invest primarily
in the foregoing items.

 

“Permitted
Liens” see Section 9.7.

 

“Person”
shall mean any individual, corporation, company, voluntary association,
partnership, joint venture, trust, unincorporated organization or government
(or any agency, instrumentality or political subdivision thereof).

 

“Plan”
shall mean at any time an employee pension benefit plan (other than a Multiemployer
Plan) which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and either is maintained, or
contributed to, by any member of the ERISA Group for employees of any member of
the ERISA Group or with respect to which Borrower or a Subsidiary could incur
liability.

 

“Pledged
Collateral” shall have the meaning set forth in the Security Agreement.

 

“Preferred
Stock” means, with respect to any Person, any and all shares, interests,
participations or other equivalents (however designated) of such Person’s
preferred or preference stock whether now outstanding or issued after the
Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.

 

“Prime Rate”
shall mean for any day, a rate per  annum that is equal to the
corporate base rate of interest announced by Administrative Agent from time to
time, changing when and as said corporate base rate changes.  The corporate base rate is not necessarily
the lowest rate charged by the Administrative Agent to its customers.

 

20

 

“Principal
Office” shall mean the office of the Administrative Agent, located on the
Closing Date at 100 Federal Street, Boston, Massachusetts 02110.

 

“Prior
Liens” shall mean Liens which, pursuant to the provisions of any Security
Document, are or may be superior to the Lien of such Security Document.

 

“Proceeding”
shall mean any claim, counterclaim, action, judgment, suit, hearing, governmental
investigation, arbitration or proceeding, including by or before any
Governmental Authority and whether judicial or administrative.

 

“Property”
shall mean any right or interest in or to property or assets of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible
and including Equity Interests or other ownership interests of any Person.

 

“Qualified
Capital Stock” shall mean with respect to any Person any Equity Interest of
such Person that is not Disqualified Capital Stock.

 

“Quarterly
Dates” shall mean the last Business Day of March, June, September and
December in each year, commencing with the last Business Day of September 2002.

 

“Real
Property” shall mean all right, title and interest of Borrower or any
Subsidiary (including, without limitation, any leasehold estate) in and to a
parcel of real property owned or operated by Borrower or any Subsidiary
together with, in each case, all improvements and appurtenant fixtures,
equipment, personal property, easements and other property and rights
incidental to the ownership, lease or operation thereof.

 

“Redeemable
Capital Stock” means any class or series of Equity Interests of a Person
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time, would be, required to be redeemed
prior to the final stated maturity date of the notes issued under the Indenture
or is redeemable at the option of the holder thereof at any time prior to the
final stated maturity date of the notes issued under the Indenture, or is
convertible into or exchangeable for debt securities at any time prior to the
final stated maturity date of the notes issued under the Indenture.

 

“Refinancing”
see Section 9.8(l).

 

“Register”
see Section 2.9(d).

 

“Regulation
D” shall mean Regulation D (12 C.F.R. Part 204) of the Board of Governors
of the United States Federal Reserve System.

 

“Regulatory
Change” shall mean, with respect to any Revolving Credit Lender, any change
after the Closing Date in any law or regulations (including Regulation D) of
any Governmental Authority or the adoption or making after such date of any
interpretation, directive or request applying to a class of banks or other
financial institutions including such Revolving Credit Lender of or under any
law or regulations of any Governmental Authority (whether or not having the
force of law and whether or not failure to comply therewith would be unlawful)
by any court or governmental or monetary authority or any other regulatory
agency with proper authority, including nongovernmental agencies or bodies,
charged with the interpretation or administration thereof or by the NAIC.

 

21

 

“Reimbursement
Obligations” shall mean, at any time, the obligations of Borrower then
outstanding, or that may thereafter arise in respect of all Letters of Credit
then outstanding, to reimburse amounts paid by the Issuing Lender in respect of
any drawings under a Letter of Credit.

 

“Related
Document” shall mean any agreement, document or instrument entered into by
any Obligor in connection with any document, as any such agreement, document or
instrument is amended and in effect from time to time in accordance with its
terms and this Agreement.

 

“Related
Parties” see Section 11.1.

 

“Release”
shall mean any release, spill, emission, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, leaching or migration of any Hazardous Material
into the environment.

 

“Relevant
Parties” and “Relevant Party” see Section 10(b).

 

“Replaced
Lender” see Section 2.12.

 

“Replacement
Lender” see Section 2.12.

 

“Required
Payment” see Section 4.6.

 

“Requirement
of Law” shall mean as to any Person, the Certificate of Incorporation and
By-Laws or other organizational or governing documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such Person
or any of its Property or to which such Person or any of its Property is
subject.

 

“Reserve
Requirement” shall mean, for any Interest Period for any LIBOR Loan, the
average maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D by member banks of the United States Federal Reserve System
in New York City with deposits exceeding one billion Dollars against
“Eurocurrency liabilities” (as such term is used in Regulation D).  LIBOR Loans shall be deemed to constitute
Eurocurrency liabilities and to be subject to such reserve requirements without
benefit of or credit for proration, exceptions or offsets which may be
available from time to time to any Revolving Credit Lender under Regulation D.

 

“Reset Date”
see the definition of “Applicable Margin.”

 

“Responsible
Officer” shall mean the chief executive officer of Borrower and the
president of Borrower (if not the chief executive officer) and, with respect to
financial matters, the chief financial officer of Borrower.

 

“Restricted
Subsidiary” shall mean, at any time, any direct or indirect Subsidiary of
the Borrower that is not then an Unrestricted Subsidiary; provided, however,
that upon the occurrence of any Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the definition of
“Restricted Subsidiary.”

 

“Revolving
Credit Commitment” shall mean, for each Revolving Credit Lender, the
obligation of such Revolving Credit Lender to make Revolving Credit Loans in an

 

22

 

aggregate
principal amount at any one time outstanding up to but not exceeding the amount
set opposite the name of such Revolving Credit Lender on Annex A under
the caption “Revolving Credit Commitment” (as the same may be reduced from time
to time pursuant to Section 2.5 or changed pursuant to Section 12.6(b)).  The aggregate principal amount of the
Revolving Credit Commitments at the Closing Date is $135.0 million.

 

“Revolving
Credit Commitment Percentage” shall mean, with respect to any Revolving
Credit Lender, the ratio of (a) the amount of the Revolving Credit Commitment
of such Revolving Credit Lender to (b) the aggregate amount of the Revolving
Credit Commitments of all of the Revolving Credit Lenders.

 

“Revolving
Credit Commitment Termination Date” shall mean the Initial Revolving Credit
Commitment Termination Date or, if extended in accordance with Section 2.4, the
Extended Revolving Credit Commitment Termination Date.

 

“Revolving
Credit Commitments” shall mean the aggregate sum of the Revolving Credit
Commitment of all of the Revolving Credit Lenders, including the Increased
Facility Amount, if any.

 

“Revolving
Credit Lenders” shall mean (a) on the Closing Date, the Revolving Credit
Lenders having Revolving Credit Commitments on the signature pages hereof and
(b) thereafter, the Revolving Credit Lenders from time to time holding
Revolving Credit Loans and Revolving Credit Commitments after giving effect to
any assignments thereof permitted by Section 12.6(b).

 

“Revolving
Credit Loans” see Section 2.1(a).

 

“Revolving
Credit Notes” shall mean the promissory notes provided for by Section
2.9(a) and all promissory notes delivered in substitution or exchange therefor,
in each case as the same shall be modified and supplemented and in effect from
time to time.

 

“Section
5.6 Certificate” see Section 5.6(b).

 

“Security
Agreement” shall mean a Security Agreement substantially in the form of Exhibit
D among the Obligors and the Administrative Agent, as the same may be
amended, modified or supplemented in accordance with the terms thereof and
hereof.

 

“Security
Documents” shall mean the Security Agreement, the Mortgage, and all Uniform
Commercial Code financing statements required by this Agreement, the Security
Agreement or any Mortgage to be filed with respect to the security interests in
Property and fixtures created pursuant to the Security Agreement or any
Mortgage and any other document or instrument utilized to pledge as Collateral
for the Obligations any property or assets of whatever kind or nature.

 

“Senior
Subordinated Financing” shall mean the issuance by Borrower of Senior
Subordinated Notes pursuant to the Senior Subordinated Note Documents for gross
cash proceeds of $100 million.

 

“Senior
Subordinated Notes” shall mean the unsecured senior subordinated notes
issued pursuant to the Senior Subordinated Financing, including the senior
subordinated notes issued pursuant to a registered exchange offer therefor made
pursuant to the

 

23

 

registration
rights agreement entered into in connection with the issuance thereof on
December 29, 1997.

 

“Senior
Subordinated Note Documents” shall mean the Indenture pursuant to which the
Senior Subordinated Notes were issued and all documents relating thereto, as
any such agreement or document may be amended and in effect from time to time
in accordance with its terms and this Agreement.

 

“Solvent”
and “Solvency” shall mean, for any Person on a particular date, that on
such date (a) the fair value of the Property of such Person on a going concern
basis is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair
salable value of the Property of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (c) such Person does not intend to, and does
not believe that it will, incur debts and liabilities beyond such Person’s
ability to pay as such debts and liabilities mature, (d) such Person is not
engaged in a business or a transaction, and is not about to engage in a
business or a transaction, for which such Person’s Property would constitute an
unreasonably small capital and (e) such Person is able to pay its debts as they
become due and payable.

 

“State and
Local Real Property Disclosure Requirements” shall mean any state or local
laws requiring notification of the buyer of real property, or notification,
registration, or filing to or with any state or local agency, prior to the sale
of any real property or transfer of control of an establishment, of the actual
or threatened presence or release into the environment, or the use, disposal,
or handling of Hazardous Materials on, at, under, or near the real property to
be sold or the establishment for which control is to be transferred.

 

“Subordinated
Debt” shall mean Indebtedness of Borrower which is subordinated to the
Obligations in right and time of payment on terms and conditions and pursuant
to documentation satisfactory to the Administrative Agent (which shall include
the Senior Subordinated Notes); provided, however, that no
Indebtedness will be deemed to be subordinate for purposes of this Agreement
merely by virtue of lack of a security interest in any collateral.

 

“Subordination
Provisions” see Section 10(m).

 

“Subsidiary”
shall mean, with respect to any Person, any corporation, partnership or other
entity of which at least a majority of the securities or other ownership
interests having by the terms thereof ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.  Unless the context clearly requires
otherwise, all references to any Subsidiary shall mean a Subsidiary of
Borrower.

 

“Surety
Instruments” shall mean all letters of credit (including standby and
commercial), bankers’ acceptances, bank guarantees, surety bonds and similar
instruments.

 

24

 

“Survey”
shall mean a survey of any Mortgaged Real Property (and all improvements
thereon): (i) prepared by a surveyor or engineer licensed to perform surveys in
the state, province or country where such Mortgaged Real Property is located,
(ii) dated (or redated) not earlier than six months prior to the date of
delivery thereof unless there shall have occurred within the six months prior
to such date of delivery any exterior construction on the site of such
Mortgaged Real Property, in which event such survey shall be dated (or redated)
after the completion of such construction or, if such construction shall not
have been completed as of such date of delivery, not earlier than 20 days prior
to such date of delivery, (iii) certified by the surveyor (in a manner
reasonably acceptable to the Administrative Agent) to the Administrative Agent
and the Title Company and (iv) complying in all respects with the minimum
detail requirements of the American Land Title Association as such requirements
are in effect on the date of preparation of such survey.

 

“Swap
Contract” means any agreement (including any master agreement and any
agreement, whether or not in writing, relating to any single transaction) that
is an interest rate swap agreement, basis swap, forward rate agreement,
commodity swap, commodity option, equity or equity index swap or option, bond
option, interest rate option, foreign exchange agreement, rate cap, collar or
floor agreement, currency swap agreement, cross-currency rate swap agreement,
swap option, currency option or any other similar agreement (including any
option to enter into any of the foregoing).

 

“Swing Loan
Commitment” shall mean the obligation of Fleet National Bank to make or
continue Swing Loans hereunder in an aggregate principal amount up to but not
exceeding $10,000,000, as the same may be reduced or terminated pursuant to
Section 2.5 or Section 10, it being understood that the Swing Loan Commitment
is part of the Revolving Credit Commitment of the Swing Loan Lender, rather
than a separate, independent commitment.

 

“Swing Loan
Lender” shall mean Fleet National Bank, and its successors and assigns in
such capacity.

 

“Swing Loan
Maturity Date” shall mean the Revolving Credit Commitment Termination Date.

 

“Swing Loan
Note” shall mean the promissory note made by Borrower evidencing the Swing
Loans, in the form of Exhibit A-2.

 

“Swing
Loans” see Section 2.1(b).

 

“Syndication
Agent” see the introduction to this Agreement.

 

“Taking”
shall mean any taking of any Mortgaged Real Property or Real Property of any
Obligor or any of its Subsidiaries or any part thereof, in or by condemnation
or other eminent domain proceedings pursuant to any law, general or special, or
by reason of the temporary requisition of the use or occupancy of any Mortgaged
Real Property or Real Property of any Obligor or any of its Subsidiaries or any
part thereof, by any Governmental Authority, civil or military.  Taking shall not include any Casualty Event.

 

“Tax
Benefit” see Section 5.6(a).

 

25

 

“Title
Company” shall mean Chicago Title Insurance Company or such other title
insurance or abstract company as shall be mutually agreeable to Borrower and
the Administrative Agent.

 

“Total Debt”
shall mean at any date, the aggregate amount of Indebtedness (including
Revolving Credit Loans, Swing Loans and Letter of Credit Liabilities) of
Borrower and the Consolidated Subsidiaries as of such date (other than
Indebtedness described in clauses (b), (g), and (j) of the definition of
Indebtedness), determined on a consolidated basis in accordance with GAAP.

 

“Transaction
Documents” shall mean any operative document relating to the Transactions,
including but not limited to the Credit Documents and each of the Related
Documents with respect thereto, in each case, including all schedules,
exhibits, appendices, annexes and attachments and amendments thereto and, in
each case, as amended and in effect from time to time in accordance with their
respective terms and this Agreement.

 

“Transactions”
shall mean the borrowings hereunder and the other transactions contemplated
hereby to occur on the Closing Date.

 

“Type”
see Section 1.3.

 

“UCC”
shall mean the Uniform Commercial Code as in effect in the Commonwealth of
Massachusetts.

 

“Unfunded
Liabilities” shall mean, with respect to any Plan at any time, the amount
(if any) by which (a) the value of all benefit liabilities under such Plan,
determined on a plan termination basis using the assumptions prescribed by the
PBGC for purposes of Section 4044 of ERISA, exceeds (b) the fair market value
of all Plan assets allocable to such liabilities under Title I of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan.

 

“Unrestricted
Subsidiary” means (a) any Subsidiary that at the time of determination
shall be an Unrestricted Subsidiary (as designated by the Board of Directors of
the Borrower, as provided below), and (b) any Subsidiary of an Unrestricted
Subsidiary; provided, however,
that in no event shall any Guarantor be an Unrestricted Subsidiary.  The Board of Directors of the Borrower may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the
Borrower nor any Restricted Subsidiary is directly or indirectly liable for any
Indebtedness of such Subsidiary, (ii) no default with respect to any
Indebtedness of such Subsidiary would permit (upon notice, lapse of time or
otherwise) any holder of any other Indebtedness of the Borrower or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity,
(iii) any Investment in such Subsidiary made as a result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of this
Agreement, (iv) neither the Borrower nor any Restricted Subsidiary has a
contract, agreement, arrangement, understanding or obligation of any kind,
whether written or oral, with such Subsidiary other than those that might be
obtained at the time from Persons who are not Affiliates of the Borrower, and
(v) neither the Borrower nor any Restricted Subsidiary has any obligation (1)
to subscribe for additional shares of Capital Stock or other equity interest in
such Subsidiary, or (2) to maintain or preserve such Subsidiary’s financial
condition or to cause such Subsidiary to

 

26

 

achieve
certain levels of operating results. 
Any such designation by the Board of Directors of the Borrower shall be
evidenced to the Administrative Agent by filing a board resolution with the
Administrative Agent giving effect to such designation.  The Board of Directors of the Borrower may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately
after giving effect to such designation, there would be no Default or Event of
Default under this Agreement and the Borrower could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to Section 1008 of the Senior
Subordinated Note Documents.

 

“Unutilized
Revolving Credit Commitment” shall mean, for any Revolving Credit Lender,
at any time, the excess of such Revolving Credit Lender’s Revolving Credit
Commitment at such time over the sum of (a) the aggregate outstanding principal
amount of Revolving Credit Loans made by such Revolving Credit Lender, (b) such
Revolving Credit Lender’s Revolving Credit Commitment Percentage of the aggregate
amount of Letter of Credit Liabilities at such time, and (c) with respect to
the Swing Loan Lender only, the aggregate principal amount of Swing Loans then
outstanding.

 

“Wholly
Owned Subsidiary” shall mean, with respect to any Person, any corporation,
partnership or other entity of which all of the equity securities or other
ownership interests (other than, in the case of a corporation, directors’
qualifying shares or shares required to be held by foreign nationals) are
directly or indirectly owned or controlled by such Person or one or more Wholly
Owned Subsidiaries of such Person or by such Person and one or more Wholly
Owned Subsidiaries of such Person. 
Unless the context clearly requires otherwise, all references to any
Wholly Owned Subsidiary shall mean a Wholly Owned Subsidiary of Borrower.

 

1.2           Accounting Terms and Determinations.  Except as otherwise provided in this
Agreement, all computations and determinations as to accounting or financial
matters shall be made in accordance with GAAP, and all accounting or financial
terms shall have the meanings ascribed to such terms by GAAP as in effect on
the Closing Date.  All financial
statements to be delivered pursuant to this Agreement shall be prepared in
accordance with GAAP.  All financial covenants
are to be calculated in accordance with GAAP as in effect on the Closing Date
unless such modifications are agreed to by the parties hereto.

 

1.3           Types of Loans.  Loans hereunder are distinguished by
“Type”.  The “Type” of a Loan
refers to whether such Loan is an Alternate Base Rate Loan or a LIBOR Loan,
each of which constitutes a Type.

 

1.4           Rules of
Construction.

 

(a)           In this Agreement and each other
Credit Document, unless the context clearly requires otherwise (or such other
Credit Document clearly provides otherwise), references to (i) the plural
include the singular, the singular the plural and the part the whole; (ii)
Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; (iii) agreements (including this Agreement), promissory notes and
other contractual instruments include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
or other modifications thereto are not prohibited by their terms or the terms
of any Credit Document; (iv) statutes and related regulations include any
amendments of same and any successor statutes and regulations; and (v) time
shall be a reference to Boston, Massachusetts time.  Where any provision herein refers to action to be taken by any

 

27

 

Person, or
which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person.

 

(b)           In this Agreement and each other
Credit Document, unless the context clearly requires otherwise (or such other
Credit Document clearly provides otherwise), (i) “amend” shall mean
“amend, amend and restate, supplement or modify”; and “amended” and “amendment”
shall have meanings correlative to the foregoing; (a) in the computation of
periods of time from a specified date to a later specified date, “from” shall
mean “from and including”; “to” and “until” shall mean “to but
excluding”; and “through” shall mean “to and including”; (ii) “hereof,”
“herein” and “hereunder” (and similar terms) in this Agreement or
any other Credit Document refer to this Agreement or such other Credit
Document, as the case may be, as a whole and not to any particular provision of
this Agreement or such other Credit Document; (iii) “including” (and
similar terms) shall mean “including without limitation” (and similarly for
similar terms); (iv) “or” has the inclusive meaning represented by the
phrase “and/or”; (b) “satisfactory to” any Creditor shall mean in form,
scope and substance and on terms and conditions satisfactory to such Creditor;
and (v) references to “the date hereof” shall mean the Closing Date.

 

(c)           In this Agreement unless the context
clearly requires otherwise, any reference to (i) an Annex, Exhibit or Schedule
is to an Annex, Exhibit or Schedule, as the case may be, attached to this
Agreement and constituting a part hereof, and (ii) a Section or other subdivision
is to a Section or such other subdivision of this Agreement.

 

(d)           No doctrine of construction of
ambiguities in agreements or instruments against the interests of the party
controlling the drafting thereof shall apply to any Credit Document.

 

Section 2.                                            Commitments,
Loans, Notes, Prepayments, Replacement of Revolving Credit Lenders and Annual
Cleandown.

 

2.1           Loans.

 

(a)           Revolving Credit Loans.

 

(i)            Each Revolving Credit Lender
severally agrees, on the terms and conditions of this Agreement, to make revolving
credit loans (the “Revolving Credit Loans”) to Borrower in Dollars
during the period from and including the Closing Date to but not including the
Revolving Credit Commitment Termination Date in an aggregate principal amount
at any one time outstanding not exceeding the amount of the Revolving Credit
Commitment of such Revolving Credit Lender as in effect from time to time; provided,
however, that in no event shall the sum of the aggregate principal
amount of (without duplication) all Revolving Credit Loans then outstanding, plus
the aggregate principal amount of Swing Loans then outstanding, plus the
aggregate amount of all Letter of Credit Liabilities at any time exceed the
lesser of (i) the aggregate amount of the Revolving Credit Commitments as in
effect at such time and (ii) the Borrowing Base as in effect at such time.  Subject to the terms and conditions of this
Agreement, during such period Borrower may borrow, repay and reborrow the
amount of the Revolving Credit Commitments by means of Alternate Base Rate
Loans and LIBOR Loans and may Convert Revolving Credit Loans of one Type into
Revolving Credit Loans of another Type (as provided in Section 2.10) or

 

28

 

Continue
Revolving Credit Loans of one Type as Revolving Credit Loans of the same Type
(as provided in Section 2.10).

 

(ii)           Borrower may at any time request that
the Revolving Credit Lenders provide all or a portion of the Increased Facility
Amount, provided that (A) at the time of making the request, and after giving
effect to the requested increase, the Borrower is in compliance with the
financial covenants set forth in Section 9.11 of this Agreement and (B) no
Default or Event of Default has occurred and is continuing, and (C) the offer
to provide the Increased Facility Amount shall be made first to all Revolving
Credit Lenders on a pro rata basis. No Revolving Credit Lender shall have any
obligation to make available any such increase in the Revolving Credit
Commitments.  To the extent existing Revolving
Credit Lenders decline to make available all of the Increased Facility Amount,
Borrower may approach New Lenders to provide such increase provided that the
conditions to obtaining the Increased Facility Amount set forth in this Section
2.1(a)(ii) have been satisfied; provided, however, that any such
New Lenders shall be acceptable to the Administrative Agent and, upon the
making of a Revolving Credit Commitment pursuant to the Increased Facility
Amount, shall be treated as Revolving Credit Lenders for all purposes of this
Agreement.  If and to the extent agreed
to be extended by any Revolving Credit Lender or New Lender, the Increased
Facility Amount shall become available under, and part of, the Revolving Credit
Commitments.

 

(iii)          Limit on LIBOR Loans.  No more than ten (10) separate Interest
Periods in respect of LIBOR Loans may be outstanding at any one time. No LIBOR
Loans shall be made on the Closing Date.

 

(b)           Swing  Loans.  Subject to the terms and conditions of this
Agreement, upon request of Borrower, the Swing Loan Lender agrees to make one
or more swing loans to Borrower from time to time from and including the
Closing Date, to but excluding the Swing Loan Maturity Date, up to but not
exceeding the amount of the Swing Loan Lender’s Swing Loan Commitment as then
in effect.  (Such swing loans referred
to in this Section 2.1(b) now or hereafter made by the Swing Loan Lender to
Borrower from and including and after the Closing Date are hereinafter collectively
called the “Swing  Loans”.) 
Prior to the Swing Loan Maturity Date, Borrower may borrow, repay and
reborrow Swing Loans up to the Swing Loan Commitment in accordance with the
terms of this Agreement, provided  that no Swing Loan shall remain
outstanding for more than ten days.  The
Swing Loan Lender shall not make any Swing Loans on or after the Swing Loan
Maturity Date.  Notwithstanding anything
to the contrary contained in this Section 2.1(b) or elsewhere in this
Agreement, the Swing Loan Lender shall not, pursuant to this Section 2.1(b) or
otherwise, make any Swing Loan to or for the account of Borrower, and Borrower
shall not be entitled to borrow, pursuant to this Section 2.1(b), if, after
giving full effect to the requested Swing Loan, the aggregate outstanding
amount of Revolving Credit Loans, plus the aggregate outstanding amount
of Swing Loans, plus the aggregate outstanding Letter of Credit
Liabilities would exceed the lesser of (i) the aggregate amount of the
Revolving Credit Commitments as in effect at such time and (ii) the Borrowing
Base as in effect at such time. 
Notwithstanding anything herein or elsewhere to the contrary, the Swing
Loans will be made and maintained only as Alternate Base Rate Loans.  The Swing Loan Lender shall not make any
Swing Loan after receiving a written notice from Borrower or the Majority
Revolving Credit Lenders stating that a Default or an Event of Default exists
and is continuing until such time as the Swing Loan Lender shall have received
written notice of (i) rescission of all such notices from the party or parties
originally delivering such

 

29

 

notice, (ii)
the waiver of such Default or Event of Default by the Majority Revolving Credit
Lenders, or (iii) the Administrative Agent’s good faith determination that such
Default or Event of Default has ceased to exist.  Swing Loans shall be made and repaid in minimum amounts of
$50,000 and integral multiples of $10,000 above such amount.

 

Upon the
occurrence of a Default, each Revolving Credit Lender shall be deemed to have
purchased (and each Revolving Credit Lender hereby irrevocably agrees to
purchase on a pro  rata basis (based upon each Revolving Credit
Lender’s Revolving Credit Commitment)) an irrevocable risk participation in all
outstanding Swing Loans, together with all accrued interest thereon, without
any further action by or on behalf of the Swing Loan Lender, any other
Revolving Credit Lender, Borrower or any other Person.  Upon one Business Day’s notice from the
Swing Loan Lender, each other Revolving Credit Lender shall deliver to the
Swing Loan Lender an amount equal to its respective participation in such Swing
Loan (as determined pursuant to the immediately preceding sentence) in cash. If
any Revolving Credit Lender fails to make available to the Swing Loan Lender
the amount of such Revolving Credit Lender’s participation as provided in this
paragraph, the Swing Loan Lender shall be entitled to recover such amount on
demand from such Revolving Credit Lender, together with interest thereon at the
Federal Funds Rate until such amount is paid in full in cash.  In the event the Swing Loan Lender receives
a payment from Borrower or any other Obligor of any amount in which the
Revolving Credit Lenders have purchased participations as provided in this paragraph,
the Swing Loan Lender shall distribute (after first applying any such payment
to any fees, costs and expenses of the Swing Loan Lender) to each Revolving
Credit Lender its pro  rata share of such payment.  Anything contained in this Agreement or otherwise
to the contrary notwithstanding, (A) each Revolving Credit Lender’s obligation
to purchase a participation in each unpaid Swing Loan shall be absolute and
unconditional and shall not be affected by any circumstances, including,
without limitation, (1) any setoff, counterclaim, recoupment, defense or other
right which such Revolving Credit Lender may now or hereafter have against the
Swing Loan Lender, Borrower or any other Person for any reason whatsoever, (2)
the occurrence or continuation of a Default or an Event of Default, (3) any
Material Adverse Change in the condition of Borrower or any Subsidiary, (4) any
breach or default of this Agreement or any of the Security Documents by any
Person other than by the Swing Loan Lender, or (5) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing,
and (B) the Swing Loan Lender shall not have any obligation to make any Swing
Loans if, at the time of Borrower’s request for the Swing Loan, (1) Borrower
fails for whatever reason to satisfy any of the conditions precedent set forth
in Section 7.2 or (2) any Revolving Credit Lender fails for whatever reason to
comply with its obligations under this Section 2.1(b).

 

2.2           Borrowings.  Borrower shall give the Administrative Agent
notice of each borrowing hereunder as provided in Section 4.5.  The form of such notice of borrowing shall
be substantially in the form of Exhibit H.  Not later than 12:00 noon Boston, Massachusetts time on the date
specified for each borrowing hereunder, each Revolving Credit Lender shall make
available the amount of the Loan or Loans to be made by it on such date to the
Administrative Agent, at an account specified by the Administrative Agent
maintained at the Principal Office, in immediately available funds, for account
of Borrower.  Each borrowing of
Revolving Credit Loans shall be made by each Revolving Credit Lender pro
rata based on such Revolving Credit Lender’s Revolving Credit Commitment
Percentage.  The amounts so received by
the Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available to Borrower by depositing the same, in immediately
available funds, in an account of Borrower maintained with the Administrative
Agent at the Principal Office designated by Borrower.

 

30

 

2.3           Letters of Credit.  Subject to the terms and conditions hereof,
the Revolving Credit Commitments may be utilized, upon the request of Borrower,
in addition to the Revolving Credit Loans provided for by Section 2.1(a), for
standby and commercial letters of credit (herein collectively called “Letters
of Credit”) issued by the Issuing Lender for the account of Borrower; provided,
however, that in no event shall (i) the aggregate amount of all Letter
of Credit Liabilities, plus the aggregate principal amount of the
Revolving Credit Loans then outstanding, plus the aggregate principal
amount of Swing Loans then outstanding exceed at any time the lesser of (x) the
Revolving Credit Commitments as in effect at such time and (y) the Borrowing
Base as in effect at such time, (ii) the sum of the aggregate principal amount
of Revolving Credit Loans then outstanding made by any Revolving Credit Lender,
plus such Revolving Credit Lender’s pro  rata share (based
on the Revolving Credit Commitments) of the aggregate principal amount of Swing
Loans then outstanding, plus such Revolving Credit Lender’s pro  rata
share (based on the Revolving Credit Commitments) of the aggregate amount of
all Letter of Credit Liabilities exceed such Revolving Credit Lender’s
Revolving Credit Commitment as in effect at such time, (iii) the outstanding
aggregate amount of all Letter of Credit Liabilities exceed $25 million, (iv)
the face amount of any Letter of Credit be less than $10,000, (v) the
expiration date of any Letter of Credit extend beyond the earlier of (x) the
fifth Business Day preceding the Revolving Credit Commitment Termination Date
(unless cash collateralized (or backstopped by irrevocable letters of credit)
beyond such date on terms and conditions and pursuant to documentation
satisfactory to the Majority Revolving Credit Lenders) and (y) the date twelve
months following the date of such issuance for standby Letters of Credit or 270
days after the date of such issuance for commercial Letters of Credit, unless
the Majority Revolving Credit Lenders have approved such expiry date in writing
(but never beyond the fifth Business Day prior to the Revolving Credit
Commitment Termination Date); provided, however, that any standby
Letter of Credit may be automatically extended for periods of up to one year
(but never beyond the fifth Business Day preceding the Revolving Credit
Commitment Termination Date) so long as such Letter of Credit provides that the
Issuing Lender retains an option satisfactory to the Issuing Lender, to
terminate such Letter of Credit prior to each extension date, unless all of the
Revolving Credit Lenders have approved such expiry date in writing, or (vi) the
Issuing Lender issue any Letter of Credit after it has received notice from
Borrower or the Majority Revolving Credit Lenders stating that a Default or
Event of Default exists until such time as the Issuing Lender shall have
received written notice of (x) rescission of such notice from the Majority
Revolving Credit Lenders, (y) waiver of such Default or Event of Default in
accordance with this Agreement or (z) the Administrative Agent’s good faith
determination that such Default or Event of Default has ceased to exist.  Without limiting the foregoing, Existing
Letters of Credit shall be deemed to be Letters of Credit issued under this
Agreement and shall be entitled to all of the benefits hereof.

 

The following
additional provisions shall apply to Letters of Credit:

 

(a)           Borrower shall give the
Administrative Agent at least three Business Days’ irrevocable prior notice
(effective upon receipt) specifying the date (which shall be no later than
thirty days preceding the Revolving Credit Commitment Termination Date) each
Letter of Credit is to be issued and describing in reasonable detail the
proposed terms of such Letter of Credit (including the beneficiary thereof)
(including whether such Letter of Credit is to be a commercial Letter of Credit
or a standby Letter of Credit). Upon receipt of any such notice, the
Administrative Agent shall advise the Issuing Lender of the contents thereof.

 

(b)           On each day during the period
commencing with the issuance by the Issuing Lender of any Letter of Credit and
until such Letter of Credit shall have expired or been terminated, the
Revolving Credit Commitment of each Revolving Credit Lender shall be deemed to
be utilized for all purposes hereof in an amount equal to such

 

31

 

Revolving
Credit Lender’s Revolving Credit Commitment Percentage of the then undrawn face
amount of such Letter of Credit.  Each
Revolving Credit Lender (other than the Issuing Lender) agrees that, upon the
issuance of any Letter of Credit hereunder, it shall automatically acquire a
participation in the Issuing Lender’s liability under such Letter of Credit in
an amount equal to such Revolving Credit Lender’s Revolving Credit Commitment
Percentage of such liability, and each Revolving Credit Lender (other than the
Issuing Lender) thereby shall absolutely, unconditionally and irrevocably
assume, as primary obligor and not as surety, and shall be unconditionally
obligated to the Issuing Lender to pay and discharge when due, its Revolving
Credit Commitment Percentage of the Issuing Lender’s liability under such
Letter of Credit.  The Issuing Lender
shall be deemed to hold a Letter of Credit Liability in an amount equal to its
retained interest in the related Letter of Credit after giving effect to such
acquisition by the Revolving Credit Lenders other than the Issuing Lender of
their participation interests.

 

(c)           Upon receipt from the beneficiary of
any Letter of Credit of any demand for payment under such Letter of Credit, the
Issuing Lender shall promptly notify Borrower (through the Administrative
Agent) of the amount to be paid by the Issuing Lender as a result of such
demand and the date on which payment is to be made by the Issuing Lender to
such beneficiary in respect of such demand. 
Borrower hereby unconditionally agrees to pay and reimburse the Issuing
Lender for the amount of each demand for payment under such Letter of Credit
not later than the next Business Day after the date on which the Issuing Lender
notifies Borrower that payment is to be made by the Issuing Lender to the
beneficiary thereunder.

 

(d)           Forthwith upon its receipt of a
notice referred to in clause (c) of this Section 2.3, Borrower shall advise the
Issuing Lender whether or not Borrower intends to borrow hereunder to finance
its obligation to reimburse the Issuing Lender for the amount of the related
demand for payment and, if it does, submit a notice of such borrowing as
provided in Section 4.5.  In the event
that Borrower fails to so advise the Administrative Agent not later than one
Business Day prior to the date payment from Borrower is due to the Issuing
Lender by virtue of a drawing under a Letter of Credit, Borrower shall be
deemed to have given notice of borrowing for a Revolving Credit Loan which is
an Alternate Base Rate Loan in the exact amount owing to the Issuing Lender and
the Administrative Agent shall act accordingly.  If Borrower has given such notice indicating that it does not
intend to borrow hereunder or if Borrower fails to reimburse the Issuing Lender
for a demand for payment under a Letter of Credit by the date of notice of such
payment (or the next Business Day if received after 12:00 noon (Boston,
Massachusetts time) on such date), the Administrative Agent shall give each
Revolving Credit Lender prompt notice of the amount of the demand for payment, specifying
such Lender’s Revolving Credit Commitment Percentage of the amount of the
related demand for payment.

 

(e)           Each Revolving Credit Lender (other
than the Issuing Lender) shall pay to the Administrative Agent for account of
the Issuing Lender at the Principal Office in Dollars and in immediately
available funds, the amount of such Revolving Credit Lender’s Revolving Credit
Commitment Percentage of any payment under a Letter of Credit upon notice by
the Issuing Lender (through the Administrative Agent) to such Revolving Credit
Lender requesting such payment and specifying such amount.  Each such Revolving Credit Lender’s
obligation to make such payments to the Administrative Agent for account of the
Issuing Lender under this clause (e), and the Issuing Lender’s right to receive
the same, shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever, including (i) the failure of any other Revolving
Credit Lender to make its payment under this clause (e), (ii) the financial
condition of Borrower

 

32

 

or the
existence of any Default or (iii) the termination of the Revolving Credit
Commitments.  Each such payment to the
Issuing Lender shall be made without any offset, abatement, withholding or
reduction whatsoever.  Nothing in this
clause (e) shall be deemed to prejudice the right of any Revolving Credit
Lender to recover from the Issuing Lender in the event of a wrongful payment of
the kind described in the proviso of the last paragraph of this Section 2.3,
with respect to the issuance of a Letter of Credit in breach of any restriction
on such issuance under this Section 2.3, or with respect to the gross
negligence or willful misconduct of the Issuing Lender in respect of any Letter
of Credit.

 

(f)            Upon the making of each payment by a
Revolving Credit Lender to the Issuing Lender pursuant to clause (e) above in
respect of any Letter of Credit, such Revolving Credit Lender shall,
automatically and without any further action on the part of the Administrative
Agent, the Issuing Lender or such Revolving Credit Lender, acquire (i) a
participation in an amount equal to such payment in the Reimbursement
Obligation owing to the Issuing Lender by Borrower hereunder and under the
Letter of Credit Documents relating to such Letter of Credit and (ii) a
participation in a percentage equal to such Revolving Credit Lender’s Revolving
Credit Commitment Percentage in any interest or other amounts payable by
Borrower hereunder and under such Letter of Credit Documents in respect of such
Reimbursement Obligation.  Upon receipt
by the Issuing Lender from or for the account of Borrower of any payment in
respect of any Reimbursement Obligation or any such interest or other amounts
(including by way of setoff or application of proceeds of any collateral
security) the Issuing Lender shall promptly pay to the Administrative Agent for
account of each Revolving Credit Lender entitled thereto, such Revolving Credit
Lender’s Revolving Credit Commitment Percentage of such payment, each such
payment by the Issuing Lender to be made in the same money and funds in which
received by the Issuing Lender.  In the
event any payment received by the Issuing Lender and so paid to the Revolving
Credit Lenders hereunder is rescinded or must otherwise be returned by the
Issuing Lender, each Revolving Credit Lender shall, upon the request of the
Issuing Lender (through the Administrative Agent), repay to the Issuing Lender
(through the Administrative Agent) the amount of such payment paid to such
Revolving Credit Lender, with interest at the rate specified in clause (i) of
this Section 2.3.

 

(g)           Borrower shall pay to the
Administrative Agent for the account of the Revolving Credit Lenders in respect
of each Letter of Credit a letter of credit commission in an amount equal to
(x) in the case of commercial Letters of Credit, the rate per  annum
equal to two-thirds of the Applicable Margin for LIBOR Loans in effect at the
time of issuance thereof or (y) in the case of standby Letters of Credit, the
rate per annum equal to the Applicable Margin for LIBOR Loans in effect from
time to time, multiplied by (z) the daily average undrawn face amount of each
such Letter of Credit for the period from and including the date of issuance of
such Letter of Credit (i) in the case of a Letter of Credit which expires in
accordance with its terms, to and including such expiration date and (ii) in
the case of a Letter of Credit which is drawn in full or is otherwise
terminated other than on the stated expiration date of such Letter of Credit,
to but excluding the date such Letter of Credit is drawn in full or is
terminated, such fee to be non-refundable and to be paid in arrears quarterly,
on each Quarterly Date and on the earlier of the Revolving Credit Commitment
Termination Date or the date of the termination of the Revolving Credit
Commitments or the date of such termination, expiration or the Business Day
subsequent to notice of a drawing.  In
addition, Borrower shall pay to the Administrative Agent for account of the
Issuing Lender only in respect of each Letter of Credit a fronting fee in an
amount to be agreed upon by the Borrower and the Issuing Lender, such fronting
fee to be payable on the date of issuance of such Letter of Credit, plus all

 

33

 

charges, costs
and expenses in the amounts customarily charged by the Issuing Lender from time
to time in like circumstances with respect to the issuance of each Letter of
Credit and drawings and other transactions relating thereto.

 

(h)           Promptly following the end of each
calendar month, the Issuing Lender shall deliver (through the Administrative
Agent) to each Revolving Credit Lender and Borrower a notice describing the
aggregate amount of all Letters of Credit outstanding at the end of such
month.  Upon the request of any
Revolving Credit Lender from time to time, the Issuing Lender shall deliver any
other information reasonably requested by such Revolving Credit Lender with
respect to each Letter of Credit then outstanding.

 

(i)            To the extent that any Revolving
Credit Lender fails to pay an amount required to be paid pursuant to clause (e)
or (f) of this Section 2.3 on the due date therefor, such Revolving Credit
Lender shall pay interest to the Issuing Lender (through the Administrative
Agent) on such amount from and including such due date to but excluding the
date such payment is made (i) during the period from and including such due
date to but excluding the date three Business Days thereafter, at a rate per
annum equal to the Federal Funds Rate (as in effect from time to time)
and (ii) thereafter, at a rate per annum equal to the
post-default rate (as in effect from time to time) pursuant to Section 3.2(b).

 

(j)            The issuance by the Issuing Lender
of any modification or supplement to any Letter of Credit hereunder that would
extend the expiry date or increase the face amount thereof shall be subject to
the same conditions applicable under this Section 2.3 to the issuance of new
Letters of Credit, and no such modification or supplement shall be issued
hereunder unless either (i) the respective Letter of Credit affected thereby
would have complied with such conditions had it originally been issued
hereunder in such modified or supplemented form or (ii) each Revolving Credit
Lender shall have consented thereto.

 

(k)           Notwithstanding the foregoing, the
Issuing Lender shall not be under any obligation to issue any Letter of Credit
if at the time of such issuance, any order, judgment or decree of any
Governmental Authority or arbitrator shall purport by its terms to enjoin or
restrain the Issuing Lender from issuing such Letter of Credit or any
requirement of law applicable to the Issuing Lender or any request or directive
(whether or not having the force of law) from any Governmental Authority shall
prohibit, or request that the Issuing Lender refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon such Issuing Lender with respect to such Letter of Credit any
restriction or reserve or capital requirement (for which the Issuing Lender is
not otherwise compensated) not in effect on the Closing Date.

 

The obligations of Borrower under this
Agreement and any Letter of Credit Document to reimburse the Issuing Lender for
a drawing under a Letter of Credit, and to repay any drawing under a Letter of
Credit converted into Revolving Credit Loans, shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other Letter of Credit Document under all
circumstances, including the following: 
(i) any lack of validity or enforceability of this Agreement or any
Letter of Credit Document; (ii) the existence of any claim, setoff, defense or
other right that Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such beneficiary
or any such transferee may be acting), the Issuing Lender or any other Person,
whether in connection with this Agreement, the transactions contemplated hereby
or by the Letter of Credit Documents or any unrelated transaction; (iii) any
draft, demand, certificate or other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or

 

34

 

insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit; or any defense based upon the failure of any
drawing under a Letter of Credit to conform to the terms of the Letter of
Credit or any non-application or misapplication by the beneficiary of the
proceeds of such drawing; or (iv) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, Borrower or a Guarantor; provided, however, that
Borrower shall not be obligated to reimburse the Issuing Lender for any
wrongful payment determined by a court of competent jurisdiction to have been
made by the Issuing Lender as a result of acts or omissions constituting
willful misconduct or gross negligence on the part of the Issuing Lender or
which is not in accordance with the standard of care specified in the Uniform
Commercial Code of the Commonwealth of Massachusetts.  To the extent that any provision of any Letter of Credit Document
is inconsistent with the provisions of this Section 2.3, the provisions of this
Section 2.3 shall control.

 

2.4           Extension
of  Revolving  Credit  Commitment  Termination  Date.

 

(a)           At Borrower’s option, subject to
satisfaction of the following terms and conditions, Borrower shall have the option
to extend the Revolving Credit Commitment Termination Date from the Initial
Revolving Credit Commitment Termination Date to the Extended Revolving Credit
Commitment Termination Date:

 

(i)            Borrower shall have notified the
Administrative Agent in writing no later than thirty (30) days after the first
anniversary of the Closing Date of the Borrower’s election to request the
extension;

 

(ii)           On the date of the notification as
provided in clause (i) above and on the Initial Revolving Credit Commitment
Termination Date, no Default or Event of Default is then occurring and no Event
of Default has occurred; and

 

(iii)          One hundred percent (100.0%) of the
Revolving Credit Lenders consent in writing to the requested extension within
sixty (60) Business Days after the date of the Administrative Agent’s receipt
of the Borrower’s notification pursuant to clause (i), above.  The failure of any Revolving Credit Lender
to furnish such written consent within such time period shall be deemed a
denial of the Borrower’s extension request.

 

(b)           No extension shall be effective
unless and until the Administrative Agent has confirmed, in writing, the
Borrower’s compliance with the conditions precedent to the extension of the
Initial Revolving Credit Commitment Termination Date set forth in Section
2.4(a).  To the extent that one hundred
percent (100.0%) of the Revolving Credit Lenders do not consent to the
extension request, Borrower shall have the option of: (i) reducing the
aggregate principal amount of the Revolving Credit Commitments at the Initial
Revolving Credit Commitment Termination Date by an amount equal to the
aggregate principal amount of the Revolving Credit Commitments of the
non-consenting Revolving Credit Lenders; provided, however, that
in no event shall the aggregate principal amount of the reduction in the
Revolving Credit Commitments  be more
than $25 million (in which case, if all other conditions are met, the extension
shall be effective as to the reduced amount); (ii) replacing the non-consenting
Revolving Credit Lenders in accordance with the terms of Section 2.12 (in which
case, if all other conditions are met, the extension shall be effective upon
such replacement); or (iii) withdrawing such extension request; provided,
however, that after any such withdrawal Borrower may

 

35

 

again request
an extension under the terms of this Section 2.4 within the time period
specified in subsection (a).

 

(c)           In the event that the Borrower elects
to reduce the aggregate principal amount of the Revolving Credit Commitments
pursuant to clause (i) of Section 2.4(b) above, the Borrower, in connection
therewith, shall pay in cash to (i) each nonconsenting Revolving Credit Lender
an amount equal to the sum of (A) the principal of, and all accrued interest
on, all outstanding Loans of the non-consenting Revolving Credit Lender, (B)
all Reimbursement Obligations owing to such non-consenting Revolving Credit
Lender, together with all then unpaid interest with respect thereto at such time,
and (C) all accrued, but theretofore unpaid, fees owing to the non-consenting
Revolving Credit Lender pursuant to Section 2.6, and (ii) the Issuing Lender an
amount equal to such non-consenting Revolving Credit Lender’s Revolving Credit
Commitment Percentage of any Reimbursement Obligations (which at such time
remains a Reimbursement Obligation) to the extent such amount was not
theretofore funded by such non-consenting Revolving Credit Lender.  Upon such payment, the Revolving Credit
Commitment Percentages of the consenting Revolving Credit Lenders shall be
adjusted accordingly to reflect the termination of the Revolving Credit
Commitments of the non-consenting Revolving Credit Lenders.

 

2.5           Termination
and  Reductions  of  Commitments  and  Overadvance
Period.

 

(a)           The aggregate amount of the Revolving
Credit Commitments shall be automatically and permanently reduced to zero on
the Revolving Credit Commitment Termination Date.

 

(b)           Borrower shall have the right, at any
time or from time to time (i) so long as no Revolving Credit Loans or Letter of
Credit Liabilities will be outstanding as of the date specified for
termination, to terminate the Revolving Credit Commitments, and (ii) to reduce
the aggregate amount of the then Unutilized Revolving Credit Commitments of all
the Revolving Credit Lenders; provided, however, that (x)
Borrower shall give notice of each such termination or reduction as provided in
Section 4.5, and (y) each partial reduction shall be in an aggregate amount at
least equal to $1.0 million (or in integral multiples of $500,000 in excess
thereof).

 

(c)           Borrower shall have the right, at any
time, to terminate the Overadvance Period, provided, however,
that (x) Borrower shall give notice of such termination as provided in Section
4.5, and (y) Excess Availability on a pro forma basis from
the date of the Administrative Agent’s receipt of the notice described in
clause (i) hereof through November 30, 2002 shall, at all times, be at least
$15,000,000.

 

(d)           The Revolving Credit Commitments
and/or Overadvance Period, as applicable, once terminated may not be reinstated
and any amount of the Revolving Credit Commitments that has been reduced may
not be reinstated.

 

2.6           Fees.

 

(a)           Borrower shall pay to the
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee on the daily average amount of such Revolving Credit Lender’s
Unutilized Revolving Credit Commitment, for the period from and including the
Closing Date to but not including the earlier of the date such Revolving Credit
Commitment is terminated or the Revolving Credit Commitment Termination Date,
at a rate per  annum equal to the Applicable Revolving Credit Fee
Percentage.  Any

 

36

 

accrued
commitment fee under this Section 2.6(a) shall be payable in arrears on each
Quarterly Date and on the earlier of the date the Revolving Credit Commitments
are terminated or the Revolving Credit Commitment Termination Date.

 

(b)           Borrower shall pay to the
Administrative Agent for its account and the account of the Lead Arranger
certain other fees pursuant to the terms of the Fee Letter.

 

2.7           Lending  Offices.  The Loans of each Type made by each
Revolving Credit Lender shall be made and maintained at such Revolving Credit
Lender’s Applicable Lending Office for Loans of such Type.

 

2.8           Several
Obligations  of  Revolving  Credit  Lenders.  The failure of any Revolving Credit Lender
to make any Loan to be made by it on the date specified therefor shall not
relieve any other Revolving Credit Lender of its obligation to make its Loan on
such date, but neither any Revolving Credit Lender nor the Administrative Agent
shall be responsible for the failure of any other Revolving Credit Lender to
make a Loan to be made by such other Revolving Credit Lender, and (except as
otherwise provided in Section 4.6) no Revolving Credit Lender shall have any
obligation to the Administrative Agent or any other Revolving Credit Lender for
the failure by such Revolving Credit Lender to make any Loan required to be made
by such Revolving Credit Lender.

 

2.9           Notes;  Register.

 

(a)           The Revolving Credit Loans made or to
be made by each Revolving Credit Lender shall be evidenced by one or more
promissory notes of Borrower, substantially in the form of Exhibit A-1,
dated the Closing Date, payable to such Revolving Credit Lender and otherwise
duly completed.

 

(b)           The Swing Loans made by Fleet
National Bank shall be evidenced by a single promissory note of Borrower
substantially in the form of Exhibit A-2, dated the Closing Date,
payable to Fleet National Bank and otherwise duly completed.

 

(c)           The date, amount, Type, interest rate
and duration of Interest Period (if applicable) of each Loan made by each
Revolving Credit Lender to Borrower, and each payment made on account of the principal
thereof, shall be recorded by such Revolving Credit Lender on its books and,
prior to any transfer of any Note evidencing the Loans held by it, endorsed by
such Revolving Credit Lender on the schedule attached to such Note or any
continuation thereof; provided, however, that the failure of such
Revolving Credit Lender to make any such recordation or endorsement shall not
affect the obligations of Borrower to make a payment when due of any amount
owing hereunder or under such Note.

 

(d)           Borrower hereby designates the
Administrative Agent to serve as Borrower’s agent, solely for purposes of this
Section 2.9, to maintain a register (the “Register”) on which it will
record the name and address of each Revolving Credit Lender, the Revolving
Credit Commitment from time to time of each of the Revolving Credit Lenders,
the principal amount of the Loans made by each of the Revolving Credit Lenders
and each repayment in respect of the principal amount of the Loans of each
Revolving Credit Lender.  Failure to make
any such recordation or any error in such recordation shall not affect
Borrower’s obligations in respect of such Loans.  The entries in the Register shall be conclusive, in the absence
of manifest error, and Borrower, the Administrative Agent and the Revolving
Credit Lenders shall treat each Person whose name is recorded in the Register
as the owner of a Loan or other obligation hereunder as

 

37

 

the owner
thereof for all purposes of this Agreement and the other Credit Documents,
notwithstanding any notice to the contrary. 
The Register shall be available for inspection by Borrower or any
Revolving Credit Lender at any reasonable time and from time to time upon reasonable
prior notice.

 

2.10         Optional
Prepayments  and  Conversions  or  Continuations
of  Loans.  Subject to Section 4.4, Borrower shall have the right to prepay
Loans, or to Convert Loans of one Type into Loans of another Type or to
Continue Loans of one Type as Loans of the same Type, at any time or from time
to time to be applied as specified by Borrower; provided, however,
that: (a) Borrower shall give the Administrative Agent notice of each such
prepayment, Conversion or Continuation as provided in Section 4.5 (and, upon
the date specified in any such notice of prepayment, the amount to be prepaid
shall become due and payable hereunder); and (b) if LIBOR Loans are prepaid or
Converted other than on the last day of an Interest Period for such Loans,
Borrower shall at such time pay all expenses and costs required by Section
5.5.  Each notice of Conversion or
Continuation shall be substantially in the form of Exhibit I.

 

Notwithstanding
the foregoing, and without limiting the rights and remedies of the Revolving
Credit Lenders under Section 10, in the event that any Event of Default shall
have occurred and be continuing, the Administrative Agent may (and at the
request of the Majority Revolving Credit Lenders shall) suspend the right of
Borrower to Convert any Loan into a LIBOR Loan, or to Continue any Loan as a
LIBOR Loan, in which event all Loans shall be Converted (on the last day(s) of
the respective Interest Periods therefor) or Continued, as the case may be, as
Alternate Base Rate Loans.

 

2.11         Mandatory  Prepayments.

 

(a)           Revolving  Credit  Extension
Reductions.  Until the Revolving
Credit Commitment Termination Date, Borrower shall from time to time
immediately prepay the Swing Loans and the Revolving Credit Loans (and/or
provide cover for Letter of Credit Liabilities as specified in Section 2.11(b))
in such amounts as shall be necessary so that at all times the aggregate
outstanding amount of the Revolving Credit Loans, plus the aggregate
outstanding amount of Swing Loans, plus the aggregate outstanding Letter
of Credit Liabilities shall not exceed the lesser of (i) the Borrowing Base or
(ii) the aggregate Revolving Credit Commitments, each as in effect at such
time, such amount to be applied, first, to Swing Loans, second,
to Revolving Credit Loans outstanding and, third, as cover for Letter of
Credit Liabilities outstanding as specified in Section 2.11(b). Notwithstanding
the foregoing, if the amount of any prepayment of Loans required under this
Section 2.11 shall be in excess of the amount of the Alternate Base Rate Loans
at the time outstanding, only the portion of the amount of such prepayment as
is equal to the amount of such outstanding Alternate Base Rate Loans shall be
immediately prepaid and, at the election of Borrower, the balance of such
required prepayment shall be either (i) deposited in the Collateral Account and
applied to the prepayment of LIBOR Loans on the last day of the then
next-expiring Interest Period for LIBOR Loans or (ii) prepaid immediately,
together with any amounts owing to the Revolving Credit Lenders under Section
5.5.  Notwithstanding any such deposit
in the Collateral Account, interest shall continue to accrue on such Loans
until prepayment.  Interest on such
amount held in the Collateral Account shall be for the account of Borrower
(after deduction of reasonable fees and expenses).

 

(b)           Cover  for  Letter
of  Credit  Liabilities. 
In the event that Borrower shall be required pursuant to this Section
2.11 to provide cover for Letter of Credit Liabilities, Borrower shall effect
the same by paying to the Administrative Agent immediately available funds in
an amount equal to the required amount, which funds shall be retained

 

38

 

by the
Administrative Agent in the Collateral Account (as provided in the Security
Agreement as collateral security in the first instance for the Letter of Credit
Liabilities) in an amount not to exceed the face amount of all unexpired
Letters of Credit in respect of which such cover was required to be provided
until such time as all Letters of Credit shall have been terminated and all of
the Letter of Credit Liabilities paid in full.

 

2.12         Replacement  of
Revolving  Credit  Lenders.  Borrower shall have the right, if no Default
or Event of Default then exists, to replace a Revolving Credit Lender (the “Replaced
Lender”) with one or more other Eligible Persons reasonably acceptable
to the Administrative Agent (collectively, the “Replacement  Lender”)
if (a) such Revolving Credit Lender is charging Borrower increased costs
pursuant to Section 5.1 or Section 5.6 in excess of those being charged
generally by the other Revolving Credit Lenders or such Revolving Credit Lender
becomes incapable of making LIBOR Loans as provided in Section 5.3, and/or (b)
as provided in Section 12.4(b), such Revolving Credit Lender refuses to consent
to certain proposed amendments, waivers or modifications with respect to this
Agreement or the other Credit Documents, and/or (c) such Revolving Credit
Lender shall have failed to fund its portion of a Loan it is obligated to fund
under Section 2.1, and/or (d) as provided in Section 2.4(b), such Revolving
Credit Lender refuses to consent to Borrower’s request to extend the Initial
Revolving Credit Commitment Termination Date; provided, however,
that (i) at the time of any replacement pursuant to this Section 2.12, the
Replacement Lender shall enter into one or more assignment agreements (and with
all fees payable pursuant to Section 12.6 to be paid by the Replacement Lender)
pursuant to which the Replacement Lender shall acquire all of the Revolving
Credit Commitments and outstanding Loans of, and in each case Letter of Credit
Interests by, the Replaced Lender and, in connection therewith, shall pay to
(x) the Replaced Lender, an amount equal to the sum of (A) the principal of,
and all accrued interest on, all outstanding Loans of the Replaced Lender, (B)
all Reimbursement Obligations owing to such Replaced Lender, together with all
then unpaid interest with respect thereto at such time, and (C) all accrued,
but theretofore unpaid, fees owing to the Replaced Lender pursuant to Section
2.6, and (y) the Issuing Lender an amount equal to such Replaced Lender’s
Revolving Credit Commitment Percentage of any Reimbursement Obligations (which
at such time remains a Reimbursement Obligation) to the extent such amount was
not theretofore funded by such Replaced Lender, and (ii) all Obligations of
Borrower then owing to the Replaced Lender (other than those specifically
described in clause (i) above in respect of which the assignment purchase price
has been, or is concurrently being, paid) shall be paid in full to such
Replaced Lender concurrently with such replacement.  Upon the execution of the respective assignment agreement, the
payment of amounts referred to in clauses (i) and (ii) above and, if so requested
by the Replacement Lender, delivery to the Replacement Lender of Notes executed
by Borrower, the Replacement Lender shall become a Revolving Credit Lender
hereunder and the Replaced Lender shall cease to constitute a Revolving Credit
Lender hereunder and be released of all its obligations as a Revolving Credit
Lender, except with respect to indemnification provisions applicable to the
Replaced Lender under this Agreement, which shall survive as to such Replaced
Lender.

 

2.13         Annual  Cleandown.  For a consecutive fifteen-day period between
the first day of December and the last day of January of each calendar year,
beginning in December 2002, the sum of the aggregate principal amount of
Revolving Credit Loans outstanding, plus the aggregate outstanding principal
amount of Swing Loans, shall not exceed (a) $35 million for the period
December, 2002 through January, 2003, and (b) $20 million for all similar
annual periods thereafter.

 

39

 

Section 3.               Payments
of  Principal  and  Interest.

 

3.1           Repayment  of
Loans. 
Borrower hereby promises to pay in cash to the Administrative Agent for
the account of each Revolving Credit Lender the entire outstanding principal
amount of such Lender’s Revolving Credit Loans, and each Revolving Credit Loan
shall mature, on the Revolving Credit Commitment Termination Date (unless
sooner accelerated pursuant to Section 10 hereof).  Borrower hereby promises to pay to the Swing Loan Lender for its
account the entire outstanding principal amount of the Swing Loans, and the
Swing Loans shall mature, on the Swing Loan Maturity Date.

 

3.2           Interest.

 

(a)           Borrower hereby promises to pay to
the Administrative Agent for the account of each Revolving Credit Lender
interest on the unpaid principal amount of each Loan made by such Revolving
Credit Lender for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:

 

(i)            during such periods as such Loan is
an Alternate Base Rate Loan, the Alternate Base Rate (as in effect from time to
time), plus the Applicable Margin and

 

(ii)           during such periods as such Loan is a
LIBOR Loan, for each Interest Period relating thereto, the LIBOR Rate for such
Loan for such Interest Period, plus the Applicable Margin.

 

(b)           During the continuance of any Event
of Default (and whether or not the Administrative Agent exercises its rights on
account thereof), all Revolving Credit Loans shall bear interest, at the option
of the Administrative Agent or at the instruction of the Majority Revolving
Credit Lenders, at a rate which is the aggregate of the applicable rate
(including the Applicable Margin) for Alternate Base Rate Loans and/or LIBOR
Loans, as applicable, plus two percent (2%) per annum.  Interest which accrues under this paragraph
shall be payable on demand.

 

(c)           Accrued interest on each Loan shall
be payable (i) in the case of an Alternate Base Rate Loan, monthly in arrears
on the last day of each calendar month, (ii) in the case of a LIBOR Loan, on
the last day of each Interest Period therefor and, if such Interest Period is
longer than three months, at three-month intervals following the first day of
such Interest Period and (iii) in the case of any LIBOR Loan, upon the payment
or prepayment thereof or the Conversion of such Loan to a Loan of another Type
(but only on the principal amount so paid, prepaid or Converted), except that
interest payable at the rate set forth in Section 3.2(b) shall be payable from
time to time on demand.  Promptly after
the determination of any interest rate provided for herein or any change
therein, the Administrative Agent shall give notice thereof to the Revolving
Credit Lenders to which such interest is payable and to Borrower.

 

(d)           All agreements among Borrower, the
Guarantors, the Administrative Agent and the Revolving Credit Lenders are
hereby expressly limited so that, in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to the
Administrative Agent or the Revolving Credit Lenders for the use or the
forbearance of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law.  As used herein,
the term “applicable law”, shall mean the law in

 

40

 

effect as of
the date hereof, provided, however, that in the event there is a
change in the law which results in a higher permissible rate of interest, then
this Agreement, the Notes and the other Credit Documents shall be governed by
such new law as of its effective date. 
In this regard, it is expressly agreed that it is the intent of
Borrower, the Administrative Agent and the Revolving Credit Lenders in the
execution, delivery and acceptance of this Agreement to contract in strict
compliance with the laws of the Commonwealth of Massachusetts from time to time
in effect.  If, under or from any
circumstances whatsoever, fulfillment of any provision hereof or of any of the
Credit Documents or the Security Documents at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by applicable law, then the obligation to be fulfilled shall
automatically be reduced to the limit of such validity, and if under or from
any circumstances whatsoever the Administrative Agent or the Revolving Credit
Lenders should ever receive as interest an amount which would exceed the
highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance evidenced by the Notes and
not to the payment of interest.  This
provision shall control every other provision of all agreements among Borrower,
the Guarantors, the Administrative Agent and the Revolving Credit Lenders.

 

Section 4.               Payments;
Pro  Rata  Treatment; Computations; Etc.

 

4.1           Payments.

 

(a)           Except to the extent otherwise
provided herein, all payments of principal, interest, Reimbursement Obligations
and other amounts to be made by Borrower under this Agreement and the Notes,
and, except to the extent otherwise provided therein, all payments to be made
by the Obligors under any other Credit Document, shall be made in Dollars, in
immediately available funds, without deduction, set-off or counterclaim, to the
Administrative Agent at its account at the Principal Office, not later than
1:00 p.m. Boston, Massachusetts time on the date on which such payment shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).

 

(b)           Borrower shall, at the time of making
each payment under this Agreement or any Note for the account of any Revolving
Credit Lender, specify to the Administrative Agent (which shall so notify the intended
recipient(s) thereof) the Loans, Reimbursement Obligations or other amounts
payable by Borrower hereunder to which such payment is to be applied (and in
the event that Borrower fails to so specify, or if an Event of Default has
occurred and is continuing, the Administrative Agent may distribute such
payment to the Revolving Credit Lenders for application in such manner as it or
the Majority Revolving Credit Lenders, subject to Section 4.2, may determine to
be appropriate).

 

(c)           Except to the extent otherwise
provided in the second sentence of Section 2.3(g), each payment received by the
Administrative Agent under this Agreement or any Note for the account of any
Revolving Credit Lender shall be paid by the Administrative Agent to such
Revolving Credit Lender, in immediately available funds, (x) if the payment was
actually received by the Administrative Agent prior to 1:00 p.m. (Boston,
Massachusetts time) on any day, on such day and (y) if the payment was actually
received by the Administrative Agent after 1:00 p.m. (Boston, Massachusetts
time) on any day, on the following Business Day (it being understood that to
the extent that any such payment is not made in full by the Administrative
Agent, the Administrative Agent shall pay to such Revolving Credit Lender, upon
demand, interest

 

41

 

at the Federal
Funds Rate from the date such amount was required to be paid to such Revolving
Credit Lender pursuant to the foregoing clauses until the date the Administrative
Agent pays such Revolving Credit Lender the amount).

 

(d)           If the due date of any payment under
this Agreement or any Note would otherwise fall on a day that is not a Business
Day, such date shall be extended to the next succeeding Business Day, and interest
shall be payable for any principal so extended for the period of such
extension.

 

4.2           Pro  Rata
Treatment. 
Except to the extent otherwise provided herein:  (a) each borrowing of Loans from the
Revolving Credit Lenders under Section 2.1 shall be made by, and each payment
of commitment fees under Section 2.6 in respect of Revolving Credit Commitments
shall be for account of, and each termination or reduction of the amount of the
Revolving Credit Commitments under Section 2.5 shall be applied to the respective
Revolving Credit Commitments of, the Revolving Credit Lenders, pro  rata
according to the amounts of their respective Revolving Credit Commitments; provided,
however, that Swing Loans shall be made only by, and interest thereon
shall be paid by Borrower only to, the Swing Loan Lender (subject to such
Revolving Credit Lender’s obligations in respect of any participation therein
purchased by the other Revolving Credit Lenders as provided in Section 2.1(b));
(b) except as otherwise provided in Section 5.4, LIBOR Loans having the same
Interest Period shall be allocated pro  rata among the Revolving
Credit Lenders according to the amounts of their respective Revolving Credit
Commitments (in the case of the making of Loans) or their respective Revolving
Credit Loans (in the case of Conversions and Continuations of Loans); (c) each
payment or prepayment of principal of Revolving Credit Loans by Borrower shall
be made for account of the relevant Revolving Credit Lenders pro  rata
in accordance with the respective unpaid outstanding principal amounts of the
Loans held by them; and (d) each payment of interest on Revolving Credit Loans
by Borrower shall be made for account of the Revolving Credit Lenders pro
rata in accordance with the amounts of interest on such Loans then due
and payable to the respective Revolving Credit Lenders.

 

4.3           Computations.  Interest on LIBOR Loans shall be computed on
the basis of a year of 360 days and actual days elapsed (including the first
day but excluding the last day) occurring in the period for which payable and
interest on Alternate Base Rate Loans and Reimbursement Obligations shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable. 
Computations of commitment fees and Letter of Credit fees shall be based
upon a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in the period
for which payable.  Notwithstanding the
foregoing, for each day that the Alternate Base Rate is calculated by reference
to the Federal Funds Rate, interest on Alternate Base Rate Loans and Reimbursement
Obligations shall be computed on the basis of a year of 360 days and actual
days elapsed (including the first day but excluding the last day).

 

4.4           Minimum  Amounts.  Except for mandatory prepayments made
pursuant to Section 2.11 and Conversions or prepayments made pursuant to
Section 5.4, and prepayments of the entire principal balance of the Loans, each
borrowing, Conversion and prepayment of principal of Loans (other than Swing
Loans, for which the minimum amounts thereof are in Section 2.1(b)) shall be in
an amount at least equal to (1) $500,000 and in integral multiples of $100,000
in excess thereof with respect to Alternate Base Rate Loans and (2) $1,000,000
and in integral multiples of $100,000 in excess thereof with respect to LIBOR
Loans (borrowings, Conversions or prepayments of or into Loans of different
Types or, in the case of LIBOR Loans, having different Interest Periods at the
same time hereunder to be deemed separate borrowings, Conversions and
prepayments for purposes of the foregoing, one for each Type or Interest

 

42

 

Period). 
Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of LIBOR Loans having the same Interest Period shall
be in an amount at least equal to $1,000,000 and in multiples of $100,000  in excess thereof and, if any LIBOR Loans
or portions thereof would otherwise be in a lesser principal amount for any
period, such Loans or portions, as the case may be, shall be Alternate Base
Rate Loans during such period.

 

4.5           Certain  Notices.  Notices by Borrower to the Administrative
Agent of terminations or reductions of the Revolving Credit Commitments, of
borrowings, Conversions, Continuations and optional prepayments of Loans, of
Types of Loans and of the duration of Interest Periods shall be irrevocable and
shall be effective only if received by the Administrative Agent not later than
11:00 a.m. Boston, Massachusetts time on the number of Business Days prior to
the date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified
in the table below:

 

NOTICE PERIODS

 

	
  Notice

  	
   

  	
  Number of
  Business Days Prior

  
	
   

  	
   

  	
   

  
	
  Termination or reduction of Revolving
  Credit Commitments

  	
   

  	
  2

  
	
  Borrowing or
  optional prepayment of, or Conversions into, Alternate Base Rate Loans
  (including Swing Loans)

  	
   

  	
  same day

  
	
  Borrowing or
  optional prepayment of, Conversions into, Continuations as, or duration of
  Interest Periods for, LIBOR Loans

  	
   

  	
  3

  

 

Each such notice of termination or reduction
shall specify the amount of the Revolving Credit Commitments to be terminated
or reduced.  Each such notice of
borrowing, Conversion, Continuation or prepayment shall specify the Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to Section
4.4) and Type of each Loan to be borrowed, Converted, Continued or prepaid and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day).  Each such notice of the
duration of an Interest Period shall specify the Loans to which such Interest
Period is to relate.  The Administrative
Agent shall promptly notify the Revolving Credit Lenders of the contents of
each such notice.  In the event that
Borrower fails to select the Type of Loan, or the duration of any Interest
Period for any LIBOR Loan, within the time period and otherwise as provided in
this Section 4.5, such Loan (if outstanding as a LIBOR Loan) will be
automatically Converted into an Alternate Base Rate Loan on the last day of the
then current Interest Period for such Loan or (if outstanding as an Alternate
Base Rate Loan) will remain as, or (if not then outstanding) will be made as,
an Alternate Base Rate Loan.

 

4.6           Non-Receipt  of
Funds  by  the  Administrative  Agent.  Unless the Administrative Agent shall have
received written notice from a Revolving Credit Lender or Borrower (the “Payor”)
prior to the date on which the Payor is to make payment to the Administrative
Agent of (in the case of a Revolving Credit Lender) the proceeds of a Loan to
be made by such Revolving Credit Lender hereunder or (in the case of Borrower)
a payment to the Administrative Agent for the account of one or more of the
Revolving Credit Lenders hereunder (such payment being herein called the “Required
Payment”), which notice shall be effective upon receipt, that the Payor
does not intend to make the Required Payment to the Administrative Agent, the
Administrative Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available

 

43

 

to the intended recipient(s) on such date;
and, if the Payor has not in fact made the Required Payment to the
Administrative Agent, the recipient(s) of such payment shall, on demand, repay
to the Administrative Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date (the “Advance
Date”) such amount was so made available by the Administrative Agent
until the date the Administrative Agent recovers such amount at a rate per
annum equal to the Federal Funds Rate for such day and, if such
recipient(s) shall fail promptly to make such payment, the Administrative Agent
shall be entitled to recover such amount, on demand, from the Payor, together
with interest as aforesaid; provided, however, that if neither
the recipient(s) nor the Payor shall return the Required Payment to the
Administrative Agent within three Business Days of the Advance Date, then,
retroactively to the Advance Date, the Payor and the recipient(s) shall each be
obligated to pay interest on the Required Payment as follows (without double
recovery):

 

(a)           if the Required Payment shall
represent a payment to be made by Borrower to the Revolving Credit Lenders,
Borrower and the recipient(s) shall each be obligated retroactively to the
Advance Date to pay interest in respect of the Required Payment at the rate set
forth in Section 3.2(b) (without duplication of the obligation of Borrower under
Section 3.2 to pay interest on the Required Payment at the rate set forth in
Section 3.2(b)), it being understood that the return by the recipient(s) of the
Required Payment to the Administrative Agent shall not limit such obligation of
Borrower under Section 3.2 to pay interest at the rate set forth in Section
3.2(b) in respect of the Required Payment and

 

(b)           if the Required Payment shall
represent proceeds of a Loan to be made by the Revolving Credit Lenders to
Borrower, the Payor and Borrower shall each be obligated retroactively to the
Advance Date to pay interest in respect of the Required Payment pursuant to
Section 3.2(a), it being understood that the return by Borrower of the Required
Payment to the Administrative Agent shall not limit any claim Borrower may have
against the Payor in respect of such Required Payment.

 

4.7           Right  of
Setoff; Sharing  of  Payments, Etc.

 

(a)           Each Obligor agrees that, in addition
to (and without limitation of) any right of setoff, banker’s lien or
counterclaim a Revolving Credit Lender may otherwise have, each Revolving
Credit Lender shall be entitled, at its option (to the fullest extent permitted
by law), to set off and apply any deposit (general or special, time or demand,
provisional or final), or other indebtedness, held by it for the credit or
account of such Obligor at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Revolving Credit
Lender’s Loans, Reimbursement Obligations or any other amount payable to such
Revolving Credit Lender hereunder that is not paid when due (regardless of
whether such deposit or other indebtedness is then due to such Obligor), in
which case it shall promptly notify such Obligor and the Administrative Agent
thereof; provided, however, that such Revolving Credit Lender’s
failure to give such notice shall not affect the validity thereof.

 

(b)           Each of the Revolving Credit Lenders
agrees that, if it should receive (other than pursuant to Section 5) any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker’s lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, Reimbursement Obligations or fees, of a sum which with respect
to the related sum or sums received by other Revolving Credit Lenders is in a
greater proportion than the total of such amounts then owed and due to such Revolving
Credit

 

44

 

Lender bears
to the total of such amounts then owed and due to all of the Revolving Credit
Lenders immediately prior to such receipt, then such Revolving Credit Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Revolving Credit Lenders an interest in the Obligations
of the respective Obligor to such Revolving Credit Lenders in such amount as
shall result in a proportional participation by all of the Revolving Credit
Lenders in such amount; provided, however, that if all or any
portion of such excess amount is thereafter recovered from such Revolving
Credit Lender, such purchase shall be rescinded and the purchase price restored
to the extent of such recovery, but without interest.  Borrower consents to the foregoing arrangements.

 

(c)           Borrower agrees that any Revolving
Credit Lender so purchasing such a participation may exercise all rights of
setoff, banker’s lien, counterclaim or similar rights with respect to such
participation as fully as if such Revolving Credit Lender were a direct holder
of Loans or other amounts (as the case may be) owing to such Revolving Credit
Lender in the amount of such participation.

 

(d)           Nothing contained herein shall
require any Revolving Credit Lender to exercise any such right or shall affect
the right of any Revolving Credit Lender to exercise, and retain the benefits
of exercising, any such right with respect to any other indebtedness or
obligation of any Obligor.  If, under
any applicable bankruptcy, insolvency or other similar law, any Revolving
Credit Lender receives a secured claim in lieu of a setoff to which this
Section 4.7 applies, such Revolving Credit Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a manner
consistent with the rights of the Revolving Credit Lenders entitled under this
Section 4.7 to share in the benefits of any recovery on such secured claim.

 

Section 5.               Yield
Protection, Etc.

 

5.1           Additional  Costs.

 

(a)           If the adoption of, or any change in,
any Requirement of Law or in the interpretation or application thereof or
compliance by any Revolving Credit Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority or the NAIC made subsequent to the Closing Date:

 

(i)            shall subject any Revolving Credit
Lender to any tax of any kind whatsoever with respect to this Agreement, any
Note, any Letter of Credit or any Revolving Credit Lender’s participation
therein, any Letter of Credit Document or any LIBOR Loan made by it or change
the basis of taxation of payments to such Revolving Credit Lender in respect
thereof by any Governmental Authority (except for taxes covered by Section 5.6
and changes in the rate of tax on the overall net income of such Revolving
Credit Lender by any Governmental Authority);

 

(ii)           shall impose, modify or hold
applicable any reserve, special deposit, compulsory loan or similar requirement
against assets held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other acquisition of
funds by, any office of such Revolving Credit Lender which is not otherwise
included in the determination of the LIBOR Rate hereunder; or

 

(iii) shall
impose on such Revolving Credit Lender any other condition;

 

45

 

and the result
of any of the foregoing is to increase the cost to such Revolving Credit
Lender, by an amount which such Revolving Credit Lender deems to be material,
of making, converting into, continuing or maintaining LIBOR Loans or issuing or
participating in Letters of Credit or to reduce any amount receivable hereunder
in respect thereof then, in any such case, Borrower shall promptly pay such
Revolving Credit Lender, upon its demand, any additional amounts necessary to
compensate such Revolving Credit Lender for such increased cost or reduced
amount receivable.  If any Revolving
Credit Lender becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify Borrower, through the Administrative
Agent, of the event by reason of which it has become so entitled.  A certificate as to any additional amounts
setting forth the calculation of such additional amounts pursuant to this
Section 5.1 submitted by such Revolving Credit Lender, through the
Administrative Agent, to Borrower shall be conclusive in the absence of clearly
demonstrable error. This covenant shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable hereunder.

 

(b)           In the event that any Revolving
Credit Lender shall have determined that the adoption after the Closing Date of
any law, rule, regulation or guideline regarding capital adequacy (or any
change after the Closing Date therein or in the interpretation or application
thereof) or compliance by any Revolving Credit Lender or any corporation
controlling such Revolving Credit Lender with any request or directive after
the Closing Date regarding capital adequacy (whether or not having the force of
law) from any central bank or Governmental Authority or the NAIC, including,
without limitation, the issuance of any final rule, regulation or guideline,
does or shall have the effect of reducing the rate of return on such Revolving
Credit Lender’s or such corporation’s capital as a consequence of its
obligations hereunder or under any Letter of Credit to a level below that which
such Revolving Credit Lender or such corporation could have achieved but for
such adoption, change or compliance (taking into consideration such Revolving
Credit Lender’s or such corporation’s policies with respect to capital
adequacy) by an amount deemed by such Revolving Credit Lender to be material,
then from time to time, after submission by such Revolving Credit Lender to
Borrower (with a copy to the Administrative Agent) of a prompt written request
therefor, Borrower shall promptly pay to such Revolving Credit Lender such
additional amount or amounts as will compensate such Revolving Credit Lender
for such reduction.

 

5.2           Limitation  on
Types  of  Loans.  Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any LIBOR Base Rate
for any Interest Period:

 

(i)            the Administrative Agent determines,
which determination shall be conclusive, that quotations of interest rates for
the relevant deposits referred to in the definition of “LIBOR Base Rate” in
Section 1.1 are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for LIBOR Loans as
provided herein; or

 

(ii)           if the Majority Revolving Credit
Lenders determine, which determination shall be conclusive, that the relevant
rates of interest referred to in the definition of “LIBOR Base Rate” in Section
1.1 upon the basis of which the rate of interest for LIBOR Loans for such
Interest Period is to be determined are not likely adequate to cover the cost
to the applicable Revolving Credit Lenders of making or maintaining LIBOR Loans
for such Interest Period,

 

then the Administrative Agent shall give
Borrower and each Revolving Credit Lender prompt notice thereof, and so long as
such condition remains in effect, the affected Revolving Credit

 

46

 

Lenders shall be under no
obligation to make additional LIBOR Loans, to Continue LIBOR Loans or to
Convert Alternate Base Rate Loans into LIBOR Loans and Borrower shall, on the
last day(s) of the then current Interest Period(s) for the outstanding LIBOR
Loans, either prepay such Loans or Convert such Loans into Alternate Base Rate
Loans in accordance with Section 2.10.

 

5.3           Illegality.  Notwithstanding any other provision of this
Agreement, in the event that any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Revolving
Credit Lender or its Applicable Lending Office to honor its obligation to make
or maintain LIBOR Loans hereunder (and, in the sole opinion of such Revolving
Credit Lender, the designation of a different Applicable Lending Office would
either not avoid such unlawfulness or would be disadvantageous to such
Revolving Credit Lender), then such Revolving Credit Lender shall promptly
notify Borrower thereof (with a copy to the Administrative Agent) and such
Revolving Credit Lender’s obligation to make or Continue, or to Convert Loans
of any other Type into, LIBOR Loans shall be suspended until such time as such
Revolving Credit Lender may again make and maintain LIBOR Loans (in which case
the provisions of Section 5.4 shall be applicable).

 

5.4           Treatment  of  Affected  Loans.  If the obligation of any Revolving Credit
Lender to make LIBOR Loans or to Continue, or to Convert Alternate Base Rate
Loans into, LIBOR Loans shall be suspended pursuant to Section 5.3, such
Revolving Credit Lender’s LIBOR Loans shall be automatically Converted into
Alternate Base Rate Loans on the last day(s) of the then current Interest
Period(s) for such LIBOR Loans (or on such earlier date as such Revolving
Credit Lender may specify to Borrower with a copy to the Administrative Agent
as is required by law) and, unless and until such Revolving Credit Lender gives
notice as provided below that the circumstances specified in Section 5.3 which
gave rise to such Conversion no longer exist:

 

(a)           to the extent that
such Revolving Credit Lender’s LIBOR Loans have been so Converted, all payments
and prepayments of principal which would otherwise be applied to such Revolving
Credit Lender’s LIBOR Loans shall be applied instead to its Alternate Base Rate
Loans; and

 

(b)           all Loans which
would otherwise be made or Continued by such Revolving Credit Lender as LIBOR
Loans shall be made or Continued instead as Alternate Base Rate Loans and all
Alternate Base Rate Loans of such Revolving Credit Lender which would otherwise
be Converted into LIBOR Loans shall remain as Alternate Base Rate Loans.

 

If such
Revolving Credit Lender gives notice to Borrower with a copy to the
Administrative Agent that the circumstances specified in Section 5.3 which gave
rise to the Conversion of such Revolving Credit Lender’s LIBOR Loans pursuant
to this Section 5.4 no longer exist (which such Revolving Credit Lender agrees
to do promptly upon such circumstances ceasing to exist) at a time when LIBOR
Loans are outstanding, such Revolving Credit Lender’s Alternate Base Rate Loans
shall be automatically Converted, on the first day(s) of the next succeeding
Interest Period(s) for such outstanding LIBOR Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Revolving Credit
Lenders holding LIBOR Loans and by such Revolving Credit Lender are held pro
rata (as to principal amounts, Types and Interest Periods) in accordance
with their respective Revolving Credit Commitments.

 

5.5           Compensation.

 

(a)           Borrower agrees to
indemnify each Revolving Credit Lender and to hold each Revolving Credit Lender
harmless from any loss or expense which such Revolving

 

47

 

Credit Lender
may sustain or incur as a consequence of (1) default by Borrower in payment
when due of the principal amount of or interest on any LIBOR Loan, (2) default
by Borrower in making a borrowing of, Conversion into or Continuation of LIBOR
Loans after Borrower has given a notice requesting the same in accordance with
the provisions of this Agreement, (3) default by Borrower in making any
prepayment after Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (4) the making of a payment or a prepayment of
LIBOR Loans on a day which is not the last day of an Interest Period with
respect thereto (whether by acceleration or otherwise), including in each case,
any such loss (including loss of margin) or expense arising from the
reemployment of funds obtained by it or from fees payable to terminate the
deposits from which such funds were obtained.

 

(b)           For the purpose of
calculation of all amounts payable to a Revolving Credit Lender under this
Section 5.5 each Revolving Credit Lender shall be deemed to have actually
funded its relevant LIBOR Loan through the purchase of a deposit bearing
interest at the LIBOR Rate in an amount equal to the amount of the LIBOR Loan
and having a maturity comparable to the relevant Interest Period; provided,
however, that each Revolving Credit Lender may fund each of its LIBOR
Loans in any manner it sees fit, and the foregoing assumption shall be utilized
only for the calculation of amounts payable under this subsection.  Any Revolving Credit Lender requesting
compensation pursuant to this Section 5.5 will furnish to the Administrative
Agent and Borrower a certificate setting forth the basis and amount of such
request and such certificate, absent manifest error, shall be conclusive.  This covenant shall survive the termination
of this Agreement and the payment of the Notes and all other amounts payable
hereunder.

 

5.6           Net
Payments.

 

(a)           All payments made by
Borrower or the Guarantors hereunder or under any Note and the Guarantees will
be made without setoff, counterclaim or other defense. Except as provided in
Section 5.6(b), all such payments will be made free and clear of, and without
deduction or withholding for, any present or future taxes, levies, imposts,
duties, fees, assessments or other charges of whatever nature now or hereafter
imposed by any Governmental Authority or by any political subdivision or taxing
authority thereof or therein with respect to such payments (but excluding,
except as provided in the second succeeding sentence, any tax imposed on or
measured by the net income or net profits of a Revolving Credit Lender (i)
pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or Applicable Lending Office of such
Revolving Credit Lender is located or any subdivision thereof or therein or
(ii) as a result of a present or former connection between the Administrative
Agent or such Revolving Credit Lender and the Governmental Authority imposing
such net income or net profits tax (other than any such connection arising
solely from the Administrative Agent or such Revolving Credit Lender having
executed, delivered or performed its obligations or received a payment under,
or enforced, this Agreement, the Guarantees or any Note)) and all interest,
penalties or similar liabilities with respect thereto (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as “Covered  Taxes”).  If any Covered Taxes are so levied or
imposed, Borrower and each Guarantor, as the case may be, agrees to pay the
full amount of such Covered Taxes, and such additional amounts as may be
necessary so that every payment of all amounts due under this Agreement, the
Guarantees or under any Note, after withholding or deduction for or on account
of any Covered Taxes, will not be less than the amount provided for herein or
in such Note.  If any amounts are
payable in respect of Covered Taxes pursuant to the preceding sentence,
Borrower agrees to reimburse each Revolving Credit Lender, upon the written
request of such Revolving

 

48

 

Credit Lender,
(i) for taxes imposed on or measured by the net income or net profits of such
Revolving Credit Lender pursuant to the laws of the jurisdiction in which such
Revolving Credit Lender is organized or in which the principal office or
Applicable Lending Office of such Revolving Credit Lender is located or under
the laws of any political subdivision or taxing authority of any such
jurisdiction by reason of the making of payments in respect of Covered Taxes
pursuant to this Section (including pursuant to this sentence) and (ii) for any
withholding of taxes as such Revolving Credit Lender shall determine are payable
by, or withheld from, such Revolving Credit Lender in respect of amounts paid
in respect of Covered Taxes to or on behalf of such Revolving Credit Lender
pursuant to the preceding sentence and in respect of any amounts paid to or on
behalf of such Revolving Credit Lender pursuant to this sentence; provided,
however, that Borrower’s obligations shall be reduced by any Tax Benefit
described in the following paragraph. 
Borrower or the Guarantors, as the case may be, will furnish to the
Administrative Agent within 45 days after the date the payment of any Covered
Taxes is due pursuant to applicable law certified copies of tax receipts or
other documentation evidencing such payment by Borrower.  Borrower and the Guarantors agree to
indemnify and hold harmless each Revolving Credit Lender, and reimburse such
Revolving Credit Lender upon its written request, for the amount of any Covered
Taxes so levied or imposed and paid by such Revolving Credit Lender and any
liability (including penalties, additions to tax, interest and expenses)
arising therefrom or with respect thereto.

 

If Borrower or any Guarantor pays any additional amount under this
Section 5.6 to a Revolving Credit Lender and such Revolving Credit Lender
determines in its reasonable discretion that it has actually received or
realized in connection therewith any refund or any reduction of, or credit
against, its tax liabilities in or with respect to the taxable year in which
the additional amount is paid (a “Tax  Benefit”), such Revolving
Credit Lender shall pay to Borrower or such Guarantor, as the case may be, an
amount that the Revolving Credit Lender shall, in its reasonable discretion,
determine is equal to the net benefit, after tax, which was obtained by the
Revolving Credit Lender in such year as a consequence of such Tax Benefit; provided,
however, that (i) such Revolving Credit Lender shall not be required to
make any payment under this paragraph of this Section 5.6(a) if an Event of
Default shall have occurred and be continuing; (ii) any taxes that are imposed
on a Revolving Credit Lender as a result of a disallowance or reduction
(including through the expiration of any tax credit carryover or carryback of
such Revolving Credit Lender that otherwise would not have expired) of any Tax
Benefit with respect to which such Revolving Credit Lender has made a payment
to Borrower or any Guarantor pursuant to this paragraph of this Section 5.6(a)
shall be treated as a tax for which Borrower or any Guarantor is obligated to
indemnify such Revolving Credit Lender pursuant to this Section 5.6 without any
exclusions or defenses; and (iii) nothing in this paragraph of this Section
5.6(a) shall require the Revolving Credit Lender to disclose any confidential
information to Borrower or any Guarantor (including, without limitation, its
tax returns).

 

(b)           Each Revolving
Credit Lender that is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) (a “Non-U.S.  Lender”) agrees to
deliver to Borrower and the Administrative Agent on or prior to the Closing
Date, or in the case of a Revolving Credit Lender that is an assignee or
transferee of an interest under this Agreement pursuant to Section 12.6 (unless
the respective Revolving Credit Lender was already a Revolving Credit Lender hereunder
immediately prior to such assignment or transfer), on the date of such
assignment or transfer to such Revolving Credit Lender, (i) two accurate and
complete original signed copies of Internal Revenue Service Form W-8ECI or
W-8BEN (or successor forms) certifying to such Revolving Credit Lender’s
entitlement to a complete exemption from, or reduction in rate of, United

 

49

 

States
withholding tax with respect to payments to be made under this Agreement and
under any Note (or, with respect to any assignee Revolving Credit Lender, at
least as extensive as the assigning Revolving Credit Lender), or (ii) if the
Revolving Credit Lender is not a “bank” within the meaning of Section
881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service
Form W-8ECI or W-8BEN (or successor forms) pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit  G (any such
certificate, a “Section  5.6  Certificate”) and (y) two
accurate and complete original signed copies of Internal Revenue Service Form
W-8BEN (or successor form) certifying to such Revolving Credit Lender’s
entitlement to a complete exemption from, or reduction in rate of, United
States withholding tax with respect to payments to be made under this Agreement
and under any Note (or, with respect to any assignee Revolving Credit Lender,
at least as extensive as the assigning Revolving Credit Lender). In addition,
each Revolving Credit Lender agrees that from time to time after the Closing
Date, when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, it will deliver
to Borrower and the Administrative Agent two new accurate and complete original
signed copies of Internal Revenue Service Form W-8ECI or W-8BEN (or successor
forms), or Form W-8BEN and a Section 5.6 Certificate, as the case may be, and
such other forms as may be required in order to confirm or establish the
entitlement of such Revolving Credit Lender to a continued exemption from or
reduction in United States withholding tax with respect to payments under this
Agreement and any Note, or it shall immediately notify Borrower and the
Administrative Agent of its inability to deliver any such Form or Certificate,
in which case such Revolving Credit Lender shall not be required to deliver any
such form or certificate pursuant to this Section 5.6(b).  Notwithstanding the foregoing, no Revolving
Credit Lender shall be required to deliver any such form or certificate if a
change in treaty, law or regulation has occurred prior to the date on which
such delivery would otherwise be required that renders any such form or
certificate inapplicable or would prevent the Revolving Credit Lender from duly
completing and delivering any such form or certificate with respect to it and
such Revolving Credit Lender so advises Borrower.  Each Person that shall become a Participant pursuant to Section
12.6 shall, upon the effectiveness of the related transfer, be required to provide
all the forms and statements required pursuant to this Section 5.6(b), provided
that in the case of a Participant such Participant shall furnish all such
required forms and statements to the Revolving Credit Lender from which the
related participation shall have been purchased. Borrower shall not be required
to indemnify any Non-U.S. Lender, or to pay any additional amounts to any
Non-U.S. Lender, in respect of U.S. federal withholding tax pursuant to
paragraph (a) above to the extent that (i) the obligation to withhold amounts
with respect to U.S. federal withholding tax existed on the date such Non-U.S.
Lender became a party to this Agreement (or, in the case of a Non-U.S.
Participant, on the date such Participant became a Participant hereunder); provided,
however, that this clause (i) shall not apply to the extent that (x) the
indemnity payments or additional amounts any Revolving Credit Lender (or
Participant) would be entitled to receive (without regard to this clause (i))
do not exceed the indemnity payment or additional amounts that the person
making the assignment, participation or transfer to such Revolving Credit
Lender (or Participant) would have been entitled to receive in the absence of
such assignment, participation or transfer, or (y) such assignment,
participation or transfer had been requested by Borrower, (ii) the obligation
to pay such additional amounts would not have arisen but for a failure by such
Non-U.S. Lender or Non-U.S. Participant to comply with the provisions of this
Section 5.6(b) or (iii) any of the representations or certifications made by a
Non-U.S. Lender or Non-U.S. Participant pursuant to this Section 5.6(b) above
are incorrect at the time a payment hereunder is made, other than by reason of
any change in treaty, law or regulation or interpretation thereof having effect
after the date such representations or certifications were made.  Notwithstanding anything to the

 

50

 

contrary
contained in the preceding sentence or elsewhere in this Section 5.6 and except
as set forth in Section 12.6(b), Borrower agrees to pay additional amounts and
to indemnify each Revolving Credit Lender in the manner set forth in Section
5.6(a) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any amounts deducted or withheld by it
as described in the immediately preceding sentence as a result of any changes
after the Closing Date in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of Covered Taxes.

 

(c)           In addition,
Borrower agrees to pay any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies which arise from any
payment made hereunder or under the Notes or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or the Notes
(hereinafter referred to as “Other  Taxes”).

 

Section 6.               Guarantee.

 

6.1           The  Guarantee.  The Guarantors hereby jointly and severally guarantee as a
primary obligor and not as a surety to each Revolving Credit Lender and the
Administrative Agent and their respective successors and assigns the prompt payment
in full in cash when due (whether at stated maturity, by acceleration or
otherwise) of the principal of and interest (including any interest that would
accrue but for the provisions of the Bankruptcy Code after any bankruptcy or
insolvency petition under the Bankruptcy Code) on the Loans made by the
Revolving Credit Lenders to, and the Notes held by each Revolving Credit Lender
of, Borrower and all other amounts and Obligations from time to time owing to
the Revolving Credit Lenders or the Administrative Agent by Borrower under this
Agreement and under the Notes and by any Obligor under any of the other Credit
Documents, and all obligations of Borrower or any Subsidiary to any Revolving
Credit Lender or any Affiliate of any Revolving Credit Lender in respect of any
Swap Contract and all Obligations owing to the Issuing Lender under the Letter
of Credit Documents, in each case strictly in accordance with the terms thereof
(such obligations being herein collectively called the “Guaranteed  Obligations”).  The Guarantors hereby jointly and severally
agree that if Borrower shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Guarantors will promptly pay the same, without any demand or notice whatsoever,
and that in the case of any extension of time of payment or renewal of any of
the Guaranteed Obligations, the same will be promptly paid in full when due
(whether at extended maturity, by acceleration or otherwise) in accordance with
the terms of such extension or renewal.

 

6.2           Obligations  Unconditional.  The obligations of the Guarantors under
Section 6.1 are absolute, irrevocable and unconditional, joint and several,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of Borrower under this Agreement, the Notes or any other
agreement or instrument referred to herein or therein, or any substitution,
release or exchange of any other guarantee of or security for any of the
Guaranteed Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or Guarantor
(except for payment in full).  Without
limiting the generality of the foregoing, it is agreed that the occurrence of
any one or more of the following shall not alter or impair the liability of the
Guarantors hereunder which shall remain absolute, irrevocable and unconditional
under any and all circumstances as described above:

 

(a)           at any time or from
time to time, without notice to the Guarantors, the time for any performance of
or compliance with any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;

 

51

 

(b)           any of the acts
mentioned in any of the provisions of this Agreement or the Notes or any other
agreement or instrument referred to herein or therein shall be done or omitted;

 

(c)           the maturity of any
of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed
Obligations shall be modified, supplemented or amended in any respect, or any
right under this Agreement, the Notes or any other Credit Document or any other
agreement or instrument referred to herein or therein shall be amended,
modified or waived in any respect or any other guarantee of any of the
Guaranteed Obligations or any security therefor shall be released or exchanged
in whole or in part or otherwise dealt with;

 

(d)           any lien or security
interest granted to, or in favor of, the Administrative Agent or any Revolving
Credit Lender or Revolving Credit Lenders as security for any of the Guaranteed
Obligations shall fail to be perfected;

 

(e)           the release of any other Guarantor;
or

 

(f)            the exercise of the Increased
Facility Amount.

 

The Guarantors
hereby expressly waive diligence, presentment, demand of payment, protest and
all notices whatsoever, and any requirement that the Administrative Agent or
any Revolving Credit Lender exhaust any right, power or remedy or proceed
against Borrower under this Agreement or the Notes or any other agreement or
instrument referred to herein or therein, or against any other Person under any
other guarantee of, or security for, any of the Guaranteed Obligations.  The Guarantors waive any and all notice of
the creation, renewal, extension, waiver, termination or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by any Revolving
Credit Lender upon this guarantee or acceptance of this guarantee, and the
Guaranteed Obligations, and any of them, shall conclusively be deemed to have
been created, contracted or incurred in reliance upon this guarantee, and all
dealings between Borrower and the Revolving Credit Lenders shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
guarantee.  This guarantee shall be
construed as a continuing, absolute, irrevocable and unconditional guarantee of
payment without regard to any right of offset with respect to the Guaranteed Obligations
at any time or from time to time held by the Revolving Credit Lenders, and the
obligations and liabilities of the Guarantors hereunder shall not be
conditioned or contingent upon the pursuit by the Revolving Credit Lenders or
any other Person at any time of any right or remedy against Borrower or against
any other Person which may be or become liable in respect of all or any part of
the Guaranteed Obligations or against any collateral security or guarantee
therefor or right of offset with respect thereto.  This guarantee shall remain in full force and effect and be
binding in accordance with and to the extent of its terms upon the Guarantors
and the successors and assigns thereof, and shall inure to the benefit of the
Revolving Credit Lenders, and their respective successors and assigns,
notwithstanding that from time to time during the term of this Agreement there
may be no Guaranteed Obligations outstanding.

 

6.3           Reinstatement. 
The obligations of the Guarantors under this Section 6 shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of Borrower in respect of the Guaranteed Obligations is rescinded or must be
otherwise restored by any holder of any of the Guaranteed Obligations, whether
as a result of any proceedings in bankruptcy or reorganization or
otherwise.  The Guarantors jointly and
severally agree that they will indemnify the Administrative Agent and each
Revolving Credit Lender on demand for all reasonable costs and expenses
(including reasonable fees of counsel) incurred by the Administrative Agent or
such Revolving Credit Lender in connection with such rescission or

 

52

 

restoration,
including any such costs and expenses incurred in defending against any claim
alleging that such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law, other than any
costs or expenses resulting from the gross negligence or bad faith of such Creditor.

 

6.4           Subrogation; Subordination.  Each Guarantor hereby agrees that until the
indefeasible payment and satisfaction in full in cash of all Guaranteed
Obligations and the expiration and termination of the Revolving Credit
Commitments of the Revolving Credit Lenders under this Agreement it shall not
exercise any right or remedy arising by reason of any performance by it of its
guarantee in Section 6.1, whether by subrogation or otherwise, against Borrower
or any other Guarantor of any of the Guaranteed Obligations or any security for
any of the Guaranteed Obligations.  The
payment of any amounts due with respect to any indebtedness of Borrower or any
other Guarantor now or hereafter owing to any Guarantor by reason of any
payment by such Guarantor under the Guarantee in this Section 6 is hereby
subordinated to the prior indefeasible payment in full in cash of the
Guaranteed Obligations.  Each Guarantor
agrees that it will not demand, sue for or otherwise attempt to collect any
such indebtedness of Borrower to such Guarantor until the Obligations shall
have been indefeasibly paid in full in cash. If, notwithstanding the foregoing
sentence, any Guarantor shall prior to the indefeasible payment in full in cash
of the Guaranteed Obligations collect, enforce or receive any amounts in
respect of such indebtedness, such amounts shall be collected, enforced and
received by such Guarantor as trustee for the Administrative Agent and the
Revolving Credit Lenders and be paid over to the Administrative Agent on
account of the Guaranteed Obligations without affecting in any manner the
liability of such Guarantor under the other provisions of the guaranty
contained herein.

 

6.5           Remedies.  The Guarantors jointly and severally agree
that, as between the Guarantors and the Revolving Credit Lenders, the
obligations of Borrower under this Agreement and the Notes may be declared to
be forthwith due and payable as provided in Section 10 (and shall be deemed to
have become automatically due and payable in the circumstances provided in said
Section 10) for purposes of Section 6.1 notwithstanding any stay, injunction or
other prohibition preventing such declaration (or such obligations from
becoming automatically due and payable) as against Borrower and that, in the
event of such declaration (or such obligations being deemed to have become
automatically due and payable), such obligations (whether or not due and
payable by Borrower) shall forthwith become due and payable by the Guarantors
for purposes of Section 6.1.

 

6.6           Continuing  Guarantee.  The guarantee in this Section 6 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.

 

6.7           General  Limitation  on
Guarantee  Obligations. 
In any action or proceeding involving any state corporate law, or any
state or federal bankruptcy, insolvency, reorganization or other law affecting
the rights of creditors generally, if the obligations of any Guarantor under
Section 6.1 would otherwise be held or determined to be void, voidable, invalid
or unenforceable, or subordinated to the claims of any other creditors, on
account of the amount of its liability under Section 6.1, then, notwithstanding
any other provision to the contrary, the amount of such liability shall,
without any further action by such Guarantor, any Revolving Credit Lender, the
Administrative Agent or any other Person, be automatically limited and reduced
to the highest amount that is valid and enforceable and not subordinated to the
claims of other creditors as determined in such action or proceeding.

 

53

 

Section 7.               Conditions  Precedent.

 

7.1           Effectiveness  of  This
Agreement  and  Initial  Extension  of  Credit
Under  This  Agreement. 
The obligation of the Revolving Credit Lenders to make any initial
extension of credit hereunder (whether by making a Loan or issuing a Letter of
Credit) is subject to the satisfaction of the conditions precedent that:

 

(a)           Documentation
and  Evidence  of  Certain  Matters.  The Administrative Agent shall have received
the following documents, each duly executed where appropriate (with sufficient
conformed copies for each Revolving Credit Lender), each of which shall be
reasonably satisfactory in form and substance to the Administrative Agent (and
to the extent specified below, to each Revolving Credit Lender):

 

(i)            Corporate  Documents.  Certified true and complete copies of the
charter and by-laws (or equivalent documents) of each Obligor and of all
corporate authority for each Obligor (including board of director resolutions
and evidence of the incumbency, including specimen signatures, of officers)
with respect to the execution, delivery and performance of such of the Credit
Documents to which such Obligor is intended to be a party and each other
document to be delivered by such Obligor from time to time in connection
herewith and the extensions of credit hereunder and the consummation of the
Transactions, certified as of the Closing Date as complete and correct copies
thereof by the Secretary or an Assistant Secretary of Borrower.

 

(ii)           Officer’s  Certificate;
Compliance  Certificate.  A
Compliance Certificate in the form of Exhibit  L hereto and an
Officer’s Certificate of Borrower, dated the Closing Date, (A) to the effect
set forth in clauses (i) and (ii) of Section 7.2(a), (B) to the effect that all
conditions precedent to the making of such extension of credit have been
satisfied, (C) to the effect that execution and delivery of this Agreement, and
borrowings under this Agreement, do not cause a default or breach under the
Senior Subordinated Notes Documents and showing reasonably detailed
calculations thereof, and (D) that there has been no Material Adverse Change
since the last audited financial statements furnished the Revolving Credit
Lenders.

 

(iii)          Opinion  of
Counsel.  Opinion of Fulbright
& Jaworski, L.L.P., counsel to the Obligors, in form and substance
satisfactory to the Administrative Agent (and each Obligor hereby instructs
such counsel to deliver such opinion to the Revolving Credit Lenders and the
Administrative Agent).

 

(iv)          The  Credit
Agreement.  This Agreement, (i)
executed and delivered by a duly authorized officer of Borrower, with a
counterpart for each Revolving Credit Lender, and (ii) executed and delivered
by a duly authorized officer of each Revolving Credit Lender and the
Administrative Agent.

 

(v)           Notes.  The Notes, duly completed and executed for
each Revolving Credit Lender and Swing Loan Lender.

 

(vi)          Transaction  Documents.  All other Transaction Documents duly
executed and completed by the parties thereto.

 

(b)           Date  of
Closing.  Such extension of
credit shall be made on or before September 30, 2002.

 

54

 

(c)           Borrowing  Base
Certificate.  The Administrative
Agent and the Revolving Credit Lenders shall have received, and the Majority
Revolving Credit Lenders shall be satisfied (as to form and substance) with, a
Borrowing Base Certificate prepared as of the last Business Day of the month
immediately preceding the Closing Date. 
In the event the Borrowing Base has changed or, in Borrower’s reasonable
judgment, is expected to change, as of the Closing Date, Borrower shall deliver
to the Administrative Agent and the Revolving Credit Lenders an additional
Borrowing Base Certificate on the Closing Date.

 

(d)           Appraisal.  The Administrative Agent shall have received
such Inventory and other appraisals as the Administrative Agent may reasonably
request, each in form and substance satisfactory to the Administrative Agent,
the costs of any such appraisals to be borne by the Borrower.

 

(e)           Environmental
Report.  The Administrative Agent
shall have received a satisfactory environmental site assessment report or
reports for each Mortgaged Real Property, addressed to the Administrative Agent
or accompanied by satisfactory reliance letters addressed to the Administrative
Agent allowing the Administrative Agent to rely fully on said report or reports
as if addressed to the Administrative Agent. 
All costs related to said site assessment shall be borne by the
Borrower.

 

(f)            Approvals.  All governmental (domestic and foreign) and
other third-party approvals and consents necessary in connection with the
Transactions and the other transactions contemplated hereby (without the
imposition of any materially burdensome or materially adverse conditions) shall
have been obtained and shall be in full force and effect (or there shall be a
plan reasonably satisfactory to the Administrative Agent for the obtaining
thereof).

 

(g)           No  Material
Adverse  Change.  The
Administrative Agent shall be reasonably satisfied that any financial
statements delivered to it fairly present the business and financial condition
of the Borrower and its Subsidiaries, and that there has been no Material
Adverse Change or any condition or event that could reasonably be expected to
result in a Material Adverse Change with respect to Borrower since the date of
the most recently delivered financial statements.

 

(h)           Certain  Other
Changes.

 

(i)            No material changes
in governmental regulations or policies affecting the Obligors, the Administrative
Agent, the Lead Arranger or any Revolving Credit Lender involved in this
transaction shall have occurred prior to the Closing Date.

 

(ii)           There shall not
have occurred prior to the Closing Date any disruption or material adverse
change in the financial or capital markets in general that would, in the
reasonable opinion of the Administrative Agent, have a material adverse effect
on the market for loan syndications or adversely affect the syndication of the
Revolving Credit Loans.

 

(i)            No  Action
or  Proceeding.  There
shall not exist any threatened or pending Proceeding by or before any
Governmental Authority, (i) challenging the consummation of any of the
Transactions or which would restrain, prevent or impose materially burdensome
conditions on the Transactions, individually or in the aggregate, or any other
transaction contemplated hereunder, (ii) seeking to prohibit the ownership or
operation

 

55

 

by Borrower or
any Subsidiary of all or a material portion of any of their businesses or
assets or (iii) seeking to obtain, or having resulted in the entry of, any
judgment, order or injunction that (a) would restrain, prohibit or impose
materially adverse conditions on the ability of the Revolving Credit Lenders to
make the Loans under the Credit Documents, (b) could be reasonably expected to
result in a Material Adverse Change with respect to Borrower (and before and
after giving effect to the Transactions), (c) could reasonably be expected to
affect the legality, validity or enforceability of any Credit Document or any
documents relating thereto or could reasonably be expected to have a Material
Adverse Effect, or (d) is seeking any material damages as a result thereof.

 

(j)            Payment  of
Fees  and  Expenses.  All accrued fees and expenses (including the reasonable fees and
expenses of counsel to the Lead Arranger and the Administrative Agent) of the
Lead Arranger and the Administrative Agent in connection with the Credit
Documents shall have been paid.

 

(k)           Filings  and
Lien  Searches.

 

(i)            The Administrative
Agent shall have received results of searches or other evidence reasonably
satisfactory to the Administrative Agent (in each case dated as of a date
reasonably satisfactory to the Administrative Agent) indicating the absence of
Liens, except for Permitted Liens, on the assets of the Obligors, except for
which termination statements and releases reasonably satisfactory to the
Administrative Agent are being tendered concurrently with the making of the
first Revolving Credit Loan hereunder.

 

(ii)           The Obligors shall
have authorized, executed and delivered evidence of the completion of all
filings with respect to the Security Agreement and delivery of such other
documents as may be necessary or desirable, to perfect the Liens created, or
purported to be created, by the Security Agreement.

 

(l)            Conditions  Relating
to  Mortgaged  Real  Property  and  Real  Property.  On or prior to the Closing Date, each
Obligor to enter into a Mortgage shall have caused to be delivered to Administrative
Agent, on behalf of the Revolving Credit Lenders, the following documents and
instruments:

 

(i)            a Mortgage
encumbering each Mortgaged Real Property in favor of the Administrative Agent,
for the benefit of the Revolving Credit Lenders, in form for recording in the
recording office of each jurisdiction where each such Mortgaged Real Property
is situated, together with such other documentation as shall be required to
create a lien under applicable law, all of which shall be in form and substance
reasonably satisfactory to the Administrative Agent, which Mortgage and other
instruments shall be effective to create a Lien on such Mortgaged Real Property
subject to no Liens other than Prior Liens (or Permitted Liens) applicable to
such Mortgaged Real Property;

 

(ii)           with respect to
each Mortgaged Real Property, Borrower shall use its best efforts to obtain
such consents, approvals, estoppels, tenant subordination agreements or other
instruments as reasonably necessary or as reasonably required by the Administrative
Agent to consummate the transactions contemplated hereby or to grant the Lien
contemplated by the Mortgage; and

 

(iii)          the following
documents and instruments:

 

56

 

(1)           with respect to each Mortgage, a
policy (or commitment to issue a policy) of title insurance insuring (or
committing to insure) the Lien of such Mortgage as a valid Lien on the real
property and fixtures described therein in an amount not less than the fair
market value thereof which policy (or commitment) shall (a) be issued by the
Title Company, (b) include such reinsurance arrangements, if any (with
provisions for direct access), as shall be reasonably acceptable to the
Administrative Agent, (c) have been supplemented by such endorsements, to the
extent available, as shall be reasonably requested by the Administrative Agent,
(d) such affidavits and instruments of indemnification as shall be reasonably
required to induce the Title Company to issue the policy or policies (or commitment)
and endorsements contemplated in this subparagraph (iii) and (e) contain no
exceptions to title other than exceptions for (x) Liens of the type described
in clauses (a), (b), (c), (d), (f), and (m) of the definition of Permitted
Liens, (y) any Lien of the type described in clause (p) of the definition of
Permitted Liens to the extent the original Lien is permitted hereunder and (z)
the Prior Liens applicable to such Mortgaged Real Property;

 

(2)           with respect to each Mortgaged Real
Property, to the extent requested by the Administrative Agent, a Survey;

 

(3)           with respect to each Mortgaged Real
Property, policies or certificates of insurance as required by the Mortgage
relating thereto;

 

(4)           with respect to each Mortgaged Real
Property, UCC, judgment and tax lien searches in the county and state
jurisdictions in which such Mortgaged Real Property is located naming the
applicable Obligor as debtor;

 

(5)           evidence acceptable to the
Administrative Agent of payment by Borrower of all title insurance premiums,
search and examination charges, survey costs, mortgage recording taxes and
related charges required for the recording of the Mortgages and issuance of the
title insurance policies referred to in subclause (iii)(1) of this Section
7.1(l);

 

(6)           with respect to each Mortgaged Real
Property, an Officer’s Certificate or other evidence satisfactory to the
Administrative Agent that as of the date thereof (a) other than the Real
Property associated with the warehouse currently under construction at 14303
Inwood Road in Farmer’s Branch, Texas, there has been issued and is in effect,
to the extent required, a valid and proper certificate of occupancy or local or
foreign equivalent for the use then being made of such Mortgaged Real Property,
(b) there has not occurred any material Destruction of any Mortgaged Real
Property that has not been restored and there is not pending any Taking of any
Mortgaged Real Property and (c) to the best knowledge of Borrower, except as
may be disclosed in the Survey of such Mortgaged Real Property delivered
pursuant to subclause (iii)(2) of this Section 7.1(l), there are no disputes
regarding boundary lines, location, encroachment or possession of such
Mortgaged Real Property and no state of facts existing which could give rise to
any such claim.

 

(m)          No  Default
or  Event  of  Default  under  the  Credit
Agreement.  Immediately prior to
the Closing Date (and after giving effect to the first Loans made hereunder),
no Default or Event of Default shall have occurred and be continuing.

 

(n)           Repayment  of
Existing  Indebtedness. 
The Administrative Agent shall have received a payoff letter from the
Borrower’s existing lenders, as well as a tender of releases and discharges of
all collateral security for the Borrower’s existing credit facilities, each in
form and substance satisfactory to the Administrative Agent.  Such Indebtedness shall be repaid
contemporaneously with the making of the first Loan hereunder.

 

57

 

(o)           Material  Contracts.  Prior and after giving effect to this
Agreement, the Borrower and its Subsidiaries shall not be in default of any
material contract to which any of them is a party.

 

(p)           Insurance.  The Borrower shall have delivered to the
Administrative Agent certificates and other evidence of insurance (including,
without limitation, insurance covering the Property), naming the Administrative
Agent as mortgagee or additional insured, as applicable and otherwise in
conformance with the terms of this Agreement and the other Credit Documents.

 

7.2           Initial  and  Subsequent
Extensions  of  Credit  Under  This  Agreement.  The obligation of the Revolving Credit
Lenders to make any Loan or otherwise extend any credit to Borrower upon the
occasion of each borrowing or other extension of credit (whether by making a
Loan or issuing a Letter of Credit) hereunder (including the initial borrowing)
is subject to the further conditions precedent that:

 

(a)           No  Default
or  Event  of  Default;  Representations  and
Warranties  True;  Borrowing  Base  Not  Exceeded.  Both immediately prior to the making of such
Loan or other extension of credit and also after giving pro  forma
effect thereto and to the intended use thereof:

 

(i)            no Default or Event
of Default shall have occurred and be continuing.  Without limiting the generality of the foregoing, after giving
effect to such Loan or extension of credit, the Borrower shall not be in
violation of Section 1008 of the Senior Subordinated Note Documents or Section
9.11(c) of this Agreement;

 

(ii)           the representations
and warranties made by the Obligors in Section 8, and by each Obligor in each
of the other Credit Documents to which it is a party, shall be true and
complete in all material respects on and as of the date of the making of such
Loan or other extension of credit with the same force and effect as if made on
and as of such date (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific date); and

 

(iii)          for each Loan and
each Letter of Credit issuance, both the Borrowing Base (as determined upon the
most recent Borrowing Base Certificate delivered hereunder) and the aggregate
Revolving Credit Commitments, after giving effect to the requested Loan or
Letter of Credit, shall exceed the sum of all Revolving Credit Loans then
outstanding, plus the aggregate principal amount of Swing Loans then
outstanding, plus the aggregate amount of all Letter of Credit
Liabilities then outstanding.

 

(b)           No  Legal
Bar.  The Loans and the use of
proceeds thereof shall not contravene, violate or conflict with, nor involve
any Revolving Credit Lender in a violation of, any law, rule, injunction, or
regulation or determination of any court of law or other Governmental
Authority.

 

Each notice of borrowing or
request for the issuance of a Letter of Credit by Borrower hereunder shall
constitute a certification by Borrower to the effect set forth in clause (a)
above (both as of the date of such notice or request and, unless Borrower
otherwise notifies the Administrative Agent prior to the date of such borrowing
or issuance, as of the date of such borrowing or issuance).

 

58

 

Each notice
submitted by Borrower hereunder for an extension of credit hereunder shall
constitute a representation and warranty by Borrower, as of the date of such
notice and as of the relevant borrowing date or date of issuance of a Letter of
Credit, as applicable, that the applicable conditions in Sections 7.1 and 7.2
have been satisfied in accordance with the terms hereof.

 

Section 8.               Representations  and  Warranties.  Each Obligor represents and warrants to the
Creditors that on the Closing Date and at and as of each Funding Date (in each
case immediately before and immediately after giving effect to the transactions
to occur on such date (including the Transactions)) and at and as of the date
of each other extension of credit hereunder:

 

8.1           Corporate  Existence.  Each Obligor and each Subsidiary:  (a) is a corporation, partnership or other
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization; (b) has all requisite corporate or other
power and authority, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its Property and carry
on its business as now being conducted; and (c) is qualified to do business and
is in good standing in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure to be so
qualified and in good standing would reasonably be expected to (either
individually or in the aggregate) have a Material Adverse Effect.

 

8.2           Financial  Condition;  Etc.

 

(a)           Borrower has
heretofore delivered to the Revolving Credit Lenders (i) the audited
consolidated balance sheets of Borrower and the Subsidiaries as of December 31,
2001 and the related statements of earnings, changes in stockholders’ equity
and cash flows for the fiscal years ended on those dates, together with reports
thereon by Arthur Anderson LLP, certified public accountants, and (ii) the
unaudited consolidated balance sheets of Borrower and the Subsidiaries as of
June 30, 2002, and the related statements of earnings and cash flows for the
fiscal periods ended on June 30, 2002. 
All of said financial statements, including in each case the related
schedules and notes, are true, complete (in the case of year-end financial
statements) and correct in all material respects, have been prepared in
accordance with GAAP consistently applied and present fairly the financial
position of Borrower and the Subsidiaries as of the respective dates of said
balance sheets and the results of their operations for the respective periods
covered thereby, subject (in the case of interim statements) to period-end
audit adjustments and the absence of footnotes.

 

(b)           Except as set forth
in Schedule  8.2, as of the Closing Date, no Obligor or any
Subsidiary has any material contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or anticipated losses from any
unfavorable commitments.

 

(c)           Except as set forth
in the financial statements referred to in Section 8.2(a), since June 30, 2002,
there has been no Material Adverse Change, or any event, change or circumstance
which could reasonably be expected to cause or evidence, either individually or
together with any other events, changes or circumstances, a Material Adverse
Change.

 

8.3           Litigation.  Except as disclosed in Schedule  8.3,
there are no Proceedings or investigations now pending or, to the knowledge of
the Obligors, threatened against or directly affecting any Obligor or any
Subsidiary or any of their respective Property that, if adversely

 

59

 

determined
could (either individually or in the aggregate) be reasonably expected to have
a Material Adverse Effect.

 

8.4           No  Breach;  No  Default.

 

(a)           None of the
execution, delivery and performance by each Obligor of any Credit Document or
any Transaction Document to which it is a party and the consummation of the
transactions herein and therein contemplated will (i) conflict with or result
in a breach of, or require any consent (which has not been obtained and is in
full force and effect) under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or decree of any
Governmental Authority binding on any Obligor, or any term or provision of any
agreement or instrument to which any Obligor or any of its Subsidiaries is a
party or by which any of them or any of their Property is bound or to which any
of them is subject (other than consents which may be required pursuant to the
terms of any Lease), or (ii) constitute (with due notice or lapse of time or
both) a default under any such agreement or instrument, or (iii) result in the
creation or imposition of any Lien (except for the Liens created pursuant to
the Security Documents) upon any Property of any Obligor or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument, except
with respect to each of the foregoing which would not (either individually or
in the aggregate) reasonably be expected to have a Material Adverse Effect.

 

(b)           No Obligor or any
Subsidiary is in default under or with respect to any contractual obligation or
any order, award or decree of any Governmental Authority or arbitrator binding
upon it or any of its Property in any respect which would reasonably be
expected to have a Material Adverse Effect.

 

(c)           No Default or Event of Default has
occurred and is continuing.

 

8.5           Action.  Each Obligor has all necessary corporate
power, authority and legal right to execute, deliver and perform its
obligations under each Credit Document and each Transaction Document to which
it is a party and to consummate the transactions herein and therein
contemplated; the execution, delivery and performance by each Obligor of each
Credit Document and each Transaction Document to which it is a party and the
consummation of the transactions herein and therein contemplated have been duly
authorized by all necessary corporate action on its part; and this Agreement
has been duly and validly executed and delivered by each Obligor and
constitutes, and each of the Notes, the other Credit Documents and the
Transaction Documents to which it is a party when executed and delivered by
such Obligor (in the case of the Notes, for value) will constitute, its legal,
valid and binding obligation, enforceable against such Obligor in accordance
with its terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
of general applicability from time to time in effect affecting the enforcement
of creditors’ rights and remedies and (b) the application of general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).

 

8.6           Approvals.  No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority or any
securities exchange are necessary for the execution, delivery or performance by
any Obligor of the Credit Documents or Transaction Documents to which it is a
party or for the legality, validity or enforceability hereof or thereof or for
the consummation of the transactions herein and therein contemplated, except
for filings and recordings in respect of the Liens created pursuant to the
Security Documents.

 

60

 

8.7           ERISA.  Each member of the ERISA Group (x) has
fulfilled its obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and (y) is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Benefit Arrangement.  No
member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiemployer Plan or in
respect of any Benefit Arrangement, or made any amendment to any Plan or
Benefit Arrangement, which failure or amendment has resulted or could
reasonably be expected to result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code, (iii) incurred any accumulated
funding deficiency (whether or not waived) with respect to any Plan, (iv) any
direct or indirect withdrawal liability with respect to any Multiemployer Plan,
or any direct or indirect potential withdrawal liability if it were to withdraw
from a Multiemployer Plan as of the date of determination or (v) incurred any
liability under Title IV of ERISA other than a liability to the PBGC for
premiums under Section 4007 of ERISA or contributions in the normal
course.  The sum of the amount of
unfunded benefit liabilities (within the meaning of Section 4001(a)(18) of
ERISA) under all Plans (excluding each Plan with an amount of unfunded benefit
liabilities of zero or less) is not more than $1.0 million.  There are no actions, liens, suits or claims
pending or threatened (other than routine claims for benefits) with respect to
any Benefit Arrangement that could reasonably be expected to have a Material
Adverse Effect.  Borrower and each
Subsidiary and any Foreign Plans are in compliance in all material respects with
all applicable laws and regulations with respect to the Foreign Plans and the
terms of the Foreign Plans, and all required contributions have been made to
the Foreign Plans.  For purposes hereof,
the term “Foreign  Plans” shall mean any employee benefit plan,
program, policy, arrangement or agreement maintained or contributed to by, or
entered into with, Borrower or any Subsidiary with respect to employees
employed outside the United States.

 

8.8           Taxes.  Except as set forth in Schedule  8.8,
each Obligor and each Subsidiary has filed or caused to be filed all U.S.
federal income tax returns and all other material tax returns, domestic or
foreign, required to be filed by it and has paid all material taxes payable by
it which have become due or any assessments made against it or any of its
Property and all other material taxes, fees or other charges imposed on it or
any of its Property (including the Mortgaged Real Property) by any Governmental
Authority (other than those which, in the aggregate, are not substantial in
amount or those the amount or validity of which are currently being contested
in good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of each Obligor or the
Subsidiaries, as the case may be); and no tax lien has been filed and, to the
knowledge of the Obligors, no action, suit, proceeding, investigation, audit or
claim is being asserted or has been threatened by any authority with respect to
any such tax, fee or other charge, except where the existence of such would not
(individually or in the aggregate) have a Material Adverse Effect.  No Obligor or any Subsidiary has entered
into an agreement or waiver extending any statute of limitations relating to
the payment or collection of taxes of any Obligor or any Subsidiary, except
where the existence of such would not (individually or in the aggregate) have a
Material Adverse Effect.

 

8.9           Investment  Company  Act;
Public  Utility  Holding  Company  Act;  Other
Restrictions.  No Obligor or
any Subsidiary is an “investment company”, or a company “controlled” by an
“investment company”, within the meaning of the United States Investment
Company Act of 1940, as amended.  No
Obligor or any Subsidiary is a “holding company”, or an “affiliate” of a
“holding company” or a “subsidiary company” of a “holding company”, within the
meaning of the United States Public Utility Holding Company Act of 1935, as
amended.  No Obligor is subject to
regulation under any law or regulation of any Governmental Authority (other
than Regulation X of the Board of Governors of the Federal Reserve System)
which limits its ability to incur Indebtedness.

 

61

 

8.10         Senior  Subordinated  Notes.  The subordination provisions contained in
the Senior Subordinated Note Documents are enforceable against Borrower, each
Subsidiary party thereto, and the subordinating creditors thereunder, and all
Obligations are within the definition of “Senior Indebtedness” or “Guarantor
Senior Indebtedness”, as the case may be, included in such subordination
provisions.

 

8.11         Environmental  Matters.  Except as disclosed in Schedule  8.11
and except as would not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect:  (i) each Obligor and the Subsidiaries are in compliance with and
in the last five years have been in compliance with, and are not subject to
liability under, any Environmental Laws applicable to them and there are no
Environmental Laws, including such Laws which have been formally proposed for
public comment, which would reasonably be expected to result in material
expenditures by any Obligor or any Subsidiary, and no such Environmental Laws
would reasonably be expected to interfere in any material way with current or
projected operations of any Obligor or any Subsidiary; (ii) no Obligor or any
Subsidiary has received notice that it or any of their respective predecessors
interests has been identified as a potentially responsible party under the United
States Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (“CERCLA”), or any similar law of any Governmental
Authority, nor has any Obligor or any Subsidiary received notice that any
Hazardous Materials that it or any of their respective predecessors in interest
has used, generated, stored, treated, handled, transported or disposed of, or
arranged for disposal or treatment of, have been found at any site at which any
Person is conducting or plans to conduct any action pursuant to any
Environmental Law, and no Obligor or any Subsidiary, or to the knowledge of the
Obligors, any of their respective predecessors in interest, has disposed of,
arranged for the disposal or treatment of, or otherwise released Hazardous Materials
at any site at which any Person is conducting or plans to conduct any action
under Environmental Law; (iii) no properties now or formerly owned, leased or
operated by any Obligor or any Subsidiary or, to the knowledge of the Obligors,
any of their respective predecessors in interest, are (x) listed or, to the
knowledge of any Obligor or Subsidiary, at any Property proposed for listing on
the National Priorities List under CERCLA or (y) listed on the Comprehensive
Environmental Response, Compensation and Liability Information System List
promulgated pursuant to CERCLA or (z) included on any similar lists maintained
by any Governmental Authority; (iv) there are no past or present events,
conditions, activities, practices or actions, or any agreements, judgments,
decrees or orders by which any Obligor or any Subsidiary is bound, which would
reasonably be expected to prevent any Obligor’s or any Subsidiary’s compliance
with any Environmental Law, or which would reasonably be expected to give rise
to any liability of any Obligor or any Subsidiary under any Environmental Law,
including, without limitation, liability under CERCLA or similar state or
foreign laws; (v) no Lien has been asserted or recorded, or to the knowledge of
the Obligors, threatened, under any Environmental Law with respect to any
asset, facility, inventory or property currently owned, leased or operated by
any Obligor or any Subsidiary; (vi) there are no underground storage tanks or
related piping at any Property owned, operated or, to the knowledge of any
Obligor or Subsidiary, at any Property leased by any Obligor or any Subsidiary;
(vii) to the knowledge of any Obligor or any Subsidiary no such tanks or
related piping has been removed from such properties; and (viii) no Obligor or
any Subsidiary is subject to any Proceeding alleging the violation of, or
liability under, any Environmental Law and, to the knowledge of the Obligors,
no such Proceeding is threatened.

 

8.12         Environmental  Investigations.  All material environmental investigations,
studies, audits or assessments which have been conducted and which are in the
possession, custody or control of any Obligor or any Subsidiary relating (i) to
the current or prior business, operations, facilities or Properties of any
Obligor or any Subsidiary or any of their respective predecessors in interest
or (ii) to any facility or Property of any Obligor now or previously owned,
operated, leased or used by any Obligor or any Subsidiary or any of their
respective predecessors in

 

62

 

interest have
been made available to the Administrative Agent and the Revolving Credit
Lenders.

 

8.13         Use  of  Proceeds.  Neither Borrower nor any Subsidiary is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose, whether immediate, incidental or ultimate, of
buying or carrying Margin Stock and no part of the proceeds of any extension of
credit hereunder will be used to purchase or carry any Margin Stock.  Borrower will use the proceeds of all
Revolving Credit Loans to refinance existing senior indebtedness or for working
capital and other uses permitted under this Agreement.  Borrower may also use the proceeds of
Revolving Credit Loans to (i) effect repurchases, redemptions or other
acquisitions of Borrower’s Equity Interests made pursuant to and in compliance
with Section 9.10(c) and (ii) repay existing Senior Subordinated Notes in
accordance with the terms of Section 9.15.

 

8.14         Subsidiaries.  As of the Closing Date (after giving effect
to the Transactions), Borrower does not have any Subsidiaries or interests in
partnerships, joint ventures or business trusts other than the entities set
forth in Schedule  8.14. 
Borrower owns, as of the Closing Date, the percentage of the issued and
outstanding Equity Interests or other evidences of the ownership of each
Subsidiary, partnership or joint venture listed on Schedule  8.14
as set forth on such Schedule.  Such Schedule
8.14 identifies each Restricted Subsidiary and each Unrestricted
Subsidiary of the Borrower as of the Closing Date. No such Subsidiary,
partnership or joint venture has issued any securities convertible into shares
of its Equity Interests (or other evidence of ownership) or any Equity Rights
to acquire such shares or securities convertible into such shares (or other
evidence of ownership), and the outstanding stock and securities (or other
evidence of ownership) of such Subsidiaries, partnerships or joint ventures are
owned by Borrower and the Subsidiaries free and clear of all Liens and Equity
Rights of others of any kind whatsoever, except for Liens pursuant to the
Security Documents.

 

8.15         Properties.  Except for Permitted Liens or as otherwise
contemplated or provided in the Mortgage, the other Security Documents or this
Agreement, each of the Obligors has good and marketable title to and beneficial
ownership of all Properties owned by it, including all Property reflected in
the most recent financial statements delivered pursuant to this Agreement
(except as sold or otherwise disposed of since the date of such financial
statements in the ordinary course of business and in accordance with this
Agreement).  Title to each such Property
that is not Collateral is held by the Obligors and each of their respective
Subsidiaries free and clear of all Liens except for Permitted Liens.  Title to such Property that constitutes
Collateral is held by the Obligors free and clear of all Liens other than Prior
Liens and other Liens expressly permitted by the applicable Security Document.

 

8.16         Security  Interest;  Absence
of  Financing  Statements.  The Security Documents, once executed and delivered, will create,
in favor of the Administrative Agent for the benefit of the Revolving Credit
Lenders, as security for the obligations purported to be secured thereby, a
valid and enforceable, and upon filing or recording with the appropriate
Governmental Authorities or the taking of other appropriate action, depending
upon the type of Collateral, perfected first priority security interest in and
Lien upon all of the Collateral, superior to and prior to the rights of all
third persons other than the holders of Prior Liens and subject to no other
Liens except Prior Liens and other liens specifically permitted by the terms of
the applicable Security Document.

 

Except with
respect to Permitted Liens which are subordinate to the Liens of the Security
Documents, Prior Liens and the Liens created by the Security Documents, there
is no financing statement, security agreement, chattel mortgage, real estate
mortgage or other document filed or recorded with any filing records, registry,
or other public office, that purports to cover, affect or

 

63

 

give notice of
any present or possible future Lien on, or security interest in, any assets or
Property of Borrower or any Subsidiary or rights thereunder.

 

8.17         Compliance  with  Laws.  Each Obligor is in material compliance with
all applicable statutes, laws, ordinances, rules, orders and regulations of any
Governmental Authority in all jurisdictions in which it is presently doing
business, and each Obligor will comply and cause each of its Subsidiaries to
comply with all such laws and regulations which may be imposed in the future in
jurisdictions in which it or such Subsidiary may then be doing business, in
each case other than those the non-compliance with which would not
(individually or in the aggregate) reasonably be expected to have a Material
Adverse Effect.  Additionally, there
does not exist any judgment, order or injunction prohibiting or imposing
material adverse conditions upon the Transactions, or the performance by any
Obligor of its obligations under the Credit Documents, the Transaction
Documents and all applicable laws.

 

8.18         True  and  Complete  Disclosure.  The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of any
of the Obligors to any Creditor in connection with the negotiation, preparation
or delivery of this Agreement and the other Credit Documents or included herein
or therein or delivered pursuant hereto or thereto, including pursuant to any
information memorandum distributed in connection with the syndication of the
Revolving Credit Commitments, whether prior to or after the Closing Date, when
taken as a whole, do not, as of the date such information was furnished,
contain any untrue statement of material fact or omit to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not materially misleading. The
projections and pro  forma financial information furnished at any
time by any Obligor to any Creditor pursuant to this Agreement have been
prepared in good faith based on assumptions believed by Borrower to be
reasonable at the time made, it being recognized by the Revolving Credit
Lenders that such financial information as it relates to future events is not
to be viewed as fact and that actual results during the period or periods
covered by such financial information may differ from the projected results set
forth therein by a material amount and no Obligor, however, makes any
representation as to the ability of Borrower or any Subsidiary to achieve the
results set forth in any such projections. 
Borrower understands that all such statements, representations and
warranties shall be deemed to have been relied upon by the Revolving Credit
Lenders as a material inducement to make each extension of credit hereunder.

 

8.19         Solvency.  As of the Closing Date and each other date
of an extension of credit hereunder immediately prior to and immediately
following such extension of credit each Obligor is and will be Solvent.

 

Section 9.               Covenants. 
Each Obligor covenants and agrees with the Creditors that, so long as
any Commitment, Loan or Letter of Credit Liability is outstanding and until
payment in full of all amounts payable by Borrower hereunder:

 

9.1           Financial  Statements, Etc.  Borrower (for itself and on behalf of the
Guarantors) shall deliver to the Administrative Agent in sufficient quantities
to distribute to each of the Revolving Credit Lenders:

 

(a)           Quarterly  Financials.  As soon as available and in any event within
45 days after the end of each of the first three quarterly fiscal periods of
each fiscal year, consolidated and consolidating statements of income and cash
flow of Borrower and its Consolidated Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of such
period, and the related consolidated and consolidating balance sheet of
Borrower and its Consolidated Subsidiaries as at the end of such period,
setting forth in each case in comparative form (i) the corresponding

 

64

 

consolidated
and consolidating statements of income for the corresponding period in the
preceding fiscal year and (ii) the corresponding budget or plan for such
period, accompanied by a certificate of the chief financial officer of
Borrower, which certificate shall state that said consolidated and
consolidating financial statements fairly present the consolidated and
consolidating financial condition and results of operations of Borrower and its
Consolidated Subsidiaries in accordance with GAAP, consistently applied, as at
the end of, and for, such period (subject to normal year-end audit adjustments
and absence of footnotes);

 

(b)           Annual  Financials.  As soon as available and in any event within
90 days after the end of each fiscal year, consolidated and consolidating
statements of income, retained earnings and cash flow of Borrower and its
Consolidated Subsidiaries for such year and the related consolidated and
consolidating balance sheet of Borrower and its Consolidated Subsidiaries as at
the end of such year, setting forth in each case in comparative form (i) the
corresponding consolidated and consolidating figures as of the end of and for
the preceding fiscal year and (ii) the corresponding budget or plan for such
period, and accompanied by an opinion, without material qualification, thereon
of independent certified public accountants of recognized national standing,
which opinion shall state that said consolidated and consolidating financial
statements fairly present the consolidated and consolidating financial
condition and results of operations of Borrower and its Consolidated
Subsidiaries as at the end of, and for, such fiscal year in accordance with
GAAP, and a certificate of such accountants stating that, in making the
examination necessary for their opinion, they obtained no knowledge of any
Default; Borrower shall supply such additional information and detail as to any
item or items contained on any such statement that Revolving Credit Lenders may
reasonably require; all such information will be prepared in accordance with
GAAP;

 

(c)           Other  Financial
Information.  Promptly upon
delivery thereof to the shareholders of any Obligor or any Subsidiary (other
than Wholly Owned Subsidiaries) generally, copies of all financial statements
and reports and proxy statements so delivered which Borrower sends to all
holders of securities of the same class and within five (5) days after the same
are filed, copies of all financial statements and reports which Borrower may
make to or file with any securities regulatory commission or the Securities and
Exchange Commission or any successor or analogous Governmental Authority;

 

(d)           Interest  Rate
Certificates.  Together with the
financial statements delivered pursuant to clause (a) or (b) of this Section
9.1, an Interest Rate Certificate;

 

(e)           Notice  of
Default.  Within two (2) Business
Days after a Responsible Officer of Borrower or any Subsidiary knows or should
have known that any Default has occurred, a notice of such Default describing
the same in reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that Borrower has taken and
proposes to take with respect thereto;

 

(f)            Environmental
Matters.  Written notice of any
Environmental Claim received by the Borrower or any of its Subsidiaries
materially affecting any Obligor or any Subsidiary, any Mortgaged Real Property
or the operations of Borrower or any Subsidiary, and of any notice received by
the Borrower or any of its Subsidiaries of (i) the occurrence of any release,
spill or discharge of any Hazardous Material that is reportable under any
Environmental Law or the commencement of any clean-up pursuant to or in
accordance with any Environmental Law of any Hazardous Material at, on, under
or within the Mortgaged Real Property or any part thereof, or any other
condition, circumstance, occurrence or event, any of which could reasonably be
expected to result

 

65

 

in a material
liability of Borrower or any Subsidiary under any Environmental Law; or (ii) any
matters relating to Hazardous Materials or Environmental Laws that may impair,
or threaten to impair, Revolving Credit Lenders’ security interest in the
Mortgaged Real Property or any Obligor’s ability to perform any of its material
obligations under this Agreement when such performance is due;

 

(g)           Auditors’  Reports.  Promptly upon receipt thereof, copies of all
material reports submitted to Borrower by independent certified public
accountants in connection with each annual, interim or special audit of the
books of Borrower made by such accountants, including any management letter
commenting on Borrower’s internal controls submitted by such accountants to
management in connection with their annual audit, if the matters stated in such
report are reasonably likely to have a Material Adverse Effect;

 

(h)           Annual  Budgets.  An annual budget in reasonable detail and
financial projections made in good faith, within 60 days after the end of each
fiscal year of Borrower, commencing with the fiscal year ending December 31,
2002;

 

(i)            Borrowing  Base
Audits.  Periodically at the
request of the Administrative Agent or the Majority Revolving Credit Lenders, a
report, the scope and cost of which shall be reasonably acceptable to the
Revolving Credit Lenders and Borrower (the reasonable cost and expense of which
shall be for the sole account of Borrower), of an independent collateral
auditor (which may be, or be affiliated with, one of the Revolving Credit
Lenders) with respect to the Inventory included in the Borrowing Base as at the
end of a monthly accounting period, which report shall indicate that, based
upon a review by such auditors of the Inventory (including verification as to
the value, location and respective types), the information set forth in the
Borrowing Base Certificate delivered by Borrower as at the end of such
accounting period is accurate and complete in all material respects;

 

(j)            Borrowing  Base
Certificate.

 

(i)            As soon as
available and in any event no later than 12:00 noon on the third Business Day
after the end of each week during the Overadvance Period until the Borrower
terminates the Overadvance Period in accordance with the provisions of Section
2.5(c) hereof, a Borrowing Base Certificate as of the last day of the
immediately preceding week; if Borrower fails to deliver any such Borrowing
Base Certificate within three (3) Business Days after the end of any such week,
then the Borrowing Base shall be deemed to be $0 until such time as Borrower
shall deliver such required Borrowing Base Certificate;

 

(ii)           As soon as
available and in any event within 5 Business Days after the end of each monthly
accounting period (ending on the last day of each calendar month) commencing
with the first monthly accounting period after the termination of the
Overadvance Period in accordance with the provisions of Section 2.5(c) hereof,
a Borrowing Base Certificate as of the last day of such monthly accounting
period; if Borrower fails to deliver any such Borrowing Base Certificate within
5 Business Days after the end of any such month, then the Borrowing Base shall
be deemed to be $0 until such time as Borrower shall deliver such required
Borrowing Base Certificate;

 

66

 

(iii)          Each Borrowing Base
Certificate shall have attached to it such additional schedules and/or other
information as the Administrative Agent may reasonably request;

 

(iv)          Borrower shall
notify the Administrative Agent promptly upon becoming aware of any event or
condition that could reasonably be expected to have a Material Adverse Effect
on the Borrowing Base;

 

(k)           Lien  Matters.  Written notice of (i) the incurrence of any
material Lien (other than Prior Liens) on, or claim asserted against any
material item of the Collateral known to the Borrower or any of its
Subsidiaries, or (ii) the occurrence of any other event known to the Borrower
or any of its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect on the aggregate value of the Collateral;

 

(l)            Notice  of
Material  Adverse  Change. 
Written notice of any occurrence of any event or condition which has had
or resulted in or is reasonably likely to have or result in a Material Adverse
Change or a Material Adverse Effect;

 

(m)          Governmental  Filings.  Promptly after request by the Administrative
Agent or any Revolving Credit Lender, copies of any other material reports or
documents that were filed by any Obligor with any Governmental Agency;

 

(n)           ERISA  Information.  If and when any member of the ERISA Group
(i) gives or is required to give notice to the PBGC of any “reportable event”
(as defined in Section 4043 of ERISA) with respect to any Plan which could
reasonably be expected to constitute grounds for a termination of such Plan
under Title IV of ERISA or other action by the PBGC with respect to the Plan,
or knows that the plan administrator of any Plan has given or is required to
give notice of any such reportable event, a copy of the notice of such
reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA or
notice that any Multiemployer Plan is in reorganization, is insolvent or has
been terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee
to administer any Plan, a copy of such notice; (iv) applies for a waiver of the
minimum funding standard under Section 412 of the Code, a copy of such
application; (v) gives notice of intent to terminate any Plan under Section
4041(c) of ERISA, a copy of such notice and other information filed with the
PBGC; (vi) gives notice of withdrawal (or deemed withdrawal under Section
4092(e) of ERISA) from any Plan pursuant to Section 4063 of ERISA, a copy of
such notice; or (vii) fails to make any payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which failure or amendment has
resulted or could reasonably be expected to result in the imposition of a Lien
or the posting of a bond or other security under ERISA or the Code, an
Officer’s Certificate setting forth details as to such occurrence and action,
if any, which Borrower or the applicable member of the ERISA Group is required
or proposes to take;

 

(o)           Notice  of
Warehouse  Lease  Termination.  Within two (2) Business Days after a Responsible Officer of
Borrower or any Subsidiary knows or should have known that the lessor for any
of the Borrower’s or its Subsidiaries’ warehouses intends to terminate, or has
terminated, the Borrower’s or its Subsidiaries’ lease, a notice thereof
describing the same in reasonable detail and, together with such notice or as
soon thereafter as possible, a description of the action that Borrower has
taken and proposes to take with respect thereto; and

 

67

 

(p)           Miscellaneous.  Promptly, such financial and other
information regarding Borrower and the Subsidiaries as any Creditor may from
time to time reasonably request.

 

Borrower will
furnish to the Administrative Agent and each of the Revolving Credit Lenders,
at the time it furnishes each set of financial statements pursuant to paragraph
(a) or (b) above, a certificate of a senior financial officer of Borrower in
the form of Exhibit  L hereto 
(i) to the effect that no Default has occurred and is continuing (or, if
any Default has occurred and is continuing, describing the same in reasonable
detail and describing the action that Borrower has taken and proposes to take
with respect thereto) and (ii) setting forth in reasonable detail the
computations necessary to determine whether Borrower is in compliance with
Sections 9.7, 9.8, 9.9, 9.10 and 9.11 as of the end of the respective quarterly
fiscal period or fiscal year.

 

9.2           Litigation,  Etc.  Borrower shall promptly give to the
Administrative Agent and each Revolving Credit Lender notice of all Proceedings
and any material development in respect of such Proceedings, affecting Borrower
or any Subsidiary, except Proceedings which could not reasonably be expected to
have (individually or in the aggregate) a Material Adverse Effect.

 

9.3           Existence;  Compliance  with
Law;  Payment  of  Taxes;  Inspection  Rights;
Performance  of  Obligations;  Etc.  Each Obligor and each Subsidiary shall, (i)
preserve and maintain its legal existence and all of its material rights,
privileges and franchises, the loss of which could reasonably be expected to
have a Material Adverse Effect (provided, however, that nothing
in this Section 9.3 shall prohibit any transaction expressly permitted under
Section 9.6); (ii) comply with the requirements of all applicable laws
(including ERISA and the rules and regulations thereunder), rules, regulations
and orders of Governmental Authorities if failure to comply with such
requirements would (individually or in the aggregate) have a Material Adverse
Effect; (iii) timely file true, accurate and complete tax returns required by all
Governmental Authorities and pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on its income or profits or on
any of its Property prior to the date on which penalties attach thereto (except
for any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which adequate
reserves are being maintained in accordance with GAAP) if such failure to file
or pay and discharge would (individually or in the aggregate) have a Material
Adverse Effect; (iv) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear excepted,
except to the extent that the failure to do so with respect to any such
Property would not individually or in the aggregate be reasonably likely to
have a Material Adverse Effect; (v) permit representatives of the
Administrative Agent, during normal business hours, to examine, copy and make
extracts from its books and records, to inspect its Properties, and to discuss
its business and affairs with its officers, all to the extent reasonably
requested by the Administrative Agent; (vi) 
permit representatives of the Administrative Agent to appraise any or
all of the Collateral, at such intervals and by such appraisers as the
Administrative Agent may reasonably request; (vii) perform in all material
respects all of its obligations under the terms of each mortgage, indenture,
security agreement, other debt instrument and material contract by which it is
bound or to which it is a party, except where such failure to so perform,
singly or in the aggregate with all other such failures, would not have a
Material Adverse Effect; and (viii) keep proper books of record and accounts,
in which full and correct entries shall be made of all financial transactions
and the Property and business of each Obligor and its Subsidiaries in all
material respects in accordance with GAAP in effect from time to time or in all
material respects as otherwise required by applicable rules and regulations of
any Governmental Authority having jurisdiction over such Obligor or its
Subsidiaries, as relevant.

 

9.4           Insurance.  Borrower and each Subsidiary shall keep
insured by financially sound and reputable insurers all Property of a character
usually insured by corporations engaged in the

 

68

 

same or
similar business similarly situated against loss or damage of the kinds and in
the amounts customarily insured against by such corporations and carry such
other insurance as is usually carried by such corporations, including, in any
event, business interruption insurance or insurance of inventory at retail
consistent with past practice and, if real property subject to a Mortgage in
favor of the Administrative Agent and such real property is located in an area
designated by the Secretary of Housing and Urban Development as a special flood
hazard area, flood insurance in an amount not to exceed that available for one
hundred percent (100%) reinsurance by the Federal Emergency Management Agency.

 

All policies
of insurance required to be maintained by Borrower or any Subsidiary must name
the Administrative Agent on behalf of Revolving Credit Lenders as mortgagees
(in the case of property insurance) or additional insured (in the case of
liability insurance), as applicable, and must provide that no cancellation or
modification of the policies will be made without thirty (30) days’ prior
written notice to the Administrative Agent.

 

Each policy of
insurance obtained or maintained by Borrower or any Subsidiary shall: (i) be
written by financially responsible companies selected by Borrower and having an
A.M. Best rating of “A” or better and being in a financial size category of XII
or larger, or by other companies reasonably acceptable to the Administrative
Agent; (ii) waive all rights of subrogation of the insurers against the
Creditors; (iii) waive any right of the insurers to set-off or counterclaim or
to make any other deduction, whether by way of attachment or otherwise, as
against any Creditor; (iv) waive all claims for insurance premiums or
commissions or additional premiums or assessments against the Creditors; and
(v) provide that, except in the case of third-party liability insurance, the
proceeds of any loss affecting real or personal property or interests shall be
applied in accordance with the terms of the applicable Security Document.

 

Borrower will
advise the Administrative Agent promptly of any material policy cancellation,
reduction or amendment.

 

Borrower will
not and will not permit any Subsidiary to materially modify any of the
provisions of any policy with respect to casualty insurance without delivering
the original copy of the endorsement reflecting such modification to the
Administrative Agent.

 

9.5           Limitation  on  Lines  of
Business.  No Obligor or
Subsidiary shall directly or indirectly, engage to any material extent in any
line or lines of business activity other than the business of the type
conducted by Borrower and the Subsidiaries as of the Closing Date.

 

9.6           Limitation  on  Fundamental
Changes;  Limitation  on  Acquisitions;  Limitation
on  Dispositions.  No
Obligor or Subsidiary shall, directly or indirectly, (i) enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution), (ii) acquire any
business or Property from, or Equity Interests of, or be a party to any
acquisition of, any Person, or effect any Acquisition, or (iii) effect any
Disposition or convey, sell, lease, assign, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or a substantial part of
its business or Property, whether now owned or hereafter acquired, including
receivables and leasehold interests. 
Notwithstanding the foregoing provisions of this Section 9.6, each of
the following shall be permitted:

 

(a)           purchases of
inventory and other Property to be sold or used in the ordinary course of
business (including Capital Expenditures);

 

(b)           the pledge of the
Collateral pursuant to the Security Documents;

 

69

 

(c)           any Subsidiary may
be merged or consolidated or dissolved or liquidated with or into:  (i) Borrower if Borrower shall be the
continuing or surviving corporation, (ii) any Wholly Owned Subsidiary which is
an Obligor; provided, however, that a Wholly Owned Subsidiary
which is an Obligor shall be the continuing or surviving corporation or (iii)
if such Subsidiary effecting such transaction is not an Obligor, another
Subsidiary which is not an Obligor;

 

(d)           any Subsidiary may
sell, lease, transfer or otherwise dispose of any or all of its Property (upon
voluntary liquidation or otherwise) to Borrower or to any Wholly Owned Subsidiary
which is an Obligor or, if such Subsidiary effecting such transaction is not an
Obligor, to another Subsidiary which is not an Obligor;

 

(e)           Dispositions of
used, worn out, obsolete or surplus Property by Borrower or any Subsidiary, all
in the ordinary course of business, including the termination, sale or
abandonment of leases for retail sites not favorable to Borrower, if in the
ordinary course of business and on ordinary business  terms;

 

(f)            Borrower or any
Subsidiary may sell or discount, in each case without recourse, accounts
receivable arising in the ordinary course of business, but only in connection
with the compromise or collection thereof and may sell for less than face value
notes or accounts receivables in connection with trade discounts in the
ordinary course of business or consistent with past practice;

 

(g)           Borrower or any
Subsidiary may effect any Disposition for fair market value not to exceed (i)
$500,000 in the aggregate in any fiscal year of Borrower and (ii) in addition
to that permitted by subclause (i) of this Section 9.6(g) (which shall not
count against this subclause (ii)), $2.0 million in the aggregate from and
after the Closing Date;

 

(h)           Investments
permitted by Section 9.9;

 

(i)            any Wholly Owned
Subsidiary that is a Foreign Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise)
to another Wholly Owned Subsidiary that is a Foreign Subsidiary;

 

(j)            any Foreign
Subsidiary may be merged or consolidated with or into any one or more Wholly
Owned Subsidiaries that are Foreign Subsidiaries (provided that a Wholly Owned
Subsidiary that is a Foreign Subsidiary shall be the continuing or surviving
corporation);

 

(k)           the sale by any
Foreign Subsidiary of its accounts receivable; provided, however,
that the terms of each such sale are satisfactory in form and substance to the
Administrative Agent;

 

(l)            any Acquisition; provided,
however, that (i) no Default or Event of Default exists or will result
therefrom, (ii) on a pro forma basis, after giving effect to such
Acquisition(s), Borrower would have been in compliance with Section 9.11 on the
last day of the most recently completed fiscal quarter (assuming, for purposes
of Section 9.11, that such Acquisition had occurred on the first day of the
Measurement Period ending on such last day) as evidenced in an Officer’s
Certificate delivered to the Administrative Agent and each Revolving Credit
Lender at least 10 days prior to the consummation thereof (which shall have
attached thereto reasonably detailed backup data and calculations showing such
compliance), (iii) the aggregate amount of the consideration (which for each
Acquisition shall be measured at the date of consummation

 

70

 

thereof and
which shall include Indebtedness and other liabilities incurred or assumed,
working capital deficits and deferred payments) paid for all Acquisitions
consummated since the Closing Date shall not exceed $5.0 million, and (iv) such
Acquisition shall be effected through Borrower or a Wholly Owned Subsidiary
which is an Obligor and (unless the Acquisition relates to the acquisition of
assets) the Person acquired shall be merged with or into a Wholly Owned
Subsidiary which is an Obligor or shall be at the time of consummation thereof
a Wholly Owned Subsidiary which is an Obligor (it being understood that
proceeds of Loans shall not be used to finance hostile acquisitions);

 

(m)          the sale by the
Borrower of Real Property; provided, however, that (i) the
aggregate of the Net Available Proceeds and other consideration received
therefrom do not exceed $7,500,000 in the aggregate from and after the Closing
Date, and (ii) reasonably contemporaneously with such sale, the Net Available
Proceeds therefrom are used to purchase or lease additional Real Property (and
to the extent purchased, a Mortgage shall be granted to the Administrative
Agent thereon to secure the Obligations); and

 

(n)           any Acquisition the
consideration for which is paid with the Net Available Proceeds of any
Disposition permitted by Section 9.6(g) or (m) and to the extent such Net
Available Proceeds have not been used to effect Capital Expenditures, any
Acquisition permitted by this Section 9.6 or otherwise expended by Borrower or
any Subsidiary; provided, however, that (i) no Default or Event
of Default exists or would result therefrom, (ii) on a pro  forma
basis, immediately after giving effect to any such Acquisition, Borrower would
be in compliance with all financial covenants set forth in Section 9.11 on the
last day of the most recently ended fiscal quarter (assuming, for purposes of
Section 9.11, that such Acquisition had occurred on the first day of the
Measurement Period ending on such last day) as evidenced in an Officer’s
Certificate delivered to the Revolving Credit Lenders at least 10 days prior to
the consummation of such Acquisition (which shall have attached thereto
reasonably detailed backup data and calculations showing such compliance), and
(iii) such Acquisition shall be effected through Borrower or a Wholly Owned
Subsidiary of Borrower which is an Obligor and the Person acquired shall be
merged with or into a Wholly Owned Subsidiary which is an Obligor or shall be
at the time of consummation thereof a Wholly Owned Subsidiary which is an
Obligor.

 

To the extent
the Majority Revolving Credit Lenders waive the provisions of this Section 9.6
with respect to the sale or other disposition of any Collateral, or any
Collateral is sold or otherwise disposed of as permitted by this Section 9.6,
such Collateral in each case shall be sold or otherwise disposed of free and
clear of the Liens created by the Security Documents and the Administrative
Agent shall take such actions as are appropriate in connection therewith.

 

9.7           Limitation  on  Liens
and  Related  Matters. 
No Obligor or Subsidiary shall, directly or indirectly, create, incur,
assume or suffer to exist any Lien upon or with respect to any Collateral
except for Prior Liens and other Liens expressly permitted by the applicable
Security Document.  No Obligor or
Subsidiary shall, directly or indirectly, create, incur, assume or suffer to
exist any Lien upon or with respect to any of their respective Property that
does not constitute Collateral, whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets or assign any
right to receive income, or file or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute, except the following, which are herein
collectively referred to as “Permitted  Liens”:

 

(a)           Liens in existence
on the Closing Date and identified in Schedule  9.7;

 

71

 

(b)           Liens imposed by any
Governmental Authority for taxes, assessments or charges not yet due or which
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of Borrower or the
affected Subsidiary, as the case may be, in accordance with GAAP;

 

(c)           Liens in respect of
Property of Borrower or any Subsidiary (i) imposed by law, (ii) to the extent
such Liens exist as of the Closing Date, imposed by contract, or (iii) to the
extent such Liens are imposed by contract after the Closing Date (in which case
Borrower shall use its best efforts to provide that any such Lien is created in
a commercially reasonable amount and manner), in each case which were incurred
in the ordinary course of business, such as carriers’, warehousemen’s,
landlords’ and mechanics’ Liens and other similar Liens arising in the ordinary
course of business, in each case for sums the payment of which is not
delinquent or, if delinquent, is not then required by Section 9.3;

 

(d)           pledges or deposits
under worker’s compensation, unemployment insurance and other social security
legislation or the deposits securing the liability to insurance carriers;

 

(e)           pledges or deposits
to secure the performance of bids, trade contracts (other than for borrowed
money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course of
business;

 

(f)            easements,
rights-of-way, restrictions or minor defects or irregularities in title
incurred in the ordinary course of business and encumbrances consisting of
zoning restrictions, easements, licenses, restrictions on the use of Real
Property or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not in any case materially detract from
the value of the Real Property subject thereto or interfere with the ordinary
conduct of the business of Borrower or any Subsidiary; and precautionary UCC
filings by lessors and bailees in the ordinary course of business;

 

(g)           Liens upon tangible
personal Property acquired after the Closing Date by Borrower or any
Subsidiary, each of which Liens either (i) existed on such Property before the
time of its acquisition and was not created in anticipation thereof, or (ii)
was created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, the cost of such Property or
improvements thereon; provided, however, that (x) no such Lien
shall extend to or cover any Property of any Obligor or any Subsidiary other
than the Property so acquired and improvements thereon and (y) the principal
amount of Indebtedness secured by any such Lien shall at no time exceed 100% of
the fair market value of such Property at the time such Lien was created;

 

(h)           Liens existing on
any Property of any Person at the time such Person becomes a Subsidiary or is
merged or consolidated with or into a Subsidiary and, in each case, not created
in contemplation of or in connection with such event; provided, however,
that such Liens do not extend to any other Property of any Obligor or any
Subsidiary;

 

(i)            Liens (excluding
Liens on Collateral) not otherwise permitted hereunder securing obligations not
at any time exceeding in the aggregate $1.0 million;

 

72

 

(j)            Liens securing
obligations under Swap Contracts with any Revolving Credit Lender or any
Affiliate of a Revolving Credit Lender so long as the Obligations are secured
by the same collateral on a pari passu basis;

 

(k)           Liens consisting of
judgment or judicial attachment Liens (including prejudgment attachment) the
enforcement of which is effectively stayed or payment of which is covered in full
(subject to a customary deductible) by insurance or which do not otherwise
result in an Event of Default under Section 10(h);

 

(l)            Liens securing
obligations in respect of Capital Leases solely on Property subject to such
Capital Leases;

 

(m)          Liens arising from
filing UCC financing statements for precautionary purposes relating solely to
true leases of personal property permitted by this Agreement under which
Borrower or any of its Subsidiaries is a lessee;

 

(n)           Liens encumbering
customary initial deposits and margin deposits, and other Liens incurred in the
ordinary course of business that are within the general parameters customary in
the industry;

 

(o)           Liens arising out of
consignment or similar arrangements for the sale of goods entered into by the
Borrower or any Subsidiary in the ordinary course of business in accordance
with past practices;

 

(p)           any extension,
renewal or replacement of the foregoing; provided, however, that
the Liens permitted under this subsection (p) shall not cover any additional
Indebtedness or Property (other than like Property substituted for Property
covered by such Lien);

 

(q)           interests of lessors
under leases and restrictions and encumbrances on the interests of such
lessors;

 

(r)            Liens in favor of
banks which arise under Article IV of the UCC on items in collection and the
documents relating thereto and proceeds thereof;

 

(s)           Liens in favor of
customs and revenue authorities arising as a matter of law to secure customs
duties in connection with the importation of goods; and

 

(t)            interests of licensors of patents,
trademarks and other intellectual property.

 

Except with
respect to (i) specific Property encumbered pursuant to a Lien permitted to be
incurred pursuant to this Section 9.7 or (ii) specific Property to be sold
pursuant to an executed agreement with respect to a Disposition consummated in
accordance with this Agreement, no Obligor will, nor will any of them permit
any of their respective Subsidiaries to, directly or indirectly, enter into any
agreement after the Closing Date (other than the Credit Documents) prohibiting
or restricting in any manner (directly or indirectly and including by way of
covenant, representation or warranty or event of default) the creation or
assumption of any Lien upon its Property, whether now owned or hereafter
acquired except for customary restrictions on the creation of Liens contained
in leases and licenses affecting the Property leased or licensed thereunder.

 

73

 

9.8           Limitation  on  Indebtedness.  No Obligor or Subsidiary shall, directly or
indirectly, create, incur or suffer to exist or be or become liable for any
Indebtedness, except (each of which shall be given independent effect):

 

(a)           Indebtedness under
the Credit Documents;

 

(b)           Indebtedness
outstanding on the Closing Date and listed in Schedule  9.8 and
specified on Schedule  9.8 as to remain outstanding after the
Closing Date;

 

(c)           Indebtedness of
Borrower or any Wholly Owned Subsidiary owing to Borrower or any Wholly Owned
Subsidiary which is an Obligor; provided, however, that (i) if
requested by the Majority Revolving Credit Lenders, such Indebtedness shall be
evidenced by an Intercompany Note which shall be pledged to the Administrative
Agent on behalf of the Revolving Credit Lenders pursuant to the Security
Agreement and (ii) such Indebtedness shall not be held by any Person other than
Borrower or a Wholly Owned Subsidiary which is an Obligor and shall not be
subordinate to any other Indebtedness or other obligation of the obligor other
than the Loans and the Senior Subordinated Notes;

 

(d)           Indebtedness of
Borrower and the Subsidiaries secured by Liens permitted under Section 9.7(g)
or (l) not exceeding in the aggregate $2.0 million at any one time outstanding;

 

(e)           Indebtedness of Borrower
represented by the Senior Subordinated Notes in an aggregate principal amount
of $69 million less any prepayments or repayments thereof on and after the
Closing Date and any senior subordinated guarantees thereof by Guarantors in
accordance with the terms of the Senior Subordinated Note documents as in
effect on the Closing Date;

 

(f)            unsecured
subordinated Indebtedness of Borrower in an amount not to exceed $10 million at
any time outstanding; provided, however, that (i) the maturity of
any principal payments thereunder shall be no earlier than one year after the
Revolving Credit Commitment Termination Date and such Indebtedness shall not
require by its terms any prepayments of any principal amount thereunder prior
to one year after the Revolving Credit Commitment Termination Date, (ii) such
Indebtedness is subordinated to the Obligations substantially on the terms set
forth in Exhibit  J, (iii) no Default or Event of Default shall
exist at the time of issuance of such Indebtedness or would arise therefrom,
(iv) such Indebtedness shall not provide for any payment of interest in cash so
long as any Loans or Reimbursement Obligations are then outstanding, or any
Commitment to make extensions of Credit is then in existence remain outstanding
or any Revolving Credit Commitments remain in effect hereunder, and (v) the
terms and provisions thereof (including covenants, interest rate, defaults,
prepayment terms and maturities) shall be acceptable to the Administrative
Agent in its sole discretion;

 

(g)           unsecured
Indebtedness incurred by any Foreign Subsidiary not to exceed $1.0 million in
the aggregate at any time outstanding;

 

(h)           Indebtedness arising
from honoring a check, draft or similar instrument against insufficient funds; provided,
however, that such Indebtedness is extinguished within two Business Days
of its incurrence;

 

74

 

(i)            unsecured
Indebtedness of Borrower or any Subsidiary which is an Obligor incurred in the
ordinary course of business in an aggregate principal amount not to exceed $5.0
million at any time outstanding;

 

(j)            Indebtedness
represented by amounts declared, payable as, or set apart for, Dividend
Payments permitted by Section 9.10;

 

(k)           Swap Contracts
entered into in the ordinary course of business and designed to protect the
Obligors against fluctuations in interest rates, currency exchange rates,
commodity prices or similar risks;

 

(l)            any renewals,
extensions, substitutions, refinancings or replacements (each, for purposes of
this subsection (l), a “Refinancing”) of any Indebtedness permitted by
clauses (b), (d), (e), (f), (g), (i), or (p) of this Section 9.8, including any
successive Refinancings; provided, however, that (i) no Default
or Event of Default shall have occurred and be continuing or would arise
therefrom, (ii) any such Refinancing of Indebtedness shall (w) not be on
financial and other terms, in the reasonable judgment of Administrative Agent,
that are more onerous than the Indebtedness being refinanced, (x) not have a stated
maturity or weighted average life that is shorter than the Indebtedness being
refinanced, (y) be at least as subordinate to the Obligations as the
Indebtedness being refinanced (and unsecured if the refinanced Indebtedness is
unsecured), and (z) be in principal amount that does not exceed the principal
amount so refinanced, plus the lesser of (1) the stated amount of any premium
or other payment required to be paid in connection with such Refinancing
pursuant to the terms of the Indebtedness being refinanced and (2) the amount
of premium or other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of reasonable expenses of
Borrower or any Subsidiary incurred in connection with such Refinancing, (iii)
the obligor on such Refinancing Indebtedness shall be Borrower or the original
obligor on such Indebtedness being refinanced (with any guarantor on the
Indebtedness being refinanced permitted to guarantee the Refinancing
Indebtedness and Borrower likewise permitted to guarantee such Refinancing
Indebtedness of Guarantors), and (iv) the incurrence of such Refinancing
Indebtedness shall not increase the overall Indebtedness of Borrower and the
Subsidiaries;

 

(m)          the guarantee of the
Obligations pursuant to Section 6 and guarantees by Guarantors of the Senior
Subordinated Notes pursuant to the Senior Subordinated Note documents as in
effect on the Closing Date;

 

(n)           Contingent
Obligations of Borrower or any Subsidiary in respect of Indebtedness or other
liabilities of Borrower or any Wholly Owned Subsidiary which is an Obligor to
the extent that the existence of such Indebtedness or other liabilities is not
prohibited under this Agreement;

 

(o)           Contingent
Obligations in connection with Dispositions permitted under Section 9.6,
arising in connection with indemnification and other agreements in respect of
any contract relating to such Disposition, not to exceed the consideration
received by Borrower or any Subsidiary in connection with such sale and
excluding in all cases any Contingent Obligation with respect to any obligation
of any third person incurred in connection with the acquisition of the Property
which is the subject of such Disposition; and

 

(p)           Acquired
Indebtedness not to exceed $5.0 million in the aggregate.

 

75

 

All
intercompany debt shall be unsecured and subordinate in right of payment to the
Obligations.

 

No Obligor
shall directly or indirectly make any optional prepayment, redemption,
retirement or defeasance, whether in cash, property, securities or a
combination thereof, on account of the principal amount of any Indebtedness,
other than (1) Refinancings permitted by Section 9.8(l), (2) the Loans, and (3)
repurchases, redemptions or other acquisitions of the Senior Subordinated Notes
permitted by Section 9.15.

 

9.9           Limitation  on  Investments;
Limitation  on  Creation  of  Subsidiaries.  No Obligor or Subsidiary shall, directly or
indirectly, make or permit to remain outstanding any Investments, except:

 

(a)           operating deposit
accounts and certificates of deposit with banks in the ordinary course of
business;

 

(b)           Permitted Investments;

 

(c)           Investments by
Borrower or any Subsidiary in any Wholly Owned Subsidiary that is an Obligor
and Investments by any Subsidiary in Borrower;

 

(d)           Investments
outstanding on the Closing Date and identified with particularity in Schedule
9.9 and any renewals, extensions, modifications and replacements thereof
that do not increase the amount thereof;

 

(e)           Investments that constitute Indebtedness
permitted under Section 9.8;

 

(f)            Investments by
Borrower in Swap Contracts entered into as bona  fide hedges and
not for speculative purposes;

 

(g)           advances, loans or
extensions of credit by Borrower or any Subsidiary to employees of Borrower or
any Subsidiary; provided, however, that the aggregate amount of
all such loans, advances and extensions of credit shall not at any time exceed
in the aggregate $3.0 million (without giving effect to any write-down or
write-off thereof) and, provided, further, that no Investment
shall be made pursuant to this clause (g) if any Event of Default exists;

 

(h)           extensions of credit
in the nature of accounts receivable or notes receivable arising from the sale
or lease of goods or services in the ordinary course of business;

 

(i)            pledges or deposits
required in the ordinary course of business in connection with workmen’s
compensation, unemployment insurance and other social security or similar
legislation;

 

(j)            pledges or deposits
in connection with (i) the non-delinquent performance of bids, trade contracts
(other than for borrowed money), leases or statutory obligations, (ii)
contingent obligations on surety or appeal bonds, and (iii) other
non-delinquent obligations of a like nature, in each case incurred in the
ordinary course of business;

 

(k)           Investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent

 

76

 

obligations
of, and other disputes with, customers and suppliers arising in the ordinary
course of business;

 

(l)            Borrower and the
Subsidiaries may hold additional Investments in any non-Wholly Owned Subsidiary
or Foreign Subsidiary to the extent that such Investments reflect an increase
in the stockholders’ equity of such Subsidiary resulting from retained earnings
of such Subsidiary;

 

(m)          any Foreign
Subsidiary may make Investments in or to any other Foreign Subsidiary;

 

(n)           Capital
Expenditures;

 

(o)           Investments by
Borrower or any Subsidiary in any non-Wholly Owned Subsidiary or any Subsidiary
which is not an Obligor to the extent made in the ordinary course to fund or
support the ordinary course operations of such Subsidiary so long as no Event
of Default shall have occurred and be continuing; provided, however,
that (i) the amount of such Investments made pursuant to this clause (o) shall
not exceed $1.0 million in the aggregate outstanding at any time (without
giving effect to any write-down or write-off thereof) and (ii) upon the request
of the Majority Revolving Credit Lenders all such Investments evidenced by
Intercompany Notes shall be pledged to the Administrative Agent pursuant to the
Security Agreement and provided, further that no Investment shall
be made pursuant to this clause (o) if any Event of Default exists immediately
prior to or after the making of such Investment;

 

(p)           Investments for the
creation of any Wholly Owned Foreign Subsidiary which is a foreign sales
corporation consisting of de  minimis capitalization;

 

(q)           Borrower or any
Subsidiary may hold the Equity Interests, partnership interests or other
ownership or equity interest therein of any Subsidiary existing on the Closing
Date or created or acquired thereafter in accordance with the provisions hereof
and any additional Equity Interests, partnership interests or ownership or
equity interests issued in exchange therefor or as a dividend thereon;

 

(r)            Investments
consisting of non-cash consideration received in the form of securities, notes
or similar obligations in connection with a Disposition permitted by Section
9.6(g); provided, however, that (i) the aggregate amount of such
non-cash consideration received in connection with any such Disposition shall
not exceed 15% of the total consideration received in connection with such
Disposition and (ii) such non-cash consideration is pledged pursuant to the
appropriate Security Document;

 

(s)           Investments by or
through Borrower or any Wholly Owned Subsidiary which is an Obligor made in
order to consummate Acquisitions effected in accordance with Section 9.6(l), or
(n); provided, however, that no Default or Event of Default
exists or will result therefrom;

 

(t)            Investments by
Foreign Subsidiaries in high quality investments of the type similar to
Permitted Investments made outside the United States;

 

(u)           Investments made by
or through Borrower or any Wholly Owned Subsidiary which is an Obligor with the
Net Available Proceeds of any Disposition effected in accordance with Section
9.6(g) or (n), to the extent such Net Available Proceeds have not been used to
effect Capital Expenditures, any Acquisition permitted by

 

77

 

Section 9.6 or
otherwise expended by Borrower or any Subsidiary; provided, however,
that (i) no Default or Event of Default exists or would result therefrom, and
(ii) such Investment shall be effected through Borrower or a Wholly Owned
Subsidiary which is an Obligor and, if an Acquisition, shall comply with
Section 9.6; and

 

(v)           in addition to the
foregoing, other Investments not exceeding $5.0 million in the aggregate
outstanding at any time (without giving effect to any write-downs or write-offs
thereof), net of any returns of capital, cash dividends and distributions
received in respect thereof and net cash proceeds of sales thereof and; provided,
however, that no Investment shall be made pursuant to this clause (w) if
any Event of Default exists.

 

No Obligor
shall, nor shall any of them permit any Subsidiary to, directly or indirectly,
create or acquire any Subsidiary without the prior written consent of the
Administrative Agent, which consent shall not be unreasonably withheld, provided,
however, that the provisions of this Section 9.9 shall not require the
Administrative Agent’s consent for the creation or acquisition of wholly-owned
direct and indirect Subsidiaries of Borrower so long as, with respect to any
such acquisition, it complies with the provisions of Section 9.6.

 

9.10         Limitation on Dividend Payments.  No Obligor or Subsidiary shall, directly or
indirectly, declare or make any Dividend Payment at any time, except that:

 

(a)           any Subsidiary may
declare and make Dividend Payments to the extent made pro  rata to
all holders of the Equity Interests thereof;

 

(b)           so long as no Default
or Event of Default then exists or would arise therefrom, Borrower may
repurchase, redeem or otherwise acquire or retire for value shares of Equity
Interests or Equity Rights of Borrower from employees who have died (or their
estates or beneficiaries) or whose employment has terminated; provided, however,
that such payment shall not exceed $1.5 million in any fiscal year; and

 

(c)           so long as no
Default or Event of Default then exists or would arise therefrom, Borrower may
make repurchases, redemptions or other acquisitions of its Equity Interests; provided,
however, that, after giving pro  forma effect to each such
repurchase, redemption or other acquisition:

 

(i)   the amount of all such repurchases,
redemptions or other acquisitions shall not exceed, in the aggregate, $25.0
million since the Closing Date;

 

(ii)  Borrower shall be in compliance with all
covenants and agreements set forth herein (including Section 9.11); and

 

(iii) within
two Business Days of each such repurchase, redemption or other acquisition,
Borrower shall deliver to the Administrative Agent an Officers’ Certificate
stating compliance with this Section 9.10(c).

 

9.11         Financial Covenants.

 

(a)           Maximum Leverage Ratio.  Borrower shall not permit the Leverage Ratio
at any date set forth in the table below to exceed the ratio set forth opposite
such date in the table below:

 

78

 

	
  Date

  	
   

  	
  Ratio

  
	
   

  	
   

  	
   

  
	
  Closing Date
  through

  September 30, 2002

  	
   

  	
  2.50: 1.00

  
	
   

  	
   

  	
   

  
	
  December 31,
  2002

  	
   

  	
  1.75: 1.00

  
	
   

  	
   

  	
   

  
	
  March 31,
  2003

  	
   

  	
  1.75: 1.00

  
	
   

  	
   

  	
   

  
	
  June 30,
  2003

  	
   

  	
  1.75: 1.00

  
	
   

  	
   

  	
   

  
	
  September
  30, 2003

  	
   

  	
  2.00: 1.00

  
	
   

  	
   

  	
   

  
	
  December 31,
  2003 and each March 31, June 30, September 30 and December 31 thereafter

  	
   

  	
  1.50: 1.00

  

 

(b)           Minimum Fixed Charge Coverage
Ratio.  Borrower shall not permit
the ratio of (x) Consolidated EBITDA plus Consolidated Rental Expense less
Capital Expenditures for any Measurement Period on or after the Closing Date to
(y) Fixed Charges for such Measurement Period on or after the Closing Date at
the end of any fiscal quarter to be less than 1.50:1.00.

 

(c)           Minimum Interest Coverage Ratio.  Borrower shall not permit the Consolidated
Minimum Interest Coverage Ratio for the four full fiscal quarters taken as one
period (and after giving pro forma effect
to (A) the incurrence of any Indebtedness (including, without limitation, the
Loans) and (if applicable) the application of the net proceeds therefrom,
including to refinance other Indebtedness, as if such Indebtedness was
incurred, and the application of such proceeds occurred, on the first day of
such four quarter period, (B) the incurrence, repayment, or retirement of any
other Indebtedness of the Borrower and its Restricted Subsidiaries since the
first day of such four quarter period (except that in making such computation,
the amount of Loans and Letter of Credit Liabilities shall be computed based
upon the average daily balance of such Loans and Letter of Credit Liabilities
during such four quarter period), and (C) the acquisition (whether by purchase,
merger or otherwise) or disposition (whether by sale, merger or otherwise) of
any company, entity or business acquired or disposed of by the Borrower or its
Restricted Subsidiaries, as the case may be, since the first day of such four
quarter period, as if such acquisition or disposition occurred on the first day
of such four quarter period) to be less than 2.00:1.00.

 

(d)           Minimum Tangible Net Worth.  Borrower shall not permit its Consolidated
Tangible Net Worth to be less than the sum of (1) $27,000,000, plus (ii) fifty percent
(50%) of the cumulative consolidated net income (but in no event less than
zero) of the Borrower and its Consolidated Subsidiaries calculate on a
consolidated basis in accordance with GAAP from and after July 1, 2002, plus
(iii) seventy-five percent (75%) of the Net Available Proceeds of any Equity
Issuance from and after July 1, 2002.

 

(e)           Measuring Dates.  The covenants in clauses (a), (b), (c) and
(d) of this Section 9.11 shall be measured as of the Closing Date and the end
of each fiscal quarter thereafter and will apply to Borrower and the
Subsidiaries (or Restricted Subsidiaries, as applicable) on a consolidated
basis; in addition, the covenant set forth in clause (c) of this Section 9.11
shall be measured as of each date that the Borrower requests a Loan or the
issuance of a Letter of Credit.

 

79

 

9.12         Pledge of Additional Collateral.  Promptly, and in any event within 30 days,
after the acquisition of any Property of the type that would have constituted
Collateral at the Closing Date (including the Equity Interests of any
Subsidiary hereafter created or acquired) other than Real Property (the “Additional
Collateral”), each Obligor and each Wholly Owned Subsidiary (other than any
Foreign Subsidiary) shall take all action reasonably necessary or desirable,
including the execution and delivery of all such agreements, assignments,
documents and instruments (including amendments to the Credit Documents) and
the filing of appropriate financing statements under the provisions of the UCC
or applicable governmental requirements in each of the offices where such
filing is necessary or appropriate, to grant the Administrative Agent for the
benefit of the Revolving Credit Lenders a duly perfected first priority Lien
(subject to Prior Liens) on such Property pursuant to and to the full extent
required by the Security Documents and this Agreement; provided, however,
that not more than 65% of the Equity Interests of any “first tier” Foreign
Subsidiary need be pledged and no Equity Interests of any Foreign Subsidiary
which is not a “first-tier” Foreign Subsidiary need be pledged.

 

In the event
that, after the Closing Date, Borrower or any Domestic Subsidiary acquires or
holds a fee interest in any Real Property with a market or book value of $3.5
million or more, the Obligors and each Wholly Owned Subsidiary shall reasonably
promptly (i) take such actions and execute such documents as the Administrative
Agent shall reasonably require to confirm the Lien of an existing Mortgage, if
applicable, or to create a new Mortgage on such additional Real Property and
(ii) cause to be delivered to the Administrative Agent, on behalf of the
Revolving Credit Lenders, the documents and instruments reasonably requested by
the Administrative Agent, including, without limitation, the items set forth in
Section 7.1 in respect of Mortgaged Real Property.

 

The costs of
all actions taken by the parties in connection with the pledge of Additional
Collateral or in connection with any Mortgage, including reasonable costs of
counsel for the Administrative Agent, shall be paid by the Obligors promptly
following written demand.

 

9.13         Security Interests.

 

(a)           Each Obligor and
each Subsidiary authorizes the Administrative Agent, at Borrower’s expense, to
execute, acknowledge and deliver, or cause the execution, acknowledgment and
delivery of, and thereafter register, file or record, or cause to be
registered, filed or recorded, in an appropriate governmental office, financing
statements and any other document or instrument supplemental to or confirmatory
of the Security Documents or otherwise deemed by the Administrative Agent
reasonably necessary or desirable for the continued validity, perfection and
priority of the Liens on the Collateral covered thereby.

 

(b)           Each Obligor and
each Subsidiary shall deliver or cause to be delivered to the Administrative
Agent from time to time such other documentation, consents, authorizations,
approvals and orders in form and substance reasonably satisfactory to the
Administrative Agent as the Administrative Agent shall reasonably deem
necessary to perfect or maintain the Liens on the Collateral.

 

9.14         Compliance with Environmental Laws.  (a) Each Obligor and each Subsidiary shall
comply with all Environmental Laws, and will keep or cause all Real Property to
be kept free of any Liens under Environmental Laws, unless failure to do so
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect; (b) in the event of the presence of any Hazardous
Material at, on, under or emanating from any Real Property which would
reasonably be expected to result in liability under or a violation of any
Environmental Law, in each case which would, either individually or in the
aggregate,

 

80

 

reasonably be
expected to have a Material Adverse Effect, each Obligor and each Subsidiary
shall undertake, and/or cause any of their respective tenants or occupants to
undertake, at their sole expense, any action required pursuant to Environmental
Laws to mitigate and eliminate any such adverse effect; provided, however,
that no Obligor or Subsidiary shall be required to comply with any order or
directive which is being contested in good faith and by proper proceedings so
long as it has maintained adequate reserves with respect to such compliance to
the extent required in accordance with GAAP; (c) each Obligor shall promptly
notify the Administrative Agent of the occurrence of any event specified in
clause (b) of this Section 9.14 and shall periodically thereafter keep the
Administrative Agent informed of any material actions taken in response to such
event and the results of such actions; and (d) at the written request of the
Administrative Agent, each Obligor will provide, at such Obligor’s sole cost
and expense, an environmental site assessment (including, without limitation,
the results of any subsurface testing, conducted if the Administrative Agent
directs that such testing be conducted) concerning any Real Property now or
hereafter owned, leased or operated by such Obligor or any Subsidiary,
conducted by an environmental consulting firm proposed by such Obligor and
reasonably acceptable to the Administrative Agent indicating the presence or
absence of Hazardous Materials and the potential cost of any required
investigation or other response or any corrective action in connection with any
Hazardous Materials on, at, under or emanating from such Real Property; provided,
however, that such request may be made only if (i) there has occurred
and is continuing an Event of Default, or (ii) the Administrative Agent
reasonably believes that such Obligor or any Subsidiary or any such Real
Property is not in material compliance with Environmental Law which could
reasonably be expected to have a Material Adverse Effect, or (iii)
circumstances exist that reasonably could be expected to form the basis of an
Environmental Claim against such Obligor, any Subsidiary or any such Real
Property which could reasonably be expected to have a Material Adverse
Effect.  If any Obligor fails to provide
the same within 60 days after such request was made, the Administrative Agent
may but is under no obligation to order the same, and each Obligor shall grant
and hereby grants to the Administrative Agent and its agents access to such
Real Property and specifically grants the Administrative Agent an irrevocable
non-exclusive license, subject to the rights of tenants, to undertake such an
assessment, all at such Obligor’s sole cost and expense.

 

9.15         Limitation on Prepayments of Senior
Subordinated Notes, Etc. 
Borrower shall not, and shall not cause or permit any Subsidiary to make
(or give any notice in respect of) any voluntary or optional payment or
prepayment or redemption or acquisition for value of the Senior Subordinated
Notes (including, without limitation, by way of depositing with any trustee
with respect thereto money or securities before such Indebtedness is due for
the purpose of paying such Indebtedness when due); provided, that so
long as no Default or Event of Default then exists or would arise therefrom,
Borrower may make purchases, redemptions, or other acquisitions of its Senior
Subordinated Notes at any time after January 1, 2003 (but not prior thereto); provided
further, that, after giving pro forma effect to each such
repurchase, redemption, or other acquisition:

 

(a)           Excess Availability
after giving effect to such payment and on a pro forma basis for the following
twelve months shall be no less than $20,000,000 ;

 

(b)           Borrower’s most
recent annual audited financial statements demonstrate that the Borrower’s
Leverage Ratio is at least 0.25 less than the then applicable Leverage Ratio
set forth in Section 9.11(a) of this Agreement.  For purposes of clarity, if the required Leverage Ratio under
Section 9.11(a) was 2.0:1.0, in order to make payments hereunder, the
Borrower’s then Leverage Ratio would be required to be 1.75:1.00 or less;

 

(c)           Borrower shall be in
compliance with all covenants and agreements set forth herein (including
Section 9.11); and

 

81

 

(d)           within two Business
Days of each such repurchase, redemption or other acquisition, Borrower shall
deliver to the Administrative Agent an Officer’s Certificate stating compliance
with this Section 9.15.

 

9.16         Limitation on Transactions with
Affiliates.  No Obligor or
Subsidiary shall, directly or indirectly: enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any Property, the rendering of any service, or a merger or
consolidation), with any Affiliate (an “Affiliate Transaction”) unless
such Affiliate Transaction is otherwise not prohibited under this Agreement, is
in the ordinary course of the Obligor’s business and is on fair and reasonable
terms that are not less favorable to the Obligor than those that would be
obtainable at the time in an arm’s-length transaction with a Person who is not
such an Affiliate; provided, however, that so long as no Default
or Event of Default shall have occurred and be continuing, the following shall
be permitted:  (a) Dividend Payments
permitted by Section 9.10; (b) the payment of reasonable and customary regular
fees to directors of Borrower or any Subsidiary who are not employees of
Borrower or any Subsidiary; (c) any transaction with an officer or member of
the board of directors of Borrower or any Subsidiary in the ordinary course of
business involving compensation, indemnity or employee benefit arrangements;
(d) loans or advances to employees permitted by Section 9.9; (e) transactions
and agreements in existence on the Closing Date and listed and described with
particularity in Schedule 9.16 (the “Existing Affiliate Agreements”)
and the transactions contemplated by each of the Existing Affiliate Agreements;
(f) payments made pursuant to management agreements with Madison Dearborn not
to exceed $500,000 for each fiscal year of Borrower; (g) employment agreements
and arrangements (including, without limitation, benefits) approved by the
board of directors of Borrower; (h) any employee benefit plan available to
employees of Borrower generally; (i) transactions with Obligors; and (j)
transactions in the ordinary course of business with Subsidiaries and other
transactions with Subsidiaries not prohibited hereunder.

 

9.17         Limitation on Accounting Changes;
Limitation on Investment Company Status. No Obligor or Subsidiary shall
make or permit, any change in (i) accounting policies or reporting practices,
except immaterial changes and except as required by generally accepted
accounting principles or (ii) its fiscal year end (December 31 of each year); provided,
however,  that the Obligors and Subsidiaries may change their fiscal
year end to a retail calendar year end as long as the Administrative Agent and
the Borrower have theretofore agreed upon a modification and adjustment of the
financial performance covenants set forth in Section 9.11 hereof to reflect the
change of such fiscal year.  No Obligor
shall be or become an investment company subject to the registration
requirements under the United States Investment Company Act of 1940, as
amended.

 

9.18         Limitation on Modifications of
Certain Documents, Etc.  No
Obligor or Subsidiary shall, directly or indirectly, consent to any
modification, supplement or waiver of, or amend or modify, any of the
provisions of (i) any term or provision of the subordination provisions of any
Indebtedness incurred pursuant to Section 9.8(f), (ii) any Senior Subordinated
Note Document or (iii) in any manner which could reasonably be expected to be
materially adverse to the Revolving Credit Lenders, its certificate of
incorporation or its by-laws (or any other organizational document), or any
agreement entered into with respect to its Equity Interests.

 

9.19         Limitation on Certain Restrictions
Affecting Subsidiaries.  No
Obligor or Subsidiary shall, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any direct or indirect encumbrance or
restriction on the ability of any such Subsidiary to (a) pay dividends or make
any other distributions on such Subsidiary’s Equity Interests or any other
interest or participation in its profits owned by Borrower or any Subsidiary,
or pay any

 

82

 

Indebtedness
or any other obligation owed to Borrower or any Subsidiary, (b) make
Investments in or to Borrower or any Subsidiary, or (c) transfer any of its
Property to Borrower or any Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) the Credit
Documents, (iii) the Senior Subordinated Note Documents as in effect on the
Closing Date, (iv) such restrictions with respect to the transfer of those
assets subject to a Lien permitted under Section 9.7, (v) customary provisions
restricting subletting or assignment of any lease governing a leasehold
interest or license of Borrower or any Subsidiary, (vi) with respect to
restrictions described in clause (c) only, restrictions in any agreement
relating to any Disposition which is permitted under this Agreement, and (vii)
Acquired Indebtedness; provided, however, that with regard to
this clause (vii), (1) such restriction applies solely to the Person acquired
or to a newly formed Wholly Owned Subsidiary with only de  minimis
assets formed expressly to make the acquisition in question and (if such
Acquisition is of Equity Interests) the Person acquired does not merge at any
time while such restriction is in effect with or into Borrower or any
Subsidiary of Borrower other than any such newly formed Wholly Owned Subsidiary
and (2) such Person acquired or such newly formed Subsidiary shall be a
Guarantor.

 

9.20         Additional Obligors.  Promptly, but in any event within 30 days of
Borrower or any Subsidiary creating or acquiring a Wholly Owned Subsidiary
(other than a Foreign Subsidiary) after the Closing Date (each such Subsidiary
referred to herein as an “Additional Obligor” and collectively as the “Additional
Obligors”), Borrower shall cause each such Subsidiary to execute and
deliver all such agreements, guarantees, documents and certificates (including
any amendments to the Credit Documents and a Joinder Agreement substantially in
the form of Exhibit K) as the Administrative Agent may reasonably
request and do such other acts and things as the Administrative Agent may
reasonably request in order to have such Subsidiary guarantee the Obligations
in accordance with the terms of the Credit Documents.

 

9.21         Limitation on Designated Senior
Indebtedness.  Borrower will not
and will not permit any Subsidiary to, designate or permit the designation of
any Indebtedness (other than the Obligations) as “Designated Senior
Indebtedness” or “Designated Guarantor Senior Indebtedness” for purposes of,
and as defined in, the Senior Subordinated Notes Documents.

 

9.22         Limitation on Change of Principal
Place of Business or Corporate Name. 
Each Obligor shall not change its principal place of business or its
corporate name unless it shall have (a) given the Administrative Agent at least
thirty days’ advance written notice of such change, and (b) filed in all
necessary jurisdictions such documents as may be necessary to continue without
impairment or interruption the perfection and priority of the liens on the
Collateral in favor of the Administrative Agent pursuant to the Security
Documents.

 

9.23         Replacement Documentation.  Upon receipt of an affidavit of an officer
of the Administrative Agent as to the loss, theft, destruction or mutilation of
any Note or any other Security Document which is not of public record, and, in
the case of any such mutilation, upon surrender and cancellation of any such
Note or other Security Document, Borrower will issue, in lieu thereof, a
replacement Note or other Security Document in the same principal amount and
otherwise of like tenor upon receipt by Borrower of a suitable indemnity.

 

Section 10.             Events of Default.  If one or more of the following events (herein called “Events
of Default”) shall occur and be continuing:

 

(a)           (i) Borrower shall
default in the payment when due (whether at stated maturity upon prepayment or
repayment or acceleration or otherwise) of any principal of any Loan, or (ii)
Borrower shall default in the payment when due of interest on any Loan or any
Reimbursement Obligation or any fee or any other amount payable by it hereunder

 

83

 

or under any
other Credit Document when due and such default under this clause (ii) shall
have continued unremedied for five (5) or more Business Days; or

 

(b)           Any Obligor or any
Subsidiary (the Obligors and such Subsidiaries herein collectively called the “Relevant
Parties” and each, a “Relevant Party”) shall default in the payment
when due of any principal of or interest on any of its Indebtedness (other than
the Loans) aggregating $5.0 million or more, beyond the period of grace, if
any, provided in the instrument or agreement under which such Indebtedness was
created, after giving effect to any consents or waivers relating thereto; or
any event specified in any note, agreement, indenture or other document
evidencing or relating to any Indebtedness aggregating $5.0 million or more if
the effect of such event (after giving effect to any consents or waivers
relating thereto) is to cause, or (with the giving of any notice or the lapse
of time or both) to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due, or to be prepaid in full (whether by redemption,
purchase, offer to purchase or otherwise), prior to its stated maturity; or any
Relevant Party shall default in the payment when due of any amount aggregating
$1.0 million or more under any Swap Contract; or

 

(c)           Any representation
or warranty made or deemed made in any Credit Document (or in any modification
or supplement thereto) by any Relevant Party or in any certificate furnished to
any Creditor pursuant to the provisions thereof, shall prove to have been false
or misleading as of the time made, deemed made or furnished in any material
respect; or

 

(d)           Any Obligor shall
default in the performance of any of its obligations under any of Sections
9.1(e) or 9.5 through 9.12 and 9.14 through 9.23; or any Obligor shall default
in the performance of any of its obligations under Section 5.2 of the Security
Agreement; or Borrower shall default in the performance of its obligations
under Section 9.1(d) or (j) and such default shall continue unremedied for five
(5) Business Days; or any Obligor shall default in the performance of any of
its other obligations in this Agreement, the Security Documents or the Letter
of Credit Documents and such default shall continue unremedied for a period of
thirty days after written notice thereof to such Obligor or Borrower by the
Administrative Agent; or

 

(e)           Any Relevant Party
shall not, or shall admit in writing its inability to, or be generally unable
to, pay its debts as such debts become due; or

 

(f)            Any Relevant Party
shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy
Code (as now or hereafter in effect), (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or readjustment of debts, (v) fail to controvert
within 60 days or in a timely and appropriate manner, or acquiesce in writing
to, any petition filed against it in an involuntary case under the Bankruptcy
Code, or (vi) take any corporate action by its board of directors or analogous
governing body for the purpose of effecting any of the foregoing; or

 

(g)           A proceeding or case
shall be commenced, without the application or consent of the affected Relevant
Party, in any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or readjustment
of its debts, (ii) the appointment of a trustee, receiver, custodian,
liquidator

 

84

 

or the like of
such Relevant Party or of all or any substantial part of its assets, or (iii)
similar relief in respect of such Relevant Party under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and either (1) such proceeding shall not be actively
contested by such Relevant Party, or (2) such proceeding or case shall continue
undismissed, undischarged or unbonded, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 or more days; or an order for relief
against any Relevant Party shall be entered in an involuntary case under the
Bankruptcy Code; or

 

(h)           A final judgment or
judgments for the payment of money in excess of $10.0 million in the aggregate
(exclusive of judgment amounts to the extent covered by insurance) or a final
judgment or judgments which is reasonably likely to have a Material Adverse
Effect shall be rendered by one or more courts, administrative tribunals or
other bodies having jurisdiction against any Relevant Party and the same shall
not be discharged (or provision shall not be made for such discharge), vacated
or bonded pending appeal, or a stay of execution thereof shall not be procured,
within 45 days from the date of entry thereof and such Relevant Party shall
not, within said period of 45 days, or such longer period during which
execution of the same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or

 

(i)            Any member of the
ERISA Group shall fail to pay when due an amount or amounts aggregating in
excess of $2.5 million which it shall have become liable to pay under Title IV
of ERISA; or notice of intent to terminate a Material Plan shall be filed under
Title IV of ERISA by any member of the ERISA Group, any plan administrator or
any combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate, to impose liability (other than for premiums
under Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition shall exist by reason
of which the PBGC would be entitled to obtain a decree adjudicating that any
Material Plan must be terminated; or there shall occur a complete or partial
withdrawal from, or a default, within the meaning of Section 4219(c)(5) of
ERISA, with respect to, one or more Multiemployer Plans which could reasonably
be expected to cause one or more members of the ERISA Group to incur a payment
obligation in excess of $2.5 million; or

 

(j)            Any Change of
Control; or

 

(k)           Any Security
Document after delivery thereof at any time shall cease to be in full force and
effect or shall for any reason fail to create or cease to maintain a valid and
duly perfected first priority security interest in and Lien upon (subject to
Prior Liens and Permitted Liens (but only to the extent that the law or
regulation creating or authorizing such Permitted Lien provides that such
Permitted Lien must be superior to the Lien and security interest created and
evidenced by the Security Documents)) any portion of the Collateral, except for
(A) released Collateral or (B) any Collateral in which a security interest may
not be perfected by the filing of UCC financing statements or by possession of
such Collateral and possession of such Collateral by the Administrative Agent
is not required by the Security Documents or this Agreement; or

 

(l)            Any Guarantee
ceases to be in full force and effect or any of the Guarantors repudiates, or
attempts to repudiate, any of its obligations under any of the Guarantees (except
Guarantors released from their obligations under Section 6.2); or

 

85

 

(m)          The subordination
provisions relating to any Senior Subordinated Note Document (the “Subordination
Provisions”) shall fail to be enforceable by the Revolving Credit
Lenders (which have not effectively waived the benefits thereof) in accordance
with the terms thereof, or any Obligation shall fail to constitute Senior
Indebtedness or Guarantor Senior Indebtedness (as defined in the Senior
Subordinated Note Documents), or Borrower or any Subsidiary shall, directly or
indirectly, disavow or contest in any manner any of the Subordination
Provisions; or

 

(n)           The occurrence of
any uninsured Casualty Event with respect to any material portion of the
Collateral;

 

THEREUPON:  (1) in the case of an Event of Default other
than one referred to in clause (f) or (g) of this Section 10, the
Administrative Agent may, and upon written direction of the Majority Revolving
Credit Lenders shall, by notice to Borrower, terminate the Revolving Credit
Commitments and/or declare the principal amount then outstanding of, and the
accrued interest on, the Loans, the Reimbursement Obligations and all other
amounts payable by Borrower hereunder and under the Notes (including any
amounts payable under Section 5.5 or 5.6) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by Borrower, reduce any claim to judgment, take any
other action permitted by law and/or take any action permitted to be taken by
the Security Documents during the existence of an Event of Default; and (2) in
the case of the occurrence of an Event of Default referred to in clause (f) or
(g) of this Section 10, the Revolving Credit Commitments shall automatically be
terminated and the principal amount then outstanding of, and the accrued
interest on, the Loans, the Reimbursement Obligations and all other amounts
payable by Borrower hereunder and under the Notes (including any amounts
payable under Section 5.5 or 5.6) shall automatically become immediately due
and payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by Borrower.

 

In addition,
Borrower agrees, upon the occurrence and during the continuance of any Event of
Default if the Administrative Agent has declared the principal amount then
outstanding of, and accrued interest on, the Revolving Credit Loans, and all
other amounts payable to the Revolving Credit Lenders hereunder and under the
Notes evidencing such Loans to be due and payable, it may and shall, if
requested by the Majority Revolving Credit Lenders through the Administrative
Agent (and, in the case of any Event of Default referred to in clause (f) or
(g) of this Section 10 with respect to any Relevant Party, forthwith, without
any demand or the taking of any other action by the Administrative Agent or
such Revolving Credit Lenders) provide cover for the Letter of Credit
Liabilities by paying to the Administrative Agent immediately available funds
in an amount equal to the then aggregate undrawn face amount of all Letters of
Credit, which funds shall be held by the Administrative Agent in the Collateral
Account as collateral security in the first instance for the Letter of Credit
Liabilities and be subject to withdrawal only as provided in the Security
Agreement.

 

Section 11.             The Administrative Agent.

 

11.1         General Provisions.  Each of the Revolving Credit Lenders and the Issuing Lender
hereby irrevocably appoints the Administrative Agent as its agent and
authorizes the Administrative Agent to take such actions on its behalf and to
exercise such powers as are delegated to the Administrative Agent by the terms
hereof, together with such actions and powers as are reasonably incidental
thereto.

 

The Revolving
Credit Lender or other financial institution serving as the Administrative
Agent hereunder shall have the same rights and powers in its capacity as a
Revolving Credit

 

86

 

Lender as any
other Revolving Credit Lender and may exercise the same as though it were not
the Administrative Agent, and such bank and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of business with Borrower
or any Subsidiary or other Affiliate thereof as if it were not the
Administrative Agent hereunder.

 

The
Administrative Agent shall not have any duties or obligations except those
expressly set forth herein.  Without
limiting the generality of the foregoing, (a) the Administrative Agent shall
not be subject to any fiduciary or other implied duties, regardless of whether
a Default or Event of Default has occurred and is continuing, (b) the
Administrative Agent shall not have any duty to take any discretionary action
or exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby that the Administrative Agent is required to exercise
in writing by the Majority Revolving Credit Lenders (or such other number or
percentage of the Revolving Credit Lenders as shall be necessary under the
circumstances as provided in Section 12.4), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and
shall not be liable for the failure to disclose, any information relating to
Borrower or any Subsidiary that is communicated to or obtained by the financial
institution serving as Administrative Agent or any of its Affiliates in any
capacity.  The Administrative Agent
shall not be liable for any action taken or not taken by it with the consent or
at the request of the Majority Revolving Credit Lenders (or such other number
or percentage of the Revolving Credit Lenders as shall be necessary under the
circumstances as provided in Section 12.4) or in the absence of its own gross
negligence or willful misconduct.  The
Administrative Agent shall be deemed not to have knowledge of any Default or
Event of Default unless and until written notice thereof is given to the
Administrative Agent by Borrower or a Revolving Credit Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with this Agreement or any other Credit Document, (ii) the contents
of any certificate, report or other document delivered hereunder or under any
other Credit Document or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness
of this Agreement or any other Credit Document or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth in
Section 7 or elsewhere herein, other than to confirm receipt of items expressly
required to be delivered to the Administrative Agent.

 

The
Administrative Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon.  The Administrative
Agent may consult with legal counsel (who may be counsel for Borrower),
independent accountants and other experts selected by it, and shall not be
liable for any action taken or not taken by it in accordance with the advice of
any such counsel, accountants or experts.

 

The
Administrative Agent may perform any and all its duties and exercise its rights
and powers by or through any one or more sub-agents appointed by the
Administrative Agent.  The
Administrative Agent and any such sub-agent may perform any and all its duties
and exercise its rights and powers through their respective Affiliates,
directors, officers, employees, agents and advisors (“Related Parties”).  The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such subagent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.

 

87

 

Subject to the
appointment and acceptance of a successor Administrative Agent as provided in
this paragraph, the Administrative Agent may resign at any time by notifying
the Revolving Credit Lenders, the Issuing Lender and Borrower.  Upon any such resignation, the Majority
Revolving Credit Lenders shall have the right, in consultation with Borrower,
to appoint a successor, subject to the approval of Borrower, whose consent
shall not be unreasonably withheld; provided that such Borrower approval
shall not be necessary if an Event of Default shall have occurred and be
continuing.  If no successor shall have
been so appointed by the Majority Revolving Credit Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Revolving Credit Lenders and the Issuing Lender, appoint
a successor Administrative Agent.  Upon
the acceptance of its appointment as Administrative Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. The fees payable by Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between Borrower and such successor.  After the Administrative Agent’s resignation
hereunder, the provisions of this Section 11 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.

 

Each Revolving
Credit Lender acknowledges that it has, independently and without reliance upon
the Administrative Agent or any other Revolving Credit Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement.  Each Revolving Credit Lender also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other
Revolving Credit Lender and based on such documents and information as it shall
from time to time deem appropriate, continue to make its own decisions in
taking or not taking action under or based upon this Agreement, any related
agreement or any document furnished hereunder or thereunder.

 

11.2         Indemnification.  Each Revolving Credit Lender agrees to indemnify and hold
harmless the Administrative Agent and the Lead Arranger (to the extent not
promptly reimbursed under Section 12.3, but without limiting the obligations of
Borrower under Section 12.3), ratably in accordance with the aggregate
principal amount of the Loans and Reimbursement Obligations held by the
Revolving Credit Lenders (or, if no Loans or Reimbursement Obligations are at
the time outstanding, ratably in accordance with their respective Revolving
Credit Commitments), for any and all liabilities (including pursuant to any
Environmental Law), obligations, losses, damages, penalties, actions,
judgments, deficiencies, suits, costs, expenses (including reasonable
attorney’s fees) or disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Administrative Agent or the
Lead Arranger (including by any Revolving Credit Lender) arising out of or by
reason of any investigation in or in any way relating to or arising out of any
Credit Document or any other documents contemplated by or referred to therein
for any action taken or omitted to be taken by the Administrative Agent or the
Lead Arranger under or in respect of any of the Credit Documents or other such
documents or the transactions contemplated thereby (including the costs and
expenses that Borrower is obligated to pay under Section 12.3, including any
payments under any indemnity that the Administrative Agent is required to issue
in its individual capacity in connection with the payoff of Borrower’s prior
lender and including also any payments under any indemnity that the
Administrative Agent is required to issue to any Revolving Credit Lender
referred to in Section 4.1(c) of the Security Agreement, or to any bank
referred to in Section 4.2 of the Security Agreement to which remittances in
respect of Accounts, as defined therein, are to be made, but excluding, unless
a Default has occurred and is continuing, normal administrative costs and
expenses incident to the performance of its agency duties hereunder) or the

 

88

 

enforcement of
any of the terms hereof or thereof or of any such other documents; provided,
however, that no Revolving Credit Lender shall be liable for any of the
foregoing to the extent they are determined by a court of competent
jurisdiction in a final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of the party to be indemnified. The
agreements set forth in this Section 11.2 shall survive the payment of all
Loans and other obligations hereunder and shall be in addition to and not in
lieu of any other indemnification agreements contained in any other Credit
Document.

 

11.3         Consents Under Other Credit Documents.  Except as otherwise provided in this
Agreement and the other Credit Documents, the Administrative Agent may, with
the prior consent of the Majority Revolving Credit Lenders (but not otherwise),
consent to any modification, supplement or waiver under any of the other Credit
Documents.

 

11.4         Collateral Sub-Agents.  Each Revolving Credit Lender by its
execution and delivery of this Agreement agrees, as contemplated by Section 4.3
of the Security Agreement, that, in the event it shall hold any Permitted
Investments referred to therein, such Permitted Investments shall be held in
the name and under the control of such Revolving Credit Lender, and such
Revolving Credit Lender shall hold such Permitted Investments as a collateral
subagent for the Administrative Agent thereunder.  Borrower by its execution and delivery of this Agreement hereby
consents to the foregoing.

 

11.5         Other
Agents.  Notwithstanding the
provisions of this Agreement or any of the other Credit Documents, the Lead
Arrangers, the Documentation Agents, and the Syndication Agent shall have no
powers, rights, duties, responsibilities or liabilities with respect to this
Agreement and the other Credit Documents.

 

Section 12.             Miscellaneous.

 

12.1         Rights and Remedies.  No failure on the part of any Creditor to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under any Credit Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege under any Credit Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.  The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

 

12.2         Notices.  All notices, requests and other communications
provided for herein and under the Security Documents (including any
modifications of, or waivers, requests or consents under, this Agreement) shall
be given or made in writing (including by facsimile) delivered to the intended
recipient at the “Address for Notices” specified below its name on the
signature pages hereof; or, as to any party, at such other address as shall be
designated by such party in a notice to each other party.  Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been duly given when
transmitted by facsimile or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.  Any Notice of Borrowing or Notice of
Continuation/Conversion shall be deemed to have been received when actually
received.

 

12.3         Expenses,
Indemnification, Etc.

 

(a)           The Obligors, jointly and severally,
agree to pay or reimburse:

 

(i)            the Lead Arranger
and the Administrative Agent for all of their reasonable out-of-pocket costs
and expenses (including the reasonable fees and expenses of counsel) in
connection with (1) the negotiation, preparation,

 

89

 

execution and
delivery of the Credit Documents, including this Agreement, and the extension
of credit hereunder and (2) the negotiation or preparation of any modification,
supplement or waiver of any of the terms of any Credit Document (whether or not
consummated or effective);

 

(ii)           each of the
Revolving Credit Lenders and the Administrative Agent for all reasonable
out-of-pocket costs and expenses of the Revolving Credit Lenders and the
Administrative Agent (including the reasonable fees and expenses of legal
counsel) in connection with (1) any Default or Event of Default and any
enforcement or collection proceedings resulting therefrom, including all manner
of participation in or other involvement with (x) bankruptcy, insolvency,
receivership, foreclosure, winding up or liquidation proceedings, (y) judicial
or regulatory proceedings and (z) workout, restructuring or other negotiations
or proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (2) the enforcement of this Section
12.3; and

 

(iii)          each of the
Revolving Credit Lenders and the Administrative Agent for all reasonable costs,
expenses, taxes, assessments and other charges incurred in connection with any
filing, registration, recording or perfection of any security interest
contemplated by any Credit Document or any other document referred to therein.

 

(b)           The Obligors,
jointly and severally, hereby agree to indemnify each Creditor and their
respective Affiliates, directors, trustees, officers, employees and agents
(each, an “Indemnitee”) from, and hold each of them harmless against,
and that no Indemnitee will have any liability for, any and all Losses incurred
by any of them (including any and all Losses incurred by the Administrative
Agent, the Lead Arranger or the Issuing Lender to any Revolving Credit Lender,
whether or not any Creditor is a party thereto) directly or indirectly arising
out of or by reason of or relating to the negotiation, execution, delivery,
performance, administration or enforcement of any Credit Document, any of the
Transactions contemplated by the Credit Documents, any breach by any Obligor of
any representation, warranty, covenant or other agreement contained in any of
the Credit Documents, the use or proposed use of any of the Loans or Letters of
Credit or the use of any collateral security for the Loans (including the
exercise by any Creditor of the rights and remedies or any power of attorney
with respect thereto and any action or inaction in respect thereof), but
excluding any such Losses to the extent arisen from the gross negligence or bad
faith of the Indemnitee.

 

Without
limiting the generality of the foregoing, the Obligors, jointly and severally,
will indemnify each Creditor and each other Indemnitee from, and hold each
Creditor and each other Indemnitee harmless against, any Losses described in
the preceding sentence arising under any Environmental Law as a result of (A)
the past, present or future operations of Borrower or any Subsidiary (or any
predecessor in interest to Borrower or any Subsidiary), (B) the past, present or
future condition of any site or facility owned, operated or leased at any time
by Borrower or any Subsidiary (or any such predecessor in interest), or (C) any
Release or threatened Release of any Hazardous Materials at, under or from any
such site or facility, including any such Release or threatened Release that
shall occur during any period when any Creditor shall be in possession of any
such site or facility following the exercise by such Creditor of any of its
rights and remedies hereunder or under any of the Security Documents; provided,
however, that the indemnity hereunder shall be subject to the exclusions
from indemnification set forth in the preceding sentence.

 

90

 

To the extent
that the undertaking to indemnify and hold harmless set forth in this Section
12.3 or any other provision of any Credit Document providing for
indemnification is unenforceable because it is violative of any law or public
policy or otherwise, the Obligors, jointly and severally, shall contribute the
maximum portion that each of them is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all indemnified liabilities
incurred by any of the Persons indemnified hereunder.

 

The Obligors
also agree that no Indemnitee shall have any liability (whether direct or
indirect, in contract or tort or otherwise) for any Losses to any Obligor or
any Obligor’s security holders or creditors resulting from, arising out of, in
any way related to or by reason of any matter referred to in any
indemnification or expense reimbursement provisions set forth in this Agreement
or any other Credit Document, except to the extent that any Loss resulted from
the gross negligence or bad faith of such Indemnitee.

 

The Obligors
agree that, without the prior written consent of the Administrative Agent and
the Majority Revolving Credit Lenders which consent shall not be unreasonably
withheld, no Obligor will settle, compromise or consent to the entry of any
judgment in any pending or threatened Proceeding in respect of which
indemnification is reasonably likely to be sought under the indemnification
provisions of this Section 12.3 (whether or not any Indemnitee is an actual or
potential party to such Proceeding), unless such settlement, compromise or
consent includes an unconditional written release of each Indemnitee from all
liability arising out of such Proceeding and does not include any statement as
to an admission of fault, culpability or failure to act by or on behalf of any
Indemnitee and does not involve any payment of money or other value by any
Indemnitee or any injunctive relief or factual findings or stipulations binding
on any Indemnitee.

 

12.4         Amendments,
Etc.

 

(a)           Any provision of
this Agreement or any other Credit Document may be amended, modified or
supplemented by an instrument in writing signed by the Obligors and the
Majority Revolving Credit Lenders, or by the Obligors and the Administrative
Agent acting with the written consent of the Majority Revolving Credit Lenders,
and any provision of this Agreement may be waived by an instrument in writing
signed by the Obligors and the Majority Revolving Credit Lenders, or by the
Obligors and the Administrative Agent acting with the written consent of the
Majority Revolving Credit Lenders and Borrower; provided, however,
that:

 

(i)            no amendment,
modification, supplement or waiver shall, unless by an instrument signed by all
of the Revolving Credit Lenders or by the Administrative Agent acting with the
written consent of each Revolving Credit Lender (with Obligations directly
affected in the case of clause (I)): 
(I) extend the scheduled final maturity of any Loan or Note, or extend
the stated expiration date of any Letter of Credit beyond the Revolving Credit
Commitment Termination Date, or reduce the rate of interest (other than any
waiver of any increase in the interest rate applicable to any of the Loans
pursuant to clause (b) of Section 3.2) or fees thereon, or extend the time of
payment of interest or fees thereon, or reduce the principal amount thereof,
(II) extend the final maturity of any of the Revolving Credit Commitments (or
reinstate any Commitment terminated pursuant to Section 10), (III) change the
currency in which any Obligation is payable, (IV) amend the terms of this
Section 12.4 or Section 4.7, 5 or 11.3, (V) reduce the percentages specified in
the definition of the term “Majority Revolving Credit Lenders” or amend any
provision of any Credit Document requiring the consent of all the Revolving
Credit Lenders or reduce

 

91

 

any other
percentage of the Revolving Credit Lenders required to make any determinations
or waive any rights hereunder or to modify any provision hereof (it being
understood that, the Increased Facility Amount, if extended by any Revolving
Credit Lender, shall be, and with the consent of the Majority Revolving Credit
Lenders, other additional extensions of credit pursuant to this Agreement may
be, included in the determination of the Majority Revolving Credit Lenders
without notice to or consent of any other Revolving Credit Lender or the
Administrative Agent on substantially the same basis as the Revolving Credit
Commitments (and related extensions of credit) are included on the Closing
Date), (VI) release any Guarantor from its obligations under Section 6 (unless
permitted by this Agreement), (VII) consent to the assignment or transfer by
any Obligor of any of its rights and obligations under any Credit Document,
(VIII) release all or substantially all the Collateral or terminate the Lien
under any Credit Document in respect of all or substantially all the Collateral
(except as permitted by the Credit Documents) or agree to additional
obligations (other than the Obligations and the Increased Facility Amount)
being secured by the Collateral, (IX) amend Section 12.3 or any other
indemnification and expense reimbursement provision set forth in any Credit
Document, (X)increase the Normal Advance Rate in excess of sixty-five percent
(65%) of the aggregate value or Eligible Inventory or in excess of eighty-five
percent (85%) of the Appraised Inventory Liquidation Value of Eligible
Inventory, it being understood, however,
that: (a) the foregoing shall not prevent the Administrative Agent, in its
administration of the Revolving Credit Loans, from restoring any component of
the Borrowing Base which had been lowered by the Administrative Agent back to
the value of such component, as stated in this Agreement or to an intermediate
value, or (XI) increase the aggregate principal amount available to be borrowed
under this Agreement other than in accordance with the requirements for the
Increased Facility Amount.

 

(ii)           no such amendment,
modification, supplement or waiver shall increase the Revolving Credit
Commitments of any Revolving Credit Lender over the amount thereof then in
effect without the consent of such Revolving Credit Lender (it being understood
that amendments, modifications or waivers of conditions precedent, covenants,
Default or Events of Default shall not constitute an increase of the Commitment
of any Revolving Credit Lender);

 

(iii)          any modification or
supplement of or waiver with respect to Section 11 which affects the
Administrative Agent in its capacity as such shall require the consent of the
Administrative Agent;

 

(iv)          no consent of any
Revolving Credit Lender need be obtained, and the Administrative Agent is
hereby authorized, to release any Lien securing the Obligations on Property
which is the subject of any Disposition permitted by this Agreement and the
other Credit Documents;

 

(v)           no reduction of the
percentage specified in the definition of “Majority Revolving Credit Lenders”
shall be made without the consent of each Revolving Credit Lender (it being
understood that the Increased Facility Amount, if extended by any Revolving
Credit Lender, shall be, and with the consent of the Majority Revolving Credit
Lenders, other additional extensions of credit pursuant to this Agreement may
be, included in any such definition without notice to or consent of any other
Revolving Credit Lender or the Administrative Agent on

 

92

 

substantially
the same terms as the Revolving Credit Commitments (and related extensions of
credit) are included on the Closing Date);

 

(vi)          no amendment,
modification or waiver shall make any change to Section 2.1(e) or the
definitions of “Swing Loan Commitment”, “Swing Loan Maturity Date” or “Swing
Loans” or the Swing Loan Note without the consent of the Swing Loan Lender; and

 

(vii)         no amendment,
modification or waiver shall affect the rights or duties of the Issuing Lender
in its capacity as such or alter the obligation of any Revolving Credit Lender
pursuant to Section 2.3(e) or 2.3(f) without the consent of the Issuing Lender.

 

(b)           If, in connection
with any proposed change, waiver, discharge or termination to any of the
provisions of this Agreement as contemplated by Section 12.4(a)(i) (other than
clause (I) of such section), the consent of the Majority Revolving Credit
Lenders is obtained but the consent of one or more of such other Revolving
Credit Lenders whose consent is required is not obtained, then Borrower shall
have the right to replace each such non-consenting Revolving Credit Lender or
Revolving Credit Lenders (so long as all non-consenting Revolving Credit
Lenders are so replaced) with one or more Replacement Lenders pursuant to
Section 2.12 so long as at the time of such replacement, each such Replacement
Lender consents to the proposed change, waiver, discharge or termination; provided,
however, that Borrower shall not have the right to replace a Revolving
Credit Lender solely as a result of the exercise of such Revolving Credit
Lender’s rights (and the withholding of any required consent by such Revolving
Credit Lender) pursuant to clause (I) of Section 12.4(a)(i).

 

12.5         Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.

 

12.6         Assignments and Participations.

 

(a)           No Obligor may
assign its respective rights or obligations hereunder or under the Notes or any
other Credit Document without the prior written consent of all of the Revolving
Credit Lenders.

 

(b)           Each Revolving
Credit Lender may assign to any Eligible Person any of its Loans, its Notes,
its Letter of Credit Interests and its Revolving Credit Commitments (but only
with the consent (which shall not be unreasonably withheld or delayed) of
Borrower and the Administrative Agent and, in the case of the Revolving Credit
Commitments, the Issuing Lender); provided, however, that (i) no
such consent by Borrower, the Issuing Lender or the Administrative Agent shall
be required in the case of any assignment to another Revolving Credit Lender or
any Revolving Credit Lender’s Affiliate (in which case, the assignee and
assignor Revolving Credit Lenders shall give notice of the assignment to the
Administrative Agent); (ii) no consent of Borrower need be obtained if any
Default or Event of Default shall have occurred and be continuing; (iii) each
assignment, other than to a Revolving Credit Lender or any Revolving Credit
Lender’s Affiliate (unless Borrower and the Administrative Agent otherwise
agree), shall be in an aggregate amount at least equal to $5.0 million unless
the assigning Revolving Credit Lender’s exposure is reduced to $0; (iv) subject
to (i) above, assignments under the Revolving Facility will require the consent
of the Issuing Lender, such consent not to be unreasonably withheld; and (v) in
no event may any such assignment be made to any Obligor or any of its
Affiliates without consent of all Revolving Credit Lenders.  Any

 

93

 

assignment of
a Loan shall be effective only upon appropriate entries with respect thereto
being made in the Register (and each Note shall expressly so provide).  Any assignment or transfer of a Loan shall
be registered on the Register only upon surrender for registration of
assignment or transfer of the Note evidencing such Loan (if a Note was issued
in respect thereof), accompanied by an instrument in writing substantially in
the form of Exhibit E, and upon consent thereto by Borrower, the
Administrative Agent and the Issuing Lender to the extent required above, one
or more new Notes in the same aggregate principal amount shall be issued to the
designated assignee and the old Notes shall be returned by the Administrative
Agent to Borrower marked “cancelled”. 
Upon execution and delivery by the assignee to Borrower and the
Administrative Agent of an instrument in writing substantially in the form of Exhibit
E, and upon consent thereto by Borrower, the Administrative Agent and the
Issuing Lender to the extent required above, and in the case of a Loan, upon
appropriate entries being made in the Register the assignee shall have, to the
extent of such assignment (unless otherwise provided in such assignment with
the consent of the Administrative Agent), the obligations, rights and benefits
of a Revolving Credit Lender hereunder holding the Commitment(s), Loans (or
portions thereof) and Letter of Credit Interests assigned to it (in addition to
the Commitment(s), Letter of Credit Interests and Loans, if any, theretofore
held by such assignee) and the assigning Revolving Credit Lender shall, to the
extent of such assignment, be released from the Commitment(s) (or portion(s)
thereof) so assigned.  At the time of
each assignment pursuant to this Section 12.6(b) to a Person which is not
already a Revolving Credit Lender hereunder and which is not a United States
person (as such term is defined in Section 7701(a)(3) of the Code) for federal
income tax purposes, the respective assignee Revolving Credit Lender shall
provide to Borrower and the Administrative Agent the appropriate Internal
Revenue Service Forms (and, if applicable, a Section 5.6 Certificate) described
in Section 5.6(b).  Upon any such
assignment (other than to a Revolving Credit Lender or any Affiliate of a
Revolving Credit Lender and other than in connection with the Lead Arranger’s
initial syndication of the Loans the Lead Arranger’s next succeeding five
assignments) the assignee Revolving Credit Lender shall pay a fee of $3,500 to
the Administrative Agent.  Upon any such
assignment, certain rights and obligations of the assigning Revolving Credit
Lender shall survive as set forth in Section 12.7.

 

(c)           A Revolving Credit
Lender may sell or agree to sell to one or more other Eligible Persons a
participation in all or any part of any Loans and Letter of Credit Interests
held by it, or in its Revolving Credit Commitments, in which event each
purchaser of a participation (a “Participant”) shall be entitled to the
rights and benefits of the provisions of Section 5 (provided, however,
that no Participant shall be entitled to receive any greater amount pursuant to
Section 5 than the transferor Revolving Credit Lender would have been entitled
to receive in respect of the participation effected by such transferor
Revolving Credit Lender had no participation occurred) with respect to its
participation in such Loans, Letter of Credit Interests and Revolving Credit
Commitments as if such Participant were a “Revolving Credit Lender” for
purposes of said Section, but, except as otherwise provided in Section 4.7(c),
shall not have any other rights or benefits under this Agreement or any Note or
any other Credit Document (the Participant’s rights against such Revolving
Credit Lender in respect of such participation to be those set forth in the
agreements executed by such Revolving Credit Lender in favor of the
Participant).  All amounts payable by
Borrower to any Revolving Credit Lender under Section 5 in respect of Loans,
Letter of Credit Interests and its Revolving Credit Commitments, shall be
determined as if such Revolving Credit Lender had not sold or agreed to sell
any participation in such Loans, Letter of Credit Interests and Revolving
Credit Commitments, and as if such Revolving Credit Lender were funding each of
such Loan, Letter of Credit Interests and Revolving Credit Commitments in the

 

94

 

same way that
it is funding the portion of such Loan, Letter of Credit Interests and
Revolving Credit Commitments in which no participations have been sold.  In no event shall a Revolving Credit Lender
that sells a participation agree with the Participant to take or refrain from
taking any action hereunder or under any other Credit Document, except that
such Revolving Credit Lender may agree with the Participant that it will not,
without the consent of the Participant, agree to any modification or amendment
set forth in subclauses (I), (II), (III) or (VIII) of clause (a)(i) of the
proviso to Section 12.4.

 

(d)           In addition to the
assignments and participations permitted under the foregoing provisions of this
Section 12.6, any Revolving Credit Lender may assign and pledge all or any
portion of its Loans and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any Operating Circular issued by such
Federal Reserve Bank and, in the case of a Revolving Credit Lender that is an
investment fund, any such Revolving Credit Lender may assign or pledge any
portion of its Loans and its Notes to its trustee in support of its obligations
to its trustee, without notice to or consent of Borrower or the Administrative
Agent.  No such assignment shall release
the assigning Revolving Credit Lender from its obligations hereunder.

 

(e)           A Revolving Credit
Lender may furnish any information concerning Borrower or any Subsidiary in the
possession of such Revolving Credit Lender from time to time to assignees and
participants (including prospective assignees and participants) subject,
however, to the provisions of Section 12.12. 
In addition, the Administrative Agent may furnish any information
concerning any Obligor or any of its Affiliates in the Administrative Agent’s
possession to any Affiliate of the Administrative Agent.  The Obligors shall assist any Revolving
Credit Lender (at such Revolving Credit Lender’s cost and expense) in
effectuating any assignment or participation pursuant to this Section 12.6 in
whatever manner such Revolving Credit Lender reasonably deems necessary,
including participation in meetings with prospective transferees.

 

12.7         Survival.  The obligations of the Obligors under
Sections 5.1, 5.5, 5.6 and 12.3, the obligations of each Guarantor under
Section 6.3, and the obligations of the Revolving Credit Lenders under Sections
5.6 and 11.2, shall survive the repayment of the Loans and Reimbursement
Obligations and the termination of the Revolving Credit Commitments and, in the
case of any Revolving Credit Lender that may assign any interest in its
Revolving Credit Commitments, Loans or Letter of Credit Interest hereunder,
shall (to the extent relating to such time as it was a Revolving Credit Lender)
survive the making of such assignment, notwithstanding that such assigning
Revolving Credit Lender may cease to be a “Revolving Credit Lender”
hereunder.  In addition, each
representation and warranty made, or deemed to be made by a notice of any
extension of credit, herein or pursuant hereto shall survive the execution and
delivery of this Agreement and the Notes and the making of any extension of
credit hereunder.

 

12.8         Captions.  The table of contents and captions and
section headings appearing herein are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Agreement.

 

12.9         Counterparts; Interpretation;
Effectiveness.  This Agreement
may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract. This Agreement and any
separate letter agreements with respect to fees payable to the Administrative
Agent constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings,
oral or written, relating to the subject matter hereof.  Except as provided in Section 7.2, this
Agreement shall

 

95

 

become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. 
Delivery of an executed counterpart of a signature page of this Agreement
by telecopy shall be effective as delivery of a manually executed counterpart
of this Agreement.

 

12.10       Governing Law; Submission to
Jurisdiction.

 

(a)           Each Credit Document
shall be governed by, and construed in accordance with, the law of the Commonwealth
of Massachusetts, without regard to the principles of conflicts of laws thereof
(except in the case of the other Credit Documents, to the extent otherwise
expressly stated therein).  Each Obligor
hereby irrevocably and unconditionally: 
(i) submits for itself and its property in any Proceeding relating to
any Credit Document to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general jurisdiction
of the courts of the Commonwealth of Massachusetts, the courts of the United
States of America for the District of Massachusetts, and appellate courts from
any thereof; (b) consents that any such Proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such Proceeding in any such court or that such Proceeding was brought in
an inconvenient court and agrees not to plead or claim the same; (c) agrees
that service of process in any such Proceeding may be effected by mailing a
copy thereof by registered or certified mail (or any substantially similar form
of mail), postage prepaid, to Borrower at its address set forth in Section 12.2
or at such other address of which the Administrative Agent shall have been  notified pursuant thereto; and (d) agrees
that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other
jurisdiction.

 

(b)           Each Obligor hereby
irrevocably appoints and designates CT Corporation System, as its true and
lawful attorney and duly authorized agent for service of legal process of such
Obligor.

 

12.11       Waivers.

 

(a)           The Borrower (and
all other Obligors) make each of the waivers included in Section 12.11(b),
below, knowingly, voluntarily, and intentionally, and understands that the
Administrative Agent and each Revolving Credit Lender, in establishing the
facilities contemplated hereby and in providing loans and other financial
accommodations to or for the account of the Borrower as provided herein,
whether now or in the future, is relying on such waivers.

 

(b)           EACH BORROWER, AND
EACH SUCH OBLIGOR 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
Obligations and the Collateral.

 

(ii)           Except as otherwise
specifically required hereby, the right to notice and/or hearing prior to the
Administrative Agent’s exercising of the Administrative Agent’s rights upon
default.

 

96

 

(iii)          THE RIGHT TO A JURY
IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE ADMINISTRATIVE AGENT OR
ANY REVOLVING CREDIT LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY
IS INITIATED BY OR AGAINST THE ADMINISTRATIVE AGENT OR ANY REVOLVING CREDIT
LENDER OR IN WHICH THE ADMINISTRATIVE AGENT OR ANY REVOLVING CREDIT LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER
PERSON AND THE ADMINISTRATIVE AGENT AND EACH REVOLVING CREDIT 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
Obligation, as stated on the books and records of the Administrative Agent,
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.

 

12.12       Confidentiality.  Each Creditor agrees to take normal and reasonable precautions to
maintain the confidentiality of information provided to it by Borrower or any
Subsidiary in connection with this Agreement to the extent it is not a matter
of general public knowledge or it was not previously known to the Revolving
Credit Lender at the time such information was provided to it or if previously
known, had become known to the Revolving Credit Lender or provided to it in
violation of an agreement of confidentiality; provided, however,
that any Creditor may disclose such information (a) at the request of any bank
regulatory or securities authority or the NAIC or in connection with an
examination of such Creditor by any such authority or the NAIC, (b) pursuant to
subpoena or other court process, (c) when required to do so in accordance with
the provisions of any applicable law, (d) at the discretion of any other
Governmental Authority, (e) to such Creditor’s Affiliates, independent auditors
and other professional advisors, (f) to any transferee or potential transferee
or participant or potential participant or to any direct or indirect
contractual counterparties in swap agreements or to the professional advisors
of such swap counterparties or (g) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or any other Credit Document or the enforcement of rights hereunder or
thereunder; provided, however, that the recipient of the
information agrees to comply with the provisions of this Section 12.12.

 

12.13       Independence of Representations,
Warranties and Covenants.  The
representations, warranties and covenants contained herein shall be independent
of each other and no exception to any representation, warranty or covenant
shall be deemed to be an exception to any other representation, warranty or
covenant contained herein unless expressly provided, nor shall any such
exception be deemed to permit any action or omission that would be in
contravention of applicable law.

 

12.14       Severability.  Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Agreement.

 

[Signature Pages Follow]

 

97

 

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

 

	
   

  	
  TUESDAY
  MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Mark E.
  Jarvis

  
	
   

  	
  Title:

  	
  Executive
  Vice President and Chief

  Financial Officer

  
	
   

  	
   

  
	
   

  	
  Address for
  Notices:

  
	
   

  	
   

  
	
   

  	
  Tuesday
  Morning Corporation

  
	
   

  	
  14621 Inwood
  Road

  
	
   

  	
  Addison, TX
  75001-3768

  
	
   

  	
  Attention:
  Mark E. Jarvis

  
	
   

  	
  Telecopier
  No.: (972) 392-1558

  
	
   

  	
  Telephone
  No.: (972) 934-7251

  

 

98

 

	
   

  	
  TMI HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Alan Oppenheimer

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  1105 North Market Street, Suite 1300

  
	
   

  	
  Wilmington, Delaware 19801

  
	
   

  	
  Attention: Mark E. Jarvis

  
	
   

  	
  Telecopier No.: (972) 392-1558

  
	
   

  	
  Telephone No.: (972) 934-7251

  

 

99

 

	
   

  	
  TUESDAY MORNING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Mark E. Jarvis

  
	
   

  	
  Title:

  	
  Executive Vice President and Chief

  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  c/o Tuesday Morning Corporation

  
	
   

  	
  14621 Inwood Road

  
	
   

  	
  Addison, TX 75001-3768

  
	
   

  	
  Attention: Mark E. Jarvis

  
	
   

  	
  Telecopier No.: (972) 392-1558

  
	
   

  	
  Telephone No.: (972) 934-7251

  

 

100

 

	
   

  	
  FRIDAY MORNING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Mark E. Jarvis

  
	
   

  	
  Title:

  	
  Executive Vice President and

  Treasurer

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  c/o Tuesday Morning Corporation

  
	
   

  	
  14621 Inwood Road

  
	
   

  	
  Addison, TX 75001-3768

  
	
   

  	
  Attention: Mark E. Jarvis

  
	
   

  	
  Telecopier No.: (972) 392-1558

  
	
   

  	
  Telephone No.: (972) 934-7251

  

 

101

 

	
   

  	
  DAYS OF THE WEEK, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Mark E. Jarvis

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  
	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  c/o Tuesday Morning Corporation

  
	
   

  	
  14621 Inwood Road

  
	
   

  	
  Addison, TX  75001-3768

  
	
   

  	
  Attention: Mark E. Jarvis

  
	
   

  	
  Telecopier No.: (972) 392-1558

  
	
   

  	
  Telephone No.: (972) 934-7251

  

 

102

 

	
   

  	
  NIGHTS OF THE WEEK, INC.

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Alan Oppenheimer

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  1105 North Market Street, Suite 1300

  
	
   

  	
  Wilmington, Delaware 19801

  
	
   

  	
  Attention: Mark E. Jarvis

  
	
   

  	
  Telecopier No.: (972) 392-1558

  
	
   

  	
  Telephone No.: (972) 934-7251

  

 

103

 

	
   

  	
  TUESDAY MORNING PARTNERS, LTD.

  
	
   

  	
   

  
	
  By: 

  	
  Days of the Week, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E. Jarvis

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
  c/o Tuesday Morning Corporation

  
	
   

  	
  14621 Inwood Road

  
	
   

  	
  Addison, TX  75001-3768

  
	
   

  	
  Attention: Mark E. Jarvis

  
	
   

  	
  Telecopier No.: (972) 392-1558

  
	
   

  	
  Telephone No.: (972) 934-7251

  
				

 

104

 

	
   

  	
  FLEET NATIONAL BANK, as

  Administrative Agent and Issuing Lender

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Linda H. Thomas

  
	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  Fleet National Bank

  
	
   

  	
  Retail and Apparel Group

  
	
   

  	
  100 Federal Street, MA DE 10009A

  
	
   

  	
  Boston, MA 02110

  
	
   

  	
  Attention: Linda H. Thomas

  
	
   

  	
  Telecopier No.: (617) 434-6685

  
	
   

  	
  Telephone No.: (617) 434-7000

  

 

105

 

	
   

  	
  REVOLVING CREDIT LENDERS

  
	
   

  	
   

  
	
   

  	
  FLEET NATIONAL BANK, as a Revolving

  Credit Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Linda H. Thomas

  
	
   

  	
  Title:

  	
  Managing Director

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  
	
   

  	
  Fleet National Bank

  
	
   

  	
  Retail and Apparel Group

  
	
   

  	
  100 Federal Street, MA DE 10009A

  
	
   

  	
  Boston, MA 02110

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
  Fleet National Bank

  
	
   

  	
  Retail and Apparel Group

  
	
   

  	
  100 Federal Street, MA DE 10009A

  
	
   

  	
  Boston, MA 02110

  
	
   

  	
  Attention: Linda H. Thomas

  
	
   

  	
  Telecopier No.: (617) 434-6685

  
	
   

  	
  Telephone No.: (617) 434-7000

  
				

 

106

 

	
   

  	
  WELLS FARGO BANK, N.A., as a

  Revolving Credit Lender and Syndication

  Agent

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  
	
   

  	
  Wells Fargo Bank, N.A.

  
	
   

  	
  1445 Ross Avenue, Suite 400

  
	
   

  	
  Dallas, Texas 75202

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  Wells Fargo Bank, N.A.

  
	
   

  	
  1445 Ross Avenue, Suite 400

  
	
   

  	
  Dallas, Texas 75202

  
	
   

  	
  Attention: Jason Weighter

  
	
   

  	
  Telecopier No.: (214) 969-0906

  
	
   

  	
  Telephone No.: (214) 740-1519

  

 

107

 

	
   

  	
  LASALLE BANK NATIONAL

  ASSOCIATION, as a Revolving Credit

  Lender and Documentation Agent

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  
	
   

  	
  LaSalle Bank National Association

  
	
   

  	
  135 South LaSalle Street

  
	
   

  	
  Chicago, Illinois 60603

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
  LaSalle Bank National Association

  
	
   

  	
  135 South LaSalle Street

  
	
   

  	
  Chicago, Illinois 60603

  
	
   

  	
  Attention: Keith Cable

  
	
   

  	
  Telecopier No.: (312) 904-6242

  
	
   

  	
  Telephone No.: (312) 904-7621

  
				

 

108

 

	
   

  	
  U.S. BANK NATIONAL ASSOCIATION,

  as a Revolving Credit Lender and

  Documentation Agent

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  
	
   

  	
  U.S. Bank National Association

  
	
   

  	
  One U.S. Bank Plaza

  
	
   

  	
  St. Louis, Missouri 63101

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. Bank National Association

  
	
   

  	
  One U.S. Bank Plaza

  
	
   

  	
  St. Louis, Missouri 63101

  
	
   

  	
  Attention: Amanda Smith

  
	
   

  	
  Telecopier No.: (314) 418-3859

  
	
   

  	
  Telephone No.: (314) 418-3638

  
				

 

109

 

	
   

  	
  WACHOVIA BANK, NATIONAL

  ASSOCIATION, as a Revolving Credit

  Lender and Documentation Agent

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  
	
   

  	
  Wachovia Bank, National Association

  
	
   

  	
  201 S College St.

  
	
   

  	
  17th Floor (NC 1183)

  
	
   

  	
  Charlotte, North Carolina 28288

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
  Wachovia Bank, National Association

  
	
   

  	
  1339 Chestnut Street, 12th Floor

  
	
   

  	
  PA 4843

  
	
   

  	
  Philadelphia, Pennsylvania 19107

  
	
   

  	
  Attention: Stephen Dorosh

  
	
   

  	
  Telecopier No.: (267) 321-6700

  
	
   

  	
  Telephone No.: (267) 321-6610

  
				

 

110

 

	
   

  	
  BANK LEUMI USA, as a Revolving Credit

  Lender

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  	
   

  
	
   

  	
  Bank Leumi USA

  
	
   

  	
  579 Fifth Avenue

  
	
   

  	
  New York, New York 10017

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
  Bank Leumi USA

  
	
   

  	
  579 Fifth Avenue

  
	
   

  	
  New York, New York 10017

  
	
   

  	
  Attention: Aliz Sadan

  
	
   

  	
  Telecopier No.: (212) 497-4317

  
	
   

  	
  Telephone No.: (212) 407-4350

  
				

 

111

 

	
   

  	
  FIRST AMERICAN BANK, as a Revolving

  Credit Lender

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  
	
   

  	
  First American Bank

  
	
   

  	
  8401 N. Central Expressway, Suite 500

  
	
   

  	
  Dallas, Texas 75225

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
  First American Bank

  
	
   

  	
  8401 N. Central Expressway, Suite 500

  
	
   

  	
  Dallas, Texas 75225

  
	
   

  	
  Attention: Paul Voorhies

  
	
   

  	
  Telecopier No.: (972) 419-3589

  
	
   

  	
  Telephone No.: (972) 419-3362

  
				

 

112

 

	
   

  	
  GENERAL ELECTRIC CAPITAL

  CORPORATION, as a Revolving Credit

  Lender

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  	
   

  
	
   

  	
  General Electric Capital Corporation

  
	
   

  	
  Commercial Finance

  
	
   

  	
  6 High Ridge Park, Bldg. 6C

  
	
   

  	
  Stamford, Connecticut 06927—5100

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
  General Electric Capital Corporation

  
	
   

  	
  Commercial Finance

  
	
   

  	
  6 High Ridge Park, Bldg. 6C

  
	
   

  	
  Stamford, Connecticut 06927-5100

  
	
   

  	
  Attention: Robert Obolewicz

  
	
   

  	
  Telecopier No.: (203) 316-7978

  
	
   

  	
  Telephone No.: (203) 316-7739

  
				

 

113

 

	
   

  	
  NATIONAL CITY BANK, as a Revolving

  Credit Lender

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  
	
   

  	
  National City Bank

  
	
   

  	
  155 East Broad Street

  
	
   

  	
  Columbus, Ohio 43215-0077

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  National City Bank

  
	
   

  	
  155 East Broad Street

  
	
   

  	
  Columbus, Ohio 43215-0077

  
	
   

  	
  Attention: Michael J. Durbin

  
	
   

  	
  Telecopier No.: (614) 463-8572

  
	
   

  	
  Telephone No.: (614) 463-8844

  
				

 

114

 

	
   

  	
  PB CAPITAL CORPORATION, as a

  Revolving Credit Lender

  
	
   

  	
   

  
	
  By: 

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Lending Office for all Loans:

  
	
   

  	
   

  	
   

  
	
   

  	
  PB Capital Corporation

  
	
   

  	
  590 Madison Avenue

  
	
   

  	
  New York, New York 10022

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
  PB Capital Corporation

  
	
   

  	
  590 Madison Avenue

  
	
   

  	
  New York, New York 10022

  
	
   

  	
  Attention: Nina Zhou

  
	
   

  	
  Telecopier No.: (212) 756-5536

  
	
   

  	
  Telephone No.: (212) 756-5627

  
				

 

115

 

ANNEX A

 

TUESDAY MORNING CORPORATION ALLOCATIONS

 

	
   

  	
   

  	
  Allocation

  	
   

  
	
  Institution

  	
   

  	
  Revolving
  Credit

  Commitments

  	
   

  
	
  Fleet
  National Bank

  	
   

  	
  $

  	
  27,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wells Fargo
  Bank, N.A.

  	
   

  	
  $

  	
  18,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LaSalle Bank
  National Association

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  U.S. Bank
  National Association

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wachovia
  Bank, National Association

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Bank Leumi
  USA

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  First
  American Bank

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  General
  Electric Capital Corporation

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  National
  City Bank

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  PB Capital
  Corporation

  	
   

  	
  $

  	
  9,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  135,000,000.00

  	
   

  

 

116

 

SCHEDULE 1.1(a)

 

REVOLVING
CREDIT LOANS

 

	
  Tier

  	
   

  	
  Leverage
  Ratio

  	
   

  	
  LIBOR
  Loans

  	
   

  	
  Alternate

  Base Rate Loans

  	
   

  
	
  I

  	
   

  	
  >2.25:1.0

  	
   

  	
  2.00

  	
  %

  	
  0.50

  	
  %

  
	
  II

  	
   

  	
  31.75:1.0
  but <2.25:1.0

  	
   

  	
  1.75

  	
  %

  	
  0.25

  	
  %

  
	
  III

  	
   

  	
  31.00:1.0
  but <1.75:1.0

  	
   

  	
  1.50

  	
  %

  	
  0.00

  	
  %

  
	
  IV

  	
   

  	
  30.50:1.0
  but <1.00:1.0

  	
   

  	
  1.25

  	
  %

  	
  0.00

  	
  %

  
	
  V

  	
   

  	
  <0.50:1.0

  	
   

  	
  1.00

  	
  %

  	
  0.00

  	
  %

  

 

APPLICABLE
REVOLVING CREDIT FEE PERCENTAGE

 

	
  Tier

  	
   

  	
  Leverage
  Ratio

  	
   

  	
  Applicable
  Revolving

  Credit Fee Percentage

  	
   

  
	
  I

  	
   

  	
  >2.25:1.0

  	
   

  	
  0.500

  	
  %

  
	
  II

  	
   

  	
  31.75:1.0
  but <2.25:1.0

  	
   

  	
  0.500

  	
  %

  
	
  III

  	
   

  	
  31.00:1.0
  but <1.75:1.0

  	
   

  	
  0.375

  	
  %

  
	
  IV

  	
   

  	
  30.50:1.0
  but <1.00 to 1.0

  	
   

  	
  0.300

  	
  %

  
	
  V

  	
   

  	
  <0.50:1.0

  	
   

  	
  0.250

  	
  %

  

 

117

 

SCHEDULE 1.1(b)

 

GUARANTORS

 

TMI Holdings, Inc.

 

Tuesday Morning, Inc.

 

Friday Morning, Inc.

 

Days of the Week, Inc.

 

Nights of the Week, Inc.

 

Tuesday Morning Partners, Ltd.

 

118

 

SCHEDULE 1.1(c)

 

EXISTING
LETTERS OF CREDIT

 

1.             $2,793,000.00
Standby Letter of Credit

Beneficiary:
Royal Insurance Company of America

Expires:
12/31/02

 

2.             $100,000.00
Standby Letter of Credit

Beneficiary:
Liberty Mutual Insurance Company

Expires:
12/31/02

 

3.             $1,100,000.00
Standby Letter of Credit

Beneficiary:
Royal Indemnity Company

Expires:
12/31/02

 

119

 

Schedule 8.2

 

CERTAIN CONTINGENT
OBLIGATIONS

 

None.

 

 

 

 

 

 

 

Schedule 8.3

 

LITIGATION

 

Attached Hereto.

 

 

 

 

 

 

 

Schedule 8.8

 

CERTAIN TAX MATTERS

 

1.                                       The
Borrower’s consolidated tax returns for 1998, 1999 and 2000 are currently being
audited by the Internal Revenue Service.

 

2.                                       The
Borrower has extended the statute of limitations for the payment and collection
of taxes relating to its consolidated tax return for 1998.

 

 

 

 

 

 

Schedule 8.11

 

ENVIRONMENTAL MATTERS

 

The Borrower’s property located
at 14325-14327 Gillis Road, Farmers Branch, Dallas County, Texas formerly
operated two onsite underground storage tanks (“UST”) for the private storage
and distribution of gasoline and diesel fuel. 
These tanks were registered under the operation of Texas Cartage &
Wholesale.  According to Texas Natural
Resource Conservation Commission (“TNRCC”) records, the two tanks consisted of
8,000 (gasoline) and 10,000 (diesel) gallon capacities.  The 10,000 gallon diesel UST is reported to
have been removed from the ground on August 31, 1993, and the 8,000 gallon
gasoline UST was removed on August 31, 1995. 
According to TNRCC records, the property is included on the leaking
petroleum storage tank database in relation to subsurface petroleum hydrocarbon
impacts identified at the time of the August 31, 1993 removal.  This release involved minor soil
contamination only, and has been issued final closure from the TNRCC requiring
no further assessment or remedial action. 
There were no reportable releases identified at the time of the
subsequent removal on August 31, 1995. 
There are currently no onsite USTs in operation on the property which
would serve as a continuing source of potential environmental concern to the
property.

 

4404 Beltwood Parkway South,
Farmers Branch, Texas.  An updated
environmental is in progress for this property.  This property formerly operated a 4,000 gallon UST which was removed
in 1992.  TNRCC removal records are
forthcoming.  The EPA also has reviewed
the property in the mid-1980s.  This
report has been requested.

 

14303 Inwood Road, Farmers
Branch, Texas.  Six USTs were previously
located on the property.  One of these
tanks was leaking.  All were removed.  The TNRCC database indicated no apparent
groundwater contamination and the case was issued a final closure letter on
August 28, 1997.  The ASTs are located
on the property and used by the Tuesday Morning.

 

 

 

 

Schedule 8.14

 

SUBSIDIARIES OF
BORROWER

 

TMI Holdings,
Inc., a Delaware corporation1

 

	
  Holder

  	
   

  	
  Shares of
  Common Stock

  	
   

  
	
  Borrower

  	
   

  	
  10

  	
   

  
	
  Total Authorized

  	
   

  	
  10,000

  	
   

  

 

Tuesday
Morning, Inc., a Texas corporation1

 

	
  Holder

  	
   

  	
  Shares of
  Common Stock

  	
   

  
	
  TMI Holdings, Inc.

  	
   

  	
  10

  	
   

  
	
  Total Authorized

  	
   

  	
  100

  	
   

  

 

Friday
Morning, Inc., a Texas corporation1

 

	
  Holder

  	
   

  	
  Shares of
  Common Stock

  	
   

  
	
  Tuesday Morning, Inc.

  	
   

  	
  1000

  	
   

  
	
  Total Authorized

  	
   

  	
  1,000,000

  	
   

  

 

Days of the
Week, Inc., a Delaware corporation1

 

	
  Holder

  	
   

  	
  Shares of
  Common Stock

  	
   

  
	
  Tuesday Morning, Inc.

  	
   

  	
  100

  	
   

  
	
  Total Authorized

  	
   

  	
  1,000

  	
   

  

 

Nights of the
Week, Inc., a Delaware corporation1

 

	
  Holder

  	
   

  	
  Shares of
  Common Stock

  	
   

  
	
  Tuesday Morning, Inc.

  	
   

  	
  100

  	
   

  
	
  Total Authorized

  	
   

  	
  1,000

  	
   

  

 

Tuesday
Morning Partners, Ltd., a Texas limited partnership1

 

	
  Partner

  	
   

  	
  Capacity

  	
   

  	
  Ownership
  Interest

  	
   

  
	
  Days of the Week, Inc.

  	
   

  	
  General Partner

  	
   

  	
  1

  	
  %

  
	
  Nights of the Week, Inc.

  	
   

  	
  Limited Partner

  	
   

  	
  99

  	
  %

  
	
  Total

  	
   

  	
   

  	
   

  	
  100

  	
  %

  

 

____________________

1 As
of the Closing Date, each of the Borrower’s Subsidiaries is a Restricted
Subsidiary as defined in the Credit Agreement.

 

 

Schedule 9.7

 

CERTAIN EXISTING
LIENS

	
   

  	
   

  	
  LIEN SEARCHES

   

  	
   

  
	
  A.

  	
   

  	
  TUESDAY
  MORNING, INC.

   

  	
   

  
	
   

  	
   

  	
  STATE

  	
   

  	
  SEARCHED THROUGH

  	
   

  	
  STATUS

  	
   

  	
  FILE NO./ FILE DATE

  	
   

  	
  SECURED PARTY

  	
   

  	
  PROPERTY DESRIPTION COMMENTS

  	
   

  
	
  1.

  	
   

  	
  Colorado

  	
   

  	
  7-25-02 UCC/Federal Tax
  Lien

  	
   

  	
  Received

  	
   

  	
  942073132 / 10-3-94
  Assignment 10-3-94 Continuation 12-31-97

  	
   

  	
  Sanwa Business Credit
  Corporation

  	
   

  	
  Certain equipment listed on
  Exhibit A — Pos Terminal, Software

  	
   

  
	
  2.

  	
   

  	
  Delaware

  	
   

  	
  7-10-02 UCC/Federal Tax
  Lien

  	
   

  	
  Received

  	
   

  	
  20450134 / 1-25-02

  	
   

  	
  Xerox Corporation

  	
   

  	
  1 Xerox DC2045P and 1 Xerox
  DC2000Z18 together with all parts, attachments, additions, replacements and
  repairs.

  	
   

  
	
  3.

  	
   

  	
  Texas

  	
   

  	
  8-1-02 UCC

  	
   

  	
  Received

  	
   

  	
  97-00259406 12-22-97

  	
   

  	
  Resource Net International

  	
   

  	
  1 each of 622R H3 Tape
  Machine

  	
   

  
	
  4.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  98-00011942 1-20-98

  	
   

  	
  Resource Net International

  	
   

  	
  1 each of 622R H3 Tape
  Machine

  	
   

  
	
  5.

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  99-00015446 1-25-99

  	
   

  	
  Xerox Corporation

  	
   

  	
  1 Xerox DC230SLX, together
  with all parts, attachments, additions, replacements and repairs.

  	
   

  
	
  6.

  	
   

  	
  Virginia

  	
   

  	
  8-5-02 UCC

  	
   

  	
  Received

  	
   

  	
  0202117374 / 2-11-02

  	
   

  	
  Silver Real Estate Company
  LLC

  	
   

  	
  All fixtures and equipment
  excluding computers and computer equipment located at any time in the
  premises leased by the Debtor from the Secured Party at the location in
  Gateway Design Shopping Center and all Debtor’s equity and interest therein.

  	
   

  
	
  B.

  	
   

  	
  TUESDAY
  MORNING CORP.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  STATE

  	
   

  	
  SEARCHED THROUGH

  	
   

  	
  STATUS

  	
   

  	
  FILE NO./ FILE DATE

  	
   

  	
  SECURED PARTY

  	
   

  	
  PROPERTY DESCRIPTION COMMENTS

  	
   

  
	
  7.

  	
   

  	
  Delaware

  	
   

  	
  7-10-02

  	
   

  	
  Received

  	
   

  	
  Same as Tuesday
  Morning,Inc.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Maryland

  	
   

  	
  7-31-02

  	
   

  	
  Received

  	
   

  	
  142777786 / 10-4-94

  	
   

  	
  Sanwa Business Credit
  Corporation

  	
   

  	
  Certain equipment listed on
  Exhibit A — Pos Terminal, Software

  	
   

  
	
  9.

  	
   

  	
  Texas

  	
   

  	
  8-1-02

  	
   

  	
  Received

  	
   

  	
  Same as Tuesday Morning,
  Inc.

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

 

 

	
  C.

  	
   

  	
  TUESDAY
  MORNING PARTNERS, LTD

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  STATE

  	
   

  	
  SEARCHED
  THROUGH

  	
   

  	
  STATUS

  	
   

  	
  FILE NO./
  FILE DATE

  	
   

  	
  SECURED
  PARTY

  	
   

  	
  PROPERTY
  DESCRIPTION COMMENTS

  	
   

  
	
  10.

  	
   

  	
  Texas

  	
   

  	
  8-2-02

  	
   

  	
  Received

  	
   

  	
  99-00116336/ 6-8-99

  	
   

  	
  Compass Bank

  	
   

  	
  All buildings, structures,
  improvements on property, fixtures, fittings, building materials, supplies,
  machinery, equipment, furniture, furnishings, personal property, rights in
  timber, minerals, oil, gas, and other hydrocarbon substances, easements,
  rights of way, gores of land, streets, ways, alleys, passages, sewer rights,
  waters, water courses, water rights and powers, estates, leases, rights,
  titles, interest, privileges, liberties, tenements, hereditaments,
  appurtanances, reversions, remainders, rents, issues, profits, royalties,
  security deposits, issues, revenues, judgments, awards of damages,
  settlements, books, records, plats, surveys, plans, specifications,
  contracts, agreements, leases, licenses, permits, authorizations, present and
  future accounts, contract rights, general intangibles, chattel paper,
  documents, cash and non-cash proceeds and all products of any of the
  foregoing relating to the tract of land lying and situated in the Elisha Fike
  Survey, Abstract No. 478, Dallas County, Texas, and being part of lot 3, all
  of lots 4 and 5 and part of lot 6, block 4 of the third installment of
  section 4 of the Metropolitan Industrial Park Addition, as shown on plat
  recorded in volume 74041, page 645, Deed Records, Dallas County, Texas, as
  more particularly described on Exhibit A to the financing statement.

  	
   

  

 

 

 

	
   

  	
   

  	
   

  	
   

  	
  COUNTY
  LIEN SEARCHES

   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  TUESDAY MORNING, INC.

   

  	
   

  
	
   

  	
   

  	
  Jurisdiction

  	
   

  	
  Searches

  	
   

  	
  Searched
  Through

  	
   

  	
  File No./
  File Date /Secured Party

  	
   

  	
  Property
  Description / Comments

  	
   

  
	
  1.

  	
   

  	
  Anne Arundel County MD

  	
   

  	
  UCC/Federal & State Tax
  Liens/Judgment Liens

  	
   

  	
  6-30-95 UCC-1s 6-19-02
  UCC-3s 8-25-02 All else

  	
   

  	
  293966 /12-19-1994 Sanwa
  Business Credit Corporation

  	
   

  	
  Certain equipment on
  Exhibit A pursuant to a Lease Agreement.

  	
   

  
	
  2.

  	
   

  	
  Baltimore County MD

  	
   

  	
  UCC/Federal & State Tax
  Liens/Judgment Liens

  	
   

  	
  6-30-95 UCC-1s 9-8-02
  UCC-3s 9-5-02 All else

  	
   

  	
  467970 /12-20-1994 Sanwa
  Business Credit Corporation

  	
   

  	
  Certain equipment on
  Exhibit A pursuant to a Lease Agreement.

  	
   

  
	
  3.

  	
   

  	
  Howard County MD

  	
   

  	
  UCC/Federal & State Tax
  Liens/Judgment Liens

  	
   

  	
  6-30-95 UCC-1s 9-9-02
  UCC-3s 8-30-02 All else

  	
   

  	
  16487 /12-19-1994 Sanwa
  Business Credit Corporation

  	
   

  	
  Certain equipment on
  Exhibit A pursuant to a Lease Agreement.

  	
   

  
	
  4.

  	
   

  	
  Montgomery County MD

  	
   

  	
  UCC/Federal & State Tax
  Liens/Judgment Liens

  	
   

  	
  6-30-95 UCC-1s 9-6-02
  UCC-3s 8-30-02 All else

  	
   

  	
  23845 /12-20-1994 Sanwa
  Business Credit Corporation

  	
   

  	
  Certain equipment on
  Exhibit A pursuant to a Lease Agreement.

  	
   

  
	
  5.

  	
   

  	
  Prince George’s County MD

  	
   

  	
  UCC/Federal & State Tax
  Liens/Judgment Liens

  	
   

  	
  6-30-95 UCC-1s 9-2-02
  UCC-3s 9-6-02 All else

  	
   

  	
  475791 /12-21-1994 Sanwa
  Business Credit Corporation

  	
   

  	
  Certain equipment on
  Exhibit A pursuant to a Lease Agreement.

  	
   

  
	
  6.

  	
   

  	
  Lamar County MS

  	
   

  	
  UCC/Federal & State Tax
  Liens/Judgment Liens

  	
   

  	
  9-9-02

  	
   

  	
  19285-U / 5-14-1999 State
  of Mississippi

  	
   

  	
  State Tax Lien

  	
   

  
	
  7.

  	
   

  	
  Wake County NC

  	
   

  	
  UCC/Federal & State Tax
  Liens/Judgment Liens

  	
   

  	
  9-10-02

  	
   

  	
  97CVM8339 /  6-25-1997 Labor World

  	
   

  	
  Judgment Lien Amount owed:
  $1421.83

  	
   

  
	
  8.

  	
   

  	
  Fredericksburg City VA

  	
   

  	
  UCC/Federal & State Tax
  Liens/Judgment Liens

  	
   

  	
  9-13-02

  	
   

  	
  02-22 / 2-11-02 Silver Real
  Estate Company

  	
   

  	
  All fixtures and equipment
  excluding computers and computer equipment leased by the Debtor from the
  Secured Party.

  	
   

  

 

 

 

Schedule 9.8

 

CERTAIN INDEBTEDNESS
TO REMAIN OUTSTANDING

 

1.             The obligations
relating to the Senior Subordinated Notes will remain outstanding after the
Closing Date.

 

2.             Real estate mortgages with Compass Bank to remain
outstanding after the Closing Date.

 

3.             Foreign currency forward exchange contracts with Fleet
to remain outstanding after the Closing Date.

 

 

 

 

Schedule 9.9

 

INVESTMENTS

 

1.             Foreign currency forward exchange contracts with Fleet.

 

 

 

 

 

 

 

Schedule
9.16

 

EXISTING AFFILIATE
AGREEMENTS

 

None.

 

 

 

 

 

 

 

Exhibit A-1

 

[Form of
Revolving Credit Note]

 

REVOLVING
CREDIT NOTE

 

	
  $

  	
   

  	
  September
  27, 2002

  
	
   

  	
   

  	
  Boston,
  Massachusetts

  

 

1.                                       Promise
To Pay.

 

FOR VALUE
RECEIVED, TUESDAY MORNING CORPORATION,
a Delaware corporation having an address at 14621 Inwood Road, Dallas, Texas
75224 (hereinafter, the “Borrower”), hereby promises to pay to the order
of
                                                  ,
having an address at
                             
(hereinafter, a “Revolving Credit Lender”), for the account of its
Applicable Lending Office provided for by the Credit Agreement referred to
below, at the Principal Office of the Administrative Agent, the principal sum
of
                                           
DOLLARS
($                        )
(or such lesser amount as shall equal the aggregate unpaid principal amount of
the Revolving Credit Loans made by the Revolving Credit Lender to Borrower
under the Credit Agreement), in lawful money of the United States of America
and in immediately available funds, on the dates and in the principal amounts
provided in the Credit Agreement, and to pay interest on the unpaid principal
amount of each such Revolving Credit Loan, at such office, in like money and
funds, for the period commencing on the date of such Revolving Credit Loan
until such Revolving Credit Loan shall be paid in full, at the rates per annum
and on the dates provided in the Credit Agreement.

 

The date,
amount, Type, interest rate and duration of Interest Period (if applicable) of
each Revolving Credit Loan made by the Revolving Credit Lender to Borrower, and
each payment made on account of the principal thereof, shall be recorded by the
Revolving Credit Lender on its books; provided,  however, that the
failure of the Revolving Credit Lender to make any such recordation shall not
affect the obligations of Borrower to make a payment when due of any amount
owing under the Credit Agreement or hereunder.

 

2.                                       Credit
Agreement.

 

This Note is
issued pursuant to, and is subject to the terms, provisions and conditions of,
a certain Credit Agreement, dated as of September 27, 2002 (as modified and
supplemented and in effect from time to time, the “Credit Agreement”),
among Borrower, the Guarantors party thereto from time to time, the Revolving
Credit Lenders party thereto from time to time, and Fleet National Bank, as
Administrative Agent, and evidences Revolving Credit Loans made by the
Revolving Credit Lender thereunder. Capitalized terms used but not defined in
this Note have the respective meanings assigned to them in the Credit
Agreement.  This Note is one of the
Revolving Credit Notes referred to in the Credit Agreement.

 

 

3.                                       Acceleration;
Event of Default.

 

The principal
of, and interest on, this Note shall be payable as provided in the Credit
Agreement and shall be subject to prepayment and acceleration as provided
therein. Upon the occurrence and during the continuance of an Event of Default,
the Revolving Credit Lender shall have, in addition to any rights and remedies
contained herein, any and all rights and remedies set forth in the Credit
Agreement or any other Credit Document.

 

4.                                       Certain
Waivers, Consents and Agreements.

 

Borrower  hereby: (a) waives presentment, demand and
protest; (b) waives any defenses based upon and specifically assents to any and
all extensions and postponements of the time for payment, changes in terms and
conditions and all other indulgences and forbearances which may be granted by
the Administrative Agent or the holder to any party now or hereafter liable for
the indebtedness evidenced hereby; (c) agrees to any substitution, exchange,
release, surrender or other delivery of any security or collateral now or
hereafter held hereunder or in connection with the Credit Agreement, or any of
the other Credit Documents, and to the addition or release of any other party
or person primarily or secondarily liable; (d) agrees that if any security or
collateral given to secure this Note or the indebtedness evidenced hereby or to
secure any of the obligations set forth or referred to in the Credit Agreement,
or any of the other Credit Documents, shall be found to be unenforceable in
full or to any extent, or if the Administrative Agent or any other party shall
fail to duly perfect or protect such collateral, the same shall not relieve or
release Borrower nor vitiate any other security or collateral given by Borrower
for any obligations evidenced hereby or thereby; (e) agrees, to the extent
provided for in the Credit Agreement, to pay all reasonable and documented
costs and expenses actually incurred by the Administrative Agent and the
Revolving Credit Lender or any other holder of this Note in connection with the
administration and enforcement of indebtedness evidenced hereby, including,
without limitation, all reasonable attorneys’ fees and costs, for the
implementation of the Revolving Credit Loan, the collection of the indebtedness
evidenced hereby and the enforcement of rights and remedies hereunder or under
the other Credit Documents, whether or not suit is instituted; and (f) consents
to all of the terms and conditions contained in this Note, the Credit
Agreement, and all other instruments now or hereafter executed evidencing or
governing all or any portion of the security or collateral for this Note and
for such Credit Agreement, or any one or more of the other Credit Documents.

 

5.                                       Delay
Not A Bar.

 

No delay or
omission on the part of the Administrative Agent or the holder in exercising
any right hereunder or any right under any instrument or agreement now or
hereafter executed in connection herewith, or any agreement or instrument which
is given or may be given to secure the indebtedness evidenced hereby or by the
Credit Agreement, or any other agreement now or hereafter executed in
connection herewith or therewith shall operate as a waiver of any such right or
of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed to be a bar to or waiver of the same or of any other
right on any future occasion.

 

2

 

6.                                       Partial
Invalidity.

 

The invalidity
or unenforceability of any provision hereof, of the Credit Agreement, of the
other Credit Documents, or of any other instrument, agreement or document now
or hereafter executed in connection with this Note shall not impair or vitiate
any other provision of any of such instruments, agreements and documents, all
of which provisions shall be enforceable to the fullest extent now or hereafter
permitted by law.

 

7.                                       Use
of Proceeds.

 

All proceeds
of the Revolving Credit Loan shall be used solely for the purposes more
particularly provided for and limited by the Credit Agreement.

 

8.                                       Notices.

 

Any notices
given with respect to this Note shall be given in the manner provided for in
the Credit Agreement.

 

9.                                       Governing
Law and Consent to Jurisdiction.

 

a.                                       Substantial
Relationship.  It is understood and
agreed that all of the Credit Documents were delivered in the Commonwealth of
Massachusetts, which Commonwealth the parties agree has a substantial
relationship to the parties and to the underlying transactions embodied by the
Credit Documents.

 

b.                                      Governing
Law.  This Note shall in all
respects be governed, construed, applied and enforced in accordance with the
internal laws of the Commonwealth of Massachusetts without regard to principles
of conflicts of law.

 

c.                                       Consent
to Jurisdiction.  Borrower hereby
irrevocably and unconditionally:  (i)
submits for itself and its property in any Proceeding relating to any Credit
Document to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
courts of the Commonwealth of Massachusetts, the courts of the United States of
America for the District of Massachusetts, and appellate courts from any
thereof; (ii) consents that any such Proceeding may be brought in such courts
and waives any objection that it may now or hereafter have to the venue of any
such Proceeding in any such court or that such Proceeding was brought in an
inconvenient court and agrees not to plead or claim the same; (iii) agrees that
service of process in any such Proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to Borrower at its address set forth in Section 12.2 of
the Credit Agreement or at such other address of which the Administrative Agent
shall have been  notified pursuant
thereto; and (iv) agrees that nothing herein shall

 

3

 

affect the
right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.

 

10.           Waiver
of Jury Trial.

 

BORROWER, THE
ADMINISTRATIVE AGENT AND THE REVOLVING CREDIT LENDER (BY ACCEPTANCE OF THIS
NOTE) MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT
TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE ADMINISTRATIVE
AGENT OR ANY REVOLVING CREDIT LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE
OR CONTROVERSY IS INITIATED BY OR AGAINST THE ADMINISTRATIVE AGENT OR ANY
REVOLVING CREDIT LENDER OR IN WHICH THE ADMINISTRATIVE AGENT OR ANY REVOLVING
CREDIT LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES
OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR
ANY OTHER PERSON.

 

11.           No
Oral Change.

 

This Note and
the other Credit Documents may only be amended, terminated, extended or
otherwise modified by a writing signed by the party against which enforcement
is sought in accordance with the terms and conditions of the Credit
Agreement.  In no event shall any oral
agreements, promises, actions, inactions, knowledge, course of conduct, course
of dealing, or the like be effective to amend, terminate, extend or otherwise
modify this Note or any of the other Credit Documents.

 

12.           Rights
of the Administrative Agent and Holder.

 

This Note and
the rights and remedies provided for herein may be enforced by the
Administrative Agent, the holder, or any subsequent holder hereof which is a
Revolving Credit Lender.  Wherever the
context permits each reference to the term “holder” herein shall mean and refer
to the holder,  or the then subsequent
holder of this Note which is a Revolving Credit Lender.

 

13.           Right
to Assign; Pledge.

 

The Revolving
Credit Lender may at any time pledge all or any portion of its rights under the
Credit Documents including any portion of this Note to any of the twelve (12)
Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12
U.S.C. Section 341.  No such pledge or
enforcement thereof shall release the Revolving Credit Lender from its obligations
under any of the Credit Documents. 
Except as permitted by Section 12.6 of the Credit Agreement, this Note
may not be assigned by the Revolving Credit Lender to any other Person.

 

4

 

	
   

  	
  TUESDAY MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E. Jarvis

  
	
   

  	
  Title:

  	
  Executive Vice President and

  Chief Financial Officer

  
	
   

  	
   

  
				

 

5

 

Exhibit A-2

 

[Form of Swing
Loan Note]

 

SWINGLOAN NOTE

 

	
  $10,000,000.00

  	
   

  	
  September
  27, 2002

  
	
   

  	
   

  	
  Boston,
  Massachusetts

  

 

1.                                       Promise
To Pay.

 

FOR VALUE
RECEIVED, TUESDAY MORNING CORPORATION,
a Delaware corporation having an address at 14621 Inwood Road, Dallas, Texas
75224 (hereinafter, the “Borrower”), hereby promises to pay to FLEET NATIONAL BANK, a national banking
association having an address at 100 Federal Street, Boston, Massachusetts
02110 (hereinafter, the “Swing Loan Lender”), for the account of its
Applicable Lending Office provided for by the Credit Agreement referred to
below, at the Principal Office of the Administrative Agent, the principal sum
of TEN MILLION DOLLARS ($10,000,000.00) (or such lesser amount as shall equal
the aggregate unpaid principal amount of the Swing Loans made by the Swing Loan
Lender to Borrower under the Credit Agreement), in lawful money of the United
States of America and in immediately available funds, on the dates and in the
principal amounts provided in the Credit Agreement, and to pay interest on the
unpaid principal amount of each such Swing Loan, at such office, in like money
and funds, for the period commencing on the date of such Swing Loan until such
Swing Loan shall be paid in full, at the rates per annum and on the dates
provided in the Credit Agreement.

 

The date,
amount and interest rate of each Swing Loan made by the Swing Loan Lender to
Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Swing Loan Lender on its books; provided, however,
that the failure of the Swing Loan Lender to make any such recordation shall
not affect the obligations of Borrower to make a payment when due of any amount
owing under the Credit Agreement or hereunder in respect of the Swing Loans
made by the Swing Loan Lender.

 

2.                                       Credit
Agreement.

 

This Note is
issued pursuant to, and is subject to the terms, provisions and conditions of,
a certain Credit Agreement, dated as of September 27, 2002 (as modified and
supplemented and in effect from time to time, the “Credit Agreement”),
among Borrower, the Guarantors party thereto from time to time, the Revolving
Credit Lenders party thereto from time to time, and Fleet National Bank, as
Administrative Agent, and evidences Swing Loans made by the Swing Loan Lender
thereunder. Capitalized terms used but not defined in this Note have the respective
meanings assigned to them in the Credit Agreement.  This Note is one of the Swing Loan Notes referred to in the
Credit Agreement.

 

 

3.                                       Acceleration;
Event of Default.

 

The principal
of, and interest on, this Note shall be payable as provided in the Credit
Agreement and shall be subject to prepayment and acceleration as provided
therein. Upon the occurrence and during the continuance of an Event of Default,
the Swing Loan Lender shall have, in addition to any rights and remedies
contained herein, any and all rights and remedies set forth in the Credit
Agreement or any other Credit Document.

 

4.                                       Certain
Waivers, Consents and Agreements.

 

Borrower  hereby: (a) waives presentment, demand and
protest; (b) waives any defenses based upon and specifically assents to any and
all extensions and postponements of the time for payment, changes in terms and
conditions and all other indulgences and forbearances which may be granted by
the Administrative Agent or the holder to any party now or hereafter liable for
the indebtedness evidenced hereby; (c) agrees to any substitution, exchange,
release, surrender or other delivery of any security or collateral now or
hereafter held hereunder or in connection with the Credit Agreement, or any of
the other Credit Documents, and to the addition or release of any other party
or person primarily or secondarily liable; (d) agrees that if any security or
collateral given to secure this Note or the indebtedness evidenced hereby or to
secure any of the obligations set forth or referred to in the Credit Agreement,
or any of the other Credit Documents, shall be found to be unenforceable in
full or to any extent, or if the Administrative Agent or any other party shall
fail to duly perfect or protect such collateral, the same shall not relieve or
release Borrower nor vitiate any other security or collateral given by Borrower
for any obligations evidenced hereby or thereby; (e) agrees, to the extent
provided for in the Credit Agreement, to pay all reasonable and documented
costs and expenses actually incurred by the Administrative Agent and the Swing
Loan Lender or any other holder of this Note in connection with the
administration and enforcement of indebtedness evidenced hereby, including,
without limitation, all reasonable attorneys’ fees and costs, for the
implementation of the Swing Loan, the collection of the indebtedness evidenced
hereby and the enforcement of rights and remedies hereunder or under the other
Credit Documents, whether or not suit is instituted; and (f) consents to all of
the terms and conditions contained in this Note, the Credit Agreement, and all
other instruments now or hereafter executed evidencing or governing all or any
portion of the security or collateral for this Note and for such Credit
Agreement, or any one or more of the other Credit Documents.

 

5.                                       Delay
Not A Bar.

 

No delay or
omission on the part of the Administrative Agent or the holder in exercising
any right hereunder or any right under any instrument or agreement now or
hereafter executed in connection herewith, or any agreement or instrument which
is given or may be given to secure the indebtedness evidenced hereby or by the
Credit Agreement, or any other agreement now or hereafter executed in
connection herewith or therewith shall operate as a waiver of any such right or
of any other right of such holder, nor shall any delay, omission or waiver on
any one occasion be deemed to be a bar to or waiver of the same or of any other
right on any future occasion.

 

2

 

6.                                       Partial
Invalidity.

 

The invalidity
or unenforceability of any provision hereof, of the Credit Agreement, of the
other Credit Documents, or of any other instrument, agreement or document now
or hereafter executed in connection with this Note shall not impair or vitiate
any other provision of any of such instruments, agreements and documents, all
of which provisions shall be enforceable to the fullest extent now or hereafter
permitted by law.

 

7.                                       Use
of Proceeds.

 

All proceeds
of the Swing Loan shall be used solely for the purposes more particularly
provided for and limited by the Credit Agreement.

 

8.                                       Notices.

 

Any notices
given with respect to this Note shall be given in the manner provided for in
the Credit Agreement.

 

9.                                       Governing
Law and Consent to Jurisdiction.

 

a.                                       Substantial
Relationship.  It is understood and
agreed that all of the Credit Documents were delivered in the Commonwealth of
Massachusetts, which Commonwealth the parties agree has a substantial
relationship to the parties and to the underlying transactions embodied by the
Credit Documents.

 

b.                                      Governing
Law.  This Note shall in all
respects be governed, construed, applied and enforced in accordance with the
internal laws of the Commonwealth of Massachusetts without regard to principles
of conflicts of law.

 

c.                                       Consent
to Jurisdiction.  Borrower hereby
irrevocably and unconditionally:  (i)
submits for itself and its property in any Proceeding relating to any Credit
Document to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of the
courts of the Commonwealth of Massachusetts, the courts of the United States of
America for the District of Massachusetts, and appellate courts from any
thereof; (ii) consents that any such Proceeding may be brought in such courts
and waives any objection that it may now or hereafter have to the venue of any
such Proceeding in any such court or that such Proceeding was brought in an
inconvenient court and agrees not to plead or claim the same; (iii) agrees that
service of process in any such Proceeding may be effected by mailing a copy
thereof by registered or certified mail (or any substantially similar form of
mail), postage prepaid, to Borrower at its address set forth in Section 12.2 of
the Credit Agreement or at such other address of which the Administrative Agent
shall have been  notified pursuant
thereto; and (iv) agrees that nothing herein shall

 

3

 

affect the
right to effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction.

 

10.           Waiver
of Jury Trial.

 

BORROWER, THE
ADMINISTRATIVE AGENT AND THE SWING LOAN LENDER (BY ACCEPTANCE OF THIS NOTE)
MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A
JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE ADMINISTRATIVE AGENT
OR THE SWING LOAN LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE ADMINISTRATIVE AGENT OR THE SWING
LOAN LENDER OR IN WHICH THE ADMINISTRATIVE AGENT OR THE SWING LOAN LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER
PERSON.

 

11.           No
Oral Change.

 

This Note and
the other Credit Documents may only be amended, terminated, extended or
otherwise modified by a writing signed by the party against which enforcement
is sought in accordance with the terms and conditions of the Credit
Agreement.  In no event shall any oral
agreements, promises, actions, inactions, knowledge, course of conduct, course
of dealing, or the like be effective to amend, terminate, extend or otherwise
modify this Note or any of the other Credit Documents.

 

12.           Rights
of the Administrative Agent and Holder.

 

This Note and
the rights and remedies provided for herein may be enforced by the
Administrative Agent, the holder, or any subsequent holder hereof which is a
Swing Loan Lender. Wherever the context permits each reference to the term
“holder” herein shall mean and refer to the holder,  or the then subsequent holder of this Note which is a Swing Loan
Lender.

 

13.           Right
to Assign; Pledge.

 

The Swing Loan
Lender may at any time pledge all or any portion of its rights under the Credit
Documents including any portion of this Note to any of the twelve (12) Federal
Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C.
Section 341.  No such pledge or
enforcement thereof shall release the Swing Loan Lender from its obligations
under any of the Credit Documents. 
Except as permitted by Section 12.6 of the Credit Agreement, this Note
may not be assigned by the Swing Loan Lender to any other Person.

 

4

 

	
   

  	
  TUESDAY MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E. Jarvis

  
	
   

  	
  Title:

  	
  Executive Vice President and

  Chief Financial Officer

  
				

 

5

 

Exhibit B

 

[Form of
Intercompany Note]

 

PROMISSORY
NOTE

 

 

	
  $

  	
   

  	
                                    ,
  20      

  
	
   

  	
   

  	
  Boston,
  Massachusetts

  

 

1.                                       Promise
To Pay.

 

FOR VALUE
RECEIVED, [Name of Payor], a
                         
corporation (hereinafter, the “Payor”), hereby promises to pay on demand
to the order of [Name of Payee] (hereinafter, the “Payee”), in lawful
money of the United States of America in immediately available funds, at such
location in the United States of America as Payee shall from time to time
designate, the unpaid principal amount of all loans and advances made by Payee
to Payor.  Payor promises also to pay
interest on the unpaid principal amount of all such loans and advances in like
money at said location from the date of such loans and advances until paid at a
rate per annum (determined based upon a 360 day year and actual days elapsed)
equal to the aggregate of the then applicable rate under the Credit Agreement
(as defined herein) (including the Applicable Margin) for Alternate Base Rate
Loans.

 

2.                                       Credit
Agreement.

 

This Note is
one of the Intercompany Notes referred to in that certain Credit Agreement,
dated as of September 27, 2002 (as modified and supplemented and in effect from
time to time, the “Credit Agreement”), among Tuesday Morning
Corporation, a Delaware corporation (the “Borrower”), the Guarantors
party thereto from time to time, the Revolving Credit Lenders party thereto
from time to time, and Fleet National Bank, as Administrative Agent, and shall
be pledged by Payee to the Administrative Agent, for the benefit of the Secured
Parties (as defined in the Security Agreement), pursuant to the Security
Agreement.  Capitalized terms used but
not defined in this Note have the respective meanings assigned to them in the
Credit Agreement.  Payee hereby
acknowledges and agrees that the Administrative Agent may exercise all rights
provided in the Credit Agreement and the Security Agreement with respect to
this Note.

 

3.                                       Subordination.

 

Anything in
this Note to the contrary notwithstanding, the indebtedness evidenced by this
Note shall be subordinate and junior in right of payment, to the extent and in
the manner hereinafter set forth, to all Obligations of Payor under the Credit
Agreement, [including, without limitation,

 

 

under Payor’s guarantee of the Obligations
under the Credit Agreement] (such Obligations and other indebtedness and
obligations in connection with any renewal, refunding, restructuring or
refinancing thereof, including interest thereon accruing after the commencement
of any proceedings referred to in clause (i) below, whether or not such
interest is an allowed claim in such proceeding, being hereinafter collectively
referred to as “Senior Indebtedness”):

 

(i)            In the event of any
Event of Default, or any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to Payor or to its creditors, as such, or to its
property, or in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of Payor, whether or not involving insolvency
or bankruptcy, then (x) the holders of Senior Indebtedness shall be paid in
full in cash in respect of all amounts constituting Senior Indebtedness before
Payee is entitled to receive (whether directly or indirectly), or make any
demands for, any payment on account of this Note and (y) until the holders of
Senior Indebtedness are paid in full in cash in respect of all amounts
constituting Senior Indebtedness, any payment or distribution to which the
Payee would otherwise be entitled (other than debt securities of Payor that are
subordinated, to at least the same extent as this Note, to the payment of all
Senior Indebtedness then outstanding (such securities being hereinafter
referred to as “Restructured Debt Securities”)) shall be made to the holders
of Senior Indebtedness.

 

(ii)           If any payment or
distribution of any character, whether in cash, securities or other property
(other than Restructured Debt Securities), in respect of this Note shall
(despite these subordination provisions) be received by Payee in violation of
clause (i) before all Senior Indebtedness shall have been paid in full in cash,
such payment or distribution shall be held in trust for the benefit of, and
shall be paid over or delivered to, the holders of Senior Indebtedness (or
their representatives), ratably according to the respective aggregate amounts
remaining unpaid thereon, to the extent necessary to pay all Senior
Indebtedness in full in cash.

 

To the fullest
extent permitted by law, no present or future holder of Senior Indebtedness
shall be prejudiced in its right to enforce the subordination of this Note by
any act or failure to act on the part of Payor or by any act or failure to act
on the part of such holder or any trustee or agent of such holder. Payee and
Payor hereby agree that the subordination of this Note is for the benefit of
the Creditors, the Creditors are obligees under this Note to the same extent as
if their names were written herein as such and the Administrative Agent may, on
behalf of the Creditors, proceed to enforce the subordination provisions
herein.

 

Nothing
contained in the subordination provisions set forth above is intended to, or
will, impair, as between the Payor and Payee, the obligations of the Payor,
which are absolute and unconditional, to pay to the Payee the principal of and
interest on this Note as and when due and

 

*To
be inserted if Payor is not the Borrower.

 

2

 

payable in accordance with its terms, or is
intended to, or will, affect the relative rights of the Payee and other
creditors of the Payor other than the holders of Senior Indebtedness. After the
payment in full in cash of the Senior Indebtedness, Payee shall be subrogated
to the rights of the holders of the Senior Indebtedness to the extent that
payments to which Payee would have been entitled hereunder in the absence of
the subordination provisions set forth above were paid instead to the holders
of such Senior Indebtedness. For purposes of giving effect to the subrogation rights
contemplated in the previous sentence, but only for such purposes, payments
made to the holders of the Senior Indebtedness that, in the absence of the
subordination provisions set forth above would have been paid instead to Payee,
shall not constitute payments of such Senior Indebtedness.

 

4.                                       Evidence
of Intercompany Loans.

 

Payee is
hereby authorized to record all loans and advances made by it to Payor (all of
which shall be evidenced by this Note), and all repayments or prepayments
thereof, in its books and records, such books and records constituting prima
facie evidence of the accuracy of the information contained therein.

 

5.                                       Certain
Waivers, Consents and Agreements.

 

Payor hereby:
(a) waives presentment, demand and protest; (b) waives any defenses based upon
and specifically assents to any and all extensions and postponements of the
time for payment, changes in terms and conditions and all other indulgences and
forbearances which may be granted by the Payee or the holder to any party now
or hereafter liable for the indebtedness evidenced hereby; (c) agrees to any
substitution, exchange, release, surrender or other delivery of any security or
collateral now or hereafter held hereunder, and to the addition or release of
any other party or person primarily or secondarily liable; (d) agrees that, if
any security or collateral given to secure this Note or the indebtedness
evidenced hereby shall be found to be unenforceable in full or to any extent,
or if the Payee or any other party shall fail to duly perfect or protect such
collateral, the same shall not relieve or release Payor nor vitiate any other
security or collateral given by Payor for any obligations evidenced hereby or
thereby; (e) agrees to pay all reasonable and documented costs and expenses actually
incurred by the Payee or any other holder of this Note in connection with the
administration and enforcement of indebtedness evidenced hereby, including,
without limitation, all reasonable attorneys’ fees and costs, for the
collection of the indebtedness evidenced hereby and the enforcement of rights
and remedies hereunder, whether or not suit is instituted; and (f) consents to
all of the terms and conditions contained in this Note and all other
instruments now or hereafter executed evidencing or governing all or any
portion of the security or collateral for this Note.

 

6.                                       Delay
Not A Bar.

 

No delay or
omission on the part of the Payee or the holder in exercising any right
hereunder or any right under any instrument or agreement now or hereafter executed
in connection herewith, or any agreement or instrument which is given or may be
given to secure the indebtedness evidenced hereby, or any other agreement now
or hereafter executed in connection herewith shall operate as

 

3

 

a waiver of any such right or of any other
right of such holder, nor shall any delay, omission or waiver on any one
occasion be deemed to be a bar to or waiver of the same or of any other right
on any future occasion.

 

7.                                       Partial
Invalidity.

 

The invalidity
or unenforceability of any provision hereof, or of any other instrument,
agreement or document now or hereafter executed in connection with this Note,
shall not impair or vitiate any other provision of any of such instruments,
agreements and documents, all of which provisions shall be enforceable to the
fullest extent now or hereafter permitted by law.

 

8.                                       Governing
Law.

 

THIS NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.

 

9.                                       Waiver
of Jury Trial.

 

PAYOR AND
PAYEE (BY ACCEPTANCE OF THIS NOTE) MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY
IN WHICH THE PAYEE IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS
INITIATED BY OR AGAINST THE PAYEE OR IN WHICH THE PAYEE IS JOINED AS A PARTY
LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY
RELATIONSHIP AMONGST OR BETWEEN THE PAYOR OR ANY OTHER PERSON.

 

10.           No
Oral Change.

 

This Note may
only be amended, terminated, extended or otherwise modified by a writing signed
by the party against which enforcement is sought.  In no event shall any oral agreements, promises, actions,
inactions, knowledge, course of conduct, course of dealing, or the like be
effective to amend, terminate, extend or otherwise modify this Note.

 

4

 

	
   

  	
  [NAME OF PAYOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [NAME OF PAYEE]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
								

 

5

 

Exhibit C-1

 

[Form of Interest Rate Certificate]

 

INTEREST RATE CERTIFICATE

 

Fiscal [quarter/year] ended
               ,
20   

 

Reference is made
to the Credit Agreement, dated as of September 27, 2002 (as such may be
amended, modified or supplemented, the “Credit Agreement”), among
Tuesday Morning Corporation, a Delaware corporation (the “Borrower”),
the Guarantors party thereto from time to time, the Revolving Credit Lenders
party thereto from time to time, and Fleet National Bank, as Administrative
Agent.  Capitalized terms used herein
and not defined shall have the meanings assigned to them in the Credit
Agreement.

 

Pursuant to
Section 9.1(d) of the Credit Agreement, the undersigned hereby certifies that,
to the best of [his/her] knowledge, attached hereto as Annex 1 is a true and
accurate calculation of the Leverage Ratio as at the end of the fiscal
[quarter/year] ended                ,
20   , determined in accordance with the requirements of the
Credit Agreement.

 

IN WITNESS
WHEREOF, the undersigned has caused this certificate to be duly executed and
delivered as of the
            day of
               ,
20       .

 

	
   

  	
  TUESDAY
  MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

 

Annex 1

 

	
  Maximum Leverage Ratio

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (i) 
  Total Debt

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Indebtedness for Borrowed Money

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Letter of Credit Liabilities

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Non-Contingent obligations with  respect to Surety Instruments

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Obligations under notes, bonds, debentures
  and similar instruments

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Obligations under Conditional Sale  or other Title Retention Agreements

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Capital Lease Obligations

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Guaranteed payments and redemptions

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Indebtedness Secured by Liens

  	
   

  	
  $                

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Debt:

  	
   

  	
   

  	
   

  	
  $                

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (ii) 
  Consolidated EBITDA

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Net Income

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Income Tax Expense

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Depreciation and Amortization

  	
   

  	
  $                

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Interest Expense

  	
   

  	
  $                

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated EBITDA

  	
   

  	
   

  	
   

  	
  $                

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ratio of Total Debt to Consolidated EBITDA
  ((i) divided by (ii)):

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Required:

  	
  Actual:

  	
   

  	
   

  	
   

  	
   

  
						

 

 

Exhibit C-2

 

[Form of Borrowing Base Certificate]

 

BORROWING BASE CERTIFICATE

 

[Weekly/Monthly] accounting period ended
             ,
20    

 

Reference is
made to the Credit Agreement, dated as of September 27, 2002 (as modified and
supplemented and in effect from time to time, the “Credit Agreement”),
among Tuesday Morning Corporation, a Delaware corporation (the “Borrower”),
the Guarantors from time to time party thereto, the Revolving Credit Lenders
from time to time party thereto, and Fleet National Bank, as Administrative
Agent. Capitalized terms used herein and not defined shall have the meanings
assigned to them in the Credit Agreement.

 

Pursuant to
Section 9.1(j) of the Credit Agreement, the undersigned, a senior financial
officer of Borrower, hereby certifies that, to the best of [his/her] knowledge,
attached hereto as Annex 1 is a true and accurate calculation of the Borrowing
Base as at the end of the [weekly/monthly] accounting period ended
                 ,
20      , determined in accordance with the
requirements of the Credit Agreement.

 

All Inventory
covered by this certificate has been produced in compliance with the minimum
wage and overtime requirements of the Fair Labor Standards Act of 1938, as
amended.

 

IN WITNESS
WHEREOF, the undersigned has caused this certificate to be duly executed and
delivered as of the
                 
day of                            ,
20        .

 

	
   

  	
  TUESDAY
  MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

 

Annex 1

 

This Certificate is given
pursuant to §9.1(j) of the Credit Agreement dated September 27, 2002 (as
amended and in effect) among Tuesday Morning Corporation, a Delaware
corporation (the “Borrower”), the Guarantors from time to time party thereto,
the Revolving Credit Lenders from time to time party thereto, and Fleet
National Bank, as Administrative Agent, and is true, accurate and complete as
of
                         ,
200       .

 

The Borrower hereby represents
and warrants as of the above date as follows:

 

	
  1.

  	
   

  	
  Total Inventory
(at lower of cost or market, calculated on a FIFO
  basis)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Minus

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Ineligible Inventory

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Inventory not consisting of finished goods:

  	
   

  	
  $                         

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Inventory in transit from abroad (except as
  permitted  under the Credit
  Agreement):

  	
   

  	
  $                         

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  :

  	
   

  	
  Damaged or defective inventory:

  	
   

  	
  $                         

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Other ineligible inventory (specified
  below):

  	
   

  	
  $                         

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total Ineligible Inventory

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Minus

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  UNICAP Costs

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Eligible Inventory (Line 1 minus Line 2
  minus Line 3)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Minus

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Inventory Reserves (detailed below, if any)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Net Eligible Inventory (Line 4 minus Line 5)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Advances against Net Eligible Inventory
(65% of Line 6)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Overadvance (Initially $20,000,000, to be
  reduced in the amounts and at the times per Credit Agreement)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Minus

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  Availability Reserves (detailed below, if
  any)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Availability (Line 7 plus Line 8 minus Line
  9)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  Amount of Loans outstanding

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Revolving Credit Loans

  	
   

  	
  $                         

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Swing Loans

  	
   

  	
  $                         

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total Loans:

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  Amount of Letters of Credit outstanding

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  Net Availability/(Impermissible Overadvance)

  	
   

  	
   

  	
   

  	
  $                         

  
	
   

  	
   

  	
  (Line 10 minus Line11 minus Line 12))

  	
   

  	
   

  	
   

  	
   

  

 

 

	
   

  	
  TUESDAY
  MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Dated:                ,
  200  

  
					

 

2

 

Exhibit D

 

[Form of Security Agreement]

 

SECURITY AGREEMENT

 

THIS SECURITY
AGREEMENT (“Agreement”) made this 27th day of September, 2002
by each of

 

TUESDAY MORNING
CORPORATION, a Delaware corporation (the “Borrower”); and

 

EACH OF THE
SUBSIDIARIES party hereto (the “Guarantors”)

 

in favor of
FLEET NATIONAL BANK, a national banking association, as administrative agent
(in such capacity, the “Administrative Agent”) for itself and the other
lenders (collectively, with Fleet in such capacity, the “Revolving Credit
Lenders”) who are or hereafter become parties to the Credit Agreement
referred to below.

 

The Borrower,
the Guarantors, the Revolving Credit Lenders and the Administrative Agent are
parties to a certain Credit Agreement dated as of the date hereof (hereinafter,
as such may be modified, amended, renewed, restated, extended or supplemented
from time to time, the “Credit Agreement”), providing, subject to the
terms and conditions thereof, for extensions of credit (by the making of loans
and the issuance of letters of credit) to be made by the Revolving Credit
Lenders to the Borrower.

 

To induce the
Revolving Credit Lenders to enter into the Credit Agreement and to extend
credit thereunder, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, each Debtor (as hereinafter
defined) has agreed to pledge, mortgage and grant a security interest in the
Pledged Collateral (as hereinafter defined) as security for the Secured
Obligations (as hereinafter defined). 
Accordingly, the parties hereto agree as follows:

 

ARTICLE I Definitions.  Unless otherwise defined herein, all
capitalized terms used herein shall have the meanings provided for in the
Credit Agreement.  As used herein, the
following terms have the following meanings or are defined in the section of
this Agreement so indicated.

 

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

 

“Accounts”
shall include, without limitation, “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; 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.

 

“Agreement”
see the introduction hereto.

 

“Chattel
Paper” has the meaning given that term in the UCC, and also includes all
chattel paper, whether tangible or electronic.

 

“Collateral
Account” see Section 4.01(a) hereof.

 

“Commercial
Tort Claim” has the meaning given that term in the UCC.

 

“Contracts”
shall mean all contracts, undertakings, or other agreements, including, without
limitation, all documents, agreements and instruments relating to any
Acquisition, as the same may be amended from time to time, and including,
without limitation, (a) all rights of any Debtor to receive moneys due and to
become due thereunder or in connection therewith, (b) all rights of any Debtor
to damages arising out of or for breach or default in respect thereof, and (c)
all rights of any Debtor to exercise remedies thereunder.

 

“Copyright
Collateral” shall mean all Copyrights, whether now owned or hereafter
acquired by any Debtor, including each Copyright identified in Annex 2 hereto.
Notwithstanding the foregoing, the Copyright Collateral does not and shall not
include any Copyright that would be rendered invalid, abandoned, void or
unenforceable by reason of its being included as part of Copyright Collateral.

 

“Copyrights”
shall mean all copyrights, copyright registrations and applications for
copyright registrations, including, without limitation, all renewals and
extensions thereof, the right to recover for all past, present and future
infringements thereof, and all other rights of any kind whatsoever accruing
thereunder or pertaining thereto.

 

“Debtor”
shall mean each of the Borrower and each Guarantor.

 

“Deposit
Account” has the meaning given that term in the UCC, and also includes all
demand, time, savings, passbook, or similar accounts maintained with a bank.

 

“Documents”
has the meaning given that term in the UCC, and also includes all documents of
title or other receipts of any Debtor covering, evidencing or representing
Inventory or Equipment

 

“Equipment”
includes, without limitation, “equipment” as defined in the UCC, and also all
furniture, store fixtures, Motor Vehicles, rolling stock, machinery, office
equipment, plant equipment, tools, dies, molds,  and other goods, property, and assets which are used and/or were
purchased for use in the operation or furtherance of a Debtor’s business, and
any and all accessions or additions thereto, and substitutions therefor.

 

“Fixtures”
has the meaning given that term in the UCC.

 

2

 

“General
Intangibles” includes, without limitation, “general intangibles” as defined
in the UCC, and also all: Payment Intangibles; rights to payment for credit
extended; deposits; amounts due to any Debtor; credit memoranda in favor of any
Debtor; 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; literary rights; rights to performance;
royalties; license and/or franchise fees; rights of admission; licenses;
franchises; license agreements, including all rights of any Debtor to enforce
same; permits, certificates of convenience and necessity, and similar rights
granted by any governmental authority; 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 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, mask work rights and interests, and derivative
works and interests; user, technical reference, and other manuals and materials;
and all other general intangible property of any Debtor 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 any Debtor or
credit extended or services performed, by any Debtor, whether intended for an
individual customer or the general business of any Debtor, or used or useful in
connection with research by any Debtor.

 

“Goods”
has the meaning given that term in the UCC, and all accessions or additions
thereto, and also includes all things movable when a security interest therein
attaches and also all computer programs embedded in goods and any supporting
information provided in connection with a transaction relating to the program
if (i) the program is associated with the goods in such manner that it  customarily is considered part of the goods
or (ii) by becoming the owner of the goods, a Person acquires a right to use
the program in connection with the goods.

 

“Instruments”
has the meaning given that term in the UCC, and also includes all promissory
notes, drafts, bills of exchange and trade acceptances;

 

“Intellectual
Property” shall mean, collectively, all Copyright Collateral, all Patent
Collateral and all Trademark Collateral, together with (a) all inventions,
processes, production methods, proprietary information, know-how and trade
secrets; (b) all licenses or user or other agreements granted to any Debtor
with respect to any of the foregoing, in each case whether now or hereafter
owned or used including, without limitation, the licenses or other agreements
with respect to the Copyright Collateral, the Patent Collateral or the
Trademark Collateral, listed in Annex 5 hereto; (c) all information,
customer lists, identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge, surveys, engineering
reports, test reports, manuals, materials standards, processing standards,
performance standards, catalogs, computer and automatic machinery software and
programs; (d) all field repair data, sales data and other information relating
to sales or service of products now or hereafter manufactured; (e) all
accounting information and all media in which or on which any information or

 

3

 

knowledge or
data or records may  be recorded or
stored and all computer programs used for the compilation or printout of such
information, knowledge, records or data; (f) all licenses, consents, permits,
variances, certifications and approvals of governmental agencies now or
hereafter held by any Debtor; and (g) all causes of action, claims and
warranties now or hereafter owned or acquired by the Debtors in respect of any
of the items listed above.

 

“Interests”
shall mean, as to any Debtor (i) all right, title and interest, now existing or
hereafter acquired, of such Debtor in any LLC but not any of its obligations
from time to time as a member (unless the Administrative Agent shall become a
member as a result of its express exercise of remedies herein) of any LLC; (ii)
any and all moneys due and to become due to such Debtor now or in the future by
way of a distribution made to such Debtor in its capacity as a member of or an
owner of any LLC; (iii) any other Property of any LLC to which such Debtor now
or in the future may be entitled in its capacity as a member of or an owner of
any LLC by way of distribution, return of capital or otherwise; (iv) any other
claim in respect of any LLC to which such Debtor now or in the future may be
entitled in its capacity as a member of or an owner of any LLC and its
Property, including any rights under any operating agreement or other agreement
governing or pertaining to such interests; (v) the certificates, if any,
representing all such rights and interests; (vi) all rights of such Debtor
under each limited liability company or operating agreement of each LLC; and
(vii) to the extent not otherwise included, all proceeds of any of the
foregoing.

 

“Inventory”
includes, without limitation, “inventory” as defined in the UCC and also all:
(a) Goods which are leased by a Person as lessor; are held by a Person for sale
or lease or to be furnished under a contract of service; are furnished by a
Person under a contract of service; or consist of raw materials, work in
process, or materials used or consumed in a business; (b) Goods of said
description in transit; (c) Goods of said description which are returned,
repossessed and rejected; (d) Goods of said description which are obtained by
any Debtor in exchange for such Inventory; (e) packaging, advertising, and
shipping materials related to any of the foregoing; (f) all names, marks, and
General Intangibles affixed or to be affixed or associated thereto; and (g)
Documents which represent any of the foregoing.

 

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

 

“Issuers”
shall mean, collectively, the respective corporations identified beneath the
names of the Debtors on Annex 1A hereto under the caption “Issuer,”
together with any corporation created or acquired after the date hereof, the
capital stock of which is required to be pledged hereunder pursuant to this
Agreement or the Credit Agreement.

 

“Letter-of-Credit
Right” has the meaning given that term in UCC and also refers to any right
to payment or performance under a Letter of Credit, whether or not the
beneficiary has demanded or is at the time entitled to demand payment or
performance, and whether or not evidenced by a writing.

 

“LLC”
shall mean, collectively, the respective limited liability companies identified
beneath the name of the Debtors on Annex 1A hereto under the caption “LLC”,
together with any limited liability company created or acquired after the date
hereof, the

 

4

 

Interests in
which are required to be pledged hereunder pursuant to this Agreement or the
Credit Agreement.

 

“Motor
Vehicles” shall mean motor vehicles, tractors, trailers and other like
property, whether or not the title thereto is governed by a certificate of
title or ownership.

 

“Partnership”
shall mean, collectively, the respective partnerships identified beneath the
name of the Debtors on Annex 1A hereto under the caption “Partnership”,
together with any partnerships created or acquired after the date hereof, the
Partnership Interests in which are required to be pledged hereunder pursuant to
this Agreement or the Credit Agreement.

 

“Partnership
Interests” shall mean, as to any Debtor (i) all right, title and interest,
now existing or hereafter acquired, of such Debtor in any Partnership but not
any of its obligations from time to time as a partner (unless the Administrative
Agent shall become a partner as a result of its express exercise of remedies
herein) of any Partnership; (ii) any and all moneys due and to become due to
such Debtor now or in the future by way of a distribution made to such Debtor
in its capacity as a member of or an owner of any Partnership; (iii) any other
Property of any Partnership to which such Debtor now or in the future may be
entitled in its capacity as a member of or an owner of any Partnership by way
of distribution, return of capital or otherwise; (iv) any other claim in
respect of any Partnership to which such Debtor now or in the future may be
entitled in its capacity as a member of or an owner of any Partnership and its
Property, including any rights under any partnership agreement or other document
governing or pertaining to such interests; (v) the certificates, if any,
representing all such rights and interests; (vi) all rights of such Debtor
under each partnership agreement or limited partnership agreement of each
Partnership; and (vii) to the extent not otherwise included, all proceeds of
any of the foregoing.

 

“Patent
Collateral” shall mean all Patents, whether now owned or hereafter acquired
by any Debtor, including each Patent identified in Annex 3 hereto.
Notwithstanding the foregoing, the Patent Collateral does not and shall not
include any Patent that would be rendered invalid, abandoned, void or
unenforceable by reason of its being included as part of Patent Collateral.

 

“Patents”
shall mean all patents and patent applications, including, without limitation,
the inventions and improvements described and claimed therein together with the
reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, all income, royalties, damages and payments now
or hereafter due and/or payable under and with respect thereto, including,
without limitation, damages and payments for past or future infringements
thereof, the right to sue for past, present and future infringements thereof,
and all rights corresponding thereto throughout the world.

 

“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.

 

“Permitted
Encumbrances” shall mean (a) with respect to the Securities Collateral, the
Intellectual Property Collateral, the Collateral Account and the proceeds of
each of the foregoing, Liens of the type described in clause (b), (h), (k) and
(t) of the definition of

 

5

 

Permitted
Liens and (b) with respect to all other Pledged Collateral, Liens of the type
described in clauses (a), (b), (c), (g) (other than with respect to Inventory),
(h) (other than with respect to Inventory), (j), (k), (l), (m), (n), (o), (r)
and (s) of the definition of Permitted Liens.

 

“Pledged
Collateral” see Section 3 hereof.

 

“Pledged
Interests” see Section 3.01(d) hereof.

 

“Pledged
Obligations” shall mean all of each Debtor’s right, title and interest, if
any, in and to any and all obligations owed to such Debtor by any Person,
whether now existing or hereafter incurred, and in and to all collateral
granted to such Debtor or for the benefit of such Debtor as collateral security
for such obligations.

 

“Pledged
Securities” shall mean the Pledged Interests and the Pledged Stock,
collectively.

 

“Pledged
Stock” see Section 3(a) hereof.

 

“Prior
Liens” shall mean (a) the Liens set forth on Schedule 3 hereto and
(b) with respect to each applicable type of Pledged Collateral, Permitted
Encumbrances, but only to the extent that the law or regulation creating or
authorizing such Lien provides that such Lien must be superior to the Lien and
security interest created and evidenced by this Agreement.

 

“Proceeds”
includes, without limitation, “Proceeds” as defined in the UCC and each type of
property described in Section 3.01 hereof.

 

“Secured
Obligations” shall mean, collectively, (a) the principal of and interest
(including any interest that would accrue but for the provisions of the
Bankruptcy Code) on the Loans made by the Revolving Credit Lenders to, and the
Notes held by each Revolving Credit Lender of, Borrower and all other
Obligations and amounts from time to time owing to the Secured Parties by
Borrower under the Credit Documents, including, without limitation, all
Reimbursement Obligations and interest thereon, (b) all obligations of Borrower
or any other Obligor arising under any Swap Contract between Borrower or any
other Obligor and any Revolving Credit Lender or any Affiliate of any Revolving
Credit Lender, (c) all obligations of the Guarantors under the Credit Agreement
and the other Credit Documents (including, without limitation, in respect of
their Guarantees under Section 6 of the Credit Agreement), (d) all obligations
of the Debtors to the Administrative Agent and the other Secured Parties
hereunder, and (e) any and all direct or indirect liabilities, debts, and
obligations of each Debtor to the Administrative Agent or any Affiliate of the
Administrative Agent, each of every kind, nature, and description owing on
account of any service or accommodation provided to, or for the account of any
Debtor pursuant to this or any other Credit Document, including cash management
services, treasury services and automated clearinghouse transfers.

 

“Secured
Parties” shall mean the Creditors and any other Person to whom the
Obligations are owing, including, without limitation, any Affiliate of the
Administrative Agent who provides any service or accommodation to, or for the
account of, any Debtor

 

6

 

pursuant to
any Credit Document, including cash management services, treasury services and
automated clearinghouse transfers.

 

“Securities
Act” shall mean the United States Securities Act of 1933, as amended.

 

“Securities
Collateral” shall mean, collectively, the Pledged Collateral described in
clauses (a) through (e) of Section 3 hereof and the proceeds of and to any such
property and, to the extent related to any such property or such proceeds, all
books, correspondence, credit files, records, invoices and other papers.

 

“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.

 

“Trademark
Collateral” shall mean all Trademarks, whether now owned or hereafter
acquired by any Debtor, including each Trademark identified in Annex 4
hereto. Notwithstanding the foregoing, the Trademark Collateral does not and
shall not include any Trademark that would be rendered invalid, abandoned, void
or unenforceable by reason of its being included as part of the Trademark
Collateral.

 

“Trademarks”
shall mean all trade names, trademarks and service marks, logos, trademark and
service mark registrations, and applications for trademark and service mark
registrations, including, without limitation, all renewals of trademark and
service mark registrations, all rights corresponding thereto throughout the
world, the right to recover for all past, present and future infringements
thereof, all other rights of any kind whatsoever accruing thereunder or
pertaining thereto, together, in each case, with the product lines and goodwill
of the business connected with the use of, and symbolized by, each such trade
name, trademark and service mark.

 

“UCC”
shall mean the Uniform Commercial Code as in effect from time to time in the
Commonwealth of Massachusetts.

 

“Voting
Powers” see Section 5.04(a)(2) hereof.

 

ARTICLE II Representations,
Warranties and Covenants.  Each
Debtor represents, warrants, covenants and agrees with the Secured Parties
that:

 

2.1.1        Such Debtor is the sole beneficial (and,
with respect to the Pledged Securities, record) owner of, or holds valid and
subsisting leases or licenses to, the Pledged Collateral in which it purports
to grant a security interest pursuant to Section 3 hereof and no Lien exists or
will exist upon such Pledged Collateral at any time (and no right or option to
acquire the same (other than those, if any, arising in the ordinary course of
business with respect to Dispositions permitted under the Credit Agreement)
exists in favor of any other Person), except for Prior Liens, Permitted Encumbrances
and the pledge and security interest in favor of the Administrative Agent for
the benefit of the Secured Parties created or provided for herein, which pledge
and security interest shall constitute a first priority perfected pledge and
security interest in and to all of such Pledged Collateral, subject only to
Prior Liens, and, except for permitted Dispositions, each Debtor will make no
assignment, pledge, hypothecation or transfer of, or create or permit to exist
any security interest in or other Lien on, the Pledged Collateral, other

 

7

 

than Prior Liens, Permitted Encumbrances and
the Lien pursuant hereto; and, subject to Section 5.04 hereof, will cause any
and all Pledged Securities, to the extent certificated, whether for value paid
by any Debtor or otherwise, to be forthwith deposited with the Administrative
Agent and pledged or assigned hereunder.

 

2.1.2        The Pledged Stock represented by the
certificates identified under the name of such Debtor in Annex 1A hereto
is, and all other Pledged Stock in which such Debtor shall hereafter grant a
security interest pursuant to Section 3 hereof will be, duly authorized,
validly existing, fully paid and non-assessable and none of such Pledged Stock
is or will be subject to any contractual restriction, or any restriction under
the charter or by-laws of the respective Issuer of such Pledged Stock, upon the
transfer of such Pledged Stock (except for any such restriction contained
herein or in the Credit Agreement or as permitted by the Credit Agreement).

 

2.1.3        The Pledged Stock represented by the
certificates identified under the name of such Debtor in Annex 1A hereto
constitutes (x) with respect to each Subsidiary other than a Foreign
Subsidiary, all of the issued and outstanding shares of capital stock of any
class of such Subsidiary beneficially owned by such Debtor and (y) with respect
to each first tier Foreign Subsidiary, all of the issued and outstanding shares
of capital stock of any class of such Foreign Subsidiary beneficially owned by
such Debtor which in the aggregate represent not less than (and, subject to
Section 3.01(a) hereof, not more than) 65% of the total combined voting power
of all classes of capital stock of any such Foreign Subsidiary (in each case,
whether or not registered in the name of such Debtor), and said Annex 1A
correctly identifies, as at the date hereof, or, with respect to any Subsidiary
created or acquired after the date hereof, as of the date of pledge hereunder,
the respective Issuers of such Pledged Stock, the respective class and par
value of the shares comprising such Pledged Stock and the respective number of
shares (and registered owners thereof) represented by each such certificate.

 

2.1.4        The Pledged Obligations identified on Annex
1B hereto constitute all of the Pledged Obligations of such corporations as
identified on Annex 1B hereto, and, other than the Pledged Obligations,
no Debtor owns, directly or indirectly, any other Pledged Obligations of any
Subsidiary (other than a Foreign Subsidiary).

 

2.1.5        Annexes 2, 3 and 4 hereto,
respectively, set forth under the name of such Debtor a complete and correct
list of all Copyrights, Patents and Trademarks owned by such Debtor on the date
hereof, which have been registered or for which an application for registration
has been made.  Except pursuant to
licenses and other user agreements entered into by such Debtor in the ordinary
course of business that are listed in Annex 5 hereto, (i) such Debtor
owns and possesses the right to use, and has done nothing to authorize or
enable any other Person to use, any Copyright, Patent or Trademark listed in
said Annexes 2, 3 and 4, and (ii) all registrations listed in said Annexes
2, 3 and 4 are valid and in full force and effect.  Except as may be set forth in said Annex
5, such Debtor owns and possesses the right to use all Copyrights, Patents
and Trademarks material to its business.

 

2.1.6        Annex 5 hereto sets forth a
complete and correct list of all licenses and other user agreements included in
the Intellectual Property.

 

2.1.7        To such Debtor’s knowledge: (i) except
as set forth in Annex 5 hereto, there is no violation by others of any
right of such Debtor with respect to any Copyright, Patent or Trademark listed
in Annexes 2, 3 and 4 hereto, respectively, under the name of such
Debtor, and (ii) such Debtor is not infringing in any respect upon any
Copyright, Patent or Trademark of any

 

8

 

other Person; and no proceedings have been
instituted or are pending against such Debtor or, to such Debtor’s knowledge,
threatened, and no claim against such Debtor has been received by such Debtor,
alleging any such violation, except as may be set forth in said Annex 5.

 

2.1.8        Any goods now or hereafter produced by
such Debtor or any of its Subsidiaries included in the Pledged Collateral have
been and will be produced by such Debtor in compliance with the applicable
requirements of the Fair Labor Standards Act of 1938, as amended, except where
the failure to comply could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.

 

2.1.9        The Interests of each Debtor identified
under the name of such Debtor on Annex 1A hereto pledged hereunder, and
in respect of which a security interest has been granted hereunder, constitute
all of the issued and outstanding Interests, limited liability company
interests or other ownership or equity interests in any LLC owned by the
Debtors; the Partnership Interests of each Debtor identified under the name of
such Debtor on Annex 1A hereto pledged hereunder, and in respect of
which a security interest has been granted hereunder, constitute all of the
issued and outstanding Partnership Interests or other ownership or equity
interests in any Partnership owned by the Debtors; and none of the Pledged
Interests is or will be subject to any contractual restriction, or any
restriction under the organizational or other formation documents of the
respective issuer of such Pledged Interests upon the transfer of such Pledged
Interests (except for any such restriction contained herein or in the Credit
Agreement or as permitted by the Credit Agreement).  The Pledged Interests have been duly authorized and validly issued,
and all payments required to be made by any holder of such Pledged Interests in
respect of such interests have been made.

 

2.1.10      Each Debtor has the corporate power and
authority to grant the security interest in the Pledged Collateral pursuant to
this Agreement and has taken all necessary corporate action to grant the
security interest in the Pledged Collateral pursuant to this Agreement.

 

2.1.11      None of the Pledged Stock constitutes
margin stock, as defined in Regulation G or Regulation U of the Board of
Governors of the Federal Reserve System.

 

2.1.12      Other than Prior Liens and Permitted
Encumbrances, no security agreement, financing statement, equivalent security
or lien instrument or continuation statement covering all or part of the
Pledged Collateral is on file or of record in any public office, except such as
may have been, or will be, filed in favor of the Administrative Agent for the
benefit of the Secured Parties pursuant to this Agreement.

 

2.1.13      Upon filing of the financing statements in
the offices referred to on Schedule 1 hereto, the security interest
created by this Agreement in all Pledged Collateral other than the Pledged
Securities and other Pledged Collateral which is either not disclosed in the
financing statements or as to which filing a financing statement is not the sole
perfection method will constitute a valid, perfected first priority security
interest (subject to Prior Liens) in such Pledged Collateral to the extent
provided in the UCC, enforceable in accordance with its terms against all
creditors of such Debtor and any Persons purporting to purchase any such
Pledged Collateral from such Debtor, except as enforcement of such security
interest may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors’ rights generally or general equitable principles (whether considered
in a proceeding in equity or at law), and except that the priority of any
security interest is subject to the priority rules established by the UCC and
the enforceability of any security interest against

 

9

 

other creditors and purchasers is subject to
the provisions of the UCC and of the Credit Agreement and other Credit
Documents that provide in certain circumstances for purchasers and other
creditors to take free of a prior perfected or unperfected security interest or
otherwise limit the enforceability, priority or effect of any such security
interest.

 

2.1.14      The Interests in each LLC and the
Partnership Interests in each Partnership are not represented by certificates.

 

2.1.15      Each Debtor’s principal place of business,
chief executive office and the place where its records concerning the Pledged
Collateral are kept is at the address listed on Schedule 2 hereto, and
such Pledgor will not change such principal place of business or chief
executive office or remove such records without giving the Administrative Agent
at least 30 days prior written notice thereof and taking such action to
maintain the perfection or priority of the Administrative Agent’s security
interest in the Pledged Collateral as is necessary or reasonably requested by
the Administrative Agent; and such Debtor will not change its name, identity or
structure in any manner, or take any other action, which might make any
financing statement filed in respect of the Pledged Collateral seriously
misleading unless it shall have given the Administrative Agent at least 30 days
prior written notice thereof.

 

2.1.16      No consent or approval of any Governmental
Authority or any securities exchange or any other Person was or is necessary
for the validity of the security interest granted herein and the pledge
effected hereby.

 

2.1.17      By virtue of the execution and delivery by
the Debtors of this Agreement, when the Pledged Securities, certificates,
instruments or other documents representing or evidencing such Pledged
Securities are delivered to the Administrative Agent in accordance with this
Agreement, duly endorsed or, in the case of Pledged Interests or Pledged Securities
constituting uncertificated securities, when the steps required by Articles 8
and 9 of the UCC have been taken to perfect the Administrative Agent’s security
interest therein for the benefit of the Secured Parties, the security interest
created by this Agreement in all Pledged Securities will constitute a valid,
perfected first priority security interest in the Pledged Securities to the
extent provided in the UCC, enforceable in accordance with its terms against
all creditors of such Debtor and any Person purporting to purchase any such
Pledged Collateral from such Debtor, except as enforcement of such security
interest may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors’ rights generally or general equitable principles (whether considered
in a proceeding in equity or at law), and except that the priority of any
security interest is subject to the priority rules established by the UCC and
the enforceability of any security interest against other creditors and
purchasers is subject to the provisions of the UCC and of the Credit Agreement
and other Credit Documents that provide in certain circumstances for purchasers
and other creditors to take free of a prior perfected or unperfected security
interest or otherwise limit the enforceability, priority or effect of any such
security interest.

 

2.1.18      There are no restrictions upon the voting
rights associated with, or upon the transfer of, any of the Pledged Securities.  The Pledged Securities are not subject to
any put, call, option or other right in favor of any other Person whatsoever.

 

2.1.19      Neither the execution and delivery of this
Agreement by each Debtor, nor the consummation of the transactions herein contemplated,
nor the fulfillment of the terms hereof (i) violates any Debtor’s, or any of
its Subsidiaries’, charter or by-laws or any organizational or other

 

10

 

formation document of any Issuer, LLC or Partnership,
(ii) violates the terms of any agreement, indenture, mortgage, deed of trust,
equipment lease, instrument or other document to which any Debtor, or any of
its Subsidiaries, is a party, or by which any of them may be bound or to which
any of their Property may be subject, which violation or conflict, individually
or in the aggregate, would have a Material Adverse Effect, or a material
adverse effect on the value of the Pledged Collateral taken as a whole or a
material adverse effect on the security interests hereunder (it being
understood that each Debtor makes no representation that upon foreclosure the
fair market value or fair value or any particular value would be realized), or
(iii) conflicts with any law, order, rule or regulation applicable to any
Debtor, or any of its Subsidiaries, of any Governmental Authority having
jurisdiction over any Debtor, or any of its Subsidiaries, or their Property, or
(iv) results in or requires the creation or imposition of any Lien (other than
the Lien contemplated hereby) upon or with respect to any of the Property now
owned or hereafter acquired by any Debtor, or any of its Subsidiaries.

 

2.1.20      Upon reasonable request to a Debtor, the
Administrative Agent shall have full and free access during normal business
hours to all of the books, correspondence and records of such Debtor relating
to the Pledged Collateral, and the Administrative Agent and its representatives
may examine the same, take extracts therefrom and make photocopies thereof, and
such Debtor agrees to render to the Administrative Agent, at such Debtor’s cost
and expense, such clerical and other assistance as may be reasonably requested
by the Administrative Agent with regard thereto.

 

2.1.21      In the event that the Administrative Agent
desires to exercise any remedies, voting or consensual rights or
attorney-in-fact powers set forth in this Agreement and determines it necessary
to obtain any approvals or consents of any Governmental Authority or any other
Person therefor, then, upon the reasonable request of the Administrative Agent,
each Debtor agrees to use its diligent best efforts to assist and aid the
Administrative Agent to obtain as soon as practicable any necessary approvals
for the exercise of any such remedies, rights and powers.

 

2.1.22      There are no voting trusts or other
agreements or understandings to which any Debtor is a party or by which it may
be bound with respect to voting, managerial consent, election or other rights
of any Debtor relating to the Pledged Securities.

 

2.1.23      No Debtor is in default in the payment of
any portion of any mandatory capital contribution, if any, required to be made
under any agreement to which such Debtor is a party relating to its Interests
or Partnership Interests, and no Debtor is in violation of any other material
provisions of any such agreement to which such Debtor is a party, or otherwise
in default or violation thereunder; no Interest or Partnership Interest is
subject to any defense, offset or counterclaim, nor have any of the foregoing
been asserted or alleged against any Debtor by any Person with respect thereto
and as of the date hereof, there are no certificates, instruments, documents or
other writings (other than the operating agreements, partnership agreements and
certificates, if any, delivered to the Administrative Agent) which evidence any
Interest or Partnership Interest of any Debtor.

 

2.1.24      No Debtor is the holder of any Commercial
Tort Claim.

 

11

 

 

ARTICLE III  Pledged
Collateral; Registration of Pledge of Pledged Interests; Acknowledgments;
Delivery of Pledged Securities and Pledged Obligations.

 

SECTION 3.1         As collateral security
for the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the Secured Obligations owing by such Debtor,
each Debtor hereby pledges and mortgages to the Administrative Agent, for the
benefit of the Secured Parties as hereinafter provided, and grants to the
Administrative Agent, for the benefit of the Secured Parties as hereinafter
provided, a security interest in, all of such Debtor’s right, title and
interest in the following property, whether now owned by such Debtor or
hereafter acquired and whether now existing or hereafter coming into existence
(all being collectively referred to herein as “Pledged Collateral”):

 

3.1.1        The shares of common
and/or preferred stock of the Issuers represented by the certificates
identified in Annex 1A hereto under the name of such Debtor and each
other corporation hereafter acquired or formed by any Debtor and all other
shares of capital stock of whatever class of the Issuers now or hereafter owned
by such Debtor and all Equity Rights of any such Issuer which is a first tier
Foreign Subsidiary owned by any Debtor, in each case together with the
certificates evidencing the same, subject, in the case of any Foreign
Subsidiary, to the limitation that shares of capital stock of any such Issuer
which represent in excess of 65% of the combined voting power of all classes of
capital stock of such Issuer shall not be pledged and that no shares of any
Foreign Subsidiary which is not a first tier Foreign Subsidiary shall be
pledged; provided, however, that if following a change in the
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder which would
permit a pledge of 66-2/3% or more of the total combined voting power of all
classes of capital stock of any Foreign Subsidiary entitled to vote without
causing the undistributed earnings of such Foreign Subsidiary as determined for
United States Federal income taxes to be treated as a deemed dividend to the
Debtors for United States Federal income tax purposes, then the 65% limitation
set forth above shall no longer be applicable and the Debtors shall duly pledge
and deliver to the Administrative Agent such of the capital stock not
theretofore required to be pledged hereunder (collectively, the “Pledged
Stock”);

 

3.1.2        All shares, securities,
moneys or Property representing a dividend on any of the Pledged Stock, or
representing a distribution or return of capital upon or in respect of the
Pledged Stock, or resulting from a split-up, revision, reclassification or
other like change of the Pledged Stock or otherwise received in exchange
therefor, and any subscription warrants, rights or options issued to the
holders of, or otherwise in respect of, the Pledged Stock;

 

3.1.3        All Pledged Obligations
identified on Annex 1B hereto under the name of any Debtor; provided,
however, if following a change in the relevant sections of the Code or
the regulations, rules, rulings, notices or other official pronouncements
issued or promulgated thereunder which would permit a pledge of any promissory
note issued by any Foreign Subsidiary without causing the undistributed
earnings of such Foreign Subsidiary as determined for United States Federal
income taxes to be treated as a deemed dividend to the Debtor for United States
Federal income tax purposes, then each Debtor shall duly pledge and deliver to
the Administrative Agent such of the Pledged Obligations of each Foreign
Subsidiary not theretofore required to be pledged hereunder;

 

3.1.4        All Interests or
Partnership Interests now or hereinafter owned by any Debtor and any limited
liability company interest, partnership interest or other ownership or equity
securities or certificate (including, without limitation, any certificate
representing a distribution in

 

12

 

connection
with any reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights, whether in
addition to, in substitution of, as a conversion of, or in exchange for
Interests or Partnership Interests, or otherwise in respect thereof
(collectively, the “Pledged Interests”);

 

3.1.5        Without affecting the
obligations of such Debtor under any provision prohibiting such action
hereunder or under the Credit Agreement, in the event of any consolidation or
merger in which an Issuer, LLC or Partnership is not the surviving corporation,
all shares of each class of the capital stock of the successor corporation or
interests or certificates of the successor limited liability company or
partnership owned by the Debtors (unless such successor is such Debtor itself)
formed by or resulting from such consolidation or merger;

 

3.1.6        All Accounts;

 

3.1.7        All General Intangibles;

 

3.1.8        All Payment Intangibles;

 

3.1.9        All Supporting
Obligations;

 

3.1.10      All books, records, and
information relating to the Pledged Collateral and/or to the operation of each
Debtor’s 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;

 

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

 

3.1.12      All Chattel Paper;

 

3.1.13      All Letter-of-Credit Rights;

 

3.1.14      All Inventory;

 

3.1.15      All Equipment;

 

3.1.16      All Contracts;

 

3.1.17      All Goods;

 

3.1.18      the balance from time to
time in the Collateral Account;

 

3.1.19      all Fixtures;

 

3.1.20      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 (3.01(a) through 3.01(s)) or
otherwise;

 

13

 

3.1.21      All liens, guaranties,
rights, remedies, and privileges pertaining to any of the foregoing (3.01(a)
through 3.01(t)), including the right of stoppage in transit; and

 

3.1.22      all other tangible and
intangible personal property and fixtures of such Debtor, including, without
limitation, all Proceeds, products, accessions, rents, profits, income,
benefits, substitutions and replacements of and to any of the property of such
Debtor described in the preceding clauses of this Section 3.01 (including,
without limitation, any proceeds of insurance thereon and all causes of action,
claims and warranties now or hereafter held by any Debtor in respect of any of
the items listed above) and, to the extent related to any property described in
said clauses or such Proceeds, products and accessions, all books,
correspondence, credit files, records, invoices and other papers, including
without limitation all tapes, cards, computer runs and other papers and
documents in the possession or under the control of such Debtor or any computer
bureau or service company from time to time acting for such Debtor.

 

It is intended
that the Pledged Collateral extends to and covers all assets of each Debtor.
Notwithstanding the foregoing, the Pledged Collateral does not and shall not
include any Contract, lease or license (or any property subject to any such
lease or license) to which any Debtor is a party which would be rendered void
or unenforceable by reason of its being included as part of the Pledged
Collateral or which is not assignable by its terms, or any property subject to
a purchase money security interest permitted under the Credit Agreement which
under the terms of such purchase money security interest or related
documentation may not be further encumbered or transferred, unless a consent to
the assignment has been received by such Debtor and/or the Administrative
Agent; provided that the Proceeds realized from any of the foregoing
shall be deemed to constitute Pledged Collateral.

 

SECTION 3.2         Concurrently with the
execution of this Agreement and with the creation or acquisition of any
securities or interests in any Issuer, LLC or Partnership, the securities or
interests in which are required pursuant to the terms hereof or of the Credit
Agreement to be pledged hereunder, each Debtor shall deliver to the
Administrative Agent an Acknowledgment in the form of Exhibit A hereto
of each Issuer, LLC or Partnership whose securities or interests are Pledged
Securities hereunder.

 

SECTION 3.3         Each Debtor hereby
delivers to the Administrative Agent all of the certificates evidencing the
Pledged Stock owned by such Debtor which is represented by certificates,
endorsed in blank or accompanied with appropriate undated stock powers executed
in blank.  If at any time any Pledged
Stock which is not represented by a certificate shall be represented by one or
more certificates, then each Debtor shall promptly deliver the same to the
Administrative Agent accompanied by stock powers duly executed in blank, with
signature properly guaranteed.  All
other shares of Pledged Stock subsequently acquired by each Debtor shall be
pledged to the Administrative Agent and, if represented by a certificate,
certificates representing the same shall be delivered to the Administrative
Agent contemporaneously with the acquisition thereof, accompanied by stock
powers duly executed in blank, with signature properly guaranteed.

 

SECTION 3.4         This Agreement
constitutes an authenticated record, 
and each Debtor hereby authorizes the Administrative Agent to file one
or more financing or continuation statements, and amendments thereto, relative
to all or any part of the Pledged Collateral, in such filing offices as the
Administrative Agent shall deem appropriate, and the Debtors shall execute and
deliver to the Administrative Agent such financing or continuation statements,
and amendments thereto, promptly upon the reasonable request of the
Administrative Agent and shall

 

14

 

pay the
Administrative Agent’s reasonable costs and expenses incurred in connection
therewith. Each Debtor hereby further authorizes the Administrative Agent to
file one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Pledged Collateral without the signature of
such Debtor, and each Debtor agrees that a carbon, photographic, or other
reproduction of this Agreement or of a financing statement signed by such
Debtor shall be sufficient as a financing statement and may be filed as a
financing statement in any and all jurisdictions.

 

SECTION 3.5         Each Debtor has caused
the Lien of the Administrative Agent, for the benefit of the Secured Parties,
in and to the Interests and the Partnership Interests to be registered upon the
books of the issuers of such Interests and Partnership Interests.  If at any time any Interests or Partnership
Interests shall be represented by one or more certificates or by any documents
that are instruments (as defined in the UCC), then the appropriate Debtor shall
promptly deliver the same to the Administrative Agent accompanied by duly
executed transfer powers endorsed in blank respecting such certificates or
documents, with signature properly guaranteed.

 

SECTION 3.6         Each Debtor hereby
delivers to the Administrative Agent, for the benefit of the Secured Parties,
all of the promissory notes, instruments and agreements evidencing the Pledged
Obligations held by such Debtor in suitable form for transfer by endorsement
and delivery or accompanied by duly executed instruments of transfer or
assignment in blank.  If any Debtor
shall become entitled to receive, or shall receive, any promissory notes,
instruments or agreements constituting Pledged Collateral after the date hereof
(including, without limitation, any certificate representing any distribution
in connection with any recapitalization, reclassification or increase or
reduction of capital, or issued in connection with any reorganization of the
obligor on any Pledged Obligations) in respect of the Pledged Obligations, such
Debtor agrees: (i) to accept the same as the agent of the Administrative Agent,
(ii) to hold the same in trust on behalf of and for the benefit of the
Administrative Agent and the Secured Parties, and (iii) to deliver any and all
promissory notes, instruments or agreements evidencing the same to the
Administrative Agent, for the benefit of the Secured Parties, within ten (10)
days following the receipt thereof by such Debtor, in the exact form received,
with the endorsement in blank of such Debtor when necessary and with an appropriate
undated instrument of transfer or assignment duly executed in blank (with
signature properly guaranteed), to be held by the Administrative Agent, for the
benefit of the Secured Parties, subject to the terms of this Agreement, as
additional Pledged Collateral.

 

SECTION 3.7         Each delivery of such
Pledged Securities or Pledged Obligations after the date hereof shall be
accompanied by a schedule describing the securities and/or indebtedness
theretofore and then being pledged hereunder, which schedule shall be attached
hereto and made a part hereof.  Each
schedule so delivered shall supersede any prior schedules so delivered.

 

ARTICLE IV  Cash Proceeds of
Collateral.

 

SECTION 4.1         Collateral Account.

 

4.1.1        There is hereby
established with the Administrative Agent a cash collateral account (the “Collateral
Account”) in the name and under the control of the Administrative Agent (1)
into which there shall be deposited from time to time (i) the cash proceeds
(including pursuant to any Disposition thereof) of any of the Pledged
Collateral, (ii) the cash proceeds of any Taking or Destruction or loss of
title with respect to any Real Property (including proceeds of

 

15

 

Casualty
Events and proceeds of insurance covering the Pledged Collateral or any Real
Property), and (iii) any cash in respect of any Pledged Collateral which the
Administrative Agent is entitled to pursuant to Section 5.04 hereof, and (2)
into which the Debtors may from time to time deposit any additional amounts
that any of them wishes to pledge to the Administrative Agent for the benefit
of the Secured Parties as additional collateral security hereunder and which,
as provided in Section 10 of the Credit Agreement, it is required to pledge as
additional collateral security hereunder.

 

4.1.2        The balance from time to
time in the Collateral Account shall constitute part of the Pledged Collateral
hereunder and shall not constitute payment of the Secured Obligations until
applied as hereinafter provided.  So long
as no Event of Default has occurred and is continuing, the Administrative Agent
shall, subject to the further provisions hereof, remit the collected balance
outstanding to the credit of the Collateral Account to or upon the order of the
respective Debtor as such Debtor shall from time to time instruct; provided,
however, that any amounts deposited in the Collateral Account in respect
of any Casualty Events, Takings, Destructions or loss of title with respect to
Real Property shall be disbursed to the relevant Debtor in periodic
installments upon submission of reasonable evidence that such amount is to be
applied as permitted by the Mortgage, and any amounts deposited in the
Collateral Account in respect of prepayments or reductions of Loans or Commitments
under Section 2.11 of the Credit Agreement which are to be applied to LIBOR
Loans as provided in Section 2.10(b) of the Credit Agreement shall be held by
the Administrative Agent until the end of the respective Interest Periods of
such LIBOR Loans at which time, whether or not an Event of Default has
occurred, the Administrative Agent shall cause such monies to be applied to
such LIBOR Loans. However, at any time following the occurrence and during the
continuance of an Event of Default, the Administrative Agent may (and, if so
instructed by the Revolving Credit Lenders as specified in the Credit
Agreement, shall) in its (or their) sole and absolute discretion apply or cause
to be applied (subject to collection) the balance from time to time outstanding
to the credit of the Collateral Account to the payment of the Secured
Obligations in the manner specified in Section 5.09 hereof.  The balance from time to time in the
Collateral Account shall be subject to withdrawal only as provided herein.

 

SECTION 4.2         Proceeds of Accounts.  At any time after the occurrence and during
the continuance of an Event of Default, each Debtor shall, upon the request of
the Administrative Agent, instruct all Account Debtors and other Persons
obligated in respect of all Accounts to make all payments in respect of the
Accounts either (a) directly to the Administrative Agent (by instructing that
such payments be remitted to a post office box which shall be in the name and
under the control of the Administrative Agent), or (b) to one or more other
banks in the United States of America (by instructing that such payments be
remitted to a post office box which shall be in the name and under the control
of the Administrative Agent) under arrangements, in form and substance
satisfactory to the Administrative Agent, pursuant to which such Debtor shall
have irrevocably instructed such other bank (and such other bank shall have
agreed) to remit all proceeds of such payments directly to the Administrative
Agent for deposit into the Collateral Account. 
All payments made to the Administrative Agent as provided in the
preceding sentence shall be immediately deposited in the Collateral
Account.  In addition to the foregoing,
each Debtor agrees that, at any time after the occurrence and during the continuance
of an Event of Default, if the proceeds of any Pledged Collateral hereunder
(including the payments made in respect of Accounts) shall be received by it,
such Debtor shall as promptly as possible deposit such proceeds into the
Collateral Account.  Until so deposited,
all such proceeds shall be held in trust by such Debtor for and as the property
of the Administrative Agent and the Secured Parties and shall not be commingled
with any other funds or property of such Debtor.

 

16

 

SECTION 4.3         Investment of Balance
in Collateral Account.  Amounts on
deposit in the Collateral Account shall be invested from time to time in such
Permitted Investments as the Borrower (or, after the occurrence and during the
continuance of an Event of Default, the Administrative Agent) shall determine,
which Permitted Investments shall be held in the name and be under the control
of the Administrative Agent; provided, however, that (i) at any
time after the occurrence and during the continuance of an Event of Default,
the Administrative Agent may (and, if so instructed by the Revolving Credit
Lenders as specified in the Credit Agreement, shall) in its (or their) sole and
absolute discretion at any time and from time to time elect to liquidate any
such Permitted Investments and to apply or cause to be applied the proceeds
thereof to the payment of the Secured Obligations in the manner specified in
Section 5.09 hereof, and (ii) if requested by the Borrower, such Permitted
Investments may be held in the name and under the control of one or more of the
Revolving Credit Lenders (and, in that connection, each Revolving Credit
Lender, pursuant to Section 11.4 of the Credit Agreement, has agreed that such
Permitted Investments shall be held by such Lender as a collateral sub-agent
for the Administrative Agent hereunder).

 

SECTION 4.4         Cover for Letter of
Credit Liabilities.  Amounts
deposited into the Collateral Account as cover for Letter of Credit Liabilities
under the Credit Agreement pursuant to Section 10 thereof shall be held by the
Administrative Agent in a separate sub-account (designated “Letter of Credit
Liabilities Sub-Account”) and all amounts held in such sub-account shall
constitute collateral security first for the Letter of Credit
Liabilities outstanding from time to time, and second as collateral
security for the other Secured Obligations hereunder, which funds shall be
retained by the Administrative Agent in the Collateral Account (as provided in
this Agreement as collateral security in the first instance for the Letter of
Credit Liabilities) until such time as all Letters of Credit shall have been
terminated and all of the Letter of Credit Liabilities paid in full.

 

ARTICLE V  Covenants; Further Assurances; Remedies.  In furtherance of the grant of the pledge
and security interest pursuant to Section 3 hereof, the Debtors hereby jointly
and severally agree with each Secured Party and the Administrative Agent as
follows:

 

SECTION 5.1         Delivery and Other
Perfection.  Each Debtor shall:

 

5.1.1        if there shall be received
by such Debtor any of the above-described shares, securities or property
required to be pledged by such Debtor under clauses (a), (b), (c), (d) and (e)
of Section 3.01 hereof or any distribution of capital shall be made on or in
respect of the Pledged Interests or any Property shall be distributed upon or
with respect to the Pledged Interests pursuant to the recapitalization or
reclassification of the capital of any LLC or Partnership, or pursuant to the
reorganization thereof, forthwith either (x) transfer and deliver to the
Administrative Agent such shares, capital, Property or securities so received
by such Debtor (together with the certificates for any such shares and
securities duly endorsed in blank or accompanied by undated stock powers duly
executed in blank), all of which thereafter shall be held by the Administrative
Agent, pursuant to the terms of this Agreement, as part of the Pledged
Collateral, or (y) take such other action as the Administrative Agent shall
reasonably deem necessary or appropriate to duly record the Lien created
hereunder in such shares, securities, capital or Property in said clauses (a),
(b), (c), (d) and (e) and until such time of transfer hold such shares,
securities, money, property or capital in trust for the sole benefit of the
Secured Parties, segregated from the other property of each Debtor;

 

17

 

5.1.2        deliver and pledge to the
Administrative Agent, for the benefit of the Secured Parties, any and all
Instruments, endorsed and/or accompanied by such instruments of assignment and
transfer in such form and substance as the Administrative Agent may request; provided,
however, that so long as no Event of Default shall have occurred and be
continuing, such Debtor may retain for collection in the ordinary course any
Instruments received by such Debtor in the ordinary course of business and the
Administrative Agent shall, promptly upon request of such Debtor, make
appropriate arrangements for making any other Instrument pledged by such Debtor
available to such Debtor for purposes of presentation, collection or renewal
(any such arrangement to be effected, to the extent deemed appropriate by the
Administrative Agent, against trust receipt or like document);

 

5.1.3        maintain the security
interest created by this Agreement as a first priority perfected security
interest subject only to Prior Liens and defend such security interest against
claims and demands of all Persons whomsoever and give, execute, deliver, file
and/or record any financing statement, continuation statement, notice,
instrument, document, agreement or other papers that may be necessary or
desirable (in the reasonable judgment of the Administrative Agent) to create,
preserve, perfect or validate the security interest granted pursuant hereto or
to enable the Administrative Agent to exercise and enforce its rights hereunder
with respect to such pledge and security interest, including, without
limitation, after the occurrence and during the continuance of an Event of
Default, causing any or all of the Securities Collateral to be transferred of
record into the name of the Administrative Agent or its nominee (and the
Administrative Agent agrees that if any Securities Collateral is transferred
into its name or the name of its nominee, the Administrative Agent will
thereafter promptly give to the respective Debtor copies of any notices and
communications received by it with respect to the Securities Collateral) and if
any amount payable under or in connection with any of the Interests or
Partnership Interests shall be or become evidenced by any Instrument (including
any promissory note) or Chattel Paper, such Instrument or Chattel Paper shall
be immediately delivered to the Administrative Agent, duly endorsed in a manner
satisfactory to the Administrative Agent, to be held as Pledged Collateral
pursuant to this Agreement;

 

5.1.4        keep full and accurate
books and records relating to the Pledged Collateral, and stamp or otherwise
mark all such material books and records in such manner as the Administrative
Agent may reasonably require in order to reflect the security interests granted
by this Agreement;

 

5.1.5        furnish to the
Administrative Agent upon its request, but not more than quarterly, statements
and schedules further identifying and describing the Copyright Collateral, the
Patent Collateral and the Trademark Collateral, respectively, and such other
reports in connection with such Copyright Collateral, Patent Collateral and
Trademark Collateral, as the Administrative Agent may reasonably request, all
in reasonable detail;

 

5.1.6        promptly notify the
Administrative Agent in writing of the details of any Commercial Tort Claim,
and take such actions as the Administrative Agent shall request in order to
grant to the Administrative Agent, for the ratable benefit of the Secured
Parties, a perfected and first priority security interest therein and in the
Proceeds thereof;

 

5.1.7        promptly upon the
reasonable request of the Administrative Agent, following receipt by the
Administrative Agent of any statements, schedules or reports pursuant to clause
(e) above, modify this Agreement by amending Annexes 2, 3 and/or 4
hereto, as the case may be, to include any Copyright, Patent or Trademark that
becomes part of the Pledged Collateral under this Agreement;

 

18

 

5.1.8        permit representatives of
the Administrative Agent, upon reasonable notice, at any time during normal
business hours to inspect and make abstracts from its books and records
pertaining to the Pledged Collateral;

 

5.1.9        permit representatives of
the Administrative Agent to appraise any or all of the Pledged Collateral, at
such intervals and by such appraisers as the Administrative Agent may
reasonably request;

 

5.1.10      upon the occurrence and
during the continuance of any Event of Default, permit representatives of the
Administrative Agent to be present at such Debtor’s place of business to
receive copies of all communications and remittances relating to the Pledged
Collateral, and forward copies of any notices or communications received by
such Debtor with respect to the Pledged Collateral, all in such manner as the
Administrative Agent may require;

 

5.1.11      upon the occurrence and
during the continuance of any Event of Default, upon request of the
Administrative Agent, promptly notify (and such Debtor hereby authorizes the
Administrative Agent so to notify) each Account Debtor in respect of any
Accounts or Instruments that such Pledged Collateral has been assigned to the
Administrative Agent for the benefit of the Secured Parties hereunder, and that
any payments due or to become due in respect of such Pledged Collateral are to
be made directly to the Administrative Agent; and

 

5.1.12      to the extent permitted by
law, pay, and save the Administrative Agent and the Secured Parties harmless
from, any and all liabilities with respect to, or resulting from any delay in
paying, any and all stamp, excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Pledged
Collateral or in connection with any of the transactions contemplated by this
Agreement.

 

SECTION 5.2         Other Financing
Statements and Liens.  Without the
prior written consent of the Administrative Agent (granted with the
authorization of the Revolving Credit Lenders as specified in the Credit
Agreement), no Debtor shall file or suffer to be on file, or authorize or
permit to be filed or to be on file, in any jurisdiction, any financing
statement or like instrument with respect to the Pledged Collateral in which
the Administrative Agent is not named as the sole secured party for the benefit
of the Secured Parties other than with respect to Prior Liens and Permitted
Encumbrances.

 

SECTION 5.3         Preservation of Rights.  Regardless of whether or not there shall
have occurred any Event of Default, the Administrative Agent may institute and
maintain, or cause in its name or in the name of the Debtors to be instituted
and maintained, such suits and proceedings as the Administrative Agent may
reasonably deem to be necessary or expedient to prevent any impairment of the
security interest in or perfection of the Pledged Collateral in contravention
of the terms of the Credit Documents. 
Without limiting their right to make dispositions or abandonments of
Collateral to the extent permitted by the Credit Agreement, the Debtors agree
not to knowingly take or permit to be taken any action which would impair the
Pledged Collateral or the Administrative Agent’s rights in the Pledged
Collateral.  The Administrative Agent
shall not be required to take steps necessary to preserve any rights against
prior parties to any of the Pledged Collateral.

 

19

 

SECTION 5.4         Special Provisions
Relating to Certain Collateral.

 

5.4.1        Pledged Securities and
Pledged Obligations.

 

(1)           The
Debtors will cause the Pledged Stock to constitute at all times, with respect
to (x) any Issuer other than a Foreign Subsidiary, all of the shares of each
class of capital stock of each such Issuer then owned by any Debtor, and (y)
any first tier Foreign Subsidiary, such amount of the shares of capital stock
of each such Issuer as will (subject to Section 3(a) hereof) result in not less
than (nor greater than) 65% of the total combined voting power of all classes
of capital stock of any such Issuer.

 

(2)           So
long as no Event of Default shall have occurred and be continuing, the Debtors
shall have the right to exercise all voting, consensual, partnership,
managerial and membership rights and powers and other powers of ownership
pertaining to the Pledged Securities (collectively, the “Voting Powers”)
for all purposes not inconsistent with the terms of this Agreement, the other
Credit Documents or any other instrument or agreement referred to herein or
therein; provided, however, that each Debtor agrees that no vote
shall be cast or membership or partnership right exercised or other action
taken which materially impair the Pledged Securities (other than pursuant to a
transaction expressly permitted under the Credit Agreement) or which would be
inconsistent with or result in any violation of any provision of any of this
Agreement or any other Credit Document. 
The Administrative Agent shall execute and deliver to the Debtors, or cause
to be executed and delivered to the Debtors, all such proxies, powers of
attorney, dividend and other orders, and all such instruments, in each case
without recourse or warranty, as the Debtors may reasonably request for the
purpose of enabling the Debtors to exercise the Voting Powers that they are
entitled to exercise pursuant to this Section 5.04(a)(2).  Upon the occurrence and during the
continuance of an Event of Default, at the Administrative Agent’s sole and
absolute option and following written notice from the Administrative Agent to
the Debtors (such written notice to be effective immediately upon the giving
thereof as provided below), all rights of the Debtors to exercise the Voting
Powers they are entitled to exercise pursuant to this Section 5.04(a)(2), and
the obligations of the Administrative Agent under this Section 5.04(a)(2),
shall cease, and all such Voting Powers shall thereupon become transferred to
and vested in the Administrative Agent, which shall have the sole and exclusive
right and authority to exercise such Voting Powers, including, without
limitation, the right to act by shareholder, partner, member or other
interestholder consent.  Such
authorization shall constitute an irrevocable voting proxy from each Debtor to
the Administrative Agent or, at the Administrative Agent’s option, to the
Administrative Agent’s nominee.

 

(3)           Subject
to Section 5.04(a)(4) below, the Debtors shall be entitled to receive and
retain any dividends or distributions on the Pledged Securities to the extent
that the payment of such dividends is permitted by the Credit Agreement.

 

(4)           If
any Event of Default shall have occurred, then so long as such Event of Default
shall continue, and whether or not the Administrative Agent or any Revolving
Credit Lender exercises any available right to declare any Secured

 

20

 

Obligation due
and payable or seeks or pursues any other relief or remedy available to it
under applicable law or under this Agreement, the Credit Agreement, the Notes
or any other agreement relating to such Secured Obligation, all dividends and
other distributions on the Pledged Securities shall be paid directly to the
Administrative Agent and retained by it as part of the Pledged Collateral,
subject to the terms of this Agreement, and, if the Administrative Agent shall
so request in writing, the Debtors jointly and severally agree to execute and
deliver to the Administrative Agent appropriate additional dividend,
distribution and other orders and documents to that end; provided, however,
that if such Event of Default is cured, any such dividend or distribution
theretofore paid to the Administrative Agent shall (except to the extent
theretofore applied to the Secured Obligations) promptly be returned by the
Administrative Agent to the Debtors, without interest and without recourse or
warranty.

 

(5)           The
Administrative Agent, on behalf of the Secured Parties, shall have the right
(in its sole and absolute discretion) to hold the Pledged Securities in its own
name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the
name of the applicable Debtor, endorsed or assigned in blank or in favor of the
Administrative Agent.  The applicable
Debtor will promptly give to the Administrative Agent copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. 
The Administrative Agent shall at all times have the right to exchange
the certificates representing Pledged Securities for certificates of smaller or
larger denominations for any reasonable purpose consistent with this Agreement.

 

(6)           Upon
the occurrence and during the continuance of an Event of Default, in order to
fully effectuate the Administrative Agent’s Voting Powers pertaining to the
Pledged Securities, such Debtor, upon the request of the Administrative Agent,
shall secure (if not already secured by the Administrative Agent) executed
resignations of the officers, directors or representatives of any members
committee of or the officers or directors of the general partner of each issuer
whose securities constitute Pledged Securities in order that the Administrative
Agent may elect or appoint the officers, directors or representatives of such
members committee of or the officers or directors of the general partner of
such issuer.  After the occurrence and
during the continuance of any such Event of Default, this Section 5.04(a)(6)
shall constitute and grant an irrevocable proxy which shall become effective
and shall entitle the Administrative Agent, at its election, to vote the
Pledged Securities upon any and all corporate, limited liability company or
partnership matters; provided, however, that the foregoing proxy
shall be construed so that, and shall be limited to the extent necessary so
that, the Administrative Agent shall not be or become liable as a general
partner or member.

 

(7)           So
long as no Event of Default has occurred and be continuing, and to the extent
not prohibited by the Credit Agreement, each Debtor shall be entitled to
receive and retain principal and interest payments, if any, paid on the Pledged
Obligations.

 

(8)           Upon
the occurrence and during the continuance of an Event of Default, (i) all
rights of each Debtor to receive or demand, as the case may be,

 

21

 

principal and
interest payments which such Debtor is authorized to receive or demand pursuant
to Section 5.04(a)(7) shall cease, and all such rights shall thereupon become
vested in the Administrative Agent, which shall have the sole and exclusive
right and authority to receive or demand, as the case may be, and retain such
principal and interest payments (and all other payments in respect of the
Pledged Obligations); in addition, all principal and interest payments (and all
other payments in respect of the Pledged Obligations) which are received by any
Debtor contrary to the provisions of this Section 5.07(a)(8) shall be received
in trust for the benefit of the Administrative Agent, shall be segregated from
other property or funds of such Debtor and shall be forthwith delivered to the
Administrative Agent as Pledged Collateral in the same form as so received
(with any necessary endorsement), and (ii) all rights of each Debtor to
exercise any rights and powers (including the right to receive and retain
payments on the Pledged Obligations) which it would otherwise be entitled to
exercise pursuant to Section 5.04(a)(7) shall cease, and all such rights shall
thereupon become vested in the Administrative Agent, for the benefit of the
Secured Parties, which shall have the sole and exclusive right and authority to
exercise all such rights and powers until such Event of Default shall have been
cured or waived in accordance with the Credit Agreement, at which time all such
rights shall thereupon become revested in such Debtor and amounts not applied
to Loans shall be remitted to such Debtor. 
Any and all money and other Property paid over to or received by the
Administrative Agent as Pledged Collateral and retained by the Administrative
Agent pursuant to the provisions of this Section 5.04(a)(8) shall be retained
by the Administrative Agent in the Collateral Account upon receipt of money or
other property and shall be applied in accordance with the provisions of Section
5.09 hereof.  Upon the occurrence and
during the continuance of an Event of Default, each Debtor further agrees that
so long as the Pledged Obligations continue to be Pledged Collateral under this
Agreement, such Debtor will not permit any of the notes, instruments or other
agreements evidencing the Pledged Obligations to be amended, modified or
changed in any way, nor will such Obligor accept any waiver, indulgence,
modification or other departure by any obligor under such Pledged Obligations
from any provision of the Pledged Obligations, without first obtaining written
consent of the Administrative Agent.

 

(9)           Each
Debtor hereby represents and warrants that it has made its own arrangements for
keeping informed of changes or potential changes affecting the Pledged
Securities and the Pledged Obligations (including, without limitation, rights
to convert, rights to subscribe, payment of dividends, reorganization or other
exchanges, tender offers and voting rights of the Pledged Securities), and each
Debtor agrees that the Administrative Agent shall have no responsibility or
liability for informing such Debtor of any such changes or potential changes or
for taking any action or omitting to take any action with respect thereto.

 

(10)         The
Administrative Agent may, upon the occurrence and during the continuation of an
Event of Default, without notice and at its option, transfer or register the
Pledged Securities and the Pledged Obligations or any part thereof, into its or
its nominee’s name, or endorse any of the Pledged Obligations for negotiation,
without any indication that such Pledged Collateral is subject to the security
interest hereunder.

 

22

 

5.4.2        Intellectual Property.

 

(1)           For
the purpose of enabling the Administrative Agent, during the continuance of an
Event of Default, to exercise rights and remedies under Section 5.05 hereof at
such time as the Administrative Agent shall be lawfully entitled to exercise
such rights and remedies, and for no other purpose, each Debtor hereby grants
to the Administrative Agent, to the extent assignable, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to such Debtor) to use, assign, license or sublicense any of the
Intellectual Property now owned or hereafter acquired by such Debtor, wherever
the same may be located, including in such license reasonable access to all
media in which any of the licensed items may be recorded or stored and to all
computer programs used for the compilation or printout thereof.

 

(2)           Notwithstanding
anything contained herein to the contrary, but subject to the provisions of
Section 9.6 of the Credit Agreement that limit the right of the Debtors to
dispose of their respective property, so long as no Material Adverse Effect
would result therefrom, the Debtors will be permitted to exploit, use, enjoy,
protect, license, sublicense, assign, abandon, sell, dispose of or take other
actions with respect to the Intellectual Property in the ordinary course of the
business of the Debtors.  In furtherance
of the foregoing, unless a Material Adverse Effect would result therefrom, the
Administrative Agent shall from time to time, upon the request of the
respective Debtor, execute and deliver any instruments, certificates or other
documents, in the form so requested, that such Debtor shall have certified are
appropriate (in its judgment) to allow it to take any action permitted above
(including relinquishment of the license provided pursuant to Section
5.04(b)(1) as to any specific Intellectual Property).  Further, upon the payment in full of all of the Secured
Obligations (other than contingent obligations and indemnities which survive)
and cancellation or termination of the Revolving Credit Commitments and Letter
of Credit Liabilities or earlier expiration of this Agreement or release of the
Pledged Collateral, the Administrative Agent shall grant back to the Debtors
the license granted pursuant to Section 5.04(b)(1).  The exercise of rights and remedies under Section 5.05 hereof by
the Administrative Agent shall not terminate the rights of the holders of any
licenses or sublicenses theretofore granted by the Debtors in accordance with
the first sentence of this Section 5.04(b)(2).

 

5.4.3        Motor Vehicles.  At any time after the occurrence and during
the continuance of an Event of Default, each Debtor shall, upon the request of
the Administrative Agent, deliver to the Administrative Agent originals of the
certificates of title or ownership for the Motor Vehicles, and any other
Equipment covered by certificates of title or ownership, owned by it with the
Administrative Agent listed as lienholder.

 

SECTION 5.5         Events of Default;
Remedies; Etc.  During the period
during which an Event of Default shall have occurred and be continuing:

 

5.5.1        each Debtor shall, at the
request of the Administrative Agent, assemble the Pledged Collateral owned by
it at such place or places in the contiguous United States, reasonably
convenient to both the Administrative Agent and such Debtor, designated in its
request;

 

23

 

5.5.2        the Administrative Agent
may make any reasonable compromise or settlement deemed desirable with respect
to any of the Pledged Collateral and may extend the time of payment, arrange
for payment in installments, or otherwise modify the terms, of any of the
Pledged Collateral;

 

5.5.3        the Administrative Agent
shall have all of the rights and remedies with respect to the Pledged
Collateral of a secured party under the UCC and such additional rights and
remedies to which a secured party is entitled under the laws in effect in any
jurisdiction where any rights and remedies hereunder may be asserted,
including, without limitation, the right, to the maximum extent permitted by
law, to exercise all voting, consensual and other powers of ownership  pertaining to the Pledged Collateral as if
the Administrative Agent were the sole and absolute owner thereof (and each
Debtor agrees to take all such action as may be appropriate to give effect to
such right);

 

5.5.4        the Administrative Agent
in its sole and absolute discretion may, in its name or in the name of the
Debtors or otherwise, demand, sue for, collect or receive any money or property
at any time payable or receivable on account of or in exchange for any of the
Pledged Collateral, but shall be under no obligation to do so; and

 

5.5.5        the Administrative Agent
may, upon ten business days’ prior written notice to the Debtors of the time
and place, with respect to the Pledged Collateral or any part thereof that
shall then be or shall thereafter come into the possession, custody or control
of the Administrative Agent, the Revolving Credit Lenders or any of their
respective agents, sell, lease, assign or otherwise dispose of all or any part of
such Pledged Collateral, at such place or places as the Administrative Agent
deems best, and for cash or for credit or for future delivery (without thereby
assuming any credit risk), at public or private sale, without demand of
performance or notice of intention to effect any such disposition or of the
time or place thereof (except such notice as is required above or by applicable
statute and cannot be waived), and the Administrative Agent or any Revolving
Credit Lender or anyone else may be the purchaser, lessee, assignee or
recipient of any or all of the Pledged Collateral so disposed of at any public
sale (or, to the extent permitted by law, at any private sale) and thereafter
hold the same absolutely, free from any claim or right of whatsoever kind, including
any right or equity of redemption (statutory or otherwise), of the Debtors, any
such demand, notice and right or equity being hereby expressly waived and
released.  In the event of any sale,
assignment, or other disposition of any of the Trademark Collateral, the
goodwill connected with and symbolized by the Trademark Collateral subject to
such disposition shall be included, and the Debtors shall supply to the
Administrative Agent or its designee, for inclusion in such sale, assignment or
other disposition, all Intellectual Property relating to such Trademark
Collateral.  The Administrative Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
sale may be so adjourned, subject to notice as may be required by law.  In case any sale of all or any part of the
Pledged Collateral is made on credit or for future delivery, the Pledged
Collateral so sold may be retained by the Administrative Agent until the sale
price is paid in full by the purchaser or purchasers thereof, but the
Administrative Agent shall not incur any liability in case any such purchaser
or purchasers shall fail to take up and pay for the Pledged Collateral so sold
and, in case of any such failure, such Pledged Collateral may be sold again
upon like notice.  For purposes of
redemption only, (i) a written agreement to purchase the Pledged Collateral or
any portion thereof shall be treated as a sale thereof, (ii) the Administrative
Agent shall be free to carry out such sale pursuant to such agreement, and
(iii) no Debtor shall be entitled to the return of the Pledged Collateral or

 

24

 

any portion
thereof subject thereto, notwithstanding the fact that after the Administrative
Agent shall have entered into such an agreement all Events of Default shall
have been remedied and the Obligations paid in full.  As an alternative to exercising the power of sale herein
conferred upon it, the Administrative Agent may proceed by a suit or suits at
law or in equity to foreclose upon the Pledged Collateral and to sell the
Pledged Collateral or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a proceeding by a
court appointed receiver.  Any sale
pursuant to the provisions of this Section 5.05 shall be deemed to conform to
the commercially reasonable standards as provided in Section 9-610 of the UCC
or its equivalent in other jurisdictions. 
If, under mandatory requirements of applicable law, the Administrative
Agent shall be required to make disposition of the Pledged Collateral within a
period of time that does not permit the giving of notice to the Debtors as
herein before provided, the Administrative Agent need give the Debtors only
such notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of law.

 

The proceeds of each collection, sale or other disposition under this
Section 5.05, including by virtue of the exercise of the license granted to the
Administrative Agent in Section 5.04(b) hereof, shall be applied in accordance
with Section 5.09 hereof.

 

The Debtors
recognize that, by reason of certain prohibitions contained in the Securities
Act, and applicable state securities laws, the Administrative Agent may be
compelled, with respect to any sale of all or any part of the Pledged
Securities or Pledged Obligations, to limit purchasers to those who will agree,
among other things, to acquire such Pledged Collateral for their own account,
for investment and not with a view to the distribution or resale thereof.  The Debtors acknowledge that any such
private sales may be at prices and on terms less favorable to the
Administrative Agent and the Debtors than those obtainable through a public
sale without such restrictions, and, notwithstanding such circumstances, agree
that any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Administrative Agent shall have no obligation to
engage in public sales and no obligation to delay the sale of any Pledged
Securities or Pledged Obligations for the period of time necessary to permit the
respective Issuer or issuer thereof to register it for public sale.

 

Anything
herein to the contrary notwithstanding, in any such event the Administrative
Agent, in its sole and absolute discretion, (i) may proceed to make a private
sale of the Pledged Securities notwithstanding that a registration statement
for the purpose of registering such Pledged Securities or part thereof shall
have been filed under such Securities Act, (ii) may approach and negotiate with
a single possible purchaser to effect such sale, and (iii) may restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment, and not with a view to the
distribution or sale of such Pledged Securities or part thereof.  In the event of any such sale, the
Administrative Agent shall incur no responsibility or liability to any Debtor
for selling all or any part of the Pledged Securities at a price which the
Administrative Agent may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until the registration as aforesaid.

 

Each of the
Debtors further agrees to use its diligent best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Securities or Pledged Obligations pursuant to
this Section 5.05 valid and binding and in compliance with any and all other
applicable Requirements of Law, but none of the Debtors shall have an
obligation to register or qualify such sale under any federal or state
securities laws.  Each of the Debtors
further agrees that a breach of any of the covenants contained in this Section
5.05

 

25

 

will cause
irreparable injury to the Administrative Agent and the Secured Parties, that
the Administrative Agent and the Secured Parties have no adequate remedy at law
in respect of such breach and, as a consequence, that each and every covenant
contained in this Section 5.05 shall be specifically enforceable against such
Debtor, and, to the extent permitted by law, such Debtor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no Event of Default has occurred and
is continuing.

 

SECTION 5.6         Deficiency.  If the proceeds of sale, collection or other
realization of or upon the Pledged Collateral pursuant to Section 5.05 hereof
are insufficient to cover the costs and expenses of such realization and the
payment in full of the Secured Obligations, the Debtors shall remain liable for
any deficiency.

 

SECTION 5.7         Removals, Name Change,
Etc.  Without at least 30 days’
prior written notice to the Administrative Agent, no Debtor shall (i) maintain
any of its books and records with respect to the Pledged Collateral at any
office or maintain its principal place of business at any place other than at
the address set forth in Schedule 2 hereto, or permit any Inventory or
Equipment to be located anywhere, other than at one of the locations identified
in Annex 6 hereto or at the premises of a Person processing or storing
such Inventory (if as to any Inventory or Equipment with an aggregate fair
market value in excess of $1.0 million such Person has executed UCC Financing
Statements naming such Debtor as secured party (which financing statements are
hereby assigned to the Administrative Agent) or such Person has executed a
supplier subordination agreement satisfactory to the Majority Revolving Credit
Lenders in form and substance) or in transit from one of such locations to
another, or (ii) change its corporate name, or the name under which it does
business, from the name shown on the signature pages hereto.

 

SECTION 5.8         Private Sale.  No Secured Party shall incur liability as a
result of the sale of the Pledged Collateral, or any part thereof, at any
private sale pursuant to Section 5.05 hereof conducted in a commercially
reasonable manner.  Each Debtor hereby
waives any claims against any Secured Party arising by reason of the fact that
the price at which the Pledged Collateral may have been sold at any such
private sale held in a commercially reasonable manner was less than the price
that might have been obtained at a public sale or was less than the aggregate
amount of the Secured Obligations, even if the Administrative Agent accepts the
first offer received and does not offer the Pledged Collateral to more than one
offeree.

 

SECTION 5.9         Application of
Proceeds.  Except as otherwise
herein expressly provided and except as provided below in this Section 5.09,
the proceeds of any collection, sale or other realization of all or any part of
the Pledged Collateral pursuant hereto, and any other cash at the time held by
the Administrative Agent under Section 4 hereof or this Section 5, shall be
applied by the Administrative Agent:

 

First, to the payment of the reasonable costs
and expenses of such collection, sale or other realization, including
out-of-pocket costs and expenses of the Administrative Agent and the fees and
expenses of its agents and counsel, and all reasonable expenses incurred and
advances made by the Administrative Agent in connection therewith;

 

Next, to the indefeasible payment in full in
cash of the Secured Obligations (other than Swap Obligations), in accordance
with the terms of the Credit Agreement;

 

26

 

Next, to the indefeasible payment in full in
cash pro rata of the Swap Obligations in accordance with the terms of the Swap
Contracts; and

 

Finally, to the payment to the respective
Debtor, or its successors or assigns, or as a court of competent jurisdiction
may direct, of any surplus then remaining.

 

As used in
this Section 5, “proceeds” of Pledged Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Pledged Collateral, including any thereof received under any
reorganization, liquidation or adjustment of debt of the Debtors or any issuer
of or obligor on any of the Pledged Collateral.  Notwithstanding the foregoing, the proceeds of any cash or other
amounts held in the “Letter of Credit Liabilities Sub-Account” of the
Collateral Account pursuant to Section 4.04 hereof shall be applied first
to the Letter of Credit Liabilities outstanding from time to time, and second
to the other Secured Obligations in the manner provided above in this Section
5.09.

 

SECTION 5.10       Attorney-in-Fact.  Without limiting any rights or powers
granted by this Agreement to the Administrative Agent while no Event of Default
has occurred and is continuing, upon the occurrence and during the continuance
of any Event of Default the Administrative Agent is hereby appointed the
attorney-in-fact of each Debtor for the purpose of carrying out the provisions
of this Section 5 and taking any action and executing any instruments that the
Administrative Agent may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with
an interest. Without limiting the generality of the foregoing, upon and during
the continuance of any Event of Default, so long as the Administrative Agent
shall be entitled under this Section 5 to make collections in respect of the
Pledged Collateral, the Administrative Agent shall have the right and power to
receive, endorse and collect all checks made payable to the order of any Debtor
representing any dividend, payment or other distribution in respect of the
Pledged Collateral or any part thereof and to give full discharge for the
same.  Each Debtor agrees, in the
absence of willful wrongdoing or gross negligence, that neither the
Administrative Agent nor any of its agents, designees or attorneys-in-fact will
be liable for any acts of commission or omission, or for any error of judgment
or mistake of fact or law with respect to the exercise of the power of attorney
granted under this Section 5.10.

 

SECTION 5.11       Perfection.  Prior to or concurrently with the execution
and delivery of this Agreement and upon the acquisition or creation of any
securities of or interests in any Issuer, LLC or Partnership the securities or
interests in which are required to be pledged hereunder, (i) the Administrative
Agent is authorized to file such financing statements and other documents in
such offices as the Administrative Agent may deem appropriate to perfect the
security interests granted by Section 3 of this Agreement, (ii) deliver to the
Administrative Agent all certificates identified in Annex 1A hereto,
accompanied by undated stock powers duly executed in blank, and (iii) deliver
to the Administrative Agent all Pledged Obligations identified on Schedule
1B hereto.

 

SECTION 5.12       Termination.  When all Secured Obligations shall have been
paid in full in cash (other than surviving indemnities and other contingent
obligations) and the Revolving Credit Commitments of the Revolving Credit
Lenders under the Credit Agreement and all Letter of Credit Liabilities shall
have expired or been terminated, this Agreement shall terminate, and the
Administrative Agent shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Pledged Collateral and money received in respect
thereof, to or on the order of the respective Debtor and

 

27

 

to be released
and canceled all licenses and rights referred to in Section 5.04(b)
hereof.  The Administrative Agent shall
also execute and deliver to the respective Debtor upon such termination or upon
the sale or other disposition of Property permitted by Section 9.6 of the
Credit Agreement such UCC termination statements, certificates for terminating
the Liens on the Motor Vehicles and such other documentation as shall be
reasonably requested by the respective Debtor to effect the termination and
release of the Liens on the Pledged Collateral.

 

SECTION 5.13       Expenses.  The Debtors jointly and severally agree to
pay to the Administrative Agent (and, to the extent provided in the Credit
Agreement, each of the Secured Parties) all reasonable out-of-pocket expenses
(including reasonable expenses for legal services of every kind) of, or
incident to, the enforcement of any of the provisions of this Section 5, or performance
by the Administrative Agent or any Secured Party of any obligations of the
Debtors in respect of the Pledged Collateral which the Debtors have failed or
refused to perform, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Pledged Collateral, and for the care of the Pledged Collateral and defending or
asserting rights and claims of the Administrative Agent or any Secured Party in
respect thereof, by litigation or otherwise, including expenses of insurance,
and all such expenses shall be Secured Obligations to the Administrative Agent
and the Secured Parties secured under Section 3 hereof.

 

SECTION 5.14       Further Assurances.  Each Debtor agrees that, from time to time
upon the written request of the Administrative Agent, such Debtor will execute
and deliver such further documents and do such other acts and things as the
Administrative Agent may reasonably request in order fully to effect the
purposes of this Agreement.

 

SECTION 5.15       Irrevocable
Authorization and Instruction to Issuers, LLCs and Partnerships.  Each of the Debtors hereby authorizes and
instructs each Issuer, LLC and Partnership to comply with any instruction
received by it from the Administrative Agent in writing that (a) states that an
Event of Default has occurred and is continuing, and (b) is otherwise in
accordance with the terms of this Agreement and any other Credit Document to
which it is a party, without any other or further instructions from such
Debtor, and such Debtor agrees that each Issuer, LLC and Partnership shall be
fully protected in so complying.

 

SECTION 5.16       Effect of Sale, etc.

 

5.16.1      Any sale or resales pursuant
to the provisions of this Agreement, whether under any right or power granted
hereby or thereby or pursuant to any legal proceedings, shall operate to
divest, to the full extent permitted by applicable law, each Debtor of all
right, title, interest, claim and demand whatsoever either at law or in equity,
of, in and to the Pledged Collateral, or any part thereof, so sold, and any
Property so sold shall, to the full extent permitted by applicable law, be free
and clear of any and all rights of redemption by, through or under such
Debtor.  At any such sale any Revolving
Credit Lender may bid for and purchase the Pledged Collateral sold, to the full
extent permitted by applicable law, and may make payment therefor as set forth
in clause (b) of this Section 5.16, and any such Revolving Credit Lender so
purchasing any such Pledged Collateral, upon compliance with the terms of sale,
may hold, retain and dispose of such Pledged Collateral without further
accountability.

 

5.16.2      The receipt by the
Administrative Agent, or by any Person authorized under any judicial
proceedings to make such sale, of the proceeds of any such sale shall be a
sufficient discharge to any purchaser of the Pledged Collateral, or of any part
thereof, sold as aforesaid; and

 

28

 

no such
purchaser shall be bound to see to the application of such proceeds, or be
bound to inquire as to the authorization, necessity or propriety of any such
sale.  In the event that, at any such
sale, any Revolving Credit Lender is the successful purchaser, it shall be
entitled, for the purpose of making settlement or payment, to use and apply
such Pledged Collateral to the Secured Obligations by crediting thereon the
amount apportionable and applicable thereto out of the net proceeds of such
sale.

 

ARTICLE VI  Miscellaneous.

 

SECTION 6.1         No Waiver.  No failure on the part of the Administrative
Agent or any of its agents to exercise, and no course of dealing with respect
to, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise by
the  Administrative Agent or any of its
agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.

 

SECTION 6.2         Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the law of the Commonwealth of Massachusetts
without regard to principles of conflicts of law thereof.

 

SECTION 6.3         Notices.  All notices, requests, consents and demands
hereunder shall be in writing and telecopied or delivered to the intended
recipient at its “Address for Notices” specified pursuant to Section 12.2 of
the Credit Agreement and shall be deemed to have been given at the times
specified in said Section 12.2.

 

SECTION 6.4         Waivers, Etc.  The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by each
Debtor and the Administrative Agent (with the consent of the Revolving Credit
Lenders as specified in the Credit Agreement). Any such amendment or waiver
shall be binding upon each Secured Party, each holder of any of the Secured
Obligations and each Debtor.

 

SECTION 6.5         Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of each Debtor,
the Secured Parties and each holder of any of the Secured Obligations (provided,
however, that no Debtor shall assign or transfer its rights or
obligations hereunder without the prior written consent of the Administrative
Agent).

 

SECTION 6.6         Captions.  The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.

 

SECTION 6.7         Counterparts.  This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.

 

SECTION 6.8         Agents.  The Administrative Agent may employ agents
and attorneys-in-fact in connection herewith and shall not be responsible for
the negligence or misconduct of any such agents or attorneys-in-fact selected
by it in good faith.

 

29

 

SECTION 6.9         Severability.  If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (i) the other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in favor of the Secured
Parties in order to carry out the intentions of the parties hereto as nearly as
may be possible, and (ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.

 

SECTION 6.10       Administrative Agent Not
a Member.  Nothing contained in this
Agreement shall be construed or interpreted (a) to transfer to the
Administrative Agent or any Secured Party any of the obligations of a partner
of a Partnership or a member or manager of any LLC, or (b) to constitute the
Administrative Agent or any Secured Party a partner of a Partnership or a
member or manager of any LLC.

 

SECTION 6.11       Restoration of Rights
and Remedies.  If the Administrative
Agent shall have instituted any proceeding to enforce any right or remedy under
this Agreement and such proceeding shall have been discontinued or abandoned
for any reason, or shall have been determined adversely to the Administrative
Agent, then and in every such case the Administrative Agent and the Debtors and
the Secured Parties shall, subject to any determination in such proceeding, be
restored severally and respectively to their former positions under this
Agreement and under the other Credit Documents, and thereafter all rights and
remedies of the Administrative Agent shall continue as though no such
proceeding had been instituted.

 

SECTION 6.12       Cumulative Remedies.  No remedy under this Agreement is intended
to be exclusive of any other remedy, but each and every remedy shall be
cumulative and in addition to any and every other remedy given under this
Agreement or otherwise existing; nor shall the giving, taking or enforcement of
any other or additional security, collateral or guaranty for the payment or performance
of the Secured Obligations operate to prejudice, waive or affect the security
of this Agreement or any rights, powers or remedies under this Agreement, nor
shall the Administrative Agent or any Secured Party be required to look first
to, enforce or exhaust any such other or additional security, collateral or
guaranties.

 

SECTION 6.13       Waivers by Debtors.

 

6.13.1      The Debtors make each of the
waivers included in Section 6.13 (b), below, knowingly, voluntarily, and
intentionally, and understand that the Administrative Agent and each Secured
Party, in establishing the facilities contemplated by the Credit Agreement and
in providing loans and other financial accommodations to or for the account of
the Borrower as provided in the Credit Agreement, whether now or in the future,
is relying on such waivers.

 

6.13.2      EACH DEBTOR WAIVES THE FOLLOWING:

 

(i)            THE
RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE
ADMINISTRATIVE AGENT OR ANY SECURED PARTY IS OR BECOMES A PARTY (WHETHER SUCH
CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE ADMINISTRATIVE AGENT OR ANY
SECURED PARTY OR IN WHICH THE ADMINISTRATIVE AGENT OR ANY SECURED PARTY IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE DEBTORS OR ANY OTHER PERSON
AND THE

 

30

 

ADMINISTRATIVE
AGENT AND EACH SECURED PARTY LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL
OF ANY SUCH CASE OR CONTROVERSY).

 

(ii)           Except
as otherwise provided in this Agreement, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE ADMINISTRATIVE AGENT’S
TAKING POSSESSION OR THE ADMINISTRATIVE AGENT’S DISPOSITION OF ANY OF THE
PLEDGED COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES
AND HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
DEBTORS WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE
UNITED STATES OR OF ANY STATE THEREOF, and, to the full extent permitted by
applicable law, each Debtor hereby further waives:

 

(A)          all
damages occasioned by such taking of possession except any damages which are
the direct result of the Administrative Agent’s gross negligence, bad faith or
willful misconduct;

 

(B)           all
other requirements as to the time, place and terms of sale or other
requirements, with respect to the enforcement of the Administrative Agent’s and
the Secured Parties’ rights and powers hereunder; and

 

(C)           all
rights of redemption, appraisement, valuation, stay, marshaling of assets,
extension or moratorium, existing at law or in equity, by statute or otherwise,
now or hereafter in force, in order to prevent or delay the enforcement of this
Agreement or the sale or other disposition of the Pledged Collateral or any
portion thereof, and each Debtor, for itself and all who may claim under it,
insofar as it now or hereafter lawfully may, hereby waives all such rights.

 

(iii)          Each
Debtor hereby waives notice of acceptance of this Agreement and of extensions
of credit under the Credit Documents or under any other agreement, note,
document or instrument now or at any time or times hereafter executed by such
Debtor and delivered to the Administrative Agent or any Secured Party.  Each Debtor further waives presentment and
demand for payment of any of the Secured Obligations, protest and notice of
dishonor or default with respect to any of the Secured Obligations, and all
other notices to which such Debtor might otherwise be entitled, except as
otherwise expressly provided in this Agreement or in the other Credit
Documents.

 

(iv)          Each
Debtor (to the extent that it may lawfully do so) covenants that it will not at
any time insist upon or plead, or in any manner claim or take the benefit or
advance of, any stay (except in connection with a pending appeal), valuation,
appraisal, redemption or extension law now or at any time hereafter in force
that, but for this waiver, might be applicable to any sale made under any
judgment, order or decree based on this Agreement or any other Credit Document;
and each Debtor (to the extent that it may lawfully do so) hereby expressly
waives

 

31

 

and
relinquishes all benefit and advance of any and all such laws and hereby
covenants that it will not hinder, delay or impede the execution of any power
in this Agreement or therein granted and delegated to the Administrative Agent,
but that it will suffer and permit the execution of every such power as though
no such law or laws had been made or enacted.

 

SECTION 6.14       Additional Collateral.  Without notice or consent of any Debtor and
without impairment of the security interests and rights created by this
Agreement, the Administrative Agent may accept from any person or persons
additional collateral or other security for the Secured Obligations.  Neither the creation of the security
interests created hereunder nor the acceptance of any such additional
collateral or security shall prevent the Administrative Agent from resorting to
such additional collateral or security or to the Pledged Collateral, in any
order without affecting the Administrative Agent’s rights hereunder.

 

SECTION 6.15       Obligations Absolute.  Subject to non-waivable provisions of
applicable law, the liability of each Debtor under this Agreement shall remain
in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by: (a) any change in
the time, place or manner of payment of all or any of the Secured Obligations,
or in any other term of the Credit Documents, the Notes, any waiver,
indulgence, renewal, extension, amendment or modification of or addition,
consent or supplement to or deletion from or any other action or inaction under
or in respect of the Notes or any other Credit Document or any assignment or
transfer thereof; (b) any lack of validity or enforceability, in whole or in
part, of the Notes or any other Credit Document; (c) any furnishing of any
additional security for the Secured Obligations or any acceptance thereof or
any release or non-perfection of any security interest in the Pledged
Collateral; (d) any limitation on any party’s liability or obligations under
the Notes or any other Credit Document; (e) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to a Debtor, or any action taken with respect to this
Agreement by any trustee or receiver, or by any court, in any such proceeding,
whether or not any Debtor shall have notice or knowledge of any of the
foregoing; (f) any exchange, release or amendment or waiver of or consent to
departure from any agreement pursuant to which a Lien is created in favor of
the Administrative Agent for the benefit of the Secured Parties, pursuant to
which a person other than any Debtor has granted a security interest; or (g) to
the extent permitted by law, any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Debtor.

 

[Signature Pages Follow]

 

32

 

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

 

	
   

  	
  TUESDAY
  MORNING CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E.
  Jarvis

  
	
   

  	
  Title:

  	
  Executive
  Vice President and

  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TMI
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Alan
  Oppenheimer

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TUESDAY
  MORNING, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E.
  Jarvis

  
	
   

  	
  Title:

  	
  Executive
  Vice President and

  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FRIDAY
  MORNING, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E.
  Jarvis

  
	
   

  	
  Title:

  	
  Executive
  Vice President and

  Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DAYS OF THE
  WEEK, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E.
  Jarvis

  
	
   

  	
  Title:

  	
  Secretary

  
				

 

33

 

	
   

  	
  NIGHTS OF
  THE WEEK, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Alan
  Oppenheimer

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TUESDAY
  MORNING PARTNERS, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Days of the
  Week, Inc., its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E.
  Jarvis

  
	
   

  	
  Title:

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FLEET
  NATIONAL BANK, as Administrative

  Agent

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Linda H.
  Thomas

  
	
   

  	
  Title:

  	
  Managing
  Director

  
				

 

34

 

	
   

  	
  ANNEX 1A TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

PLEDGED STOCK

 

TUESDAY
MORNING CORPORATION

 

	
  Issuer

  	
   

  	
  Certificate

  Nos.

  	
   

  	
  Registered

  Owner

  	
   

  	
  Number of
  Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TMI Holdings, Inc.

  	
   

  	
  1

  	
   

  	
  Tuesday Morning

  Corporation

  	
   

  	
  10

  	
   

  

 

TMI HOLDINGS,
INC.

 

	
  Issuer

  	
   

  	
  Certificate

  Nos.

  	
   

  	
  Registered

  Owner

  	
   

  	
  Number of
  Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tuesday Morning Inc.

  	
   

  	
  2

  	
   

  	
  TMI Holdings, Inc.

  	
   

  	
  10

  	
   

  

 

TUESDAY
MORNING, INC.

 

	
  Issuer

  	
   

  	
  Certificate

  Nos.

  	
   

  	
  Registered

  Owner

  	
   

  	
  Number of
  Shares

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Friday Morning, Inc.

  	
   

  	
  1

  	
   

  	
  Tuesday Morning, Inc.

  	
   

  	
  1000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Days of the Week, Inc.

  	
   

  	
  1

  	
   

  	
  Tuesday Morning, Inc.

  	
   

  	
  100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nights of the Week, Inc.

  	
   

  	
  1

  	
   

  	
  Tuesday Morning, Inc.

  	
   

  	
  100

  	
   

  

 

35

 

PLEDGED INTERESTS

 

	
  DAYS OF THE
  WEEK, INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Partnership

  	
   

  	
  Partnership Interests

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Tuesday Morning Partners, Ltd.

  	
   

  	
  1.0% General
  Partnership Interest

  	
   

  

 

	
  NIGHTS OF
  THE WEEK, INC.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Partnership

  	
   

  	
  Partnership Interests

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Tuesday Morning Partners, Ltd.

  	
   

  	
  99.0%
  Limited Partnership Interest

  	
   

  

 

36

 

	
   

  	
  ANNEX 1B TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

PLEDGED OBLIGATIONS

 

	
  TUESDAY
  MORNING CORPORATION:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name of Obligor

  	
   

  	
  Original

  Principal

  Amount

  	
   

  	
  Date of

  Note

  	
   

  	
  Final

  Maturity

  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TMI Holdings, Inc.

  	
   

  	
  $

  	
  93,000,000

  	
   

  	
  11/01/2001

  	
   

  	
  11/01/2011

  	
   

  
									

 

	
  TMI
  HOLDINGS, INC.:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name of Obligor

  	
   

  	
  Original

  Principal

  Amount

  	
   

  	
  Date of

  Note

  	
   

  	
  Final

  Maturity

  Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tuesday Morning, Inc.

  	
   

  	
  $

  	
  95,000,000

  	
   

  	
  11/01/2001

  	
   

  	
  11/01/2011

  	
   

  
									

 

37

 

	
   

  	
  ANNEX 2 TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

COPYRIGHTS

 

None

 

38

 

	
   

  	
  ANNEX 3 TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

PATENTS

 

None

 

39

 

	
   

  	
  ANNEX 4 TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

TRADEMARKS

 

40

 

	
   

  	
  ANNEX 5 TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

LICENSE AND OTHER USER AGREEMENTS

 

41

 

	
   

  	
  ANNEX 6 TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

INVENTORY LOCATIONS

 

42

 

	
   

  	
  SCHEDULE 1 TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

Uniform Commercial Code Filings

 

	
  State

  	
   

  	
  Filing Office

  	
   

  	
  Document Filed

  	
   

  

 

43

 

	
   

  	
  SCHEDULE 2 TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

Principal Place of Business, Chief Executive Office and Location of
Records

 

44

 

	
   

  	
  SCHEDULE 3 TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

Prior Liens

 

45

 

	
   

  	
  EXHIBIT A TO

  
	
   

  	
  SECURITY AGREEMENT

  

 

ACKNOWLEDGMENT AND CONSENT

 

                                            (the
“                 ”)
hereby acknowledges receipt of a copy of the foregoing Security Agreement (the
“Security Agreement”), and agrees to be bound thereby and to comply with
the terms thereof insofar as such terms are applicable to it.                          agrees
that the terms of paragraph 5.05 of the Security Agreement shall apply to it, mutatis
mutandis, with respect to all actions that may be required of it under
or pursuant to or arising out of Section 5.05 of the Security Agreement.   Capitalized terms used herein and not
defined herein shall have the meaning given to them in the Security Agreement.

 

	
  Date:                     

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Address for
  notices:

  

 

46

 

Exhibit E

 

[Form of Notice of Assignment]

 

NOTICE OF ASSIGNMENT

 

                            ,
20      

 

Tuesday
Morning Corporation

14621 Inwood Road

Dallas, Texas 75244

 

Attention:
Mark E. Jarvis, Chief Financial Officer

 

Fleet National
Bank

100 Federal Street

Boston, Massachusetts 02110

 

Attention:  Loan Administration

 

Re:                               Credit Agreement, dated
as of September 27, 2002 (as amended, modified or supplemented, the “Credit
Agreement”), among Tuesday Morning Corporation, a Delaware corporation (“Borrower”),
the Guarantors party thereto from time to time, the Revolving Credit Lenders
party thereto from time to time, and Fleet National Bank, as Administrative
Agent

 

Ladies and
Gentlemen:

 

1.                                       Assignment and Assumption:

 

We hereby give
notice that, effective as of the date hereof (the “Effective Date”),
[Name of Assignor] (the “Assignor”) has assigned its rights and
obligations with respect
to           %
(representing
$              )
of the Assignor’s outstanding Revolving Credit Commitment and Revolving Credit
Loans (such interest in such rights and obligations being hereinafter referred
to as the “Assigned Interest”) under the Credit Agreement to [Name of
Assignee] (the “Assignee”). The Assignee hereby agrees (i) to become a
“Revolving Credit Lender” pursuant to Section 12.6(b) of the Credit Agreement
(if not already a Revolving Credit Lender under the Credit Agreement) and (ii)
agrees to assume all the obligations of the Assignor thereunder with respect to
the Assigned Interest and comply with all of the provisions relating to a
“Revolving Credit Lender” under the Credit Documents.

 

 

2.                                       Notice Addresses; Payment Instructions:

 

The address
for notices, lending office(s) and payment instructions for the Assignee are as
follows:

 

Address for
Notices:

 

 

                                                                  

 

                                                                  

 

                                                                  

 

Attention:                                

Telephone:                              

Telecopier:                              

 

Lending Office
for Alternate Base Rate Loans:

 

                                                                  

 

                                                                  

 

                                                                  

 

 

Lending Office
for Loans other than Alternate Base Rate Loans:

 

 

                                                                  

 

                                                                  

 

                                                                  

 

Payment
Instructions:

 

 

                                                                  

 

                                                                  

 

                                                                  

 

3.                                       Representations by Assignor:

 

The Assignor
represents that as of the Effective Date:

 

a.                                       The Assignor is
the legal and beneficial owner of the interest being assigned hereby free and
clear of any liens and encumbrances.

 

b.                                      The principal
balance due to the Assignor on account of the Revolving Credit Note held by the
Assignor is
$                                   .

 

2

 

4.                                       Exclusion of Warranties by Assignor:

 

The Assignor:

 

a.                                       Makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
any Credit Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Credit Document or any other
instrument or document furnished pursuant hereto.

 

b.                                      Makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the performance or
observance by the Borrower or any other Person primarily or secondarily liable
in respect of any of the Obligations of any of their obligations under any
Credit Document or any other instrument or document furnished pursuant hereto
or thereto.

 

c.                                       Attaches the
Revolving Credit Note of which the Assignor is the holder and requests that the
Administrative Agent cause the Borrower’s exchange of such Note for new
Revolving Credit Notes payable to the Assignor and the Assignee reflecting the
assignment referenced above.

 

5.                                       Assignee’s Representations, Warranties and Agreements:

 

The Assignee:

 

a.                                       Confirms that it
has received a copy of the Credit Agreement (and any amendment thereto), the
most recent financial statements then to have been delivered pursuant to the
Credit Agreement, and such other documents and information as the Assignee has
deemed appropriate to make its own credit analysis and decision to enter into
this assignment and assumption.

 

b.                                      Confirms and
represents that, independently and without reliance upon the Assignor, the
Administrative Agent or any other Revolving Credit Lender, and based on such
documents and information as the Assignee deems appropriate, has made such
Person’s own credit decision to join in the credit facility contemplated by the
Credit Documents and to become a “Revolving Credit Lender”.

 

c.                                       Confirms and
represents that the Assignee will continue to make such Person’s own credit
decisions in taking or not taking action under the Credit Agreement and other
Credit Documents independently and without reliance upon the Assignor, the
Administrative Agent or any other Revolving Credit Lender and based on such
documents and information as the Assignee shall deem appropriate at the time.

 

3

 

d.                                      Appoints and
authorizes the Administrative Agent to take such action on behalf of the
Assignee and to exercise such powers under the Credit Documents as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with such powers as are reasonably incidental thereto.

 

e.                                       Agrees that the
Assignee will perform, in accordance with their terms, all of the obligations
which, by the terms of the Credit Agreement and all other Credit Documents are
required to be performed by it as a “Revolving Credit Lender” as if the
Assignee had been a signatory thereto and to any amendments thereof.

 

f.                                         Represents and
warrants that it is legally authorized to enter into this assignment and
assumption and to perform its obligations hereunder, under the Credit Agreement
and under the Credit Documents.

 

6.                                       Effect of Assignment and Assumption:

 

Following
delivery, acceptance and recording by the Administrative Agent of this
assignment and assumption, from and after the Effective Date:

 

a.                                       The Assignee
shall be a party to the Credit Agreement and the other Credit Documents (and
any amendments thereto) and to the extent of the Assigned Interest, have the
rights and obligations of a Revolving Credit Lender thereunder.

 

b.                                      The Assignor
shall be released from the Assignor’s obligations under the Credit Agreement
and the other Credit Documents to the extent of the Assigned Interest.

 

c.                                       The Administrative
Agent shall make all payments in respect of the interest in the Revolving
Credit Loans assigned hereby (including payments of principal, interest, and
applicable fees) to the Assignee.

 

d.                                      The Assignor and
Assignee shall make all appropriate adjustments in payments for periods prior
to the Effective Date by the Administrative Agent or with respect to the making
of this assignment and assumption directly between themselves.

 

7.                                       Massachusetts
Law:

 

This
assignment and assumption shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts.

 

Please sign
and return the enclosed copy of this letter to the undersigned to indicate your
receipt hereof, and your consent to or notice of (as applicable) the above-mentioned
assignment and assumption, and your agreement to the release of the Assignor
from its obligations under the Credit Agreement with respect to the Assigned
Interest. As a condition to the effectiveness of the above-mentioned

 

4

 

assignment and
assumption, the Assignee hereby agrees to pay to the Administrative Agent on
the date hereof an assignment fee of $3,500.00, except as provided in the
Credit Agreement.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  	
   

  
	
   

  	
  [NAME OF
  ASSIGNOR]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [NAME OF
  ASSIGNEE]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

5

 

	
  ACKNOWLEDGED
  OR CONSENTED TO

  (AS APPLICABLE):

  
	
   

  
	
  FLEET
  NATIONAL BANK,

  as Administrative Agent

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
  FLEET
  NATIONAL BANK,

  as Issuing Lender

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  
	
  TUESDAY
  MORNING CORPORATION,

  as Borrower

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

6

 

Exhibit F

 

[Form of Mortgage]

 

 

REVOLVING CREDIT DEED OF TRUST,

ASSIGNMENT OF LEASES, SECURITY AGREEMENT AND FIXTURE FILING

 

BY

 

FRIDAY MORNING, INC.,

TUESDAY MORNING, INC. and TUESDAY MORNING PARTNERS, LTD.

 

Grantor,

 

TO

 

Thomas M. Horton,

as Trustee,

for the benefit of

 

FLEET NATIONAL BANK,

as Administrative Agent,

 

Beneficiary

 

Relating to Premises in:

 

Dallas County, Texas

 

$160,000,000.00

 

Dated as of: September 27, 2002

 

 

After recording, please return this instrument to:

 

Riemer & Braunstein LLP

 

 

3 Center Plaza

Boston, Massachusetts 02108

Attention: David S. Berman, Esquire

 

i

 

TABLE OF CONTENTS

 

	
  Section

  	
  Heading

  
	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WARRANTIES, REPRESENTATIONS AND COVENANTS OF GRANTOR

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 1.1

  	
  Payment

  
	
   

  	
  SECTION 1.2

  	
  Authority and Validity 

  
	
   

  	
  SECTION 1.3

  	
  Good Title

  
	
   

  	
  SECTION 1.4

  	
  Recording Documentation To Assure Security Interest: Fees and
  Expenses

  
	
   

  	
  SECTION 1.5

  	
  Payment of Taxes, Insurance Premiums, Assessments; Compliance with
  Law and Insurance Requirements

  
	
   

  	
  SECTION 1.6

  	
  Certain Tax Law Changes 

  
	
   

  	
  SECTION 1.7

  	
  Required Insurance Policies

  
	
   

  	
  SECTION 1.8

  	
  Failure To Make Certain Payments

  
	
   

  	
  SECTION 1.9

  	
  Inspection 

  
	
   

  	
  SECTION 1.10

  	
  Grantor To Maintain Improvements

  
	
   

  	
  SECTION 1.11

  	
  Grantor’s Obligations with Respect to
  Leases

  
	
   

  	
  SECTION 1.12

  	
  Transfer Restrictions

  
	
   

  	
  SECTION 1.13

  	
  Destruction: Condemnation

  
	
   

  	
  SECTION 1.14

  	
  Alterations

  
	
   

  	
  SECTION 1.15

  	
  Hazardous Material

  
	
   

  	
  SECTION 1.16

  	
  No Claims Against Beneficiary

  
	
   

  	
  SECTION 1.17

  	
  Utility Services

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ASSIGNMENT OF LEASES: SECURITY AGREEMENT:
  ASSIGNMENT AGREEMENT

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 2.1

  	
  Assignment of Leases, Rents, Issues and
  Profits

  
	
   

  	
  SECTION 2.2

  	
  Security Interest in Personal Property

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  
	
   

  	
   

  	
   

  
	
   

  	
  EVENTS OF DEFAULT AND REMEDIES

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 3.1

  	
  Events of Default

  
	
   

  	
  SECTION 3.2

  	
  Remedies in Case of an Event of Default 

  
	
   

  	
  SECTION 3.3

  	
  Sale of Property if Event of Default
  Occurs; Proceeds of Sale 

  
	
   

  	
  SECTION 3.4

  	
  Additional Remedies in Case of an Event of
  Default

  
	
   

  	
  SECTION 3.5

  	
  Legal Proceedings After an Event of Default
  .

  
	
   

  	
  SECTION 3.6

  	
  Remedies Not Exclusive 

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  
	
   

  	
   

  	
   

  
	
   

  	
  CERTAIN DEFINITIONS

  

 

ii

 

	
  Section

  	
  Heading

  
	
   

  
	
  ARTICLE V

  
	
   

  	
   

  	
   

  
	
   

  	
  MISCELLANEOUS

  
	
   

  	
   

  	
   

  
	
   

  	
  SECTION 5.1

  	
  Severability of Provisions 

  
	
   

  	
  SECTION 5.2

  	
  Notices

  
	
   

  	
  SECTION 5.3

  	
  Covenants To Run with the Land

  
	
   

  	
  SECTION 5.4

  	
  Headings

  
	
   

  	
  SECTION 5.5

  	
  Limitation on Interest Payable

  
	
   

  	
  SECTION 5.6

  	
  Indemnity

  
	
   

  	
  SECTION 5.7

  	
  GOVERNING LAW; TERMS

  
	
   

  	
  SECTION 5.8

  	
  No Merger

  
	
   

  	
  SECTION 5.9

  	
  Modification in Writing

  
	
   

  	
  SECTION 5.11

  	
  No Credit for Payment of Taxes or
  Impositions

  
	
   

  	
  SECTION 5.12

  	
  Stamp and Other Taxes

  
	
   

  	
  SECTION 5.13

  	
  Estoppel Certificates 

  
	
   

  	
  SECTION 5.14

  	
  Additional Security 

  
	
   

  	
  SECTION 5.15

  	
  Release

  
	
   

  	
  SECTION 5.16

  	
  Certain Expenses of Beneficiary

  
	
   

  	
  SECTION 5.17

  	
  Expenses of Collection

  
	
   

  	
  SECTION 5.18

  	
  Business Days 

  
	
   

  	
  SECTION 5.19

  	
  Relationship 

  
	
   

  	
  SECTION 5.20

  	
  Concerning Beneficiary

  
	
   

  	
  SECTION 5.21

  	
  Future Advances

  
	
   

  	
  SECTION 5.22

  	
  Waiver of Stay 

  
	
   

  	
  SECTION 5.23

  	
  Continuing Security Interest: Assignment

  
	
   

  	
  SECTION 5.24

  	
  Beneficiary’s Right To Sever Indebtedness

  
	
   

  	
  SECTION 5.25

  	
  Concerning Trustee

  
	
   

  	
   

  	
   

  
	
  SIGNATURES

  
	
   

  	
   

  	
   

  
	
  ACKNOWLEDGMENTS

  
	
   

  	
   

  	
   

  
	
  SCHEDULE A LEGAL DESCRIPTION

  
	
   

  	
   

  	
   

  
	
  SCHEDULE B PRIOR LIENS

  
				

 

iii

 

REVOLVING CREDIT DEED OF TRUST,

ASSIGNMENT OF LEASES, SECURITY AGREEMENT AND FIXTURE FILING

 

REVOLVING
CREDIT DEED OF TRUST, ASSIGNMENT OF LEASES, SECURITY AGREEMENT AND FIXTURE
FILING (“Deed of Trust”), dated as of September 27, 2002, made by FRIDAY
MORNING, INC., a Texas corporation, TUESDAY MORNING, INC., a Texas corporation,
and TUESDAY MORNING PARTNERS, LTD., a Texas Limited Partnership, each having an
office at 14621 Inwood Road, Dallas, Texas 75224, collectively and singly,
jointly and severally, as grantor, assignor and debtor (collectively, in such
capacities and together with any successors in such capacities, “Grantor,”
as that term is further defined below), in favor of Thomas M. Horton, as
trustee, having an office at 6500 East Mockingbird Lane, Suite 115, Dallas,
Texas 75214 (together with its successors in such capacity, the “Trustee”)
for the benefit of FLEET NATIONAL BANK, having an office at 100 Federal Street,
Boston, Massachusetts 02110, as beneficiary, assignee and secured party (in
such capacities and together with any successors in such capacities, “Beneficiary”)
as Administrative Agent for the lending institutions (the “Lenders”)
from time to time party to the Credit Agreement (as hereinafter defined).

 

R  E  C  I  T  A
L  S :

 

A.            Pursuant to a certain credit
agreement, dated as of September 27, 2002 (as amended, amended and restated,
supplemented, or otherwise modified from time to time, the “Credit Agreement”
capitalized terms used herein and not defined shall have the meanings assigned
to them in the Credit Agreement), between, among others,  Grantor, the Guarantors party thereto from
time to time, the Lenders party thereto from time to time, and Fleet National
Bank, as Administrative Agent and Issuing Lender, the Lenders have agreed (i)
to make to or for the account of the Grantor a certain Revolving Credit Loan up
to an aggregate principal amount of $160,000,000.00 and (ii) to issue certain
Letters of Credit for the account of Grantor.

 

B.            It is contemplated that Grantor or
one or more of its Subsidiaries may enter into one or more Swap Contracts with
one or more of the Lenders or their respective Affiliates (all obligations of
Grantor now existing or hereafter arising under such Swap Contracts with any
Lender or any Affiliate of a Lender, collectively, the “Swap Obligations”).

 

C.            Grantor is the owner of the Property
(as hereinafter defined).

 

D.            It is a condition to the obligations
of the Lenders to make the Loans under the Credit Agreement and a condition to
the Issuing Lender issuing Letters of Credit under the Credit Agreement or
entering into the Swap Contracts that Grantor execute and deliver the
applicable Credit Documents, including this Deed of Trust.

 

E.             This Deed of Trust is given by
Grantor in favor of Beneficiary for its benefit, the benefit of its Affiliates,
and the benefit of the Lenders (and any Affiliate of any Lender with respect to
Swap Obligations) (collectively, the “Secured Parties”) to secure the
payment and performance in full when due, whether at stated maturity, by
acceleration or otherwise (including, without limitation, the payment of
interest and other amounts which would accrue and become due but for the filing
of a petition in bankruptcy or the operation of the automatic

 

 

stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. § 362(a)), of (i) all Obligations of Grantor or any Subsidiary
of Grantor now existing or hereafter arising under or in respect of the Credit
Agreement, all Swap Obligations of Grantor now existing or hereafter arising
under or in respect of any Swap Contract (including, without limitation,
Grantor’s obligation to pay principal, interest and all other charges, fees,
expenses, commissions, reimbursements, premiums, indemnities and other payments
related to or in respect of the Obligations contained in the Credit Agreement
and the obligations contained in any Swap Contract), any and all direct or
indirect liabilities, debts and obligations of Grantor to the Beneficiary or
any Affiliate of the Beneficiary, each of every kind, nature, and description
owing on account of any service or accommodation provided to, or for the
account of Grantor pursuant to any Credit Document, including cash management
services, treasury services and automated clearinghouse transfers, and (ii)
without duplication of the amounts described in clause (i), all Obligations of
Grantor now existing or hereafter arising under or in respect of this Deed of
Trust or any other Security Document, including, without limitation, with
respect to all charges, fees, expenses, commissions, reimbursements, premiums,
indemnities and other payments related to or in respect of the Obligations
contained in this Deed of Trust or in any other Security Document, in each case
whether in the regular course of business or otherwise (the obligations
described in clauses (i) and (ii), collectively, the “Secured Obligations”)

 

G  R  A  N  T  I
N  G  C  L  A
U  S  E  S :

 

For and in
consideration of the sum of Ten Dollars ($10.00) and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Grantor, subject to the terms of this Deed of Trust, hereby grants, mortgages,
bargains, sells, assigns and conveys unto Trustee, in trust, with powers of
sale, and hereby creates for the benefit of Beneficiary, a security interest in
and upon, all Grantor’s right, title and interest in, to and under the
following property, whether now owned or held or hereafter acquired from time
to time (collectively, the “Property”):

 

A.            Any and all present estates or
interest of Grantor in the land described in Schedule A, together with
all Grantor’s reversionary rights in and to any and all easements,
rights-of-way, sidewalks, strips and gores of land, drives, roads, curbs,
streets, ways, alleys, passages, passageways, sewer rights, waters, water
courses, water rights, and all power, air, light and other rights, estates,
titles, interests, privileges, liberties, servitudes, licenses, tenements,
hereditaments and appurtenances whatsoever, in any way belonging, relating or
appertaining thereto, or any part thereof, or which hereafter shall in any way
belong, relate or be appurtenant thereto (collectively, the “Land”);

 

B.            Any and all estates or interests of
Grantor in the buildings, structures and other improvements and any and all
Alterations (as hereinafter defined) now or hereafter located or erected on the
Land, including, without limitation, attachments, walks and ways (collectively,
the “Improvements” together with the Land, the “Premises”);

 

C.            Any and all interests of Grantor in
all permits, certificates, approvals and authorizations, however characterized,
issued or in any way furnished in connection with the operation or maintenance
of the Premises, whether necessary or not for the operation and use of the
Premises, including, without limitation, building permits, certificates of
occupancy, environmental certificates, industrial permits or licenses and
certificates of operation, excluding, however, any of the foregoing which may
not be mortgaged or pledged as collateral security under the provisions of any
applicable law, rule or regulation of any applicable Governmental Authority;

 

2

 

D.            Any and all interest of Grantor in
all machinery, apparatus, equipment, fittings, fixtures, improvements and
articles of personal property of every kind and nature whatsoever now or
hereafter attached or affixed to the Premises or used in connection with the
use and enjoyment of the Premises or the maintenance or operation thereof,
including, without limitation, all utility systems, fire sprinkler and alarm
systems, HVAC equipment, boilers, electronic data processing,
telecommunications or computer equipment, refrigeration, electronic monitoring,
water or lighting systems, power, sanitation, waste removal, elevators,
maintenance or other systems or equipment, and all other articles used or
useful in connection with the maintenance or operation of any part of the
Premises (collectively, the “Equipment”);

 

E.             All Grantor’s right, title and
interest as landlord, franchisor, licensor or grantor, in all leases and
sub-leases of space, franchise agreements, licenses, occupancy or concession
agreements now existing or hereafter entered into relating in any manner to the
Premises or the Equipment and any and all amendments, modifications,
supplements and renewals of any thereof (each such lease, license or agreement,
together with any such amendment, modification, supplement or renewal, a “Lease”),
whether now in effect or hereafter coming into effect, including, without
limitation, all rents, additional rents, cash, guaranties, letters of credit,
bonds, sureties or securities deposited thereunder to secure performance of the
lessee’s, franchisee’s, licensee’s or obligee’s obligations thereunder,
revenues, earnings, profits and income, advance rental payments, payments
incident to assignment, sublease or surrender of a Lease, claims for forfeited
deposits and claims for damages, now due or hereafter to become due, with
respect to any Lease, any indemnification against, or reimbursement for, sums
paid and costs and expenses incurred by Grantor under any Lease or otherwise,
and any award in the event of the bankruptcy of any tenant under or guarantor
of a Lease (collectively, the “Rents”);

 

F.             All general intangibles and
contract rights relating to the Premises and the Equipment and all reserves,
deferred payments, deposits, refunds and claims of every kind or character
relating thereto (collectively, the “Contract Rights”) ;

 

G.            All drawings, plans, specifications,
file materials, operating and maintenance records, catalogues, tenant lists,
correspondence, advertising materials, operating manuals, warranties, guaranties,
appraisals, studies and data relating to the Premises or the Equipment or the
construction of any Alteration or the maintenance of any Permit (as hereinafter
defined); and

 

H.            All proceeds of the conversion,
voluntary or involuntary, of any of the foregoing into cash or liquidated
claims, including, without limitation, proceeds of insurance and condemnation
or other awards or payments and refunds of real estate taxes and assessments,
including interest thereon (collectively, “Proceeds”);

 

TO HAVE AND TO
HOLD the Property together with the rights, privileges and appurtenances
thereto belonging unto (i) Trustee, its substitutes or successors, forever, to
the extent the same constitutes real property or an interest therein, and (ii)
Beneficiary, to the extent the same does not constitute real property or an
interest therein, in either case for the benefit of Beneficiary and
Beneficiary’s successors and assigns forever, for the purpose of securing
payment and performance by Grantor of the Secured Obligations, and Grantor
hereby binds itself and its successors and assigns to warrant and forever
defend the Property unto each of Trustee and Beneficiary, their substitutes,
successors and assigns, as the case may be, against the claim or claims of all
persons claiming or to claim the same or any part thereof.

 

This Deed of
Trust is intended to constitute: (i) a security agreement, fixture filing and
financing statement under the UCC, (ii) a deed of trust under the Texas
Property Code, as amended, and (iii) a notice of assignment of rents or profits
under the Texas Property Code, as amended. 
This Deed of Trust is also intended to operate and be construed as an
absolute present

 

3

 

 

assignment of the rents, issues
and profits of the Property, Grantor hereby agreeing that Beneficiary is
entitled to receive the rents, issues and profits of the Property prior to an
Event of Default and without entering upon or taking possession of the
Property.  Some of the items included
within the Property are or are to become “fixtures” (as that term is defined in
the UCC) on the Land and, as provided under the UCC, this Deed of Trust, upon
being filed for record in the real property records of Dallas County, Texas,
shall operate also as a “fixture filing” and financing statement upon such of
the items which are or may become fixtures.

 

C  O  V  E  N  A
N  T  S :

 

Grantor
warrants, represents and covenants to and for the benefit of Beneficiary as
follows:

 

ARTICLE I

 

WARRANTIES,
REPRESENTATIONS AND COVENANTS OF GRANTOR

 

SECTION 1.1         Payment. Grantor shall pay as
and when the same shall become due, whether at its stated maturity, by
acceleration or otherwise, each and every amount payable by Grantor under the
Credit Documents and the Swap Contracts.

 

SECTION 1.2         Authority and Validity. Grantor
represents, warrants and covenants that (i) Grantor is duly authorized to
execute and deliver this Deed of Trust, and all corporate and governmental
consents, authorizations and approvals necessary or required therefor have been
duly and effectively taken or obtained, (ii) this Deed of Trust is a legal,
valid, binding and enforceable obligation of Grantor, and (iii) Grantor has
full corporate power and lawful authority to execute and deliver this Deed of Trust
and to deed of trust and grant a security interest in the Property as
contemplated herein.

 

SECTION 1.3         Good Title.

 

1.3.1        Grantor represents, warrants and
covenants that (i) Grantor has good and marketable fee simple title to the
Premises and the landlord’s interest and estate under or in respect of the
Leases and good title to the interest it purports to own in and to each of the
Permits, the Equipment and the Contract Rights, in each case subject to no deed
of trust, mortgage, pledge, security interest, encumbrance, lien, lease,
license, easement, assignment, collateral assignment or charge of any kind,
including, without limitation, any conditional sale or other title retention
agreement or lease in the nature thereof, any filing or agreement to file a
financing statement as debtor under the Uniform Commercial Code or any similar
statute or any subordination arrangement in favor of any party other than
Grantor (collectively, “Liens”; each, a “Lien”), except for those
Liens identified on Schedule B (collectively, the “Prior Liens”),
(ii) Grantor will keep in effect all rights and appurtenances to or that
constitute a part of the Property, (iii) Grantor will protect, preserve and
defend its interest in the Property and title thereto, (iv) subject to Section
1.5.5, Grantor will comply with each of the terms, conditions and provisions of
any obligation of Grantor which is secured by the Property or the noncompliance
with which may result in the imposition of a Lien on the Property, (v) Grantor
will appear and defend the Lien and security interests created and evidenced
hereby and the validity and priority of this Deed of Trust in any action or
proceeding affecting or purporting to affect the Property or any of the rights
of Beneficiary hereunder, (vi) this Deed of Trust creates and constitutes a
valid and enforceable Lien on the Property, and, to the extent any of the
Property shall consist of personalty, a security interest in the Property,
which Lien and security interest are and will be subject only to (a) Prior
Liens (but not to extensions, amendments, supplements or replacements of Prior
Liens unless consented to by Beneficiary) and (b) Liens hereafter created and
which,

 

4

 

pursuant to the provisions of Section 1.12,
are superior to the Lien and security interests created and evidenced hereby,
and Grantor does now and will forever warrant and defend to Beneficiary and all
its successors and assigns such title and the validity and priority of the Lien
and security interests created and evidenced hereby against the claims of all
persons and parties whomsoever, (vii) there has been issued and there remain in
effect each and every certificate of occupancy or use or other Permit currently
required for the existing use and occupancy by Grantor and, to the best of
Grantor’s knowledge, its tenants of the Premises, in each case other than
Permits the absence of which would not result in a material impairment of the
occupancy or use rights with respect thereto and (viii) the Premises comply in
all material respects with all local zoning, land use, set back or other
development and use requirements of Governmental Authorities.

 

1.3.2        Grantor, as soon as practicable but in
no event more than two (2) Business Days after obtaining knowledge of the
pendency of any proceedings for the eviction of Grantor from the Property or
any part thereof by paramount title or otherwise questioning Grantor’s title to
the Property as warranted in this Deed of Trust, or of any condition that might
reasonably be expected to give rise to any such proceedings, shall notify
Beneficiary thereof. Beneficiary may participate in such proceedings, and
Grantor will deliver or cause to be delivered to Beneficiary all instruments
requested by Beneficiary to permit such participation. In any such proceedings
Beneficiary may be represented by counsel satisfactory to Beneficiary at the
expense of Grantor. If, upon the resolution of such proceedings, Grantor shall
suffer a loss of the Property or any part thereof or interest therein and title
insurance proceeds shall be payable in connection therewith, such proceeds are
hereby assigned to and shall be, at the option of the Beneficiary, (i) held by
Beneficiary as additional collateral to secure the performance by Grantor or
the Secured Obligations and (ii) applied as an optional prepayment under
Section 2.10 of the Credit Agreement.

 

SECTION 1.4         Recording
Documentation To Assure Security Interest: Fees and Expenses.

 

1.4.1        Grantor shall, forthwith after the
execution and delivery of this Deed of Trust and thereafter, from time to time,
cause this Deed of Trust and any financing statement, continuation statement or
similar instrument relating thereto or to any property intended to be subject
to the Lien of this Deed of Trust to be filed, registered and recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the validity and priority
thereof or the Lien hereof purported to be created upon the Property and the
interest and rights of Beneficiary therein. Grantor shall pay or cause to be
paid all taxes and fees incident to such filing, registration and recording,
and all expenses incident to the preparation, execution and acknowledgment thereof,
and of any instrument of further assurance required by Trustee or Beneficiary,
and all Federal or state stamp taxes or other taxes, duties and charges arising
out of or in connection with the execution and delivery of such instruments.

 

1.4.2        Grantor shall, at the sole cost and
expense of Grantor, do, execute, acknowledge and deliver all and every such
further acts, deeds, conveyances, deeds of trust, assignments, notices of
assignment, transfers, financing statements, continuation statements and assurances
as Trustee or Beneficiary shall from time to time request, which may be
necessary in the reasonable judgment of the requesting party from time to time
to assure, perfect, convey, assign, mortgage, transfer and confirm unto
Beneficiary, the property and rights hereby conveyed or assigned or which
Grantor may be or may hereafter become bound to convey or assign to Beneficiary
or for carrying out the intention or facilitating the performance of the terms
of this Deed of Trust or the filing, registering or recording of this Deed of
Trust. In the event Grantor shall fail after demand to execute any instrument
required to be executed by Grantor under this subsection 1.4.2, Beneficiary may
execute the same as the attorney-in-fact for Grantor, such power of attorney
being coupled with an interest and irrevocable.

 

5

 

SECTION 1.5         Payment
of Taxes, Insurance Premiums, Assessments; Compliance with Law and Insurance
Requirements.

 

1.5.1        Unless and to the extent contested by
Grantor in accordance with the provisions of subsection 1.5.5 hereof, Grantor
shall pay and discharge, or cause to be paid and discharged, from time to time
when the same shall become due, all real estate and other taxes, special
assessments, levies, permits, inspection and license fees, all premiums for
insurance, all water and sewer rents and charges and all other public charges
imposed upon or assessed against the Property or any part thereof or upon the
Rents. Grantor shall, upon Beneficiary’s request, deliver to Beneficiary,
receipts evidencing the payment of all such taxes, assessments, levies, fees,
rents and other public charges imposed upon or assessed against the Property or
any part thereof or the Rents.

 

1.5.2        From and after the occurrence and during
the continuance of an Event of Default (as hereinafter defined), at the option
and upon the request of Beneficiary, Grantor shall deposit with Beneficiary, on
the first day of each month, an amount estimated by Beneficiary to be equal to
one-twelfth of the annual taxes, assessments and other items required to be
discharged by Grantor under subsection 1.5.1. Such amounts shall be held by
Beneficiary without interest to Grantor and applied to the payment of the
obligations in respect of which such amounts were deposited, in such priority
as Beneficiary shall reasonably determine, on or before the respective dates on
which such obligations or any part thereof would become delinquent. Nothing
contained in this Section 1.5 shall (i) affect any right or remedy of Trustee
or Beneficiary under any provision of this Deed of Trust or of any statute or
rule of law to pay any such amount as provided above from its own funds and to
add the amount so paid, together with interest at a rate per annum (the “Default
Rate”) equal to the highest rate then payable under the Credit Agreement
during such time that any amount remains outstanding, to the Secured
Obligations or (ii) relieve Grantor of its obligations to make or provide for
the payment of the annual taxes, assessments and other charges required to be
discharged by Grantor under subsection 1.5.1. Grantor hereby grants to
Beneficiary a security interest in all sums held pursuant to this subsection
1.5.2 to secure payment and performance of the Secured Obligations. During the
continuance of any Event of Default, Beneficiary may, at its option, apply all
or any part of the sums held pursuant to this subsection 1.5.2 to payment and
performance of the Secured Obligations. Grantor shall redeposit with Beneficiary
an amount equal to all amounts so applied as a condition to the cure, if any,
of such Event of Default in addition to fulfillment of any other required
conditions.

 

1.5.3        Unless and to the extent contested by
Grantor in accordance with the provisions of subsection 1.5.5, Grantor shall
timely pay, or cause to be paid, all lawful claims and demands of mechanics,
materialmen, laborers, government agencies administering worker’s compensation
insurance, old age pensions and social security benefits, and all other claims,
judgments, demands or amounts of any nature which, if unpaid, might result in,
or permit the creation of, a Lien on the Property or any part thereof, or on
the Rents or which might result in forfeiture of all or any part of the
Property.

 

1.5.4        Grantor shall maintain, or cause to be
maintained, in full force and effect all permits, certificates, authorizations,
consents, approvals, licenses, franchises or other instruments now or hereafter
required by any Governmental Authority to operate or use and occupy the
Premises and the Equipment for its intended uses (collectively, “Permits”;
each, a “Permit”) other than Permits the absence of which would not
result in a material impairment of the occupancy or use rights with respect
thereto. Unless and to the extent contested by Grantor in accordance with the
provisions of subsection 1.5.5 hereof, Grantor shall comply with all
requirements set forth in the Permits and all requirements of any law,
ordinance, rule, regulation or

 

6

 

similar statute or case law (collectively, “Requirements
of Law”) of any Governmental Authority applicable to all or any part of the
Property or the condition, use or occupancy of all or any part thereof or any
recorded deed of restriction, declaration, covenant running with the land or
otherwise, now or hereafter in force other than noncompliance which would not
result in a material impairment of the condition, use or occupancy thereof.
Grantor shall not initiate, join in, or consent to any material change in the
zoning or any other permitted use classification of the Premises without the
prior written consent of Beneficiary, which consent shall not be unreasonably
withheld or delayed.

 

1.5.5        Grantor may, at its own expense, contest
the amount or applicability of any of the obligations described in subsections
1.5.1, 1.5.3 or 1.5.4 by appropriate legal proceedings, prosecution of which
operates to prevent the collection or enforcement thereof and the sale or
forfeiture of the Property or any part thereof to satisfy such obligations; provided,
however, that in connection with such contest, Grantor shall, at the
option of Beneficiary, have made provision for the payment or performance of
such contested obligation on Grantor’s books if and to the extent required by
GAAP or deposited with Beneficiary to hold for the benefit of Grantor a sum
sufficient to pay and discharge such obligation and Beneficiary’s estimate of
all interest and penalties related thereto. Any such deposit (and any income
earned thereon) not otherwise used to pay such obligation, interest or
penalties shall be promptly returned to Grantor.  Notwithstanding the foregoing provisions of this subsection
1.5.5, (i) no contest of any such obligations may be pursued by Grantor if such
contest would expose Trustee, Beneficiary or any Lender to any possible
criminal liability or, unless Grantor shall have furnished a bond or other
security therefor satisfactory to Beneficiary or such Lender, as the case may
be, any additional civil liability for failure to comply with such obligations
and (ii) if at any time payment or performance of any obligation contested by
Grantor pursuant to this subsection 1.5.5 shall become necessary to prevent the
delivery of a tax or similar deed conveying the Property or any portion thereof
because of nonpayment or nonperformance, Grantor shall pay or perform the same,
in sufficient time to prevent the delivery of such tax or similar deed or such
termination or forfeiture.

 

1.5.6        Grantor shall not take any action that
could be the basis for termination, revocation or denial of any insurance
coverage required to be maintained under this Deed of Trust or that could be
the basis for a defense to any claim under any insurance policy maintained in
respect of the Premises or the Equipment, and Grantor shall otherwise comply in
all respects with the requirements of any insurer that issues a policy of
insurance in respect of the Premises or the Equipment; provided, however,
that Grantor may, at its own expense and after notice to Beneficiary, (i)
contest the applicability or enforceability of any such requirements by
appropriate legal proceedings, prosecution of which does not constitute a basis
for cancellation or revocation of any insurance coverage required under Section
1.7 hereof or (ii) cause the insurance policy containing any such requirement
to be replaced by a new policy complying with the provisions of Section 1.7.

 

1.5.7        Grantor shall, promptly upon receipt of
any written notice regarding any failure by Grantor to pay or discharge any of
the obligations described in subsection 1.5.1, 1.5.3, 1.5.4 or 1.5.6, furnish a
copy of such notice to Beneficiary.

 

1.5.8        In the event that the proceeds of any
tax claim are paid after Beneficiary has exercised its right to foreclose the
Lien of this Deed of Trust, such proceeds shall be paid to Beneficiary to
satisfy any deficiency remaining after such foreclosure. Beneficiary shall
retain its interest in the proceeds of any tax claim during any redemption
period. The amount of any such proceeds in excess of any deficiency claim of
Beneficiary shall reasonably promptly be released to Grantor.

 

7

 

SECTION 1.6         Certain Tax Law Changes.
In the event of the passage after the date of this Deed of Trust of any law
deducting from the value of real property, for the purpose of taxation, amounts
in respect of any Lien thereon or changing in any way the laws for the taxation
of deeds of trust or debts secured by deeds of trust for state or local
purposes or the manner of the collection of any such taxes, and imposing a tax,
either directly or indirectly, on this Deed of Trust, any Swap Contract or any
other Credit Document, Grantor shall promptly pay to Beneficiary such amount or
amounts as may be necessary from time to time to pay such tax.

 

SECTION 1.7         Required Insurance Policies.

 

1.7.1                        Grantor
shall maintain in respect of the Premises and the Equipment the following
insurance coverages or such other coverages as may be acceptable to Beneficiary
pursuant to Section 9.4 of the Credit Agreement (it being understood that the
insurance coverages in existence as of the Closing Date are acceptable to
Beneficiary):

 

(i)            Physical hazard
insurance on an “all risk” basis covering, without limitation, hazards commonly
covered by fire and extended coverage, lightning, windstorm, civil commotion,
hail, riot, strike, water damage, sprinkler leakage, collapse and malicious
mischief, in an amount equal to the full replacement cost of the Improvements and
all Equipment, with such deductibles as Beneficiary may from time to time may
reasonably require, and, if Beneficiary shall not have imposed any such
requirements, with such deductibles as would be maintained by a prudent
operator of property similar in use and configuration to the Premises and
located in the locality where the Premises are located. “Full replacement
cost” means the Cost of Construction (as hereinafter defined) to replace
the Improvements and the Equipment, exclusive of depreciation, excavation,
foundation and footings, as determined from time to time (but not less
frequently than once every twelve (12) months) by a Person selected by Grantor
and reasonably acceptable to Beneficiary;

 

(ii)           Comprehensive
general liability insurance against claims for bodily injury, death or property
damage occurring on, in or about the Premises and any adjoining streets,
sidewalks and passageways, and covering any and all claims, including, without
limitation, all legal liability to the extent insurable imposed upon
Beneficiary and all court costs and attorneys’ fees, arising out of or
connected with the possession, use, leasing, operation or condition of the
Premises with policy limits and deductibles in such amounts as Beneficiary may
from time to time reasonably require, and, if Beneficiary shall not have
imposed such requirements, in such amounts as from time to time would be
maintained by a prudent operator of property similar in use and configuration
to the Premises and located in the locality where the Premises are located;

 

(iii)          Worker’s
compensation insurance as required by the laws of the state where the Premises
are located to protect Grantor and Beneficiary against claims for injuries
sustained in the course of employment at the Premises;

 

(iv)          Explosion insurance
in respect of any boilers and similar apparatus located on the Premises or
comprising any Equipment, with policy limits and deductibles in such amounts as
Beneficiary may from time to time reasonably require, and, if Beneficiary shall
not have imposed any such requirements, in such amounts as would be maintained
by a prudent operator of property similar in use and configuration to the
Premises and the Equipment and located in the locality where the Premises and
Equipment are located; and

 

8

 

(v)           If the Premises are
located in an area identified by the Federal Emergency Management Agency as an
area having special flood hazards pursuant to the National Flood Insurance Act
of 1968 or the Flood Disaster Protection Act of 1973, each as amended, pursuant
to the National Flood Insurance Reform Act of 1994 or otherwise, or any
successor laws, flood insurance with policy limits and deductibles in such
amounts as Beneficiary may from time to time reasonably require, and, if
Beneficiary shall not have imposed any such requirements, in such amounts as
would be maintained by a prudent operator of property similar in use and
configuration to the Premises and located in the locality where the Premises are
located.

 

1.7.2        All insurance policies required by this
Section 1.7 shall be in form reasonably satisfactory to Beneficiary. All
insurance policies in respect of the coverages required by subsections
1.7.1(i), 1.7.1(iv) and, if applicable, 1.7.1(v), shall be in amounts at least
sufficient to prevent coinsurance liability, and all losses thereunder shall be
payable to Beneficiary, as loss payee, pursuant to a standard non-contributory
mortgagee endorsement. All insurance policies in respect of the coverages required
by subsections 1.7.1(u) and, if applicable, 1.7.1(vii) shall name Beneficiary
as an additional insured. Each policy of insurance required under this Section
1.7 shall provide that it may not be modified, reduced, cancelled or otherwise
terminated without at least thirty (30) days’ prior written notice to
Beneficiary and shall permit Beneficiary to pay any premium therefor within
thirty (30) days after receipt of any notice stating that such premium has not
been paid when due. All insurance policies required hereunder shall provide
that all losses thereunder shall be payable notwithstanding any act or
negligence of Grantor or its agents or employees which otherwise might have
resulted in a forfeiture of all or a part of such insurance payments. The policy
or policies of such insurance or certificates of insurance evidencing the
required coverages, and all renewals or extensions thereof, shall be delivered
to Beneficiary. Settlement of any claim under any of the insurance policies
referred to in this Section 1.7, if such claim involves (in the reasonable
judgment of Beneficiary) loss in excess of $250,000 or more, shall require the
prior written approval of Beneficiary, and Grantor shall use reasonable efforts
to cause each such policy to contain a provision to such effect.

 

1.7.3        At least ten (10) days prior to the
expiration of any insurance policy required by this Section 1.7, a policy or
policies renewing or extending such expiring policy or renewal or extension
certificates or other reasonable evidence of renewal or extension and that the
applicable policies are in full force and effect shall be delivered to
Beneficiary.

 

1.7.4        Grantor shall not purchase separate
insurance policies concurrent in form or contributing in the event of loss with
those policies required to be maintained under this Section 1.7, unless
Beneficiary is included thereon as a named insured and, if applicable, with
loss payable to Beneficiary under an endorsement containing the provisions
described in subsection 1.7.2. Grantor shall promptly notify Beneficiary
whenever any such separate insurance policy is obtained and shall promptly
deliver to Beneficiary the policy or certificate evidencing such insurance.

 

1.7.5        Grantor shall, as soon as practicable
but in no event more than two (2) Business Days after receipt of any written
notice of any failure by Grantor to pay any insurance premium in respect of any
insurance policy required to be maintained under this Section 1.7, furnish a
copy of such notice to Beneficiary.

 

1.7.6        In the event that the proceeds of any
insurance claim are paid after Beneficiary has exercised its right to foreclose
the Lien of this Deed of Trust, such proceeds shall be paid to Beneficiary to
satisfy any deficiency remaining after such foreclosure. Beneficiary shall
retain its interest in the policies of insurance required to be maintained
pursuant to this Deed of Trust during any redemption period.

 

9

 

SECTION 1.8         Failure To Make Certain Payments.
If Grantor shall fail to perform any of the covenants contained in this Deed of
Trust, including, without limitation, Grantor’s covenants to (i) pay the
premiums in respect of all required insurance coverages, (ii) pay taxes and
assessments, (iii) make repairs, (iv) discharge liens and encumbrances, or (v)
pay or perform any obligations of Grantor under the Leases, Beneficiary may,
but shall not be obligated to, make advances to perform such covenant on
Grantor’s behalf, and all sums so advanced shall be included in the Secured
Obligations and, to the extent permitted by applicable law, shall be secured
hereby. Grantor shall repay on demand all sums so advanced by Beneficiary on
behalf of Grantor, with interest at the Default Rate from the date of payment
by Beneficiary to the date of reimbursement. Neither the provisions of this
Section 1.8 nor any action taken by Beneficiary pursuant to the provisions of
this Section 1.8 shall prevent any such failure to observe any covenant
contained in this Deed of Trust from constituting an Event of Default.
Beneficiary shall not be bound to inquire into the validity of any tax, lien or
imposition which Grantor fails to pay as and when required hereby and which
Grantor does not contest in accordance with the terms hereof.

 

SECTION 1.9         Inspection.
Grantor shall permit Beneficiary, by its agents, accountants and attorneys, to
visit and inspect the Premises during normal business hours at such reasonable
times as may be requested by Beneficiary. 
Pursuant to Section 9.3(vi) of the Credit Agreement, Grantor shall
permit representatives of the Beneficiary to appraise any or all of the
Property, at such intervals and by such appraisers as the Beneficiary may
reasonably request

 

SECTION 1.10       Grantor To Maintain Improvements.
If Grantor shall not commit or suffer any waste on the Premises or with respect
to any Equipment or make any change in the use of the Premises or any
Equipment. Grantor represents and warrants that (i) the Premises are served by
all utilities required or necessary for the current use thereof, (ii) all
streets necessary to serve the Premises are completed and serviceable and have
been dedicated and accepted as such by the appropriate Governmental
Authorities, and (iii) Grantor has access to the Premises from public roads sufficient
to allow Grantor and its tenants and invitees to conduct its and their
businesses at the Premises in accordance with sound commercial practices.
Grantor shall, at all times, maintain the Premises and Equipment in reasonably
good, safe and insurable operating order, condition and repair and shall make
all material repairs, structural or nonstructural, when necessary.  Any alteration of the occupancy or use of
all or any part of the Premises which results in any cost in excess of
$2,000,000.00 shall require the prior written consent of the Beneficiary.
Grantor shall do all other acts which from the character or use of the Premises
and Equipment may be necessary or appropriate to maintain and preserve their
value. Grantor shall not remove, demolish or alter the design or structural
character of any material Improvement now or hereafter erected upon all or any
part of the Premises, or permit any such removal, demolition or alteration,
without the prior written consent of Beneficiary, except that items constituting
Equipment may be removed if such removal is temporary and for the purpose of
making repairs or such items are immediately replaced with similar items of
Equipment having a value and utility for their intended purposes that is
approximately equal to or more than the value and such utility of the Equipment
so removed.

 

SECTION 1.11       Grantor’s Obligations with Respect to
Leases.

 

1.11.1      Subject to the provisions of subsection
1.11.2 herein, Grantor will manage and operate the Property in a reasonably prudent
manner and will not enter into any Lease or Leases of all or any part of the
Premises which (a) Lease or Leases are not made subordinate to the Lien of this
Deed of Trust, and (b) Lease or Leases would, in the aggregate, consist of more
than 30,000 square feet of gross leasable area without the prior written
consent of Beneficiary, which consent shall not be unreasonably withheld,
conditioned or delayed.

 

10

 

1.11.2      Grantor shall not:

 

(i)            receive or collect,
or permit the receipt or collection of, any rental or other payments under any
Lease more than one month in advance of the respective period in respect of
which they are to accrue, except that (a) in connection with the execution and
delivery of any Lease or of any amendment to any Lease, rental payments
thereunder may be collected and received in advance in an amount not in excess
of one month's rent and/or a reasonable security deposit may be required
thereunder and (b) Grantor may receive and collect escalation and other charges
in accordance with the terms of each Lease;

 

(ii)           assign, transfer or
hypothecate (other than to Beneficiary hereunder) any rental or other payment
under any Lease whether then due or to accrue in the future, the interest of
Grantor as lessor under any Lease or the rents, issues, revenues, profits or
other income of the Property;

 

(iii)          enter into any
Lease after the date hereof that does not contain terms, with respect to
clauses (a) and (b) below, to the effect that, and, with respect to clauses (c)
through (f) below, substantially to the effect that:

 

(a)      such
Lease and the rights of the tenant thereunder (including, without limitation,
any options to purchase or rights of first offer or refusal) shall be subject
and subordinate to the rights of Beneficiary under and the Lien of this Deed of
Trust;

 

(b)      such
Lease has been assigned as collateral security by Grantor as landlord
thereunder to Beneficiary under this Deed of Trust;

 

(c)      in
the case of any foreclosure hereunder, the rights and remedies of the tenant in
respect of any obligations of any successor landlord thereunder shall be
limited to the equity interest of such successor landlord in the Premises and
any successor landlord shall not (1) be liable for any act, omission or default
of any prior landlord under the Lease, (2) be required to make or complete any
tenant improvements or capital improvements or repair, restore, rebuild or
replace the demised premises or any part thereof in the event of damage, casualty
or condemnation or (3) be required to pay any amounts to tenant arising under
the Lease prior to such successor landlord taking possession;

 

(d)      the
tenant’s obligation to pay rent and any additional rent shall not be subject to
any abatement, deduction, counterclaim or setoff as against any beneficiary or
purchaser upon the foreclosure of any of the Premises or the giving or granting
of a deed in lieu thereof by reason of a landlord default occurring prior to
such foreclosure or delivery of such deed and such beneficiary or purchaser
will not be bound by any advance payments of rent in excess of one month or any
security deposits unless such security was actually received by Beneficiary (or
in the case of a letter of credit, was properly transferred in negotiable form)
;

 

(e)      the
tenant agrees to attorn, at the option of Beneficiary or any purchaser of the
Premises, upon a foreclosure of the Premises or the giving or granting of a
deed in lieu thereof; and

 

11

 

(f)       the
tenant agrees to give notice to Beneficiary of any default by landlord under
the Lease and Beneficiary shall have a reasonable time to cure, should
Beneficiary so elect, any default of landlord prior to tenant exercising any
rights of tenant to terminate or cancel such Lease.

 

(iv)          enter into any
amendment or modification of any Lease or Leases aggregating to more than
30,000 square feet of gross leasable area which would change the unexpired term
thereof or decrease the amount of the rents or other amounts payable thereunder
or impair the value or utility of the Property or the security provided by this
Deed of Trust;

 

(v)           enter into any
further lease or sublease of the property subject to any Lease without the
prior written consent of Beneficiary, unless such Lease is not amended in any
material respect and the primary obligor under such Lease is not released in
any respect from its responsibilities and liabilities under such Lease as a
result of such lease or sublease;

 

(vi)          terminate (whether
by exercising any contractual right of Grantor to recapture leased space or
otherwise) or permit the termination of any Lease or accept surrender of all or
any portion of the space demised under any Lease prior to the end of the term
thereof or accept assignment of any Lease to Grantor unless:

 

(a)      the
tenant under such Lease has not paid the equivalent of two months’ rent and
Grantor has made reasonable efforts to collect such rent; or 

 

(b)      Grantor
shall deliver to Beneficiary an Officer’s Certificate to the effect that
Grantor has entered into a new Lease (or Leases) for the space covered by the
terminated or assigned Lease with a term (or terms) which expire(s) no earlier
than the date on which the terminated or assigned Lease was to expire (excluding
renewal options), and with a tenant (or tenants) having a creditworthiness (as
reasonably determined by Grantor) sufficient to pay the rent and other charges
due under the new Lease (or Leases), and which provided that the tenant(s)
shall pay rent, including all operating expenses and other amounts payable
under the new Lease (or Leases) without any material abatement or concession;
or

 

(vii)         waive, excuse,
condone or in any manner discharge or release any tenants of or from the
obligations of such tenants under their respective Leases or guarantors of
tenants from obligations under any guarantees of the Leases except in the
ordinary and prudent course of business with due regard for the security
afforded Beneficiary thereby.

 

1.11.3      Grantor shall timely perform and observe
all the terms, covenants and conditions required to be performed and observed
by Grantor under each Lease and shall at all times do all things necessary to
require performance by the lessee, franchisee, licensee or grantee under each Lease
of all obligations, covenants and agreements by such party to be performed
thereunder. Grantor shall promptly notify Beneficiary of the receipt of any
notice from any lessee under any Lease claiming that Grantor is in default in
the performance or observance of any of the terms, covenants or conditions
thereof to be performed or observed by Grantor and will cause a copy of each
such notice to be promptly delivered to Beneficiary.

 

SECTION 1.12       Transfer Restrictions.
Except as provided in Section 1.11, Grantor may not, without the prior written
consent of Beneficiary, further mortgage, encumber, hypothecate,

 

12

 

sell, convey
or assign all or any part of the Property or suffer any of the foregoing to occur
by operation of law or otherwise. Notwithstanding the provisions of the
foregoing sentence, so long as no Event of Default shall have occurred and be
continuing, Grantor shall have the right to suffer, in respect of the Property,
(i) Liens in respect of amounts payable or obligations to be performed by
Grantor pursuant to subsections 1.5.1, 1.5.3 and 1.5.4; provided, however,
that such amounts are not yet due and payable or are being contested in
accordance with the provisions of subsection 1.5.5 and (ii) Liens of the type
described in subclauses (a), (b), (c), d), (f), (k), (m), (o), (q), (s) and, to
the extent the original Lien is permitted hereunder, (p) of Section 9.7 of the
Credit Agreement. Each of the Liens and other transfers permitted by this Section
1.12 shall in all respects be subject and subordinate in priority to the Lien
and security interests created and evidenced hereby except to the extent the
law or regulation creating or authorizing such Lien provides that such Lien
must be superior to the Lien and security interest created and evidenced
hereby.

 

SECTION 1.13       Destruction: Condemnation.

 

1.13.1      Destruction; Insurance Proceeds. If
there shall occur any material damage to, or material loss or material
destruction of, the Improvements, Equipment, or any part of any thereof (each,
a “Destruction”), Grantor shall promptly send to Beneficiary a notice
setting forth the nature and extent of such Destruction. The proceeds of any
insurance payable in respect of such Destruction are hereby assigned and shall
be paid to Beneficiary. All such proceeds, together with any interest earned
thereon, less the amount of any expenses incurred in litigating, arbitrating,
compromising or settling any claim arising out of such Destruction (the “Net
Proceeds”), shall be applied in accordance with the provisions of
subsections 1.13.3, 1.13.4 and 1.13.5.

 

1.13.2      Condemnation; Assignment of Award.
If there shall occur any taking of the Property or any part thereof, in or by
condemnation or other eminent domain proceedings pursuant to any law, general
or special, or by reason of the temporary requisition of the use or occupancy
of the Property or any part thereof, by any Governmental Authority, civil or
military (each, a “Taking”), Grantor shall notify Beneficiary as soon as
practicable but in no event more than two (2) Business Days after receiving
notice of such Taking or commencement of proceedings therefor. Beneficiary may
participate in any proceedings or negotiations which might result in any
Taking, and Grantor shall deliver or cause to be delivered to Beneficiary all
instruments requested by it to permit such participation. Beneficiary may be
represented by counsel satisfactory to it at the expense of Grantor in
connection with any such participation. Grantor shall pay all reasonable fees,
costs and expenses incurred by Beneficiary in connection with any Taking and in
seeking and obtaining any award or payment on account thereof. Any proceeds,
award or payment in respect of any Taking are hereby assigned and shall be paid
to Beneficiary. Grantor shall take all steps necessary to notify the condemning
authority of such assignment. Such proceeds, award or payment, together with
any interest earned thereon, less the amount of any expenses incurred in
litigating, arbitrating, compromising or settling any claim arising out of such
Taking (the “Net Award”), shall be applied in accordance with the
provisions of subsections 1.13.3, 1.13.4 and 1.13.5.

 

1.13.3      Restoration. So long as no Event of
Default shall have occurred and be continuing, in the event there shall be a
Net Award or Net Proceeds in an amount less than or equal to $1,000,000,
Grantor shall have the right, at Grantor's option, to apply such Net Award or
Net Proceeds to the payment of the Secured Obligations in accordance with the
provisions of Sections 2.10(a) (i) and 2.10(a) (vi), as applicable, of the
Credit Agreement or to perform a restoration as described in Sections 2.10(a)
(i) and 2.10(a) (vi), as applicable, of the Credit Agreement (each, a “Restoration”)
of the Premises and Equipment. In the event Grantor elects to perform a
Restoration, Grantor shall give written notice (each, a “Restoration
Election Notice”)

 

13

 

of such
election to Beneficiary within thirty (30) days after the date that Grantor
receives notice of collection by Beneficiary of the applicable Net Proceeds or
Net Award, as the case may be. In the event Beneficiary does not receive a
Restoration Election Notice within such 30-day period, Beneficiary may apply
any such Net Proceeds or Net Award held by Beneficiary to the payment of the
Secured Obligations in accordance with the provisions of Section 2.10(b) of the
Credit Agreement or, at the option of Beneficiary, may continue to hold such Net
Proceeds or Net Award as additional collateral to secure the performance by
Grantor of the Secured Obligations. In the event Grantor elects to perform any
Restoration contemplated by this subsection 1.13.3, Beneficiary shall release
such Net Award or Net Proceeds to Grantor as soon as practicable following
receipt of a Restoration Election Notice but in no event more than fifteen (15)
days following such receipt. Grantor shall, within fifteen (15) days following
the date of its receipt of any proceeds in respect of a Destruction or Taking,
as the case may be, commence and diligently continue to perform the Restoration
of that portion or portions of the Improvements and Equipment subject to such
Destruction or affected by such Taking so that, upon the completion of the
Restoration, the Premises and Equipment will be in the same condition and shall
be of at least equal value and utility for its intended purposes as the
Premises and Equipment was immediately prior to such Destruction or Taking.
Grantor shall so complete such Restoration with its own funds to the extent
that the amount of any Net Award or Net Proceeds is insufficient for such
purpose.

 

1.13.4      Major Restoration. In the event
there shall be a Net Award or Net Proceeds other than as described in subsection
1.13.3, Grantor shall have the option (absent the occurrence and continuance of
an Event of Default) to apply such Net Award or Net Proceeds, as the case may
be, to the payment of the Secured Obligations in accordance with the provisions
of Sections 2.10(i) and 2.10(vi), as applicable, of the Credit Agreement or to
perform a Restoration of the Property as contemplated by and in accordance with
the provisions of Sections 2.10(i) and 2.10(vi), as applicable, of the Credit
Agreement. In the event a Restoration is to be performed under this subsection
1.13.4, Beneficiary shall not release any part of the Net Award or the Net
Proceeds except in accordance with the provisions of subsection 1.13.5, and
Grantor shall, prior to commencing any work to effect a Restoration of the
Premises and Equipment, promptly (but in no event later than ninety (90) days
following any Destruction or Taking) furnish to Beneficiary:

 

(i)            complete plans and
specifications (the “Plans and Specifications”) for the Restoration;

 

(ii)           a certificate (an “Architect’s
Certificate”) of an independent, reputable architect or engineer acceptable
to Beneficiary and licensed in the state where the Premises are located (a)
listing all permits and approvals required by law in connection with the
Restoration, (b) stating that all permits and approvals required by law to
commence work in connection with the Restoration have been obtained, (c)
stating that the Plans and Specifications have been reviewed and approved by
the signatory thereto, (d) stating such signatory’s estimate (an “Estimate”)
of the costs of completing the Restoration and (e) stating that upon completion
of such Restoration in accordance with the Plans and Specifications, the value
and utility of the Premises and the Equipment will be approximately equal to or
greater than the value and utility thereof immediately prior to the Destruction
or Taking relating to such Restoration; and

 

(iii)          if the Estimate
exceeds the Net Proceeds or Net Award, as the case may be, a surety bond for,
guarantee of, or irrevocable letter of credit (a “Letter of Credit”) or
other irrevocable and unconditional commitment to provide funds (each, a “Commitment”)
for the payment of the excess cost of such Restoration, payable to or in favor
of Beneficiary, as Collateral Agent, which bond, guaranty, Letter of Credit or
Commitment (A) shall be signed by a surety or sureties or guarantor(s), as the
case may

 

14

 

be, acceptable
to Beneficiary and, in the case of a Letter of Credit or Commitment, shall be
provided by a Lender or other financial institution having capital and surplus
in excess of $500 million as shown in its most recent available statement of
financial condition and (B) shall be in an amount not less than the excess of
the amount of the Estimate over the amount of the Net Award or Net Proceeds, as
the case may be, then held by Beneficiary for application toward the cost of
such Restoration.

 

Beneficiary
shall have the right to review and approve the Plans and Specifications and to
grant such waivers from the other requirements of the preceding claims (i),
(ii) and (iii) as Beneficiary may in its discretion deem appropriate. Promptly
upon any approval of the Plans and Specifications by Beneficiary, Grantor shall
commence and diligently continue to perform the Restoration in accordance with
such approved Plans and Specifications. Grantor shall so complete such
Restoration with its own funds to the extent that the amount of any Net Award
or Net Proceeds is insufficient for such purpose.

 

1.13.5      Restoration Advances Following
Destruction or Taking of Property. In the event Grantor have elected to
perform a Restoration of the Premises and Equipment as provided in subsection
1.13.4, Beneficiary shall apply any Net Proceeds or the Net Award held by
Beneficiary on account of the applicable Destruction or Taking to the payment
of the cost of performing such Restoration and shall pay portions of the same,
from time to time, to Grantor or, at Beneficiary’s option, exercised from time
to time, directly to the contractors, subcontractors, materialmen, laborers,
engineers, architects, and other persons rendering services or material for
such Restoration, subject to the following conditions (except as the same may be
waived by the Beneficiary in its discretion):

 

(i)            Each request for
payment shall be made on at least ten (10) days’ prior notice to Beneficiary
and shall be accompanied by an Architect’s Certificate stating (a) that all the
Restoration work then completed has been done in compliance with the Plans and
Specifications, as approved by Beneficiary, and in accordance with all
provisions of law, (b) the sums requested are required to reimburse Grantor for
payments by Grantor to, or are due to, the contractors, subcontractors,
materialmen, laborers, engineers, architects, or other persons rendering
services or materials for the Restoration, and that, when added to the sums, if
any, previously paid out by Beneficiary, such sums do not exceed the cost of
the Restoration to the date of such Architect's Certificate, (c) whether or not
the Estimate continues to be accurate, and if not, what the entire cost of such
Restoration is then estimated to be, and (d) that the amount of the Net
Proceeds or Net Award, as the case may be, remaining after giving effect to
such payment will be sufficient on completion of the Restoration to pay for the
same in full (including, in detail, an estimate by trade of the remaining costs
of completion);

 

(ii)           Each request for
payment shall be accompanied by an opinion of counsel to Grantor (which counsel
shall be independent and acceptable to Beneficiary), or a title insurance
policy, binder or endorsement in form and substance satisfactory to Beneficiary
confirming that (a) all Liens (other than Prior Liens) covering that part of
the Restoration previously paid for, if any, have been waived and (b) there has
not been filed with respect to all or any part of the Premises any Lien (other
than Prior Liens) which is not discharged of record and which could have
priority over the Lien of this Deed of Trust in respect of any part of the
Secured Obligations; and

 

(iii)          The final request
for any payment after the Restoration has been completed shall be accompanied
by an Architect’s Certificate listing all certificates, permits, licenses,
waivers, other documents, or any combination of the foregoing required by

 

15

 

law in
connection with or as a result of such Restoration and stating that all of the
same have been obtained.

 

In the event
that there shall be any surplus after application of the Net Award or the Net
Proceeds to Restoration of the Improvements and the Equipment, such surplus
shall be, at the option of Beneficiary, (i) held by Beneficiary as additional
collateral to secure the performance by Grantor of the Secured Obligations and
(ii) applied as an optional prepayment under Section 2.10 of the Credit
Agreement.

 

SECTION 1.14       Alterations.
Grantor shall not, without the prior written consent of Beneficiary, make any
addition, modification or change (each, an “Alteration”), structural or
nonstructural, to the Premises that costs more to effect than $5,000,000 in the
aggregate. Whether or not Beneficiary has consented to the making of any Alteration,
Grantor shall (i) complete each Alteration promptly, in a good and workmanlike
manner and in compliance with all applicable local laws, ordinances and
requirements and (ii) pay when due all claims for labor performed and materials
furnished in connection with such Alteration, unless contested in accordance
with the provisions of subsection 1.5.5.

 

SECTION 1.15       Hazardous Material.
Each and every obligation, representation and warranty of Grantor contained in
Sections 8.11, 8.12 and 9.14 of the Credit Agreement is incorporated herein mutatis
mutandis with respect to the Property.

 

SECTION 1.16       No Claims Against Beneficiary.
Nothing contained in this Deed of Trust shall constitute any consent or request
by Beneficiary, express or implied, for the performance of any labor or
services or the furnishing of any materials or other property in respect of the
Premises or any part thereof, nor as giving Grantor any right, power or
authority to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would
permit the making of any claim against Beneficiary in respect thereof or any
claim that any Lien based on the performance of such labor or services or the
furnishing of any such materials or other property is prior to the Lien of this
Deed of Trust.

 

SECTION 1.17       Utility Services.
Grantor shall pay, or cause to be paid, when due all charges for all public or
private utility services, all public or private rail and highway services, all
public or private communication services, all sprinkler systems, all protective
services and any other services of whatever kind or nature at any time rendered
to or in connection with the Premises or any part thereof, shall comply with
all contracts relating to any such services and shall do all other things
required for the maintenance and continuance of all such services to the extent
required to fulfill the obligations set forth in Section 1.10.

 

ARTICLE II

 

ASSIGNMENT OF LEASES: SECURITY AGREEMENT: ASSIGNMENT AGREEMENT

 

SECTION 2.1         Assignment
of Leases, Rents, Issues and Profits.

 

2.1.1        Grantor absolutely, presently and
irrevocably assigns, transfers and sets over to Beneficiary, and grants to
Beneficiary subject to the terms and conditions hereof, all Grantor’s estate,
right, title, interest, claim and demand as landlord to collect rent and other
sums due under all existing Leases and any other Leases, including, without
limitation, all extensions of the terms of the Leases (such assigned rights, “Grantor’s
Interest”), as follows:

 

(i)            the immediate and
continuing right to receive and collect Rents payable by all tenants or other
parties pursuant to the Leases;

 

16

 

(ii)           all claims, rights,
powers, privileges and remedies of Grantor, whether provided for in any Lease
or arising by statute or at law or in equity or otherwise, consequent on any
failure on the part of any tenant to perform or comply with any term of any
Lease;

 

(iii)          all rights to take
all actions upon the happening of a default under any Lease as shall be
permitted by such Lease or by law, including, without limitation, the
commencement, conduct and consummation of proceedings at law or in equity; and

 

(iv)          the full power and
authority, in the name of Grantor or otherwise, to enforce, collect, receive
and receipt for any and all of the foregoing and to do any and all other acts
and things whatsoever which Grantor or any landlord is or may be entitled to do
under the Leases.

 

2.1.2        Any Rents receivable by Beneficiary
hereunder, after payment of all proper costs and charges, shall be applied to
all amounts due and owing under and as provided in this Deed of Trust and the
Credit Agreement. Beneficiary shall be accountable to Grantor only for Rents
actually received by Beneficiary pursuant to this assignment. The collection of
such Rents and the application thereof shall not cure or waive any Event of
Default or waive, modify or affect notice of Event of Default or invalidate any
act done pursuant to such notice.

 

2.1.3        So long as no Event of Default shall
have occurred and be continuing, Grantor shall have a license to collect and
apply the Rents and to enforce the obligations of tenants under the Leases and
to grant all consents and approvals and take any other action of the landlord
under the Leases. Immediately upon the occurrence and during the continuance of
any Event of Default, the license granted in the immediately preceding sentence
shall cease and terminate, with or without any notice, action or proceeding or
the intervention of a receiver appointed by a court. Upon such Event of Default
and during the continuance thereof, Beneficiary may, to the fullest extent
permitted by the Leases, (i) exercise any of Grantor’s rights under the Leases,
(ii) enforce the Leases, (iii) demand, collect, sue for, attach, levy, recover,
receive, compromise and adjust, and make, execute and deliver receipts and
releases for all Rents or other payments that may then be or may thereafter
become due, owing or payable with respect to the Leases and (iv) generally, do,
execute and perform any other reasonable act, deed, matter or thing whatsoever
that ought to be done, executed and performed in and about or with respect to
the Leases, as fully as allowed or authorized by Grantor’s Interest.

 

2.1.4        Upon the occurrence and during the
continuance of an Event of Default, Grantor shall, at the direction of
Beneficiary, further authorize and direct the tenant under each Lease to pay
directly to, or as directed by, Beneficiary all Rents accruing or due under its
Lease without proof to the tenant of the occurrence and continuance of such
Event of Default. In the absence of such authorization by the Grantor, Grantor
hereby authorizes the tenant under each Lease to rely upon and comply with any
notice or demand from Beneficiary for payment of Rents to Beneficiary and
Grantor shall have no claim against any tenant for Rents paid by such tenant to
Beneficiary pursuant to such notice or demand.

 

2.1.5        Grantor at its sole cost and expense
shall use commercially reasonable efforts to enforce the Leases in accordance
with their terms. Neither this Deed of Trust nor any action or inaction on the
part of Beneficiary shall release any tenant under any Lease, any guarantor of
any Lease or Grantor from any of their respective obligations under the Leases
or constitute an assumption of any such obligation on the part of Beneficiary.
No action or failure to act on the part of Grantor shall adversely affect or
limit the rights of Beneficiary under this Deed of Trust or, through this Deed
of Trust, under the Leases.

 

17

 

2.1.6        All rights, powers and privileges of
Beneficiary herein set forth are coupled with an interest and are irrevocable,
subject to the terms and conditions hereof, and Grantor shall not take any
action under the Leases or otherwise which is inconsistent with this Deed of
Trust or any of the terms hereof and any such action inconsistent herewith or
therewith shall be void. Grantor shall, from time to time, upon request of
Beneficiary, execute all instruments and further assurances and all
supplemental instruments and take all such action as Beneficiary from time to
time may reasonably request in order to perfect, preserve and protect the
interests intended to be assigned to Beneficiary hereby.

 

2.1.7        Grantor shall not, unilaterally or by
agreement, subordinate, amend, modify, extend, discharge, terminate, surrender,
waive or otherwise change any term of any of the Leases in any manner which
would violate this Deed of Trust. If the Leases shall be amended as permitted
hereby, they shall continue to be subject to the provisions hereof without the
necessity of any further act by any of the parties hereto.

 

2.1.8        Nothing contained herein shall operate
or be construed to (i) obligate Trustee or Beneficiary to perform any of the
terms, covenants or conditions contained in the Leases or otherwise to impose
any obligation upon Trustee or Beneficiary with respect to the Leases (including,
without limitation, any obligation arising out of any covenant of quiet
enjoyment contained in the Leases in the event that any tenant under a Lease
shall have been joined as a party defendant in any action by which the estate
of such tenant shall be terminated) or (ii) place upon Trustee or Beneficiary
any responsibility for the operation, control, care, management or repair of
the Premises until such time, if any, that Trustee or Beneficiary takes actual
possession of the Premises.

 

SECTION 2.2         Security
Interest in Personal Property.

 

2.2.1        This Deed of Trust shall constitute a
security agreement and shall create and evidence a security interest or common
law Lien in all the Equipment and in all the other items of Property in which a
security interest may be granted or a common law pledge created pursuant to the
Uniform Commercial Code as in effect in the state in which the Premises are
located or under the common law in such state (collectively, “Personal
Property”).

 

2.2.2        Upon the occurrence and during the
continuance of any Event of Default, in addition to the remedies set forth in
Article III, Beneficiary shall have the power to sell the Personal Property in
accordance with the Uniform Commercial Code as enacted in the state in which
the Premises are located or under other applicable law. It shall not be
necessary that any Personal Property offered be physically present at any such
sale or constructively in the possession of Beneficiary or the person
conducting the sale.

 

2.2.3        Upon the occurrence and during the
continuance of any Event of Default,eneficiary may sell the Personal Property
or any part thereof at public or private sale with notice to Grantor as
hereinafter provided. The proceeds of any such sale, after deducting all
reasonable expenses of Beneficiary in taking, storing, repairing and selling
the Personal Property (including, without limitation, reasonable attorneys'
fees and legal expenses), shall be applied in the manner set forth in
subsection 3.3.3. At any sale, public or private, of the Personal Property or
any part thereof, Beneficiary may purchase any or all of the Personal Property
offered at such sale.

.

2.2.4        Beneficiary shall give Grantor
reasonable notice of any sale of any of the Personal Property pursuant to the
provisions of this Section 2.2. Notwithstanding the provisions of Section 5.2,
any such notice shall conclusively be deemed to be reasonable and effective if
such notice is

 

18

 

mailed at
least ten (10) days prior to any sale, by first class or certified mail,
postage prepaid, to Grantor at its address determined in accordance with the
provisions of Section 5.2.

 

2.2.5        In the event of any conflicts between
the terms and conditions of this Section 2.2 and that certain security
agreement, dated as of the date hereof, between Grantor, as debtor, and
Beneficiary, as secured party, the terms and conditions of the Security
Agreement shall govern.

 

ARTICLE III

 

EVENTS OF
DEFAULT AND REMEDIES

 

SECTION 3.1         Events of Default.
It shall be an Event of Default hereunder if there shall have occurred and be
continuing an Event of Default as defined in the Credit Agreement.

 

SECTION 3.2         Remedies
in Case of an Event of Default. If any Event of Default shall have occurred
and be continuing, Beneficiary may at its option, in addition to any other
action permitted under this Deed of Trust or the Credit Agreement or by law,
statute or in equity, take one or more of the following actions:

 

3.2.1        by written notice to Grantor, declare
the entire unpaid amount of the Secured Obligations to be due and payable
immediately;

 

3.2.2        personally, or by its agents or
attorneys, (i) enter into and upon and take possession of all or any part of
the Premises together with the books, records and accounts of Grantor relating
thereto and, exclude Grantor, its agents and servants wholly therefrom, (ii)
use, operate, manage and control the Premises and the Equipment and conduct the
business thereof, (iii) maintain and restore the Premises and the Equipment,
(iv) make all necessary or proper repairs, renewals and replacements and such
useful Alterations thereto and thereon as Beneficiary may deem advisable, (v)
manage, lease and operate the Premises and carry on the business thereof and
exercise all rights and powers of Grantor with respect thereto or (vi) collect
and receive all earnings, revenues, rents, issues, profits and income of the
Property and every part thereof. Beneficiary shall be under no liability for or
by reason of any such taking of possession, entry, removal or holding,
operation or management except that any amounts so received by Beneficiary
shall be applied as follows:

 

FIRST:  to pay costs and expenses (including, without
limitation, reasonable attorneys’ fees and expenses) of so entering upon, taking
possession of, holding, operating and managing the Property or any part
thereof, and any taxes, assessments or other charges which Beneficiary may
consider necessary or desirable to pay, and any other amounts due to
Beneficiary;

 

SECOND:  without duplication of amounts applied pursuant to
clause FIRST above, to the indefeasible payment in full in cash of the Secured
Obligations (other than Swap Obligations) in accordance with the terms of the
Credit Agreement;

 

THIRD:  without duplication of
amounts applied pursuant to clauses FIRST and SECOND above, to the indefeasible
payment in full in cash pro  rata of the Swap Obligations in
accordance with the terms of the Swap Contracts; and

 

FOURTH:  the balance, if any, to
the Person lawfully entitled thereto (including Grantor or its successors or
assigns), if all conditions to the release of this Deed of Trust shall have
been fulfilled, but if any such condition shall not have been

 

19

 

fulfilled, to
be held by Beneficiary and thereafter applied to any future payments required
to be made in accordance with clauses FIRST, SECOND and THIRD above.

 

3.2.3        with or without entry, personally or by
its agents or attorneys, (i) sell the Property and all estate, right, title and
interest, claim and demand therein at one or more sales in one or more parcels,
in accordance with the provisions of Section 3.3 or (ii) institute and
prosecute proceedings for the complete or partial foreclosure of the Lien and
security interests created and evidenced hereby; or

 

3.2.4        take such steps or direct Trustee to
take such steps to protect and enforce its rights whether by action, suit or
proceeding at law or in equity for the specific performance of any covenant,
condition or agreement in the Credit Agreement and the other Credit Documents,
or in aid of the execution of any power granted in this Deed of Trust, or for
any foreclosure hereunder, or for the enforcement of any other appropriate
legal or equitable remedy or otherwise as Beneficiary shall elect.

 

SECTION 3.3         Sale
of Property if Event of Default Occurs;
Proceeds of Sale.

 

3.3.1        If any Event of Default shall have
occurred and be continuing, Beneficiary may institute an action to foreclose
this Deed of Trust or take such other action as may be permitted and available
to Beneficiary at law or in equity for the enforcement of the Credit Agreement
and realization on the Property and proceeds thereon through power of sale or
to final judgment and execution thereof for the Secured Obligations, and in
furtherance thereof Beneficiary may sell the Property at one or more sales, as
an entirety or in parcels, at such time and place, upon such terms and after
such notice thereof as may be required or permitted by law or statute or in
equity. Beneficiary may execute and deliver to the purchaser at such sale a
conveyance of the Property in fee simple and an assignment or conveyance of all
Grantor’s Interest in the Leases and the Property, each of which conveyances
and assignments shall contain recitals as to the Event of Default upon which
the execution of the power of sale herein granted depends, and Grantor hereby
constitutes and appoints Beneficiary the true and lawful attorney in fact of
Grantor to make any such recitals, sale, assignment and conveyance, and all of
the acts of Beneficiary as such attorney in fact are hereby ratified and
confirmed. Grantor agrees that such recitals shall be binding and conclusive
upon Grantor and that any assignment or conveyance to be made by Beneficiary
shall divest Grantor of all right, title, interest, equity and right of
redemption, including any statutory redemption, in and to the Property. The
power and agency hereby granted are coupled with an interest and are
irrevocable by death or dissolution, or otherwise, and are in addition to any
and all other remedies which Beneficiary may have hereunder, at law or in
equity. So long as the Secured Obligations, or any part thereof, remain unpaid,
Grantor agrees that possession of the Property by Grantor, or any person
claiming under Grantor, shall be as tenant, and, in case of a sale under power
or upon foreclosure as provided in this Deed of Trust, Grantor and any person
in possession under Grantor, as to whose interest such sale was not made
subject, shall, at the option of the purchaser at such sale, then become and be
tenants holding over, and shall forthwith deliver possession to such purchaser,
or be summarily dispossessed in accordance with the laws applicable to tenants
holding over. In case of any sale under this Deed of Trust by virtue of the
exercise of the powers herein granted, or pursuant to any order in any judicial
proceeding or otherwise, the Property may be sold as an entirety or in separate
parcels in such manner or order as Beneficiary in its sole discretion may
elect. One or more exercises of powers herein granted shall not extinguish or
exhaust such powers, until the entire Property is sold or all amounts secured
hereby are paid in full.

 

3.3.2        In the event of any sale made under or
by virtue of this Article III, the entire principal of, and interest in respect
of the Secured Obligations, if not previously due and payable,

 

20

 

shall, at the
option of Beneficiary, immediately become due and payable, anything in this
Deed of Trust to the contrary notwithstanding.

 

3.3.3        The proceeds of any sale made under or
by virtue of this Article III, together with any other sums which then may be
held by Trustee or Beneficiary under this Deed of Trust, whether under the
provisions of this Article III or otherwise, shall be applied as follows:

 

FIRST:  to pay the reasonable costs and expenses incurred by
Trustee or Beneficiary in enforcing its remedies under this Deed of Trust;

 

SECOND:  to pay the reasonable costs and expenses of the sale
and of any receiver of the Property or any part thereof appointed pursuant to
subsection 3.5.2;

 

THIRD:  without duplication of the amounts applied pursuant
to clauses FIRST and SECOND above, to the indefeasible payment in full in cash
of the Secured Obligations (other than Swap Obligations) in accordance with the
terms of the Credit Agreement;

 

FOURTH:  without duplication of the amounts applied pursuant
to clauses FIRST, SECOND and THIRD above, to the indefeasible payment in full
in cash pro  rata of the Swap Contracts Obligations in accordance
with the terms of the Swap Contracts; and

 

FIFTH:  the balance, if any, to the Person lawfully entitled
thereto (including Grantor or its successors or assigns)

 

3.3.4        Beneficiary (on behalf of any Lender or
on its own behalf) or any Lender or any of their respective Affiliates may bid
for and acquire the Property or any part thereof at any sale made under or by
virtue of this Article III and, in lieu of paying cash therefor, may make settlement
for the purchase price by crediting against the purchase price the unpaid
amounts (whether or not then due) owing to Beneficiary, or such Lender in
respect of the Secured Obligations, after deducting from the sales price the
expense of the sale and the reasonable costs of the action or proceedings and
any other sums that Beneficiary or such Lender is authorized to deduct under
this Deed of Trust.

 

3.3.5        Beneficiary may adjourn from time to
time any sale by it to be made under or by virtue of this Deed of Trust by
announcement at the time and place appointed for such sale or for such
adjourned sale or sales, and, Beneficiary, without further notice or
publication, may make such sale at the time and place to which the same shall
be so adjourned.

 

3.3.6        If the Premises is comprised of more
than one parcel of land, Beneficiary may take any of the actions authorized by
this Section 3.3 in respect of any or a number of individual parcels.

 

SECTION 3.4         Additional
Remedies in Case of an Event of Default.

 

3.4.1        Beneficiary shall be entitled to recover
judgment as aforesaid either before, after or during the pendency of any
proceedings for the enforcement of the provisions of this Deed of Trust, and
the right of Beneficiary to recover such judgment shall not be affected by any
entry or sale hereunder, or by the exercise of any other right, power or remedy
for the enforcement of the provisions of this Deed of Trust, or the foreclosure
of, or absolute conveyance pursuant to, this Deed of Trust. In case of proceedings
against Grantor in insolvency or bankruptcy or any proceedings for its
reorganization or involving the liquidation of its assets, Beneficiary shall be

 

21

 

entitled to
prove the whole amount of principal and interest and other payments, charges
and costs due in respect of the Secured Obligations to the full amount thereof
without deducting therefrom any proceeds obtained from the sale of the whole or
any part of the Property; provided, however, that in no case
shall Beneficiary receive a greater amount than the aggregate of such
principal, interest and such other payments, charges and costs (with interest
at the Default Rate) from the proceeds of the sale of the Property and the
distribution from the estate of Grantor.

 

3.4.2        Any recovery of any judgment by
Beneficiary and any levy of any execution under any judgment upon the Property
shall not affect in any manner or to any extent the Lien and security interests
created and evidenced hereby upon the Property or any part thereof, or any
conveyances, powers, rights and remedies of Beneficiary hereunder, but such
conveyances, powers, rights and remedies shall continue unimpaired as before.

 

3.4.3        Any moneys collected by Beneficiary
under this Section 3.4 shall be applied in accordance with the provisions of
subsection 3.3.3.

 

SECTION 3.5         Legal
Proceedings After an Event of Default.

 

3.5.1        After the occurrence of any Event of
Default and immediately upon the commencement of any action, suit or legal
proceedings to obtain judgment for the Secured Obligations or any part thereof,
or of any proceedings to foreclose the Lien and security interest created and
evidenced hereby or otherwise enforce the provisions of this Deed of Trust or
of any other proceedings in aid of the enforcement of this Deed of Trust,
Grantor shall enter its voluntary appearance in such action, suit or
proceeding.

 

3.5.2        Upon the occurrence and during the
continuance of an Event of Default, Beneficiary shall be entitled forthwith as
a matter of right, concurrently or independently of any other right or remedy
hereunder either before or after declaring the Secured Obligations or any part
thereof to be due and payable, to the appointment of a receiver without giving
notice to any party and without regard to the adequacy or inadequacy of any
security for the Secured Obligations or the solvency or insolvency of any
person or entity then legally or equitably liable for the Secured Obligations
or any portion thereof. Grantor hereby consents to the appointment of such
receiver. Notwithstanding the appointment of any receiver, Beneficiary shall be
entitled as pledgee to the possession and control of any cash, deposits or
instruments at the time held by or payable or deliverable under the terms of
the Credit Agreement to Beneficiary.

 

3.5.3        Grantor shall not (i) at any time insist
upon, or plead, or in any manner whatsoever claim or take any benefit or
advantage of any stay or extension or moratorium law, any exemption from
execution or sale of the Property or any part thereof, wherever enacted, now or
at any time hereafter in force, which may affect the covenants and terms of
performance of this Deed of Trust, (ii) claim, take or insist on any benefit or
advantage of any law now or hereafter in force providing for the valuation or
appraisal of the Property, or any part thereof, prior to any sale or sales of
the Property which may be made pursuant to this Deed of Trust, or pursuant to
any decree, judgment or order of any court of competent jurisdiction or (iii)
after any such sale or sales, claim or exercise any right under any statute
heretofore or hereafter enacted to redeem the property so sold or any part
thereof. To the extent permitted by applicable law, Grantor hereby expressly
(i) waives all benefit or advantage of any such law or laws, including, without
limitation, any statute of limitations applicable to this Deed of Trust, (ii) WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING RELATED TO THE ENFORCEMENT OF THIS DEED OF TRUST,
(iii) waives any objection which it may now or hereafter have to the laying of
venue of any action, suit or proceeding brought in connection with this Deed of
Trust and further waives and agrees not to plead that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum

 

22

 

and (iv)
covenants not to hinder, delay or impede the execution of any power granted or
delegated to Beneficiary by this Deed of Trust but to suffer and permit the
execution of every such power as though no such law or laws had been made or
enacted. Beneficiary shall not be liable for any incorrect or improper payment
made pursuant to this Article III in the absence of gross negligence or willful
misconduct.

 

Beneficiary
may request Trustee to proceed with foreclosure, and in such event Trustee is
hereby authorized and empowered, and it shall be Trustee’s special duty, upon
such request of Beneficiary, to sell the Property, or any part thereof, to the
highest bidder or bidders for cash or credit, as directed by Beneficiary, at
the location at the county courthouse specified by the commissioner’s court of
the county in the State of Texas wherein the Land then subject to the lien
hereof is situated or, if no such location is specified by the commissioner’s
court, then at the location specified in Beneficiary’s notice of such sale to
Grantor; provided, that if the Land is situated in more than one county, then
such sale of the Property, or part thereof, may be made in any county in the
State of Texas wherein any part of the Land then subject to the lien hereof is
situated. Any such sale shall be made at public outcry, between the hours of
ten o’clock (10:00) a.m. and four o’clock (4:00) p.m. on the first (1st)
Tuesday in any month. Written or printed notice of such sale shall be posted at
the courthouse door in the county, or if more than one, then in each of the
counties, wherein the Land then subject to the lien hereof is situated. Such
notice shall designate the county where the Property, or part thereof, will be
sold and the earliest time at which the sale will occur, and such notice shall
be posted at least twenty-one (21) days prior to the date of sale. Such notice
shall also be filed with the county clerk in the county, or if more than one,
then in each of the counties wherein the Land is located. Beneficiary shall, at
least twenty-one (21) days preceding the date of sale, serve written notice of
the proposed sale by certified mail on each debtor obligated to pay the Secured
Obligations according to the records of Beneficiary. After such sale, Trustee
shall make to the purchaser or purchasers thereunder good and sufficient
assignments, deeds, bills of sale, and other instruments, in the name of Grantor,
conveying the Property, or part thereof, so sold to the purchaser or purchasers
with general warranty of title by Grantor. The sale of a part of the Property
shall not exhaust the power of sale, but sales may be made from time to time
until the Secured Obligations are paid and performed in full. It shall not be
necessary to have present or to exhibit at any such sale any of the Personal
Property.

 

SECTION 3.6         Remedies
Not Exclusive. No remedy conferred upon or reserved to Trustee or
Beneficiary by this Deed of Trust is intended to be exclusive of any other
remedy or remedies, and each and every such remedy shall be cumulative and
shall be in addition to every other remedy given under this Deed of Trust or
now or hereafter existing at law or in equity. Any delay or omission of Trustee
or Beneficiary to exercise any right or power accruing on any Event of Default
shall not impair any such right or power and shall not be construed to be a
waiver of or acquiescence in any such Event of Default. Every power and remedy
given by this Deed of Trust may be exercised from time to time concurrently or
independently, when and as often as may be deemed expedient by Trustee or
Beneficiary in such order and manner as Trustee or Beneficiary, in its sole
discretion, may elect. If Trustee or Beneficiary accepts any moneys required to
be paid by Grantor under this Deed of Trust after the same become due, such
acceptance shall not constitute a waiver of the right either to require prompt
payment, when due, of all other sums secured by this Deed of Trust or to
declare an Event of Default with regard to subsequent defaults. If Beneficiary
accepts any moneys required to be paid by Grantor under this Deed of Trust in
an amount less than the sum then due, such acceptance shall be deemed an
acceptance on account only and on the condition that it shall not constitute a
waiver of the obligation of Grantor to pay the entire sum then due, and
Grantor’s failure to pay the entire sum then due shall be and continue to be a
default hereunder notwithstanding acceptance of such amount on account.

 

23

 

ARTICLE IV

 

CERTAIN
DEFINITIONS

 

The following
terms shall have the following meanings:

 

“Cost of Construction” means the sum, so far as it relates to
the reconstructing, renewing, restoring or replacing of the Improvements, of
(i) obligations incurred or assumed by Grantor or undertaken by tenants
pursuant to the terms of the Leases for labor, materials and other expenses and
to contractors, builders and materialmen; (ii) the cost of contract bonds and
of insurance of all kinds that may reasonably be deemed by Grantor to be
desirable or necessary during the course of construction; (iii) the expenses
incurred or assumed by Grantor for test borings, surveys, estimates, any Plans
and Specifications and preliminary investigations thereof or, and for
supervising construction, as well as for the performance of all other duties
required by or reasonably necessary for proper construction; (iv) ad valorem
property taxes levied upon the Premises during performance of any Restoration;
and (v) any costs or other charges in connection with obtaining title insurance
and counsel opinions that may be required or necessary in connection with a
Restoration.

 

“Grantor” shall mean individually and collectively, with all
representations, warranties and covenants herein contained to be applicable to
Friday Morning, Inc., Tuesday Morning, Inc., and Tuesday Morning Partners, Ltd.
jointly, and each of Friday Morning, Inc., Tuesday Morning, Inc., and Tuesday
Morning Partners, Ltd., singularly, as the context so provides.  Without limiting the generality of the
foregoing, (i) any representations contained herein of the Grantor shall be
applicable to Friday Morning, Inc., and/or Tuesday Morning, Inc., and/or
Tuesday Morning Partners, Ltd., as the context so provides, (ii) any
affirmative covenants contained herein shall be deemed to be covenants of each
of Friday Morning, Inc., Tuesday Morning, Inc., and Tuesday Morning Partners,
Ltd., and shall require performance by each of Friday Morning, Inc., Tuesday
Morning, Inc., and Tuesday Morning Partners, Ltd., (iii) any negative covenants
contained therein shall be deemed to be covenants of each of Friday Morning,
Inc., Tuesday Morning, Inc., and Tuesday Morning Partners, Ltd., and shall be
breached if any one of Friday Morning, Inc., Tuesday Morning, Inc., and Tuesday
Morning Partners, Ltd., fails to comply therewith, (iv) the occurrence of any
Event of Default with respect to any one of Friday Morning, Inc., Tuesday
Morning, Inc., and Tuesday Morning Partners, Ltd., shall be deemed to be an
Event of Default hereunder, and (v) any Obligations of the Grantor shall be
deemed to include any Obligations of Friday Morning, Inc., Tuesday Morning,
Inc., and Tuesday Morning Partners, Ltd., or any Obligations of any one of
them.

 

ARTICLE V

 

MISCELLANEOUS

 

SECTION 5.1         Severability
of Provisions. Any provision of this Deed of Trust which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

 

SECTION 5.2         Notices.
Unless otherwise provided herein or in the Credit Agreement, any notice or
other communication herein required or permitted to be given shall be given in
the

 

24

 

manner set
forth in the Credit Agreement, if to Grantor or Beneficiary, addressed to it at
the address set forth in the Credit Agreement, or as to either party at such
other address as shall be designated by such party in a written notice to the
other party complying as to delivery with the terms of this Section 5.2; provided,
however, that notices to Beneficiary shall not be effective until
received by Beneficiary.

 

SECTION 5.3         Covenants To Run with the Land.
All of the grants, covenants, terms, provisions and conditions in this Deed of
Trust shall run with the Land and shall apply to, and bind the successors and
assigns of, Grantor. If there shall be more than one grantor, the covenants and
warranties hereof shall be joint and several.

 

SECTION 5.4         Headings.
The Section headings used in this Deed of Trust are for convenience of
reference only and shall not affect the construction of this Deed of Trust.

 

SECTION 5.5         Limitation
on Interest Payable. It is the intention of
the parties to conform strictly to the usury laws, whether state or federal,
that are applicable to the transaction of which this Deed of Trust is a part.
All agreements between Grantor and Beneficiary whether now existing or
hereafter arising and whether oral or written, are hereby expressly limited so
that in no contingency or event whatsoever shall the amount paid or agreed to
be paid by Grantor for the use, forbearance or detention of the money to be
loaned under the Credit Agreement or any related document, or for the payment
or performance of any covenant or obligation contained herein or in the Credit
Agreement or any related document, exceed the maximum amount permissible under
applicable federal or state usury laws. If under any circumstances whatsoever
fulfillment of any such provision, at the time performance of such provision
shall be due, shall involve exceeding the limit of validity prescribed by law,
then the obligation to be fulfilled shall be reduced to the limit of such
validity. If under any circumstances Grantor shall have paid an amount deemed
interest by applicable law, which would exceed the highest lawful rate, such
amount that would be excessive interest under applicable usury laws shall be
applied to the reduction of the principal amount owing in respect of the
Secured Obligations and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal and any other amounts due
hereunder, the excess shall be refunded to Grantor. All sums paid or agreed to
be paid for the use, forbearance or detention of the principal under any
extension of credit by Beneficiary shall, to the extent permitted by applicable
law, and to the extent necessary to preclude exceeding the limit of validity
prescribed by law, be amortized, prorated, allocated and spread from the date
of this Deed of Trust until payment in full of the Secured Obligations so that
the actual rate of interest on account of such principal amounts is uniform
throughout the term hereof.

 

SECTION 5.6         Indemnity.
Each and every obligation of Grantor to indemnify and hold harmless Beneficiary,
as administrative agent under the Credit Agreement, contained in Section 11 of
the Credit Agreement is incorporated herein mutatis  mutandis as
an obligation of Grantor hereunder to indemnify Beneficiary and the officers,
directors, employees, agents and affiliates of Beneficiary.

 

SECTION 5.7         GOVERNING LAW;
TERMS. THIS DEED OF TRUST SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE PREMISES ARE
LOCATED, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PROPERTY ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN SUCH STATE. GRANTOR DESIGNATES AND APPOINTS
CT CORPORATION SYSTEM AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
GRANTOR

 

25

 

IRREVOCABLY
AGREEING IN WRITING TO SO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE
OF ALL PROCESS IN ANY PROCEEDING BROUGHT AGAINST GRANTOR WITH RESPECT TO THIS
DEED OF TRUST, SERVICE BEING HEREBY ACKNOWLEDGED BY GRANTOR TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO GRANTOR AT ITS ADDRESS PROVIDED FOR IN SECTION 5.2
HEREOF EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO
MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY
AGENT APPOINTED BY GRANTOR REFUSES TO ACCEPT SERVICE, GRANTOR HEREBY AGREES
THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN
SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT OF BENEFICIARY TO BRING PROCEEDINGS AGAINST GRANTOR IN
THE COURTS OF ANY OTHER JURISDICTION.

 

SECTION 5.8         No
Merger. The rights and estate created by this Deed
of Trust shall not, under any circumstances, be held to have merged into any
other estate or interest now owned or hereafter acquired by Beneficiary unless
Beneficiary shall have consented to such merger in writing.

 

SECTION 5.9         Modification in Writing.
No amendment, modification, supplement, termination or waiver of or to any
provision of this Deed of Trust, nor consent to any departure by Grantor
therefrom, shall be effective unless the same shall be done in accordance with
the terms of the Credit Agreement and unless in writing and signed by
Beneficiary. Any amendment, modification or supplement of or to any provision
of this Deed of Trust, any waiver of any provision of this Deed of Trust and
any consent to any departure by Grantor from the terms of any provision of this
Deed of Trust shall be effective only in the specific instance and for the
specific purpose for which made or given. Except where notice is specifically
required by this Deed of Trust or any other Credit Document, no notice to or
demand on Grantor in any case shall entitle Grantor to any other or further
notice or demand in similar or other circumstances.

 

SECTION 5.10       Liability Unimpaired.  Each Grantor’s liability hereunder and under
the other Credit Documents shall in no way be limited or impaired by, and each
Grantor hereby consents to and agrees to be bound by, any amendment or
modification of the provisions of any of the Credit Documents, or any other
instrument made to or with the Beneficiary or Lenders by any Grantor, and/or
any Guarantor.  In addition, each
Grantor’s liability hereunder shall in no way be limited or impaired by (i) any
extensions of time for performance required by any of said documents, (ii) any
sale, assignment or foreclosure of any of the Credit Documents or any sale or
transfer of all or part of the Property, (iii) any exculpatory provision in any
of said instruments limiting Beneficiary’s and Lenders’ recourse to the
Property or to any other security, or limiting Lenders’ rights to a deficiency
judgment against any Grantor, and/or any Guarantor, (iv) the release of any
Grantor, Guarantor, and/or any other person from performance or observance of
any of the agreements, covenants, terms or conditions contained in any of said
instruments by operation of law or otherwise, (v) the release in whole or in
part of any security for the Loan, (vi) Beneficiary’s failure to record this
Deed of Trust or file any UCC financing statements (or Beneficiary’s improper
recording or filing of any thereof) or to otherwise perfect, protect, secure or
insure any security interest or lien given as security for the Loan, (vii) the
invalidity, irregularity or unenforceability, in whole or in part, of any of
the Credit Documents or any other instrument or agreement executed or delivered
to Beneficiary or Lenders in connection with the Loan, (viii) any determination
by the title company limiting or denying title insurance coverage under the
title policy and/or any adverse impact on the priority of the Deed of Trust,
for any reason whatsoever, including, without limitation, the restructuring of
the Loan, or (ix) any other action or circumstance whatsoever which
constitutes, or might be construed to constitute, a legal

 

26

 

or equitable
discharge or defense of any Grantor for its obligations under any of the Credit
Documents, of each Guarantor under the Guarantee; and, in any such case,
whether with or without notice to any Grantor and with or without
consideration.

 

SECTION 5.11       No Credit for Payment of Taxes or
Impositions. Grantor shall not be entitled to any
credit against the principal, premium, if any, or interest payable under the
Credit Agreement, and Grantor shall not be entitled to any credit against any
other sums which may become payable under the terms thereof or hereof, by
reason of the payment of any tax or other impositions on the Property or any
part thereof.

 

SECTION 5.12       Stamp and Other Taxes.
Subject to the provisions of subsection 1.5.5 relating to permitted contests,
Grantor shall pay any United States documentary stamp taxes, with interest and
fines and penalties, and any deed of trust recording taxes, with interest and
fines and penalties, that may hereafter be levied, imposed or assessed under or
upon or by reason of this Deed of Trust or the Secured Obligations or any
instrument or transaction affecting or relating to either thereof and in
default thereof Beneficiary may advance the same and the amount so advanced
shall be payable by Grantor to Beneficiary within ten (10) days after demand
therefor, together with interest thereon at the Default Rate.

 

SECTION 5.13       Estoppel Certificates.
Grantor shall, from time to time, upon thirty (30) days’ prior written request
of Beneficiary, execute, acknowledge and deliver to Beneficiary a certificate
signed by an authorized officer or officers stating that this Deed of Trust is
unmodified and in full force and effect (or, if there have been modifications,
that this Deed of Trust is in full force and effect as modified and setting
forth such modifications).

 

SECTION 5.14       Additional Security.
Without notice to or consent of Grantor and without impairment of the Lien and
rights created by this Deed of Trust, Beneficiary may accept (but Grantor shall
not be obligated to furnish) from Grantor or from any other Person or Persons,
additional security for the Secured Obligations. Neither the giving of this
Deed of Trust nor the acceptance of any such additional security shall prevent
Beneficiary from resorting, first, to such additional security, and, second, to
the security created by this Deed of Trust without affecting Beneficiary’s Lien
and rights under this Deed of Trust.

 

SECTION 5.15       Release.
The Property shall be released from the Lien of this Deed of Trust in
accordance with the provisions of the Credit Agreement or at such time as all
Secured Obligations (other than surviving indemnities and contingent
obligations) have been paid in full and the Commitments of the Lenders to make
any Loan or issue any Letter of Credit under the Credit Agreement shall have
expired or been sooner terminated. Beneficiary, on the written request and at
the expense of Grantor, will execute and deliver such proper instruments of
release and satisfaction or assignment as may reasonably be requested to
evidence such release or assignment, and any such instrument, when duly
executed by Beneficiary and duly recorded by Grantor in the places where this
Deed of Trust is recorded, shall conclusively evidence the release or
assignment of this Deed of Trust.

 

SECTION 5.16       Certain Expenses of Beneficiary.
If any action, suit or other proceeding affecting the Property or any part
thereof be commenced, in which action, suit or proceeding Beneficiary is made a
party or participates or in which the right to use the Property or any part
thereof is threatened, or in which it becomes necessary in the reasonable
judgment of Beneficiary to defend or uphold the Lien of this Deed of Trust
(including, without limitation, any action, suit or proceeding to establish or
uphold the compliance of the Improvements with any Requirements of Law), then
all reasonable amounts paid or incurred by Beneficiary for the expense of any
such action, suit or other proceeding or to protect its rights therein (whether
or not it is made or becomes a party thereto) or otherwise to enforce or defend
the rights and Lien created by this

 

27

 

Deed of Trust,
shall be paid promptly by Grantor together with interest at the Default Rate
from the date of the payment or incurring thereof to the date of repayment, and
any such amount and the interest thereon shall be a Lien on the Property, prior
to any right, or right to, interest in, or claim upon the Property attaching or
accruing subsequent to or otherwise subordinate to the Lien of this Deed of
Trust, and the same shall be deemed to be secured hereby. All other reasonable
amounts paid, advanced or incurred by Beneficiary in order to secure and
protect the Lien of this Deed of Trust or other security provided hereunder
shall be a like Lien on the Property and be deemed to be secured hereby.

 

SECTION 5.17       Expenses of Collection.
Grantor will upon demand pay to Beneficiary the amount of any and all expenses,
including the reasonable fees and reasonable expenses of its counsel and the
fees and expenses of any experts and agents, which Beneficiary may incur in
connection with (i) the collection of the Secured Obligations, (ii) the
enforcement and administration of this Deed of Trust, (iii) the custody or
preservation of, or the sale of, collection from, or other realization upon,
any of the Property, (iv) the exercise or enforcement of any of the rights of
Beneficiary or any Secured Party hereunder or (v) the failure by Grantor to
perform or observe any of the provisions hereof. All amounts payable by Grantor
under this Section 5.16 shall be due upon demand and shall be part of the
Secured Obligations. Grantor’s obligations under this Section shall survive the
termination of this Deed of Trust and the discharge of Grantor’s other
obligations hereunder.

 

SECTION 5.18       Business Days.
In the event any time period or any date provided in this Deed of Trust ends or
falls on a day other than a Business Day, then such time period shall be deemed
to end and such date shall be deemed to fall on the next succeeding Business
Day, and performance herein may be made on such Business Day, with the same
force and effect as if made on such other day.

 

SECTION 5.19       Relationship.
The relationship of Beneficiary to Grantor hereunder is strictly and solely
that of lender and borrower and grantor and beneficiary and nothing contained
in the Credit Agreement, this Deed of Trust, any Swap Contract or any other
document or instrument now existing and delivered in connection therewith or
otherwise in connection with the Secured Obligations is intended to create, or
shall in any event or under any circumstance be construed as creating a partnership,
joint venture, tenancy-in-common, joint tenancy or other relationship of any
nature whatsoever between Beneficiary and Grantor other than as lender and
borrower and grantor and beneficiary.

 

SECTION 5.20       Concerning Beneficiary.

 

5.20.1      Beneficiary shall be entitled to rely upon
any written notice, statement, certificate, order or other document or any
telephone message believed by it to be genuine and correct and to have been
signed, sent or made by the proper person, and, with respect to all matters pertaining
to this Deed of Trust and its duties hereunder, upon advice of counsel selected
by it.

 

5.20.2      With respect to any of its rights and
obligations as a Lender, Beneficiary shall have and may exercise the same
rights and powers hereunder. The term “Lenders,” “Lender” or any
similar terms shall, unless the context clearly otherwise indicates, include
Beneficiary in its individual capacity as a Lender. Beneficiary may accept
deposits from, lend money to, and generally engage in any kind of banking, trust
or other business with Grantor or any entity related to or affiliated with
Grantor to the same extent as if Beneficiary were not acting as collateral
agent.

 

5.20.3      If any item of Property also constitutes
collateral granted to Beneficiary under any other deed of trust, security
agreement, pledge or instrument of any type, in the event of any

 

28

 

conflict
between the provisions of this Deed of Trust and the provisions of such other
deed of trust, security agreement, pledge or instrument of any type in respect
of such collateral, Beneficiary, in its sole discretion, shall select which
provision or provisions shall control.

 

5.20.4      Beneficiary has been appointed as
collateral agent pursuant to the Credit Agreement. The actions of Beneficiary
hereunder are subject to the provisions of the Credit Agreement. Beneficiary
shall have the right hereunder to make demands, to give notices, to exercise or
refrain from exercising any rights, and to take or refrain from taking action
(including, without limitation, the release or substitution of Property), in
accordance with this Deed of Trust and the Credit Agreement. Beneficiary may
resign and a successor Beneficiary may be appointed in the manner provided in
the Credit Agreement. Upon the acceptance of any appointment as Beneficiary by
a successor Beneficiary, that successor Beneficiary shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Beneficiary under this Deed of Trust, and the retiring Beneficiary
shall thereupon be discharged from its duties and obligations under this Deed
of Trust. After any retiring Beneficiary’s resignation, the provisions of this
Deed of Trust shall inure to its benefit as to any actions taken or omitted to
be taken by it under this Deed of Trust while it was Beneficiary.

 

SECTION 5.21       Future Advances.
This Deed of Trust may secure future advances. The maximum aggregate amount of
all advances of principal under the Credit Agreement that may be outstanding
hereunder at any time is $160,000,000.00.

 

SECTION 5.22       Waiver of Stay.

 

5.22.1      Grantor agrees that in the event that
Grantor or any property or assets of Grantor shall hereafter become the subject
of a voluntary or involuntary proceeding under the Bankruptcy Code or Grantor
shall otherwise be a party to any federal or state bankruptcy, insolvency,
moratorium or similar proceeding to which the provisions relating to the
automatic stay under Section 362 of the Bankruptcy Code or any similar
provision in any such law is applicable, then, in any such case, whether or not
Beneficiary has commenced foreclosure proceedings under this Deed of Trust,
Beneficiary shall be entitled to relief from any such automatic stay as it
relates to the exercise of any of the rights and remedies (including, without
limitation, any foreclosure proceedings) available to Beneficiary as provided
in this Deed of Trust or in any other Security Document.

 

5.22.2      Beneficiary shall have the right to
petition or move any court having jurisdiction over any proceeding described in
subsection 5.21.1 for the purposes provided therein, and Grantor agrees (i) not
to oppose any such petition or motion and (ii) at Grantor’s sole cost and
expense, to assist and cooperate with Beneficiary, as may be requested by
Beneficiary from time to time, in obtaining any relief requested by
Beneficiary, including, without limitation, by filing any such petitions,
supplemental petitions, requests for relief, documents, instruments or other items
from time to time requested by Beneficiary or any such court.

 

SECTION 5.23       Continuing Security Interest:
Assignment. This Deed of Trust shall create a
continuing security interest in the Property and shall (i) be binding upon
Grantor, its successors and assigns and (ii) inure, together with the rights
and remedies of Beneficiary hereunder, to the benefit of Beneficiary and the
other Secured Parties and each of their respective successors, transferees and
assigns; no other Persons (including, without limitation, any other creditor of
Grantor) shall have any interest herein or any right or benefit with respect
hereto. Without limiting the generality of the foregoing clause (ii), any
Lender may assign or otherwise transfer any indebtedness held by it secured by
this Deed of Trust to any other Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to

 

29

 

such Lender,
herein or otherwise, subject however, to the provisions of the Credit Agreement
and any applicable Swap Contract.

 

SECTION 5.24       Beneficiary’s Right To Sever
Indebtedness.

 

5.24.1      Grantor acknowledges that (a) the Property
does not constitute the sole source of security for the payment and performance
of the Secured Obligations and that the Secured Obligations are also secured by
property of Grantor and its Affiliates in other jurisdictions (all such
property, collectively, the “Collateral”), (b) the number of such
jurisdictions and the nature of the transaction of which this instrument is a
part are such that it would have been impracticable for the parties to allocate
to each item of Collateral a specific loan amount and to execute in respect of
such item a separate credit agreement or swap contract and (c) Grantor intends
that Beneficiary have the same rights with respect to the Property, in
foreclosure or otherwise, that Beneficiary would have had if each item of
Collateral had been secured, mortgaged or pledged pursuant to a separate credit
agreement or interest rate agreement, deed of trust or security instrument. In
furtherance of such intent, Grantor agrees that Beneficiary may at any time by
notice (an “Allocation Notice”) to Grantor allocate a portion (the “Allocated
Indebtedness”) of the Secured Obligations to the Property and sever from
the remaining Secured Obligations the Allocated Indebtedness. From and after
the giving of an Allocation Notice with respect to the Property, the Secured
Obligations hereunder shall be limited to the extent set forth in the
Allocation Notice and (as so limited) shall, for all purposes, be construed as
a separate loan obligation of Grantor unrelated to the other transactions
contemplated by the Credit Agreement, any Swap Contract any other Credit Document
or any document related to any thereof. To the extent that the proceeds on any
foreclosure of the Property shall exceed the Allocated Indebtedness, such
proceeds shall belong to Grantor and shall not be available hereunder to
satisfy any Secured Obligations of Grantor other than the Allocated
Indebtedness. In any action or proceeding to foreclose the Lien of this Deed of
Trust or in connection with any power of sale foreclosure or other remedy
exercised under this Deed of Trust commenced after the giving by Beneficiary of
an Allocation Notice, the Allocation Notice shall be conclusive proof of the
limits of the Secured Obligations hereby secured, and Grantor may introduce, by
way of defense or counterclaim, evidence thereof in any such action or proceeding.
Notwithstanding any provision of this Section 5.23, the proceeds received by
Beneficiary pursuant to this Deed of Trust shall be applied by Beneficiary in
accordance with the provisions of subsection 3.3.3 hereof.

 

5.24.2      Grantor hereby waives to the greatest
extent permitted under law the right to a discharge of any of the Secured
Obligations under any statute or rule of law now or hereafter in effect which
provides that foreclosure of the Lien of this Deed of Trust or other remedy
exercised under this Deed of Trust constitutes the exclusive means for
satisfaction of the Secured Obligations or which makes unavailable a deficiency
judgment or any subsequent remedy because Beneficiary elected to proceed with a
power of sale foreclosure or such other remedy or because of any failure by
Beneficiary to comply with laws that prescribe conditions to the entitlement to
a deficiency judgment. In the event that, notwithstanding the foregoing waiver,
any court shall for any reason hold that Beneficiary is not entitled to a
deficiency judgment, Grantor shall not (a) introduce in any other jurisdiction
such judgment as a defense to enforcement against Grantor of any remedy in the
Credit Agreement, any Swap Contract or any other Credit Document or (b) seek to
have such judgment recognized or entered in any other jurisdiction, and any
such judgment shall in all events be limited in application only to the state
or jurisdiction where rendered.

 

5.24.3      In the event any instrument in addition to
the Allocation Notice is necessary to effectuate the provisions of this Section
5.23, including, without limitation, any amendment to this Deed of Trust, any
substitute promissory note or affidavit or certificate of any kind,

 

30

 

Beneficiary
may execute, deliver or record such instrument as the attorney-in-fact of
Grantor. Such power of attorney is coupled with an interest and is irrevocable.

 

5.24.4      Notwithstanding anything set forth herein
to the contrary, the provisions of this Section 5.23 shall be effective only to
the maximum extent permitted by law.

 

SECTION 5.25       Concerning Trustee.
Trustee may resign by an instrument in writing addressed to Beneficiary or be
removed at any time with or without cause by instrument in writing duly
executed by Beneficiary. In case of the death, resignation or removal of
Trustee, a successor (each, a “Successor Trustee”) may be appointed by
Beneficiary by instrument of substitution complying with any applicable
requirements of law, and in the absence of any such requirement without other
formality than appointment and designation in writing. Such appointment and
designation shall be full evidence of the right and authority to make the same
and of all facts therein recited, and upon the making of any such appointment
and designation this conveyance shall vest in the Successor Trustee all the
estate and title of its predecessor in all the Property, and such Successor
Trustee shall thereupon succeed to all the rights, powers, privileges,
immunities and duties hereby conferred upon the prior Trustee. Except for gross
negligence or willful misconduct, Trustee shall not be liable for any act or
omission or error of judgment. Trustee may rely on any document believed by him
in good faith to be genuine. All money received by Trustee shall, until used or
applied as herein provided, be held in trust, but need not be segregated
(except to the extent required by law), and Trustee shall not be liable for
interest thereon.

 

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

 

31

 

IN WITNESS WHEREOF,
Grantor has caused this Deed of Trust to be duly executed and delivered under
seal the day and year first above written.

 

	
   

  	
  FRIDAY
  MORNING, INC.

  
	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Mark E. Jarvis

  
	
   

  	
  Title:

  	
  Executive
  Vice President and

  Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TUESDAY
  MORNING, INC.

  
	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
  Name:

  	
  Mark E.
  Jarvis

  
	
   

  	
  Title:

  	
  Executive
  Vice President and Chief

  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TUESDAY
  MORNING PARTNERS, LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Days of the
  Week, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Mark E.
  Jarvis

  
	
   

  	
  Title:

  	
  Secretary

  
					

 

32

 

ACKNOWLEDGMENT

 

	
  STATE OF

  	
  §

  
	
   

  	
  §

  
	
  COUNTY OF

  	
  §

  

 

This
instrument was acknowledged before me on this
       day of September 2002, by Mark E. Jarvis,
the Executive Vice President and Treasurer of Friday Morning, Inc., a Texas
corporation, on behalf of said corporation.

 

	
   

  	
   

  
	
   

  	
  Notary
  Public

  
	
   

  	
  State of

  

 

ACKNOWLEDGMENT

 

	
  STATE OF

  	
  §

  
	
   

  	
  §

  
	
  COUNTY OF

  	
  §

  

 

This
instrument was acknowledged before me on this
       day of September 2002, by Mark E. Jarvis,
Executive Vice President and Chief Financial Officer of Tuesday Morning, Inc.,
a Delaware corporation, on behalf of said corporation.

 

	
   

  	
   

  
	
   

  	
  Notary
  Public

  
	
   

  	
  State of

  

 

(PERSONALIZED
SEAL)

 

ACKNOWLEDGMENT

 

	
  STATE OF

  	
  §

  
	
   

  	
  §

  
	
  COUNTY OF

  	
  §

  

 

This
instrument was acknowledged before me on this
       day of September 2002, by Mark E. Jarvis,
Secretary of Days of the Week, Inc., which is General Partner of Tuesday
Morning Partners, Ltd., a Texas limited partnership, on behalf of said limited
partnership.

 

	
   

  	
   

  
	
   

  	
  Notary
  Public

  
	
   

  	
  State of

  

 

(PERSONALIZED
SEAL)

 

33

 

Schedule A

 

[Legal Description]

 

[to come from title policies]

 

34

 

Schedule B

 

1.             Those exceptions indicated in
Lawyers Title Insurance Corporation Commitment for Title Insurance No. 2002 CL
702688-Y;

 

2.             Those exceptions indicated in
Lawyers Title Insurance Corporation Commitment for Title Insurance No. 2002 CL
698111-Y; and

 

3.             That certain Deed of Trust and
Security Agreement executed by Tuesday Morning Partners, Ltd., a Texas limited
partnership to Eugene F. Weimer, Trustee(s), securing Compass Bank in the
payment of one note in the principal sum of $6,500,000.00, and other
indebtedness and performance as therein provided, which Deed of Trust is dated
June 3, 1999, filed of record on June 7, 1999, and recorded in Volume 99111,
Page 5285, Deed of Trust Records, Dallas County, Texas.

 

35

 

Exhibit G

 

[Form of Section 5.6 Certificate]

 

SECTION 5.6 CERTIFICATE

 

Reference is
made to that certain Credit Agreement, dated as of September 27, 2002 (as such
may be amended, modified or supplemented, the “Credit Agreement”), among
Tuesday Morning Corporation, a Delaware corporation (the “Borrower”),
the Guarantors party thereto from time to time, the Revolving Credit Lenders
party thereto from time to time, and Fleet National Bank, as Administrative
Agent.  Capitalized terms used herein
and not defined shall have the meanings assigned to them in the Credit
Agreement.

 

[Name of
non-U.S. Lender] (the “Revolving Credit Lender”) is providing this
certificate pursuant to subsection 5.6(b) of the Credit Agreement. Under
penalties of perjury, the Revolving Credit Lender hereby represents and
warrants that:

 

1.             The Revolving Credit Lender is the
sole record and beneficial owner of the Note(s) registered in its name in
respect of which it is providing this certificate, and it shall remain the sole
beneficial owner of such Note(s) registered in its name at all times during
which it is the record holder of such Note(s) registered in its name.

 

2.             The Revolving Credit Lender is not
a “bank” for purposes of Section 881(c)(3)(A) of the Internal Revenue Code of
1986, as amended (the “Code”).

 

3.             The Revolving Credit Lender is not
a 10% shareholder of Borrower within the meaning of Section 881(c)(3)(B) of the
Code.

 

4.             The Revolving Credit Lender is not
a controlled foreign corporation related to Borrower within the meaning of
Section 864(d) (4) of the Code.

 

5.             The income from the Note(s) held by
the Revolving Credit Lender is not effectively connected with the conduct of a
trade or business within the United States.

 

6.             The Revolving Credit Lender has
furnished Borrower with a certificate of foreign status on Internal Revenue
Service Form W-8ECI or W-8BEN  (or the
applicable successor form or certificate).

 

7.             The Revolving Credit Lender will
promptly notify Borrower and the Administrative Agent if any of the
representations and warranties made herein are no longer true and correct.

 

 

IN WITNESS
WHEREOF, the undersigned has duly executed and delivered this certificate.

 

	
   

  	
   

  	
  [Name of
  Non-U.S. Lender]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  

 

2

 

Exhibit H

 

[Form of Notice of Borrowing]

 

NOTICE OF BORROWING

 

Fleet National Bank,

as Administrative Agent

100 Federal Street

Boston, Massachusetts 02110

 

Ladies and Gentlemen:

 

The
undersigned, Tuesday Morning Corporation, a Delaware corporation (“Borrower”),
refers to the Credit Agreement, dated as of September 27, 2002 (as such may be
amended, modified or supplemented, the “Credit Agreement”), among
Borrower, the Guarantors party thereto from time to time, the Revolving Credit
Lenders party thereto from time to time, and Fleet National Bank, as
Administrative Agent.  Capitalized terms
used herein and not defined shall have the meanings assigned to them in the
Credit Agreement.

 

Borrower
hereby gives you irrevocable notice, pursuant to Sections 2.2 and 4.5 of the
Credit Agreement, that Borrower desires to make a borrowing (the “Proposed
Borrowing”) under the Credit Agreement, and in that connection sets forth
below the information relating to the Proposed Borrowing:

 

(A)          Proposed Borrowing:

 

(i)            The Business Day of the Proposed
Borrowing is
                     ,
20        ;

 

(ii)           The aggregate amount of the Proposed
Borrowing is
$                            ;

 

(iii)          The Proposed Borrowing shall consist
of a
$                     Revolving
Credit Loan, of which $                        
are requested to be Alternate Base Rate Loans and
$                     
of which are requested to be LIBOR Loans. 
The amount of Revolving Credit Loans that are requested to be LIBOR
Loans are requested to have the following Interest
Period(s):                                       ;

 

(iv)          The proceeds of the Proposed Borrowing
are to be deposited into the accounts set forth in the attached letter and in
the respective amounts set forth therein.

 

(B)                               Borrower
hereby certifies and represents that the following statements are true on the
date hereof, and will be true on the date of the Proposed Borrowing:

 

(i)            All representations and warranties
made by the Obligors in Section 8 of the Credit Agreement, and by each Obligor
in each of the other Credit Documents, or any officers’ certificate, agreement,
instrument, certificate, document or other writing delivered to the
Administrative Agent or the Revolving Credit Lenders in connection therewith to
which it is a party, are true and complete in all material respects on and as
of the date of the Proposed Borrowing, with the same force and effect as if
made on and as of such date (except insofar as any such representation or
warranty

 

 

expressly
relates to an earlier date, in which case it is true and complete as of such
date); and

 

(ii)           No Default or Event of Default has
occurred and is continuing, or would result from the Proposed Borrowing or from
the application of the proceeds therefrom, or would otherwise exist immediately
after giving effect to the Proposed Borrowing; and

 

(iii)          For each Revolving Credit Loan, both
the Borrowing Base (as determined upon the most recent Borrowing Base Certificate
delivered under Section 9.1(j) of the Credit Agreement) and the aggregate
Revolving Credit Commitments, after giving effect to the Proposed Borrowing,
exceeds the sum of all Revolving Credit Loans then outstanding, plus the
aggregate principal amount of Swing Loans then outstanding, plus the
aggregate amount of all Letter of Credit Liabilities then outstanding.

 

	
  Dated:

  	
  TUESDAY
  MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title: 

  

 

2

 

Exhibit I

 

[Form of Notice of Conversion/Continuation]

 

NOTICE OF CONVERSION/CONTINUATION

 

Fleet National Bank,

as Administrative Agent

100 Federal Street

Boston, Massachusetts 02110

 

Ladies and Gentlemen:

 

The
undersigned, Tuesday Morning Corporation, a Delaware corporation (“Borrower”),
refers to the Credit Agreement, dated as of September 27, 2002 (as such may be
amended, modified or supplemented, the “Credit Agreement”), among
Borrower, the Guarantors party thereto from time to time, the Revolving Credit
Lenders party thereto from time to time, and Fleet National Bank, as
Administrative Agent. Capitalized terms used herein and not defined shall have
the meanings assigned to them in the Credit Agreement.

 

Borrower
hereby gives you irrevocable notice, pursuant to Sections 2.10 and 4.5 of the
Credit Agreement, that Borrower desires:

 

(Check One):

 

o                                     To
convert
$                     in
principal amount of presently outstanding Alternate Base Rate Loans to LIBOR
Loans on                     ,
20         The Interest Period for such
LIBOR Loans commencing on such date is requested to be a
                 
period.

 

o                                     To
continue as LIBOR Loans
$                             
in principal amount of presently outstanding LIBOR Loans having an Interest
Period the last day of which is
                           ,
20        . The Interest Period for
such LIBOR Loans commencing on such Interest Payment Date is requested to be a
                        
period.

 

Borrower
hereby certifies that no Default or Event of Default has occurred and is
continuing, or would result from the proposed Conversion or Continuation or
from the application of the proceeds therefrom, or would otherwise exist
immediately after giving effect to the proposed Conversion or Continuation.

 

	
  Dated: 

  	
  TUESDAY
  MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title: 

  

 

 

Exhibit J

 

[FORM OF
SUBORDINATION PROVISIONS]

 

1.             Definitions. Reference is
made to the Credit Agreement, dated as of September 27, 2002 (as amended,
amended and restated or otherwise supplemented or modified and in effect from
time to time, the “Credit Agreement”), by and among Tuesday Morning
Corporation, a Delaware corporation (“Borrower”), the Guarantors party
thereto from time to time, the Revolving Credit Lenders party thereto from time
to time, and Fleet National Bank as Administrative Agent. As used in this
Subordinated Note, and unless the context requires a different meaning, the
following terms have the meanings indicated:

 

“Borrower”
shall mean Tuesday Morning Corporation, a Delaware corporation, and its
successors.

 

“Credit
Agreement Default” shall mean any Default as defined in the Credit
Agreement.

 

“Event of
Default” shall have the meaning set forth in Section 2 hereof.

 

“Note”
shall mean this Subordinated Note.

 

“Person”
means an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, government (or
any agency or political subdivision thereof) or other entity of any kind.

 

“Senior
Debt” means the Borrower’s obligations for the principal of, premium, if
any, and interest (including post-petition interest in any liquidation or
dissolution of the Borrower or in a bankruptcy reorganization, insolvency,
receivership or similar providing with respect to the Borrower or its property
whether or not a claim for such interest is allowed or allowable in any such
proceeding) on, and fees and expenses of counsel and other professional fees
incurred in connection with collection, work-out or insolvency related matters,
and other amounts now or hereafter payable (whether by indemnification,
contribution, reimbursement or otherwise) on or in connection with the Credit
Agreement and the other Credit Documents.

 

2.             Events of Default. Prior to
the irrevocable and indefeasible repayment in full in cash of all Obligations
under the Senior Debt and the termination of all commitments thereunder (the “Termination
Date”), if any of the following events (“Events of Default”) shall
occur and be continuing:

 

(i)            The Borrower shall
fail to make any payment of principal on this Note when the same becomes due
and payable; or

 

(ii)           The Borrower shall
fail to make any payment of interest on this Note when the same becomes due and
payable and such failure continues uncured for more than thirty (30) days; or
the Borrower shall fail to comply with any other provision of this Note and
such failure continues uncured for more than sixty (60) days after written
notice thereof to the Borrower specifying such default and requiring that it be
remedied; or

 

(iii)          The Borrower shall generally not pay
its debts as such debts become due, or shall make a general assignment for the
benefit of creditors, or any proceeding shall be

 

 

instituted by
or against the Borrower seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee, or
other similar official for it or for any substantial part of its property and
in the case of any such proceeding instituted against the Borrower such
proceeding shall not be stayed or dismissed within sixty (60) days from the
date of institution thereof or the Borrower shall take any corporate action to
authorize any of the actions set forth above in this subsection (iii);

 

then, and in any such event (but subject to
Section 4 hereof), the Holder, by written notice to the Borrower and the
Administrative Agent, may declare this Note and all interest thereon payable,
or, in the case of an Event of Default specified in subsection (iii) above,
this Note and all interest thereon shall automatically become due and payable
without action by the Holder, whereupon this Note and all such interest shall
on the fifth day following such notice become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of
which are hereby expressly waived by the Borrower.

 

After the
Termination Date, [Insert default provisions of Borrower’s choice]

 

3.             Cross Acceleration. Upon the
acceleration of the Obligations under the Credit Agreement (but subject to
Section 4 hereof), the Holder may, by written notice to the Borrower and the
Administrative Agent, declare all unpaid principal and accrued interest on this
Note then outstanding to be due and payable. Such declaration of acceleration
by the Holder hereunder shall be automatically annulled and rescinded if the
holders of Senior Debt have rescinded their declaration of acceleration of the
Obligations within 120 days thereof.

 

4.                                       Subordination.

 

4.1           Note Subordinated to Senior Debt.

 

The Borrower,
for itself and its successors, and Holder, by acceptance of this Note, agrees
that the payment of the principal of, interest on and any other amounts in
respect of this Note by Borrower is subordinated, to the extent and in the
manner provided in this Section 4, to the prior irrevocable and indefeasible
payment in full in cash of all amounts of whatever nature payable under Senior
Debt.

 

This Section 4
will constitute a continuing offer to all persons who, in reliance upon its
provisions, become holders of, or continue to hold, Senior Debt, and such provisions
are made for the benefit of the holders of Senior Debt, and such holders are
made obligees under this Section and they and/or each of them may enforce its
provisions.

 

4.2           No Payment on Note in Certain
Circumstances.

 

(i)            If there shall be any Credit
Agreement Default, unless and until such Credit Agreement Default shall have
been cured or waived or shall have ceased to exist (as evidenced in writing by
the Administrative Agent), neither Borrower or any other Person may make any
payment on account of principal of or interest on this Note, or any other
amount of whatever nature in respect of this Note, or acquire this Note for
cash, property or securities, by set-off or otherwise, or redeem, retire,
purchase, or deposit moneys for defeasance of or to acquire this Note, and
Borrower shall not segregate and hold separate for the benefit of the Holder
money or other assets for any such payment or distribution.

 

2

 

(ii)           For so long as payment hereunder is
prohibited pursuant to (i) above, the Holder shall not demand, sue for,
institute any bankruptcy or insolvency proceeding, collect or receive or gain
from any other Person with respect to any payment of interest or principal on
this Note or any other amounts in respect of this Note.

 

(iii)          If any payment or distribution of
assets of Borrower is received by the Holder in respect of principal or
interest on the Note at a time when that payment or distribution should not
have been made because of any provision of Section 4, such payment or
distribution will be received and held in trust for benefit of and will be paid
over to the Administrative Agent for the benefit of the holders of any Senior
Debt which is due and payable and remains unpaid or unprovided for until all
such Senior Debt has been irrevocably and indefeasibly paid in full in cash,
after giving effect to any concurrent payment or distribution or provision
therefore to the holders of such Senior Debt.

 

4.3           Note Subordinated to Prior Payment
of All Senior Debt on Dissolution, Liquidation or Reorganization.

 

Upon any
general distribution of assets of Borrower, or upon any dissolution, winding
up, partial or total liquidation or financial restructuring or other similar
reorganization of Borrower (whether in bankruptcy, insolvency, receivership or
similar proceeding related to Borrower or its property or upon an assignment
for the benefit of creditors or otherwise) (a “Liquidation Event”):

 

(i)            the Administrative
Agent, for the benefit of the holders of all Senior Debt, will first be
entitled to receive irrevocable and indefeasible payment in full in cash of the
principal and interest due on Senior Debt and all other amounts due in
connection with Senior Debt before the Holder is entitled to receive any payment
on account of the principal of, interest on or any other amounts in respect of
this Note.

 

(ii)           any payment or
distributions of assets of Borrower of any kind or character, whether in cash,
property or securities, to which the Holder would be entitled except for the
provisions of this Section 4 (including, without limitation, distributions
received by the Holder in respect of obligations junior in right of payment to
this Note) will be paid by the liquidating trustee or agent of such other
person making such a payment or distribution directly to the Administrative
Agent for the benefit of the holders of Senior Debt or their representatives to
the extent necessary to make irrevocable and indefeasible payment in full in
cash of all Senior Debt remaining unpaid, after giving effect to any concurrent
payment or distribution, to the holders of such Senior Debt or provision for
that payment or distribution; and

 

(iii)          if, notwithstanding the foregoing,
upon a Liquidation Event any payment or distribution of assets of Borrower of
any kind or character, whether in cash, property or securities is received by
the Holder on account of principal of or interest on this Note before all
Senior Debt is irrevocably and indefeasibly paid in full in cash, or effective
provision made for such payment, such payment or distribution will be received
and held in trust for the benefit of and will be paid over to the
Administrative Agent for the benefit of the holders of the Senior Debt
remaining unpaid or unprovided for or their representative for application to
the payment of such Senior Debt until all such Senior Debt has been irrevocably
and indefeasibly paid in full in cash, after giving effect to any concurrent
payment or distribution or provision therefore to the holders of such Senior
Debt.

 

Borrower will
give prompt written notice to the Holder of any dissolution, winding up,
liquidation or reorganization of it or any assignment for the benefit of its
creditors. The Administrative Agent may file proof of claims, vote and take
other actions as Administrative Agent

 

3

 

deems appropriate with respect to any
Liquidation Event and the Holder grants Administrative Agent a
power-of-attorney, coupled with an interest, to do any of the foregoing.

 

4.4           Noteholder to be Subrogated to
Rights of Holders of Senior Debt.

 

Upon the
irrevocable and indefeasible payment in full in cash of all Senior Debt, the
Holder will be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of assets of Borrower applicable to the
Senior Debt until all amounts owing on such Senior Debt have been paid in full,
and for the purpose of such subrogation no such payments or distributions to
the holders of Senior Debt by or on behalf of Borrower or by or on behalf of
the Holder by virtue of this Section 4 which otherwise would have been made to
the Holder will, as between Borrower and the Holder, be deemed to be payment by
Borrower to or on account of the Senior Debt, it being understood that the
provisions of this Section 4 are and are intended to be solely for the purpose
of defining the relative rights of the Holder, on the one hand, and holders of
Senior Debt, on the other hand.

 

To the extent
after payment in full of the Senior Debt payments or distributions applicable
to the Senior Debt made by Borrower from proceeds of security, by setoff or
otherwise are set aside or required to be paid to a trustee in bankruptcy,
liquidating trustee or receiver or similar person in respect of Borrower as a
preference under any bankruptcy, insolvency or similar law all Senior Debt
shall be reinstated for purposes of this Section 4.

 

4.5           Obligations of Borrower
Unconditional.

 

Nothing
contained in this Note is intended to or will impair, as between Borrower and
the Holder, the obligations of Borrower, which are absolute and unconditional,
to pay to the Holder the principal of and interest on this Note as and when
they become due and payable in accordance with their terms (including, without
limitation, the terms of this Section 4), or is intended to or will affect the
relative rights of the Holder and creditors of Borrower other than the holders
of the Senior Debt, nor, except as provided in this Section 4, will anything
herein or therein prevent the Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Note, subject to the rights
under this Section of the holders of Senior Debt in respect of cash, property
or securities of Borrower received upon the exercise of any such remedy and
subject to Section 4 and subject to the other rights of the holders of Senior
Debt pursuant to Section 4.

 

4.6           Subordination Rights Not Impaired
by Acts or Omissions of Borrower or Holders of Senior Debt.

 

No right of
any present or future holders of any Senior Debt to enforce subordination as
provided herein will at any time in any way be prejudiced or impaired by any
act or failure to act on the part of Borrower or by any act or failure to act,
in good faith, by any such holder, or by any noncompliance by Borrower with the
terms of this Note or the Credit Agreement, regardless of any knowledge thereof
which any such holder may have or otherwise be charged with. The holders of
Senior Debt may extend, renew, modify, amend, supplement or restate the terms
of the Senior Debt or any security therefor and release, sell or exchange such
security, refinance, refund, replace and/or increase the Senior Debt, and
otherwise deal freely with Borrower, all without affecting the liabilities and
obligations of the parties to the Holder.

 

Without in any
way limiting the generality of the foregoing, the holders of Senior Debt may,
at any time and from time to time, without the consent of or notice to the
Holder, without incurring responsibility to the Holder and without impairing or
releasing the subordination provided in this Note or the obligations hereunder
of the Holder to the holders of the Senior Debt, do any one or more of the
following:

 

4

 

(i)            change the manner,
place or terms of payment or extend the time of payment of, increase the
principal amount of, or renew or alter, Senior Debt, or otherwise amend or
supplement in any manner Senior Debt, or any instrument evidencing the same or
any agreement under which Senior Debt is outstanding;

 

(ii)           sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt;

 

(iii)          release any Person liable in any
manner for the payment or collection of Senior Debt; and

 

(iv)          exercise or refrain
from exercising any rights against Borrower and any other Person.

 

4.7           No Change to Terms of Note.

 

Prior to the
irrevocable and indefeasible repayment in full in cash of the Senior Debt, the
Holder and Borrower may not amend, modify, supplement, renew, extend, increase,
restate, refinance, refund or replace the Note or any other document,
instrument, certificate or instrument now or hereafter evidencing the Note
without the prior written consent of the Majority Revolving Credit Lenders (as
defined in the Credit Agreement).

 

4.8           Capitalization of Interest.

 

So long as any
Lenders have any Revolving Credit Commitments (as defined in the Credit
Agreement) under the Credit Agreement or any amount is outstanding under any of
the Credit Documents (as defined in the Credit Agreement), all interest accrued
under this Note shall be capitalized, and no payment of interest shall be made
unless such payment is made solely by the issuance of additional Notes (valued
at 100% of the face amount thereof) identical to this Note in all material
terms and conditions.

 

5

 

Exhibit K

 

[Form of Joinder Agreement]

 

JOINDER AGREEMENT

 

JOINDER
AGREEMENT, dated as of
                        ,
20          , made by each of
the entities that are signatories hereto (the “Additional Obligors”), in
favor of Fleet National Bank, as Administrative Agent (in such capacity, the “Administrative
Agent”) for the several banks and other financial institutions (the “Revolving
Credit Lenders”) from time to time parties to the Credit Agreement, dated
as of September 27, 2002 (as the same may be amended, supplemented, waived or
otherwise modified from time to time, together with any agreement extending the
maturity of, or restructuring, refunding, refinancing or increasing all or any
portion of the Indebtedness under such agreement or any successor agreement,
the “Credit Agreement”), among Tuesday Morning Corporation, a Delaware
corporation (together with any assignee of its rights and obligations
thereunder as provided for therein, “Borrower”), the Guarantors party
thereto from time to time, the Revolving Credit Lenders party thereto from time
to time, and the Administrative Agent. Capitalized terms not defined herein
have the meanings given to them in the Credit Agreement.

 

W I T N E S S E T H :

 

WHEREAS, the
parties to this Joinder Agreement wish to amend Annex A to the Credit Agreement
in the manner hereinafter set forth; and

 

WHEREAS, this
Joinder Agreement is entered into pursuant to Section 9.20 of the Credit
Agreement;

 

NOW,
THEREFORE, in consideration of the premises, the parties hereto hereby agree as
follows:

 

1.             Each of the undersigned Additional
Obligors hereby acknowledges that it has received and reviewed a copy of the
Credit Agreement and the Security Agreement dated as of September 27, 2002
among Borrower, the Guarantors party thereto and the Administrative Agent (the
“Security Agreement”), and acknowledges and agrees to:

 

(a)           join the Credit
Agreement as an Obligor and the Security Agreement as a Debtor, as indicated
with its signature below;

 

(b)           be bound by all
covenants, agreements and acknowledgments attributable to an Obligor in the
Credit Agreement and to a Debtor in the Security Agreement; and

 

(c)           perform all
obligations and duties required of it as an Obligor under the Credit Agreement
and a Debtor under the Security Agreement.

 

2.             Each of the undersigned Additional
Obligors hereby represents and warrants that the representations and warranties
made with respect to it in Section 8 of the Credit Agreement and each of the
other Credit Documents to which such Additional Obligor is a party, by virtue
of this Joinder Agreement or otherwise, or which are contained in any
certificate furnished by or on behalf of such Additional Obligor are true and
correct in all material respects on the date hereof as if made on and as of the
date hereof.

 

 

3.             The address and jurisdiction of
organization of each of the Additional Obligors is set forth below its name on
the signature pages hereto.

 

4.             THIS JOINDER AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.

 

IN WITNESS
WHEREOF, each of the undersigned has caused this Joinder Agreement to be duly
executed and delivered in Boston, Massachusetts by its proper and duly
authorized officer as of the date set forth below.

 

	
  Dated:

  	
                                       ,
  as Obligor and Debtor

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Jurisdiction
  of Incorporation:

  
	
   

  	
   

  
	
   

  	
   

  
	
  ACKNOWLEDGED
  AND AGREED TO:

  	
   

  
	
   

  	
   

  
	
  FLEET
  NATIONAL BANK, 

  	
   

  
	
  as
  Administrative Agent 

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title: 

  	
   

  
					

 

2

 

Exhibit L

COMPLIANCE
CERTIFICATE

 

Date of
Certificate:
                    

 

To:          Fleet
National Bank, As Administrative Agent

100 Federal
Street

Boston,
Massachusetts 02110

 

Re:                               Credit
Agreement dated as of September 27, 2002 (as amended from time to time, the “Credit Agreement”) by and among Tuesday
Morning Corporation, the Guarantors party thereto from time to time, the
Revolving Credit Lenders party thereto from time to time, and Fleet National
Bank, as Administrative Agent

 

The
undersigned,                         ,
the duly elected and qualified Chief Financial Officer of the Borrower, hereby
certifies as of the date hereof the following:

 

1.             No Defaults.  I have read a copy of the Credit
Agreement.  Except as disclosed on Schedule
1 hereto, no Default or Event of Default presently exists under the Credit
Agreement or any of the other Credit Documents.

 

2.             Financial Covenant Compliance.
Attached hereto as Schedule 2 are all relevant calculations needed to
determine whether the Borrower is in compliance with Sections 9.7, 9.8, 9.9, 9.10
and 9.11 of the Credit Agreement.

 

2.             No Material Changes, Etc.  Except as disclosed on Schedule 3
hereto, since [Date of most recent audited financial statements furnished to
the Administrative Agent and the Revolving Credit Lenders], there has occurred
no Materially Adverse Change nor has there occurred any event which has a
Material Adverse Effect.

 

Terms used
herein which are defined in the Credit Agreement shall have the same meaning
herein as in the Credit Agreement.

 

	
   

  	
  TUESDAY MORNING CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

SCHEDULE 1

 

No Default or
Event of Default exists under the Credit Agreement except for the following:

 

[Insert
specific Default or Event of Default, describing same in reasonable detail and
the action that the Borrower has taken and proposes to take with respect
thereto]

 

2

 

SCHEDULE 2

 

§9.7         Liens

 

Since the date
of the most recent Compliance Certificate furnished to the Administrative
Agent, the Obligors and their Subsidiaries have not created, incurred, assume
or suffered to exist any Lien upon or with respect to any Collateral or other
property except for Liens permitted under Sections 9.7(a), (b), (c), (d), (f),
(m), (n), (q), (r), (s), (t), and the following:

 

[Insert
description of specific Liens, detailing the name of the secured party, the
assets subject to the Lien, the amount of the Obligations secured by the Lien
and the Section of the Credit Agreement under which such Lien is permitted]

 

§9.8         Indebtedness

 

Since the date
of the most recent Compliance Certificate furnished to the Administrative
Agent, the Obligors and their Subsidiaries have not created, incurred, assume,
suffered to exist or become liable for any Indebtedness except for Indebtedness
permitted under Sections 9.8(a), (b), (c), (e), (h), (k) (but only with respect
to currency exchange rates, commodity prices or similar risks),(m), (l) (but
only relating to Indebtedness described in the immediately preceding
subsections) and the following:

 

[Insert
description of specific Indebtedness, detailing the name of the holder of the
Indebtedness, the amount of the Indebtedness and the Section of the Credit
Agreement under which such Indebtedness is permitted]

 

§9.9         Investments

 

Since the date
of the most recent Compliance Certificate furnished to the Administrative
Agent, the Obligors and their Subsidiaries have not made or permitted to remain
outstanding any Investments except for Investments permitted under Sections 9.9
(a), (b), (h), (i), (j), (k), (n), (t) and the following:

 

[Insert
description of specific Investments, detailing the nature of the Investment and
the Section of the Credit Agreement under which such Investment is permitted]

 

§9.10       Dividends

 

Since the date
of the most recent Compliance Certificate furnished to the Administrative
Agent, the Obligors and their Subsidiaries have not declared or made any
Dividend Payment except the following:

 

[Insert
description of specific Dividend Payment, detailing the Section of the Credit
Agreement under which such Dividend Payment is permitted]

 

3

 

§9.11(a)  Maximum Leverage Ratio

 

	
  (i)            Total Debt

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Indebtedness
  for Borrowed Money

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Letter of
  Credit Liabilities

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Non-Contingent
  obligations with  respect to Surety
  Instruments

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Obligations
  under notes, bonds, debentures and similar instruments

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Obligations
  under Conditional Sale  or other Title
  Retention Agreements

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital
  Lease Obligations

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Guaranteed
  payments and redemptions

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Indebtedness
  Secured by Liens

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Debt:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (ii)           Consolidated EBITDA

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Net Income

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Income Tax
  Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Depreciation
  and Amortization

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Interest Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  EBITDA

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ratio of
  Total Debt to Consolidated EBITDA ((i) divided by (ii)):

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Required:

  	
  Actual:

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

4

 

§9.11(b)  Fixed Charge Coverage Ratio

 

	
  Consolidated
  EBITDA

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Net Income

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Income Tax
  Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Depreciation
  and Amortization

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Interest Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  EBITDA

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Rental Expense

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gross
  Consolidated Rental Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Rental Income

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Rental Expense:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Capital
  Expenditures:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (i)                                      Sum
  of Consolidated EBITDA and Consolidated Rental Expense minus Capital
  Expenditure

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fixed
  Charges:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Interest Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Scheduled
  Principal Payments

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Voluntary
  Prepayments

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Rental Expense

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (ii)           Fixed Charges

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  

 

5

 

Ratio of
Consolidated EBITDA and Consolidated Rental Expense to Fixed Charges
((i) divided by (ii)):

 

	
  Required:               1.50:1.00

  	
   

  	
  Actual:

  	
   

  	
   

  	
   

  

 

§9.11(c)  Interest Coverage Ratio*

 

	
  Consolidated
  Adjusted Net Income

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated
  Net Income:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  After Tax
  Extraordinary Gains:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  After Tax
  Extraordinary Losses:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  After Tax
  Gains from Asset Dispositions:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  After Tax
  Losses from Asset Dispositions:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Income
  from Affiliates:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Losses
  from Affiliates:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Income
  from “Pooling” arrangements:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Losses
  from “Pooling” arrangements:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net Income
  of Restricted Subsidiaries not subject to dividends:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (a)  Consolidated Adjusted Net
  Income:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (b)  Consolidated Adjusted
  Interest Expense:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (c)  Consolidated Adjusted
  Income Tax Expense:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (d)  Consolidated Adjusted
  Non-Cash Charges:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sum of (a),
  (b), (c), and (d)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Ratio of sum
  of (a), (b)(c), and (d) to Consolidated Adjusted Interest Expense:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Required:               2.00:1.00

  	
   

  	
  Actual:

  	
   

  	
   

  	
   

  

 

 

* Calculated
for the four full fiscal quarters taken as one period (and after giving pro forma effect to (A) the incurrence of
any Indebtedness (including, without limitation, the Loans) and (if applicable)
the application of the net proceeds therefrom, including to refinance other
Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, on the first day of such four quarter period, (B) the
incurrence, repayment, or retirement of any other Indebtedness of the Borrower
and its Restricted Subsidiaries since the first day of such four quarter period
(except that in making such computation, the amount of Loans and Letter of
Credit Liabilities shall be computed

 

6

 

based upon the average daily balance of such
Loans and Letter of Credit Liabilities during such four quarter period), and
(C) the acquisition (whether by purchase, merger or otherwise) or disposition
(whether by sale, merger or otherwise) of any company, entity or business
acquired or disposed of by the Borrower or its Restricted Subsidiaries, as the
case may be, since the first day of such four quarter period, as if such
acquisition or disposition occurred on the first day of such four quarter
period).

 

§9.11(d)  Consolidated Tangible Net Worth

 

	
  Total
  Assets:

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total
  Liabilities

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Intangible
  Assets

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Reserves

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minority
  Interests

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Affiliate
  obligations

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Actual Consolidated Tangible Net Worth:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum
  Tangible Net Worth

  	
   

  	
  $

  	
  27,000,000

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  50% of
  cumulative Consolidated Net Income after July 1, 2002

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  75% of Net
  Available Proceeds from Equity Issuances after July 1, 2002

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Required Consolidated Tangible Net Worth:

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  

 

Each of the foregoing has been calculated in
accordance with the provisions of the Credit Agreement. Supporting schedules
for each of the foregoing calculations are annexed hereto.

 

7

 

SCHEDULE 3

 

Except as set
forth below, since [Date of most recent audited financial statement
furnished to the Administrative Agent and the Revolving Credit Lenders]
there has occurred no Material Adverse Change nor has there occurred any event
which has a Material Adverse Effect.

 

8<Page>

                                                                     Exhibit 4.1

                             ANTIDILUTION AGREEMENT

     THIS ANTIDILUTION AGREEMENT is entered into as of September 26, 2002 by and
between Silicon Valley Bank ("Purchaser") and Cambridge Heart, Inc., a Delaware
corporation (the "Company").

                                    RECITALS

     A.   Concurrently with the execution of this Antidilution Agreement, the
Purchaser is acquiring from the Company a Warrant to Purchase Stock (the
"Warrant") pursuant to which Purchaser has the right to acquire from the Company
the Shares (as defined in the Warrant).

     B.   By this Antidilution Agreement, the Purchaser and the Company desire
to set forth the adjustments to the number of Shares issuable upon exercise of
the Warrant and the Exercise Price therefor as a result of a Diluting Issuance
(as defined below).

     C.   Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

     NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:

          1.     DEFINITIONS. As used in this Antidilution Agreement, the
following terms have the following respective meanings:

                 (a)    "Option" means any right, option, or warrant to
subscribe for, purchase, or otherwise acquire Common Stock or Convertible
Securities.

                 (b)    "Convertible Securities" means any evidences of
indebtedness, shares of stock, or other securities directly or indirectly
convertible into or exchangeable for Common Stock.

                 (c)    "Issue" means to grant, issue, sell, assume, or fix a
record date for determining persons entitled to receive, any security (including
Options), whichever of the foregoing is the first to occur.

                 (d)    "Additional Common Shares" means all Common Stock
(including reissued shares) Issued (or deemed to be issued pursuant to Section
2) after the original issue date of the Warrant and prior to the second
anniversary of the original issue date of the Warrant. Additional Common Shares
does not include, however, (i) any Common Stock Issued in a transaction
described in Sections 2.1 and 2.2 of the Warrant; (ii) any Common Stock Issued
upon conversion of Options and Convertible Securities outstanding as of the
original issue date of the Warrant; (iii) the Shares; (iv) any Common Stock,
Options or Convertible Securities Issued in connection with a bona fide
strategic business partnership or acquisition transaction approved by the Board
of Directors of the

<Page>

Company, or (v) Common Stock, Options or Convertible Securities Issued to
employees or directors of, or consultants to, the Company pursuant to a stock
option plan, agreement or arrangement now existing or hereafter implemented
approved by the Board of Directors of the Company.

          2.     DEEMED ISSUANCE OF ADDITIONAL COMMON SHARES. The shares of
Common Stock ultimately issuable upon exercise of an Option (including the
shares of Common Stock ultimately issuable upon conversion or exercise of a
Convertible Security issuable pursuant to an Option) are deemed to be Issued
when the Option is Issued. The shares of Common Stock ultimately issuable upon
conversion or exercise of a Convertible Security (other than a Convertible
Security Issued pursuant to an Option) shall be deemed Issued upon Issuance of
the Convertible Security. The maximum amount of Common Stock issuable is
determined without regard to any future adjustments permitted under the
instrument creating the Options or Convertible Securities.

          3.     ADJUSTMENT OF WARRANT PRICE FOR DILUTING ISSUANCES.

                 3.1    WEIGHTED AVERAGE ADJUSTMENT. If the Company issues
Additional Common Shares after the original issue date of the Warrant and the
consideration per Additional Common Share (determined pursuant to Section 9
below) is less than the Exercise Price in effect immediately before such Issue
(a "Diluting Issuance"), the Exercise Price shall be reduced, concurrently with
such Issue, to a price (calculated to the nearest hundredth of a cent)
determined by multiplying the Exercise Price by a fraction:

                 (a)    the numerator of which is the number of shares of Common
Stock outstanding immediately before such Issue plus the number of shares of
Common Stock that the aggregate consideration received by the Company for the
Additional Common Shares would purchase at the Exercise Price in effect
immediately before such Issue, and

                 (b)    the denominator of which is the number of shares of
Common Stock outstanding immediately before such Issue plus the number of such
Additional Common Shares.

                 3.2    ADJUSTMENT TO NUMBER OF SHARES. Upon each adjustment of
the Exercise Price, the number of Shares issuable upon exercise of the Warrant
shall be increased to equal the quotient obtained by dividing (a) the product
resulting from multiplying (i) the number of Shares issuable upon exercise of
the Warrant and (ii) the Exercise Price, in each case as in effect immediately
before such adjustment, by (b) the adjusted Exercise Price.

                 3.3    SECURITIES DEEMED OUTSTANDING. For the purpose of this
Section 3, all securities issuable upon exercise of any outstanding Convertible
Securities or Options, warrants, or other rights to acquire securities of the
Company shall be deemed to be outstanding.

                                       -2-
<Page>

                 3.4    MINIMUM ADJUSTMENT OF EXERCISE PRICE. Notwithstanding
the foregoing, the applicable Exercise Price shall not be reduced if the amount
of such reduction would be less than $0.05, but any such amount shall be carried
forward and reduction with respect thereto made at the time of, and together
with, any subsequent reduction which, together with such amount and any other
amount or amounts so carried forward, shall aggregate $0.05 or more.

          4.     NO ADJUSTMENT FOR ISSUANCES FOLLOWING DEEMED ISSUANCES. No
adjustment to the Exercise Price shall be made upon the exercise of Options or
conversion of Convertible Securities.

          5.     ADJUSTMENT FOLLOWING CHANGES IN TERMS OF OPTIONS OR CONVERTIBLE
SECURITIES. If the consideration payable to, or the amount of Common Stock
Issuable by, the Company increases or decreases, respectively, pursuant to the
terms of any outstanding Options or Convertible Securities, the Exercise Price
shall be recomputed to reflect such increase or decrease. The recomputation
shall be made as of the time of the Issuance of the Options or Convertible
Securities. Any changes in the Exercise Price that occurred after such Issuance
because other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.

          6.     RECOMPUTATION UPON EXPIRATION OF OPTIONS OR CONVERTIBLE
SECURITIES. The Exercise Price computed upon the original Issue of any Options
or Convertible Securities, and any subsequent adjustments based thereon, shall
be recomputed when any Options or rights of conversion under Convertible
Securities expire without having been exercised. In the case of Convertible
Securities or Options for Common Stock, the Exercise Price shall be recomputed
as if the only Additional Common Shares Issued were the shares of Common Stock
actually Issued upon the exercise of such securities, if any, and as if the only
consideration received therefor was the consideration actually received upon the
Issue, exercise or conversion of the Options or Convertible Securities. In the
case of Options for Convertible Securities, the Exercise Price shall be
recomputed as if the only Convertible Securities Issued were the Convertible
Securities actually Issued upon the exercise thereof, if any, and as if the only
consideration received therefor was the consideration actually received by the
Company (determined pursuant to Section 9), if any, upon the Issue of the
Options for the Convertible Securities.

          7.     LIMIT ON READJUSTMENTS. No readjustment of the Exercise Price
pursuant to Sections 5 or 6 shall increase the Exercise Price by more than the
amount of any decrease made in respect of the Issue of any Options or
Convertible Securities with respect to which such readjustment is made.

          8.     30 DAY OPTIONS. In the case of any Options that expire by their
terms not more than 30 days after the date of Issue thereof, no adjustment of
the Exercise Price shall be made until the exercise of such Options.

          9.     COMPUTATION OF CONSIDERATION. The consideration received by the
Company for the Issue of any Additional Common Shares shall be computed as
follows:

                                       -3-
<Page>

                 (a)    CASH shall be valued at the amount of cash received by
the Company, excluding amounts paid or payable for accrued interest or accrued
dividends.

                 (b)    PROPERTY. Property other than cash shall be computed at
the fair market value thereof at the time of the Issue as determined in good
faith by the Board of Directors of the Company.

                 (c)    MIXED CONSIDERATION. The consideration for Additional
Common Shares Issued together with other property of the Company for
consideration that covers both shall be determined in good faith by the Board of
Directors.

                 (d)    OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per Additional Common Share for Options and Convertible Securities shall be
determined by dividing:

                        (i)   the total amount, if any, received or receivable
by the Company for the Issue of the Options or Convertible Securities, plus the
minimum amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the Company upon
exercise of the Options or conversion of the Convertible Securities, by

                        (ii)  the maximum amount of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) ultimately issuable upon the
exercise of such Options or the conversion of such Convertible Securities.

          10.    GENERAL.

                 10.1   GOVERNING LAW. This Antidilution Agreement shall be
governed in all respects by the laws of the Commonwealth of Massachusetts as
such laws are applied to agreements between Massachusetts residents entered into
and to be performed entirely within Massachusetts.

                 10.2   SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.

                 10.3   ENTIRE AGREEMENT. This Antidilution Agreement and the
other documents delivered pursuant hereto or in connection herewith constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof.

                 10.4   NOTICES, ETC. All notices and other communications
required or permitted hereunder shall be in writing and shall be mailed by first
class mail, postage prepaid, certified or registered mail, return receipt
requested, addressed (a) if to Purchaser at Purchaser's address(es) as set forth
below, or at such other address(es) as Purchaser shall have furnished to the
Company in writing, or (b) if to the Company, at the

                                       -4-
<Page>

Company's address set forth below, or at such other address as the Company shall
have furnished to the Purchaser in writing.

                 10.5   SEVERABILITY. In case any provision of this Antidilution
Agreement shall be invalid, illegal, or unenforceable, the validity, legality
and enforceability of the remaining provisions of this Antidilution Agreement
shall not in any way be affected or impaired thereby.

                 10.6   TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Antidilution Agreement.

                 10.7   COUNTERPARTS. This Antidilution Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.

PURCHASER                               COMPANY

SILICON VALLEY BANK                     CAMBRIDGE HEART, INC.

By: /s/ John V. Atanasoff               By:   /s/ Robert B. Palardy
   ----------------------                  -----------------------------
Name: John V. Atanasoff                 Name: Robert B. Palardy
Title: Regional Market Manager          Title: CFO
Address: One Newton Executive Park      Address: 1 Oak Park Dr.
         Newton, MA  02462                       Bedford, MA  01730

copy to: Silicon Valley Bank
         Treasury Department
         3003 Tasman Drive
         HA 200
         Santa Clara, CA 95054

                                      -5-

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