Document:

Exhibit 4.6

 

EXECUTION

 

 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

by and among

 

J. CREW OPERATING CORP.

J. CREW INC.

GRACE HOLMES, INC. d/b/a J. CREW RETAIL

H.F.D. NO. 55, INC. d/b/a J. CREW FACTORY

as Borrowers

 

and

 

J. CREW GROUP, INC.

J. CREW INTERNATIONAL, INC.

J. CREW INTERMEDIATE LLC

as Guarantors

 

WACHOVIA CAPITAL MARKETS LLC

Sole Lead Arranger and Sole Lead Bookrunner

 

WACHOVIA BANK, NATIONAL ASSOCIATION

as Administrative Agent

 

BANK OF AMERICA, N.A.

as Syndication Agent

 

CONGRESS FINANCIAL CORPORATION

as Collateral Agent

 

and

 

THE LENDERS FROM TIME TO TIME PARTY HERETO

as Lenders

 

 

Dated: December   , 2004

 

 

TABLE OF CONTENTS

 

	
  SECTION
  1.

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  2.

  	
  CREDIT
  FACILITIES

  	
   

  
	
  2.1

  	
  Revolving Loans.

  	
   

  
	
  2.2

  	
  Letter of Credit Accommodations.

  	
   

  
	
  2.3

  	
  Intentionally Omitted.

  	
   

  
	
  2.4

  	
  Commitments.

  	
   

  
	
  2.5

  	
  Loan Limits.

  	
   

  
	
  2.6

  	
  Mandatory Prepayments.

  	
   

  
	
  2.7

  	
  Intentionally Omitted.

  	
   

  
	
  2.8

  	
  Joint and Several Liability.

  	
   

  
	
  2.9

  	
  Maximum Credit Increase.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  3.

  	
  INTEREST
  AND FEES

  	
   

  
	
  3.1

  	
  Interest.

  	
   

  
	
  3.2

  	
  Fees.

  	
   

  
	
  3.3

  	
  Changes in Laws and Increased Costs of
  Revolving Loans.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  4.

  	
  CONDITIONS
  PRECEDENT

  	
   

  
	
  4.1

  	
  Conditions Precedent to Amendment and
  Restatement.

  	
   

  
	
  4.2

  	
  Conditions Precedent to All Revolving Loans
  and Letter of Credit Accommodations.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  5.

  	
  GRANT
  AND PERFECTION OF SECURITY INTEREST

  	
   

  
	
  5.1

  	
  Grant of Security Interest.

  	
   

  
	
  5.2

  	
  Perfection of Security Interests.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  6.

  	
  COLLECTION
  AND ADMINISTRATION

  	
   

  
	
  6.1

  	
  Borrowers’ Loan Accounts.

  	
   

  
	
  6.2

  	
  Statements.

  	
   

  
	
  6.3

  	
  Collection of Accounts.

  	
   

  
	
  6.4

  	
  Payments.

  	
   

  
	
  6.5

  	
  Authorization to Make Revolving Loans.

  	
   

  
	
  6.6

  	
  Use of Proceeds.

  	
   

  
	
  6.7

  	
  Appointment of Borrower Agent as Agent for Requesting Revolving Loans
  and Receipts of Revolving Loans and Statements.

  	
   

  
	
  6.8

  	
  Pro
  Rata Treatment.

  	
   

  
	
  6.9

  	
  Sharing of Payments, Etc.

  	
   

  
	
  6.10

  	
  Settlement Procedures.

  	
   

  
	
  6.11

  	
  Obligations Several; Independent Nature of Lenders’ Rights.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  7.

  	
  COLLATERAL
  REPORTING AND COVENANTS

  	
   

  
	
  7.1

  	
  Collateral Reporting.

  	
   

  
				

 

i

 

	
  7.2

  	
  Accounts Covenants.

  	
   

  
	
  7.3

  	
  Equipment and Real Property Covenants.

  	
   

  
	
  7.4

  	
  Equipment and Real Property Covenants.

  	
   

  
	
  7.5

  	
  Power of Attorney.

  	
   

  
	
  7.6

  	
  Right to Cure.

  	
   

  
	
  7.7

  	
  Access to Premises.

  	
   

  
	
  7.8

  	
  Intellectual Property Appraisal.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  8.

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
   

  
	
  8.1

  	
  Corporate or Limited Liability Company Existence, Power and
  Authority.

  	
   

  
	
  8.2

  	
  Name; State of Organization; Chief Executive Office; Collateral
  Locations.

  	
   

  
	
  8.3

  	
  Financial Statements; No Material Adverse Change.

  	
   

  
	
  8.4

  	
  Priority of Liens; Title to Properties.

  	
   

  
	
  8.5

  	
  Tax Returns.

  	
   

  
	
  8.6

  	
  Litigation.

  	
   

  
	
  8.7

  	
  Compliance with Other Agreements and Applicable Laws.

  	
   

  
	
  8.8

  	
  Environmental Compliance.

  	
   

  
	
  8.9

  	
  Credit Card Agreements.

  	
   

  
	
  8.10

  	
  Interrelated Businesses.

  	
   

  
	
  8.11

  	
  Employee
  Benefits.

  	
   

  
	
  8.12

  	
  Bank Accounts.

  	
   

  
	
  8.13

  	
  Intellectual Property.

  	
   

  
	
  8.14

  	
  Subsidiaries; Affiliates; Capitalization;
  Solvency; Inactive Entities.

  	
   

  
	
  8.15

  	
  Labor Disputes.

  	
   

  
	
  8.16

  	
  Restrictions on Subsidiaries.

  	
   

  
	
  8.17

  	
  Material Contracts.

  	
   

  
	
  8.18

  	
  Black Canyon Documents.

  	
   

  
	
  8.19

  	
  Accuracy and Completeness of Information.

  	
   

  
	
  8.20

  	
  Survival of Warranties; Cumulative.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION
  9.

  	
  AFFIRMATIVE
  AND NEGATIVE COVENANTS

  	
   

  
	
  9.1

  	
  Maintenance of Existence.

  	
   

  
	
  9.2

  	
  New Collateral Locations.

  	
   

  
	
  9.3

  	
  Compliance with Laws, Regulations, Etc.

  	
   

  
	
  9.4

  	
  Payment of Taxes and Claims.

  	
   

  
	
  9.5

  	
  Insurance.

  	
   

  
	
  9.6

  	
  Financial Statements and Other Information.

  	
   

  
	
  9.7

  	
  Sale of Assets, Consolidation, Merger,
  Dissolution, Etc.

  	
   

  
	
  9.8

  	
  Encumbrances.

  	
   

  
	
  9.9

  	
  Indebtedness.

  	
   

  
	
  9.10

  	
  Loans,
  Investments, Etc.

  	
   

  
	
  9.11

  	
  Restricted Payments.

  	
   

  
	
  9.12

  	
  Transactions with Affiliates.

  	
   

  
	
  9.13

  	
  Compliance with ERISA.

  	
   

  
	
  9.14

  	
  End of Fiscal Years; Fiscal Quarters.

  	
   

  
	
  9.15

  	
  Credit Card Agreements.

  	
   

  
	
  9.16

  	
  Changes in Business.

  	
   

  
				

 

ii

 

	
  9.17

  	
  Limitation of Restrictions Affecting Subsidiaries.

  	
   

  
	
  9.18

  	
  Fixed Interest Charge Coverage Ratio.

  	
   

  
	
  9.19

  	
  Capital Expenditures.

  	
   

  
	
  9.20

  	
  License Agreements.

  	
   

  
	
  9.21

  	
  After Acquired Real Property.

  	
   

  
	
  9.22

  	
  Costs and Expenses.

  	
   

  
	
  9.23

  	
  Further Assurances.

  	
   

  
	
  9.24

  	
  Minimum Excess Availability.

  	
   

  
	
  9.25

  	
  Black Canyon Closing.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 10.

  	
  EVENTS OF DEFAULT AND REMEDIES

  	
   

  
	
  10.1

  	
  Events
  of Default.

  	
   

  
	
  10.2

  	
  Remedies.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 11.

  	
  JURY TRIAL WAIVER; OTHER WAIVERS AND
  CONSENTS; GOVERNING LAW

  	
   

  
	
  11.1

  	
  Governing Law; Choice of Forum; Service of
  Process; Jury Trial Waiver.

  	
   

  
	
  11.2

  	
  Waiver
  of Notices.

  	
   

  
	
  11.3

  	
  Amendments and Waivers.

  	
   

  
	
  11.4

  	
  Waiver of Counterclaims.

  	
   

  
	
  11.5

  	
  Indemnification.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 12.

  	
  THE AGENT

  	
   

  
	
  12.1

  	
  Appointment, Powers and Immunities.

  	
   

  
	
  12.2

  	
  Reliance
  by Agent.

  	
   

  
	
  12.3

  	
  Events
  of Default.

  	
   

  
	
  12.4

  	
  Congress in its Individual Capacity.

  	
   

  
	
  12.5

  	
  Indemnification.

  	
   

  
	
  12.6

  	
  Non-Reliance on Agent and Other Lenders.

  	
   

  
	
  12.7

  	
  Failing to Act.

  	
   

  
	
  12.8

  	
  Additional
  Loans.

  	
   

  
	
  12.9

  	
  Concerning the Collateral and the Related Financing Agreements.

  	
   

  
	
  12.10

  	
  Field Audit, Examination Reports and Other
  Information; Disclaimer by Lenders.

  	
   

  
	
  12.11

  	
  Collateral Matters.

  	
   

  
	
  12.12

  	
  Agency for Perfections.

  	
   

  
	
  12.13

  	
  Successor Agent.

  	
   

  
	
  12.14

  	
  Co-Agent.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 13.

  	
  ACKNOWLEDGMENT AND RESTATEMENT

  	
   

  
	
  13.1

  	
  Existing Obligations.

  	
   

  
	
  13.2

  	
  Acknowledgment of Security Interests

  	
   

  
	
  13.3

  	
  Existing Agreements.

  	
   

  
	
  13.4

  	
  Restatement.

  	
   

  
	
   

  	
   

  	
   

  
	
  SECTION 14.

  	
  TERM OF AGREEMENT; MISCELLANEOUS

  	
   

  
	
  14.1

  	
  Term.

  	
   

  
				

 

iii

 

	
  14.2

  	
  Interpretative Provisions.

  	
   

  
	
  14.3

  	
  Notices.

  	
   

  
	
  14.4

  	
  Partial Invalidity.

  	
   

  
	
  14.5

  	
  Confidentiality.

  	
   

  
	
  14.6

  	
  Successors.

  	
   

  
	
  14.7

  	
  Assignments; Participations

  	
   

  
	
  14.8

  	
  Entire
  Agreement.

  	
   

  
	
  14.9

  	
  Counterparts, Etc.

  	
   

  

 

iv

 

INDEX TO

EXHIBITS AND SCHEDULES

 

	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of Assignment and Acceptance

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Information
  Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Form of Compliance Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
  Form of
  Borrowing Base Certificate

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule
  1.43 

  	
  Customs
  Brokers 

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule 8.9

  	
  Credit Card
  Agreements

  	
   

  

 

v

 

AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT

 

This Amended and
Restated Loan and Security Agreement dated December     ,
2004 is entered into by and among J. Crew Operating Corp., a Delaware
corporation (“Operating”),  J. Crew
Inc., a New Jersey corporation (“J. Crew”), Grace Holmes, Inc., a Delaware
corporation doing business as J. Crew Retail (“Retail”), H.F.D. No. 55, Inc., a
Delaware corporation doing business as J. Crew Factory (“Factory”, and
together with J. Crew, Retail, Operating, each individually a “Borrower” and
collectively, “Borrowers”), J. Crew Group, Inc., a New York corporation (“Parent”),  J. Crew International, Inc. (“JCI”), and
J. Crew Intermediate LLC, a Delaware limited liability company (“Intermediate”,
and together with Parent and JCI, each individually a “Guarantor” and
collectively, “Guarantors”), the parties hereto as lenders, whether by
execution of this Agreement or an Assignment and Acceptance (each individually,
a “Lender” and collectively, “Lenders”), Wachovia Capital Markets, LLC, a
Delaware limited liability company, as sole lead arranger and sole bookrunner
(in such capacity, “Arranger”), Wachovia Bank, National Association, a national
banking association, in its capacity as administrative agent for the lenders
(in such capacity, “Administrative Agent”), Bank of America, N.A., in its
capacity as syndication agent for the lenders (in such capacity, “Syndication
Agent”) and Congress Financial Corporation, a Delaware corporation, in its
capacity as collateral agent for Lenders (in such capacity, “Agent”).

 

W I T N
E S S E  T  H:

 

WHEREAS,
certain Borrowers, certain Guarantors, Lenders and Agent are parties to the
Loan and Security Agreement, dated as of December 23, 2002, by and among them,
pursuant to which Lenders have made and may make loans and provide other
financial accommodations to such Borrowers;

 

WHEREAS,
Borrowers and Guarantors have requested that Agent and Lenders amend and
restate the Loan Agreement pursuant to and in accordance with the terms and
conditions set forth herein; and

 

WHEREAS, each
Lender is willing to agree (severally and not jointly) to amend and restate the
Loan Agreement and to make such loans and provide such financial accommodations
to Borrowers on a pro  rata basis according to its Commitment (as
defined below) on the terms and conditions set forth herein and Agent is
willing to act as collateral agent for Lenders on the terms and conditions set
forth herein and the other Financing Agreements;

 

NOW,
THEREFORE, in consideration of the mutual conditions and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

 

SECTION 1.                                 DEFINITIONS

 

For purposes
of this Agreement, the following terms shall have the respective meanings given
to them below:

 

 

1.1                                 Accounts”
shall mean, as to each Borrower and Guarantor, all present and future rights of
such Borrower and Guarantor to payment of a monetary obligation, whether or not
earned by performance, which is not evidenced by chattel paper or an
instrument, (a) for property that has been or is to be sold, leased, licensed,
assigned, or otherwise disposed of, (b) for services rendered or to be
rendered, (c) for a secondary obligation incurred or to be incurred, or (d)
consisting of Credit Card Receivables.

 

1.2                                 “Adjusted
Borrowing Base” shall mean the amount equal to: 

 

(a)                    the
lesser of:  (i)  the sum of: 
(A) the amount equal to ninety (90%) percent of Eligible Credit Card
Receivables; plus  (B) the amount
equal to the lesser of: (1) eighty-five (85%) percent multiplied by the Value
of each category of Eligible Inventory of each Borrower or  (2) during the period from August 1 of any
year through and including December 15 of such year, ninety (90%) percent of
the Net Recovery Percentage as to each category of Eligible Inventory of each
Borrower multiplied by the Value of such category of Eligible Inventory of such
Borrower, and at all other times, eighty-five (85%) percent of the Net Recovery
Percentage as to each category of Eligible Inventory of each Borrower multiplied
by the Value of such category of Eligible Inventory of such Borrower; plus
(C) the Adjusted Real Property
Availability, and (ii) the Maximum Credit, minus

 

(b)                   Reserves.

 

1.3                                 “Adjusted
Eurodollar Rate” shall mean, with respect to each Interest Period for any
Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the
next one-sixteenth (1/16) of one (1%) percent) determined by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage equal to: (i) one
(1) minus (ii) the Reserve Percentage. 
For purposes hereof, “Reserve Percentage” shall mean the reserve
percentage, expressed as a decimal, prescribed by any United States or foreign
banking authority for determining the reserve requirement which is or would be
applicable to deposits of United States dollars in a non-United States or an
international banking office of a Reference Bank used to fund a Eurodollar Rate
Loan or any Eurodollar Rate Loan made with the proceeds of such deposit,
whether or not the Reference Bank actually holds or has made any such deposits
or loans.  The Adjusted Eurodollar Rate
shall be adjusted on and as of the effective day of any change in the Reserve
Percentage.

 

1.4                                 “Adjusted
Real Property Availability” shall mean $4,074,000; provided, that,
(a) the Adjusted Real Property Availability shall be reduced automatically and
without further action by the parties effective as of the first day of each
month after the date hereof by an amount equal to $97,000 and (b) if prior to
the date that the Adjusted Borrowing Base shall be used in the calculation of
the amount of the Revolving Loans available to Borrowers as set forth in the
definition of the term Borrowing Base, the Real Property Availability shall be
adjusted as provided for in the definition of such term set forth below, then
the Adjusted Real Property Availability shall mean the amount equal to the
initial amount of the Real Property Availability as so adjusted and as reduced
automatically and without further action by the parties effective as of the
first day of each month after the date of the adjustment of the Real Property
Availability by an amount equal to the initial adjusted Real Property
Availability divided by eighty-four (84).

 

2

 

1.5                                 “Administrative
Agent” shall mean Wachovia Bank, National Association in its capacity as
administrative agent on behalf of Lenders pursuant to the terms hereof and any
replacement or successor agent hereunder.

 

1.6                                 “Affiliate”
shall mean, with respect to a specified Person, any other Person which directly
or indirectly, through one or more intermediaries, controls or is controlled by
or is under common control with such Person, and without limiting the
generality of the foregoing, includes (a) any Person which beneficially owns or
holds ten (10%) percent or more of any class of Voting Stock of such Person or
other equity interests in such Person and (b) any Person of which such Person
beneficially owns or holds ten (10%) percent or more of any class of Voting
Stock or in which such Person beneficially owns or holds ten (10%) percent or
more of the equity interests.  For the
purposes of this definition, the term “control” (including with correlative
meanings, the terms “controlled by” and “under common control with”), as used
with respect to any Person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of Voting Stock, by agreement or
otherwise.

 

1.7                                 “Agent”
shall mean Congress Financial Corporation, in its capacity as collateral agent
on behalf of Lenders pursuant to the terms hereof and any replacement or
successor agent hereunder.

 

1.8                                 “Agent
Payment Account” shall mean account no. 5000000030279 of Agent at Wachovia
Bank, National Association, Charlotte, North Carolina, or such other account of
Agent as Agent may from time to time designate to Borrower Agent as the Agent
Payment Account for purposes of this Agreement and the other Financing
Agreements.

 

1.9                                 “Applicable
Margin” shall mean, at any time, as to the interest rate for Prime Rate Loans
and the interest rate for Eurodollar Rate Loans, the applicable percentage (on
a per annum basis) set forth below if the Quarterly Average Excess Availability
for the immediately preceding fiscal quarter is at or within the amounts
indicated for such percentage as of the last day of the immediately preceding
fiscal quarter:

 

	
  Tier

  	
   

  	
  Quarterly Average

  Excess Availability

  	
   

  	
  Applicable

  Eurodollar

  Rate Margin

  	
   

  	
  Applicable Prime

  Rate Margin

  	
   

  
	
  1

  	
   

  	
  Greater than
  $55,000,000

  	
   

  	
  1.25

  	
  %

  	
  0

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Less than or
  equal to $55,000,000 and greater than $40,000,000

  	
   

  	
  1.50

  	
  %

  	
  0

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Less than or
  equal to $40,000,000 and greater than $20,000,000

  	
   

  	
  1.75

  	
  %

  	
  .25

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  Less than or
  equal to $20,000,000

  	
   

  	
  2.00

  	
  %

  	
  .25

  	
  %

  

 

3

 

provided,
that, (i) the Applicable Margin shall be calculated and established once
each fiscal quarter and shall remain in effect until adjusted thereafter after
the end of the next fiscal quarter and (ii) if the Excess Availability is
greater than $40,000,000 as of the date hereof, the Applicable Margin through
the last day of the sixth (6th) month after the date hereof shall be the amount
for Tier 2 set forth above.

 

1.10                           “Assignment
and Acceptance” shall mean an Assignment and Acceptance substantially in the
form of Exhibit A attached hereto (with blanks appropriately completed)
delivered to Agent in connection with an assignment of a Lender’s interest
hereunder in accordance with the provisions of Section 14.7 hereof.

 

1.11                           “Black
Canyon Closing Date” shall mean the date of the initial funding of the loans
under the Black Canyon Credit Agreement.

 

1.12                           “Black
Canyon Credit Agreement” shall mean the Credit Agreement, dated as of November
24, 2004, between Operating, as borrower, the Black Canyon Guarantors, the
lenders named therein and U.S. Bank National Association, as administrative
agent, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

 

1.13                           “Black
Canyon Documents” shall mean, collectively the following (as the same may now
or hereafter exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced): 
(a) the Black Canyon Credit Agreement (including any loan notes and loan
guarantees issued thereunder), (b) the Black Canyon Indenture (including any
notes and guarantees issued thereunder), (c) the Black Canyon Security
Agreement, (d) the Black Canyon Intercreditor Agreement, and (e) all other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by Operating or any other person in connection therewith.

 

1.14                           “Black
Canyon Guarantors” shall mean, collectively, Factory, JCI, J. Crew, Retail and
any Subsidiary of Operating or its Subsidiaries formed after November 24, 2004,
or Intermediate on or after the date of the execution and delivery of the Black
Canyon Indenture, that guarantees the Indebtedness under the Black Canyon
Credit Agreement or the Black Canyon Indenture, to the extent required to do so
under the terms thereof, pursuant to the form of loan guarantee attached as Exhibit
B to the Black Canyon Credit Agreement (or the equivalent form attached to the
Black Canyon Indenture), and their respective successors and assigns, sometimes
being referred to individually as a “Black Canyon Guarantor”.

 

1.15                           “Black
Canyon Indenture” shall mean the Indenture to be entered into among Operating,
as issuer, the Black Canyon Guarantors and Noteholder Collateral Agent in its
capacity as trustee thereunder, upon the occurrence of certain events as set
forth in the Black Canyon Credit Agreement, in the form included as an exhibit
to the Black Canyon Credit Agreement as of November 24, 2004 (except as such
form may be amended or modified to the extent permitted hereunder).

 

1.16                           “Black
Canyon Intercreditor Agreement” shall mean the Intercreditor Agreement, dated
as of November 24, 2004, by and among Agent, Noteholder Collateral Agent,
Operating,

 

4

 

and the Black Canyon
Guarantors, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

 

1.17                           “Black
Canyon Security Agreement” shall mean the Security Agreement, dated as of
November 24, 2004, by Operating and the Black Canyon Guarantors in favor of
Noteholder Collateral Agent, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.18                           “Blocked
Accounts” shall have the meaning set forth in Section 6.3 hereof.

 

1.19                           “Borrower
Agent” shall mean J. Crew Operating Corp., a Delaware corporation, in its
capacity as Borrower Agent on behalf of the Borrowers pursuant to Section 6.7
hereof and its successors and assigns in such capacity.

 

1.20                           “Borrowing
Base” shall mean, at any time, subject to adjustment as provided below, the
amount equal to: 

 

(a)                    the
lesser of:  (i)  the sum of: 
(A) the amount equal to ninety (90%) percent of Eligible Credit Card
Receivables; plus  (B) the amount
equal to the lesser of: (1) ninety-five (95%) percent multiplied by the Value
of each category of Eligible Inventory of each Borrower or  (2) during the period from August 1 of any
year through and including December 15 of such year, ninety-five (95%) percent
of the Net Recovery Percentage as to each category of Eligible Inventory of
each Borrower multiplied by the Value of such category of Eligible Inventory of
such Borrower, and at all other times, ninety-two and one-half (92.5%) percent
of the Net Recovery Percentage as to each category of Eligible Inventory of
each Borrower multiplied by the Value of such category of Eligible Inventory of
such Borrower; plus (C) the Real
Property Availability, and (ii) the Maximum Credit, minus

 

(b)                   Reserves;

 

provided,
that, (A) on and after the date of the incurrence of any Indebtedness as
described in Section 9.9(t) hereof, the term “Borrowing Base” shall mean, at
any such time, the amount equal to the Adjusted Borrowing Base and (B) such
percentage of the net amount of eligible trade accounts receivables as Agent
may determine will be added to the calculation of the Borrowing Base, provided,
that, each of the following conditions is satisfied:  (1) 
Agent shall have received the written request of Borrower Agent to so
include such trade accounts receivable, (2) 
Agent shall have conducted a field examination with respect to such
receivables, the results of which shall be reasonably satisfactory to Agent,
(3) Agent shall have established the reports and the frequency thereof with
respect to such trade accounts receivable that Borrowers will be required to
deliver and Borrowers shall have agreed thereto in writing, in form and
substance satisfactory to Agent, and (4) Agent shall have sufficient
information necessary in accordance with the customary practices and procedures
of Agent to establish, and Agent shall have had five (5) Business Days after
receipt of such information to review it after which Agent shall establish, the
criteria for such receivables to constitute eligible trade accounts receivable
for purposes of calculating the Borrowing Base (and including any Reserves with
respect thereto) and the percentage of such net amount of eligible trade
accounts receivable as shall be used for such

 

5

 

purpose and Borrowers shall
have agreed in writing to such criteria and such percentage, in form and
substance reasonably satisfactory to Agent.

 

1.21                           “Borrowing
Base Certificate” shall mean a certificate substantially in the form of Exhibit
D hereto, as such form may from time to time be modified by Agent, which is
duly completed (including all schedules thereto) and executed by the chief
financial officer, vice president of finance, treasurer or controller of
Borrower Agent and delivered to Agent.

 

1.22                           “Business
Day” shall mean any day other than a Saturday, Sunday, or other day on which
commercial banks are authorized or required to close under the laws of the
State of New York, or the State of North Carolina, and a day on which Agent is
open for the transaction of business, except that if a determination of a
Business Day shall relate to any Eurodollar Rate Loans, the term Business Day
shall also exclude any day on which banks are closed for dealings in dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market.

 

1.23                           “Capital
Expenditures” shall mean all expenditures for, or contracts for expenditures
for, any fixed or capital assets or improvements, or for replacements,
substitutions or additions thereto, which have a useful life of more than one
(1) year, including, but not limited to, the direct or indirect acquisition of
such assets by way of offset items or otherwise and shall include the principal
amount of capitalized lease payments during the applicable period.

 

1.24                           “Capital
Leases” shall mean, as applied to any Person, any lease of (or any agreement
conveying the right to use) any property (whether real, personal or mixed) by
such Person as lessee which in accordance with GAAP, is required to be
reflected as a liability on the balance sheet of such Person.

 

1.25                           “Capital
Stock” shall mean, with respect to any Person, any and all shares, interests,
participations or other equivalents (however designated) of such Person’s
capital stock or partnership, limited liability company or other equity
interests at any time outstanding, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or other interests (but
excluding any debt security that is exchangeable for or convertible into such
capital stock).

 

1.26                           “Cash
Equivalents” shall mean, at any time, (a) any evidence of Indebtedness with a
maturity date of one hundred eighty (180) days or less issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof; provided, that, the full faith and
credit of the United States of America is pledged in support thereof;
(b) certificates of deposit or bankers’ acceptances with a maturity of one
hundred eighty (180) days or less of any financial institution that is a member
of the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $250,000,000; (c) commercial paper (including
variable rate demand notes) with a maturity of one hundred eighty (180) days or
less issued by a corporation (except an Affiliate of any Borrower or Guarantor)
organized under the laws of any State of the United States of America or the
District of Columbia and rated at least A-2 by Standard & Poor’s Ratings
Service, a division of The McGraw-Hill Companies, Inc. or at least P-2 by Moody’s
Investors Service, Inc.; (d) repurchase obligations with a term of not more than
thirty (30) days for underlying securities of the types described in clause (a)
above entered into with any financial institution having combined capital

 

6

 

and surplus and undivided
profits of not less than $250,000,000; (e) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within one hundred eighty (180)
days or less from the date of acquisition; provided, that, the
terms of such agreements comply with the guidelines set forth in the Federal
Financial Agreements of Depository Institutions with Securities Dealers and
Others, as adopted by the Comptroller of the Currency on October 31, 1985; and
(f) investments in money market funds and mutual funds which invest
substantially all of their assets in securities of the types described in
clauses (a) through (e) above.

 

1.27                           “Change
in Law” shall mean (a) the adoption of any law, rule or regulation after the
date of this Agreement or (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Government Authority after the
date of this Agreement.

 

1.28                           “Change
of Control” shall mean (a) the transfer (in one transaction or a series of
transactions) of all or substantially all of the assets of any Borrower or
Guarantor to any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act), other than as permitted in Section 9.7 hereof; (b) the
liquidation or dissolution of any Borrower or Guarantor or the adoption of a
plan by the stockholders of any Borrower or Guarantor relating to the
dissolution or liquidation of such Borrower or Guarantor, other than to
Permitted Holders or as permitted in Section 9.7 hereof; (c) any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act), other than
Permitted Holders, shall beneficially own, directly or indirectly, shares of
Voting Stock of Parent representing more than thirty (30%) percent of the
voting power of the total outstanding Voting Stock of Parent; (d) occupation of
a majority of the seats (other than vacant seats) on the Board of Directors of
Parent by Persons who were neither (i) nominated by members of Permitted
Holders or the Board of Directors of Parent nor (ii) appointed by directors so
nominated; (e) the failure of Parent to own directly or indirectly one hundred
(100%) percent of the voting power of the total outstanding Voting Stock of any
Borrower or other Guarantor, except to the extent permitted under Section 9.7
hereof and (f) so long as any of the Senior Discount Debentures or 10 3/8%
Subordinated Notes are outstanding, a “Change of Control” as such term is
defined in the Senior Debenture Indenture or the 10 3/8% Subordinated Note
Indenture.

 

1.29                           “Code”
shall mean the Internal Revenue Code of 1986, as the same now exists or may from
time to time hereafter be amended, modified, recodified or supplemented,
together with all rules, regulations and interpretations thereunder or related
thereto.

 

1.30                           “Collateral”
shall have the meaning set forth in Section 5 hereof.

 

1.31                           “Collateral
Access Agreement” shall mean an agreement in writing, in form and substance
reasonably satisfactory to Agent, from any lessor of premises to any Borrower
or Guarantor, or any other person to whom any Collateral is consigned or who
has custody, control or possession of any such Collateral or is otherwise the
owner or operator of any premises on which any of such Collateral is located
(excluding any retail store location), pursuant to which such lessor, consignee
or other person, inter  alia, acknowledges the first priority
security interest of Agent in such Collateral, agrees to waive any and all
claims such lessor, consignee or other

 

7

 

person may, at any time, have
against such Collateral, whether for processing, storage or otherwise, and
agrees to permit Agent access to, and the right to remain on, the premises of
such lessor, consignee or other person so as to exercise Agent’s rights and
remedies and otherwise deal with such Collateral and in the case of any
consignee or other person who at any time has custody, control or possession of
any Collateral, acknowledges that it holds and will hold possession of the
Collateral for the benefit of Agent and Lenders and agrees to follow all
instructions of Agent with respect thereto.

 

1.32                           “Commercial
Letter of Credit” shall mean any Letter of Credit Accommodation consisting of a
letter of credit issued for the purpose of providing the primary manner of
payment for the purchase price of goods or services by a Borrower in the
ordinary course of the business of such Borrower.

 

1.33                           “Commitment”
shall mean, at any time, as to each Lender, the principal amount set forth
below such Lender’s signature on the signatures pages hereto designated as the
Commitment or on Schedule 1 to the Assignment and Acceptance Agreement pursuant
to which such Lender became a Lender hereunder in accordance with the
provisions of Section 14.7 hereof, as the same may be adjusted from time to
time in accordance with the terms hereof; sometimes being collectively referred
to herein as “Commitments”.

 

1.34                           “Congress”
shall mean Congress Financial Corporation, a Delaware corporation, in its
individual capacity, and its successors and assigns.

 

1.35                           “Consolidated
Net Income” shall mean, with respect to any Person for any period, the
aggregate of the net income (loss) of such Person and its Subsidiaries, on a
consolidated basis, for such period (excluding to the extent included therein
any extraordinary or non-recurring gains other than up to an aggregate of
$5,000,000 of cash insurance proceeds received by Borrowers and Guarantors in
each fiscal year of Borrowers and Guarantors with respect to Inventory losses,
fixed asset losses and business interruption) and extraordinary non-cash
charges) after deducting all charges which should be deducted before arriving
at the net income (loss) for such period and after deducting the Provision for
Taxes for such period, all as determined in accordance with GAAP; provided,
that, (a) the net income of any Person that is not a wholly-owned Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid or payable to
such Person or a wholly-owned Subsidiary of such Person; (b) except to the
extent included pursuant to the foregoing clause, the net income of any Person
accrued prior to the date it becomes a wholly-owned Subsidiary of such Person
or is merged into or consolidated with such Person or any of its wholly-owned
Subsidiaries or that Person’s assets are acquired by such Person or by any of
its wholly-owned Subsidiaries shall be excluded; (c) the effect of any change
in accounting principles adopted by such Person or its Subsidiaries after the
date hereof shall be excluded; (d) net income shall exclude interest accruing,
but not paid on indebtedness owing to a Subsidiary or parent corporation of
such Person, which is subordinated in right of payment to the payment in full
of the Obligations, on terms and conditions acceptable to Agent; and (e) the
net income (if positive) of any wholly-owned Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
wholly-owned Subsidiary to such Person or to any other wholly-owned Subsidiary
of such Person is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or

 

8

 

governmental regulation
applicable to such wholly-owned Subsidiary shall be excluded.  For the purposes of this definition, net
income excludes any gain and non-cash loss (but not any cash loss) together
with any related Provision for Taxes for such gain and non-cash loss (but not
any cash loss) realized upon the sale or other disposition of any assets that
are not sold in the ordinary course of business (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or of any Capital
Stock of such Person or a Subsidiary of such Person and any net income realized
as a result of changes in accounting principles or the application thereof to
such Person.

 

1.36                           “Contingent
Principal” shall mean any principal amounts additional to the face amount of
the 16% Senior Discount Notes which, under certain circumstances set forth in
the 16% Senior Discount Note Indenture as in effect on the date hereof, may be
added to the accreted amount, or principal amount at maturity, as applicable,
of the 16% Senior Discount Notes.

 

1.37                           “Credit
Card Acknowledgments” shall mean, collectively, the agreements by Credit Card
Issuers or Credit Card Processors who are parties to Credit Card Agreements in
favor of Agent acknowledging Agent’s first priority security interest, for and
on behalf of Lenders, in the monies due and to become due to a Borrower or
Guarantor (including, without limitation, credits and reserves) under the
Credit Card Agreements, and agreeing to transfer all such amounts to the
Blocked Accounts, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, sometimes being referred
to herein individually as a “Credit Card Acknowledgment”.

 

1.38                           “Credit
Card Agreements” shall mean all agreements now or hereafter entered into by any
Borrower or any Guarantor for the benefit of any Borrower, in each case with
any Credit Card Issuer or any Credit Card Processor, as the same now exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, including, but not limited to, the agreements set forth on
Schedule 8.9 hereto.

 

1.39                           
“Credit Card Issuer” shall mean any person (other than a Borrower) who issues
or whose members issue credit cards, including, without limitation, MasterCard
or VISA bank credit or debit cards or other bank credit or debit cards issued
through MasterCard International, Inc., Visa, U.S.A., Inc. or Visa
International and American Express, Discover, Diners Club, Carte Blanche and
other non-bank credit or debit cards, including, without limitation, credit or
debit cards issued by or through American Express Travel Related Services
Company, Inc., Novus Services, Inc. and the J. Crew Card.

 

1.40                           
“Credit Card Processor” shall mean any servicing or processing agent or any
factor or financial intermediary who facilitates, services, processes or
manages the credit authorization, billing transfer and/or payment procedures
with respect to any Borrower’s or Guarantor’s sales transactions involving
credit card or debit card purchases by customers using credit cards or debit
cards issued by any Credit Card Issuer.

 

1.41                           “Credit
Card Receivables” shall mean, collectively, (a) all present and future rights
of any Borrower or Guarantor to payment from any Credit Card Issuer, Credit
Card Processor or other third party arising from sales of goods or rendition of
services to customers who have purchased such goods or services using a credit
or debit card and (b) all present and future rights of any Borrower or
Guarantor to payment from any Credit Card Issuer, Credit Card Processor or
other third party in connection with the sale or transfer of Accounts arising
pursuant to the sale of goods or rendition of services to customers

 

9

 

who have purchased such goods
or services using a credit card or a debit card, including, but not limited to,
all amounts at any time due or to become due from any Credit Card Issuer or
Credit Card Processor under the Credit Card Agreements or otherwise.

 

1.42                           “Credit
Facility” shall mean the Revolving Loans and Letter of Credit Accommodations
provided to or for the benefit of any Borrower pursuant to Sections 2.1 and 2.2
hereof.

 

1.43                           
“Customs Broker” shall mean the persons listed on Schedule 1.43 hereto or such
other person selected by any Borrower after written notice by such Borrower to
Agent who are reasonably acceptable to Agent to perform port of entry services
to process Inventory imported by such Borrower from outside the United States
of America and to supply facilities, labor and materials to such Borrower in
connection therewith.

 

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

 

1.45                           
“Defaulting Lender” shall have the meaning set forth in Section 6.10 hereof.

 

1.46                           “Deposit
Account Control Agreement” shall mean an agreement in writing, in form and
substance satisfactory to Agent, by and among Agent, the Borrower or Guarantor
with a deposit account at any bank and the bank at which such deposit account
is at any time maintained which provides that such bank will comply with
instructions originated by Agent directing disposition of the funds in the
deposit account without further consent by such Borrower or Guarantor and such
other terms and conditions as Agent may require, including as to any such
agreement with respect to any Blocked Account, providing that all items
received or deposited in the Blocked Accounts are the property of Agent, that
the bank has no lien upon, or right to setoff against, the Blocked Accounts,
the items received for deposit therein, or the funds from time to time on
deposit therein (except as Agent may otherwise specifically agree) and that the
bank will wire, or otherwise transfer, in immediately available funds, on a
daily basis to the Agent Payment Account all funds received or deposited into
the Blocked Accounts.

 

1.47                           “EBITDA”
shall mean, as to any Person, with respect to any period, an amount equal to:
(a) the Consolidated Net Income of such Person and its Subsidiaries for such
period, plus (b) depreciation and amortization and other non-cash charges
including imputed interest and deferred compensation for such period (to the
extent deducted in the computation of Consolidated Net Income of such Person),
all in accordance with GAAP, plus (c) Interest Expense for such period (to the
extent deducted in the computation of Consolidated Net Income of such Person),
plus (d) the Provision for Taxes for such period (to the extent deducted in the
computation of Consolidated Net Income of such Person).

 

10

 

1.48                           “Eligible
Credit Card Receivables” shall mean, as to each Borrower, Credit Card
Receivables of such Borrower which are and continue to be acceptable to Agent
based on the criteria set forth below. 
Credit Card Receivables shall be Eligible Credit Card Receivables if:

 

(a)                    such
Credit Card Receivables arise from the actual and bona  fide sale
and delivery of goods or rendition of services by such Borrower in the ordinary
course of the business of such Borrower which transactions are completed in
accordance with the terms and provisions contained in any agreements binding on
such Borrower or the other party or parties related thereto;

 

(b)                   such
Credit Card Receivables are not past due (beyond any stated applicable grace
period, if any, therefor) pursuant to the terms set forth in the Credit Card
Agreements with the Credit Card Issuer or Credit Card Processor of the credit
card or debit card used in the purchase which give rise to such Credit Card
Receivables;

 

(c)                    such
Credit Card Receivables are not unpaid more than five (5) Business Days after
the date of the sale of Inventory giving rise to such Credit Card Receivables;

 

(d)                   all
material procedures required by the Credit Card Issuer or the Credit Card
Processor of the credit card or debit card used in the purchase which gave rise
to such Credit Card Receivables shall have been followed by such Borrower and
all documents required for the authorization and approval by such Credit Card Issuer
or Credit Card Processor shall have been obtained in connection with the sale
giving rise to such Credit Card Receivables;

 

(e)                    the
required authorization and approval by such Credit Card Issuer or Credit Card
Processor shall have been obtained for the sale giving rise to such Credit Card
Receivables;

 

(f)                      such
Borrower or Guarantor, on behalf of such Borrower, shall have submitted all
materials required by the Credit Card Issuer or Credit Card Processor obligated
in respect of such Credit Card Receivables in order for such Borrower to be
entitled to payment in respect thereof;

 

(g)                   the
Credit Card Issuer or Credit Card Processor obligated in respect of such Credit
Card Receivable has not failed to remit any monthly payment in respect of such
Credit Card Receivable;

 

(h)                   such
Credit Card Receivables comply with the applicable terms and conditions
contained in Section 7.2 of this Agreement;

 

(i)                       the
Credit Card Issuer or Credit Card Processor with respect to such Credit Card
Receivables has not asserted a counterclaim, defense or dispute and does not
have, and does not engage in transactions which may give rise to, any right of
setoff against such Credit Card Receivables (other than setoffs to fees and
chargebacks consistent with the practices of such Credit Card Issuer or Credit
Card Processor with such Borrower as of the date hereof or as such practices
may change as a result of changes to the policies of such Credit Card Issuer or
Credit Card Processor applicable to its customers generally and unrelated to
the circumstance of such Borrower), but the portion of the Credit Card
Receivables owing by such Credit Card Issuer or Credit Card Processor in excess
of the amount owing by such Borrower to such Credit Card

 

11

 

Issuer or Credit Card Processor pursuant to
such fees and chargebacks may be deemed Eligible Credit Card Receivables;

 

(j)                       the
Credit Card Issuer or Credit Card Processor with respect to such Credit Card
Receivables has not setoff against amounts otherwise payable by such Credit
Card Issuer or Credit Card Processor to such Borrower for the purpose of
establishing a reserve or collateral for obligations of such Borrower to such
Credit Card Issuer or Credit Card Processor (notwithstanding that the Credit
Card Issuer or Credit Card Processor may have setoffs for fees and chargebacks
consistent with the practices of such Credit Card Issuer or Credit Card
Processor with such Borrower as of the date hereof or as such practices may
hereafter change as a result of changes to the policies of such Credit Card
Issuer or Credit Card Processor applicable to its customers generally and
unrelated to the circumstances of such Borrower);

 

(k)                    there
are no facts, events or occurrences which would impair the validity, enforceability
or collectability of such Credit Card Receivables or reduce the amount payable
or delay payment thereunder (other than for setoffs for fees and chargebacks
consistent with the practices of such Credit Card Issuer or Credit Card
Processor with such Borrower or any Guarantor as of the date hereof or as such
practices may hereafter change as a result of changes to the policies of such
Credit Card Issuer or Credit Card Processor applicable to its customers
generally and unrelated to the circumstances of such Borrower or any
Guarantor);

 

(l)                       such
Credit Card Receivables are subject to the first priority, valid and perfected
security interest and lien of Agent, for and on behalf of itself and Lenders,
as to such Credit Card Receivables of such Borrower and any goods giving rise
thereto are not, and were not at the time of the sale thereof, subject to any
security interest or lien in favor of any person other than Agent except as
otherwise permitted in this Agreement, in each case subject to and in accordance
with the terms and conditions applicable hereunder to any such permitted
security interest or lien;

 

(m)                 there
are no proceedings or actions which are pending or to the best of any Borrower’s
knowledge threatened, against the Credit Card Issuers or Credit Card Processors
with respect to such Credit Card Receivables which would reasonably be expected
to result in any material adverse change in the financial condition of any such
Credit Card Issuer or Credit Card Processor;

 

(n)                   such
Credit Card Receivables are owed by Credit Card Issuers or Credit Card
Processors deemed creditworthy at all times by Agent in good faith;

 

(o)                   no
event of default has occurred under the Credit Card Agreement of such Borrower
with the Credit Card Issuer or Credit Card Processor who has issued the credit
card or debit card or handles payments under the credit card or debit card used
in the sale which gave rise to such Credit Card Receivables which event of
default gives such Credit Card Issuer or Credit Card Processor the right to
cease or suspend payments to such Borrower or any Guarantor and no event shall
have occurred which gives such Credit Card Issuer or Credit Card Processor the
right to setoff against amounts otherwise payable to such Borrower, including
on behalf of a Guarantor (other than for then current fees and chargebacks
consistent with the current practices of such Credit Card Issuer or Credit Card
Processor as of the date hereof or as such practices

 

12

 

may hereafter change as a result of changes
to the policies of such Credit Card Issuer or Credit Card Processor applicable
to its customers generally and unrelated to the circumstances of such Borrower
or any Guarantor), except as may have been waived in writing on terms and
conditions reasonably satisfactory to Agent pursuant to the Credit Card
Acknowledgment by such Credit Card Issuer or Credit Card Processor) or the
right to establish reserves or establish or demand collateral, and the Credit
Card Issuer or Credit Card Processor has not sent any written notice of default
and/or notice of its intention to cease or suspend payments to such Borrower in
respect of such Credit Card Receivables or to establish reserves or cash
collateral for obligations of such Borrower to such Credit Card Issuer or
Credit Card Processor, and such Credit Card Agreements are otherwise in full
force and effect and constitute the legal, valid, binding and enforceable
obligations of the parties thereto;

 

(p)                   the
terms of the sale giving rise to such Credit Card Receivables and all practices
of such Borrower and Guarantors with respect to such Credit Card Receivables
comply in all material respects with applicable Federal, State, and local laws
and regulations; and

 

(q)                   the
customer using the credit card or debit card giving rise to such Credit Card
Receivable shall not have returned the merchandise purchased giving rise to
such Credit Card Receivable.

 

Credit Card Receivables which
would otherwise constitute Eligible Credit Card Receivables pursuant to this
Section will not be deemed ineligible solely by virtue of the Credit Card
Agreements with respect thereto having been entered into by any Guarantor, for
the benefit of Borrowers.  General
criteria for Eligible Credit Card Receivables may only be changed and any new
criteria for Eligible Credit Card Receivables may only be established by Agent
in good faith, upon notice to Borrower Agent, based on either: (i) an event,
condition or other circumstance arising after the date hereof, or (ii) existing
on the date hereof to the extent Agent has no written notice thereof from a
Borrower prior to the date hereof, in either case under clause (i) or (ii)
which adversely affects or could reasonably be expected to adversely affect the
Credit Card Receivables in the good faith determination of Agent.  Any Credit Card Receivables which are not
Eligible Credit Card Receivables shall nevertheless be part of the Collateral.

 

1.49                           “Eligible
In-Transit Inventory” shall mean Inventory that would be Eligible Inventory
other than for its location that:  (a) is
located in the United States; (b) has cleared U.S. Customs and for which all
duty, freight and similar charges for import to the United States have been
paid in full; (c) is in transit to one of the locations of assets permitted
hereunder or between such locations; and (d) has not been in transit more than
seven (7) days.

 

1.50                           
“Eligible Inventory” shall mean, as to each Borrower, Inventory consisting of
finished goods held for resale in the ordinary course of the business of such
Borrower which are acceptable to Agent based on the criteria set forth
below.  In general, Eligible Inventory
shall not include (a) work-in-process; (b) raw materials; (c) spare parts for
equipment; (d) packaging and shipping materials; (e) supplies used or consumed
in such Borrower’s business; (f) Inventory at premises other than those owned
or leased and controlled by any Borrower; provided, that, (i) as
to retail store locations (including factory store locations) which are leased
by a Borrower, Agent may, at its option, establish Reserves in respect of
rental payments and other amounts in respect of such leased location of the
type and to the extent set forth in Section 1.122 hereof, (ii) as to all

 

13

 

other locations leased by any
Borrower, if Agent shall not have received a Collateral Access Agreement from
the owner and lessor with respect to such location, duly authorized, executed
and delivered by such owner and lessor (or Agent shall determine to accept a
Collateral Access Agreement that does not include all required provisions or
provisions in the form otherwise required by Agent), Agent may, at its option,
upon notice to any Borrower or Borrower Agent, establish such Reserves in respect
of amounts at any time due or to become due to the owner and lessor thereof as
Agent shall determine and (iii) as to locations owned and operated by a person
other than a Borrower or Guarantor, if Agent shall not have received a
Collateral Access Agreement from the owner and operator with respect to such
location, duly authorized, executed and delivered by such owner and operator
(or Agent shall determine to accept a Collateral Access Agreement that does not
include all required provisions or provisions in the form otherwise required by
Agent), Agent may, at its option, establish such Reserves in respect of amounts
at any time due or to become due to the owner and operator thereof as Agent
shall determine; provided, that, in addition, if required by Agent,
in order for such Inventory at locations owned and operated by a third person
to be Eligible Inventory, Agent shall have received: (A) UCC financing
statements between the owner and operator, as consignee or bailee and such
Borrower, as consignor or bailor, in form and substance satisfactory to Agent,
which are duly assigned to Agent and (B) a written notice to any lender to the
owner and operator of the first priority security interest in such Inventory of
Agent; (g) Inventory subject to a security interest or lien in favor of any
person other than Agent except those permitted in this Agreement that are
subordinate to the security interest of Agent pursuant to an intercreditor
agreement in form and substance satisfactory to Agent between Agent and the
holder of such other security interest or lien; (h) bill and hold goods; (i)
obsolete or slow moving Inventory; (j) Inventory which is not subject to the
first priority, valid and perfected security interest of Agent; (k) damaged
and/or defective Inventory; (l) returned inventory which is not held for sale
in the ordinary course of business; and (m) Inventory purchased or sold on
consignment.  General criteria for
Eligible Inventory may only be changed and any new criteria for Eligible
Inventory may only be established by Agent in good faith, upon notice to
Borrower Agent, based on either: (i) an event, condition or other circumstance
arising after the date hereof, or (ii) existing on the date hereof to the
extent Agent has no written notice thereof from a Borrower prior to the date
hereof, in either case under clause (i) or (ii) which adversely affects or
could reasonably be expected to adversely affect the Inventory in the good
faith determination of Agent.  Any Inventory
which is not Eligible Inventory shall nevertheless be part of the Collateral.

 

1.51                           “Eligible
Real Property” shall mean, as to any Borrower, Real Property owned by such
Borrower in fee simple in each case which are acceptable to Agent in good faith
based on the criteria set forth below. In general, Eligible Real Property shall
not include:  (i) Real Property which is
not operated by a Borrower except as Agent may otherwise agree; (ii) Real
Property subject to a security interest, lien, mortgage or other encumbrance in
favor of any person other than Agent (and other than those permitted under
Section 9.8(b), 9.8(c) or 9.8(d) hereof or are subject to an intercreditor
agreement in form and substance satisfactory to Agent between the holder of
such lien and Agent); (iii) Real Property that is not located in the
continental United States of America; (iv) Real Property that is not subject to
the valid and enforceable, first priority, perfected security interest, lien
and mortgage of Agent; (v) Real Property where Agent determines that issues
relating to compliance with Environmental Laws adversely affect such Real
Property in such manner that such Real Property would not be acceptable for
purposes of including it in the calculation of the Borrowing Base based on the
customary practices,

 

14

 

procedures and policies of
Agent and its Affiliates; provided, that, if the Real Property is
acceptable for such purposes in accordance with such practices, procedures and
policies, subject to the satisfaction of the other conditions set forth herein
and any requirements arising pursuant to such practices, procedures and
policies, such Real Property will be considered Eligible Real Property but
subject to the right of Agent to establish Reserves to reflect the adverse
affect of any environmental conditions or events with respect thereto on its
value or the ability of Agent to sell or otherwise realize on such Collateral;
(vi) Real Property improved with residential housing; (vii) Real Property that
is not subject to a then current final written appraisal by an appraiser
reasonably acceptable to Agent (which shall be one of the appraisers selected
by Agent from its list of approved appraisers), on which Agent and Lenders are
expressly permitted to rely, and that is in form, scope and methodology
reasonably satisfactory to Agent; (viii) if requested by Agent, Real Property
for which Agent shall not have received a then current environmental audit
conducted by an independent environmental engineering firm reasonably acceptable
to Agent (based on Administrative Agent’s list of approved firms  and in form, scope, substance and methodology
reasonably satisfactory to Agent, the results of which are satisfactory to
Agent; (ix) if requested by Agent, Real Property for which Agent shall not have
received, in form and substance reasonably satisfactory to Agent, a valid and
effective title insurance policy (whether in the form of a pro form policy or a
marked up title policy commitment)) issued by a company and agent reasonably
acceptable to Agent:  (A) insuring the
priority, amount and sufficiency of the Mortgage with respect to such Real
Property, (B) insuring against matters that would be disclosed by surveys and
(C) containing any legally available endorsements, assurances or affirmative
coverage requested by Agent for protection of its interests.  Any Real Property that is not Eligible Real
Property shall nevertheless be part of the Collateral.

 

1.52                           
“Eligible Transferee” shall mean (a) any Lender; (b) the parent company of any
Lender and/or any Affiliate of such Lender which is at least fifty (50%)
percent owned by such Lender or its parent company; (c) any person (whether a
corporation, partnership, trust or otherwise) that is engaged in the business
of making, purchasing, holding or otherwise investing in bank loans and similar
extensions of credit in the ordinary course of its business and is administered
or managed by a Lender or with respect to any Lender that is a fund which
invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Lender or by an Affiliate of such investment
advisor, and in each case is approved by Agent; and (d) any other commercial
bank, financial institution or “accredited investor” (as defined in Regulation
D under the Securities Act of 1933) approved by Agent (which approval shall not
be unreasonably withheld), provided, that, (i) neither any
Borrower nor any Guarantor or any Affiliate of any Borrower or Guarantor shall
qualify as an Eligible Transferee and (ii) no Person to whom any Indebtedness
which is in any way subordinated in right of payment to any other Indebtedness
of any Borrower or Guarantor shall qualify as an Eligible Transferee, except as
Agent may otherwise specifically agree.

 

1.53                           
“Environmental Laws” shall mean all foreign, Federal, State and local laws
(including common law), legislation, rules, codes, licenses, permits (including
any conditions imposed therein), authorizations, judicial or administrative
decisions, injunctions or agreements between any Borrower or Guarantor and any
Governmental Authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface

 

15

 

land, plant and animal life or
any other natural resource), or to human health or safety, (b)  relating to the exposure to, or the use,
storage, recycling, treatment, generation, manufacture, processing,
distribution, transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials, or (c) relating to all
laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. 
The term “Environmental Laws” includes (i) the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Federal
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal Act and the Federal Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,
and the Federal Safe Drinking Water Act of 1974, (ii) applicable state
counterparts to such laws and (iii) any common law or equitable doctrine that
may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Materials.

 

1.54                           
“Equipment” shall mean, as to each Borrower and Guarantor, all of such Borrower’s
and Guarantor’s now owned and hereafter acquired equipment, wherever located,
including machinery, data processing and computer equipment (whether owned or
licensed and including embedded software), vehicles, tools, furniture,
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and substitutions and replacements
thereof, wherever located.

 

1.55                           
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, together
with all rules, regulations and interpretations thereunder or related thereto.

 

1.56                           
“ERISA Affiliate” shall mean any person required to be aggregated with any
Borrower, any Guarantor or any of its or their respective Subsidiaries under
Sections 414(b), 414(c), 414(m) or 414(o) of the Code.

 

1.57                           
“ERISA Event” shall mean (a) any “reportable event”, as defined in Section
4043(c) of ERISA or the regulations issued thereunder, with respect to a Plan
(other than a reportable event for which the notice provision has been waived);
(b) the adoption of any amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA;
(c) the existence with respect to any Plan of an “accumulated funding deficiency”
(as defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived; (d) the filing pursuant to Section 412 of the Code or Section 303(d) of
ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (e) the occurrence of a “prohibited transaction” with
respect to which any Borrower, Guarantor or any of its or their respective
Subsidiaries is a “disqualified person” (within the meaning of Section 4975 of
the Code) or with respect to which any Borrower, Guarantor or any of its or
their respective Subsidiaries could otherwise be liable; (f) a complete or
partial withdrawal by any Borrower, Guarantor or any ERISA Affiliate from a
Multiemployer Plan or a cessation of operations which is treated as such a
withdrawal or notification that a Multiemployer Plan is in reorganization; (g)
the filing of a notice of intent to terminate, the treatment of a Plan
amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the Pension Benefit Guaranty Corporation to
terminate a Plan; (h) an event or

 

16

 

condition which would  reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan; (i) the imposition of any liability under
Title IV of ERISA, other than the Pension Benefit Guaranty Corporation premiums
due but not delinquent under Section 4007 of ERISA, upon any Borrower,
Guarantor or any ERISA Affiliate in excess of $5,000,000 and (j) any other
event or condition with respect to a Plan including any Plan subject to Title
IV of ERISA maintained, or contributed to, by any ERISA Affiliate that could
reasonably be expected to result in liability of any Borrower in excess of
$500,000.

 

1.58                           
“Eurodollar Rate” shall mean with respect to the Interest Period for a
Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/100) of one (1%) percent) at which a Reference Bank
is offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by a Borrower or Borrower Agent on behalf
of such Borrower and approved by Agent) on or about 9:00 a.m. (New York time)
two (2) Business Days prior to the commencement of such Interest Period in
amounts substantially equal to the principal amount of the Eurodollar Rate
Loans requested by and available to such Borrower in accordance with this
Agreement, with a maturity of comparable duration to the Interest Period
selected by or on behalf of a Borrower.

 

1.59                           
“Eurodollar Rate Loans” shall mean any Revolving Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.

 

1.60                           
“Event of Default” shall mean the occurrence or existence of any event or
condition described in Section 10.1 hereof.

 

1.61                           “Excess
Availability” shall mean, as to Borrowers (as a whole), the amount, as
determined by Agent in good faith, calculated at any date, equal to:

 

(a)                    the
sum of: (i) Qualified Cash and (ii) the Borrowing Base (in each case after
giving effect to any Reserves other than any Reserves in respect of Letter of
Credit Accommodations), minus

 

(b)                   the
sum of:  (i) the amount of all then
outstanding and unpaid Obligations (but not including for this purpose
Obligations of any Borrower arising pursuant to any guarantees in favor of
Agent and Lenders of the Obligations of the other Borrowers or any outstanding
Letter of Credit Accommodations), plus (ii) the amount of all Reserves then
established in respect of Letter of Credit Accommodations, plus (iii) the
aggregate amount of all then outstanding and unpaid trade payables and other
obligations of any Borrower which are outstanding more than sixty (60) days
past due as of the end of the immediately preceding month or at Agent’s option,
as of a more recent date based on such reports as Agent may from time to time
specify (other than trade payables or other obligations being contested or
disputed by such Borrower in good faith), plus (iv) without duplication, the
amount of checks issued by any Borrower to pay trade payables and other
obligations which are more than sixty (60) days past due as of the end of the
immediately preceding month or at Agent’s option, as of a more recent

 

17

 

date based on such reports as Agent may from
time to time specify (other than trade payables or other obligations being
contested or disputed by such Borrower in good faith), but not yet sent.

 

1.62                           
“Exchange Act” shall mean the Securities Exchange Act of 1934, together with
all rules, regulations and interpretations thereunder or related thereto.

 

1.63                           “Exchange
Offer Documents” shall mean, individually and collectively, each and all of the
following (as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced): (a) Confidential
Offering Circular and Consent Solicitation Statement with respect to the Offer
to Exchange 16.0% Senior Discount Contingent Principal Notes due 2008 of J.
Crew Intermediate LLC for Outstanding 13 1/8% Senior Discount
Debentures due 2008 of J. Crew Group, Inc. and (b) all other agreements,
documents and instruments related thereto.

 

1.64                           
“Excluded Taxes” shall mean, with respect to the Agent, any Lender, any
Participant, any Transferee or any other recipient of any payment to be made by
or on account of any obligation of any Borrower or Guarantor hereunder,
(a) income, branch profits or franchise taxes imposed on (or measured by)
its net income (other than any such taxes imposed solely as a result of a
Borrower’s activities in a jurisdiction) and (b) in the case of a Foreign
Lender, any withholding tax that is imposed on amounts payable to such Foreign
Lender at the time such Foreign Lender becomes a party to this Agreement (or
designates a new lending office) or is attributable to such Foreign Lender’s
failure to comply with Section 6.4(h) (it being understood and agreed, for
the avoidance of doubt, that any withholding tax imposed on a Foreign Lender as
a result of a Change in Law or regulation or interpretation thereof occurring
after the time such Foreign Lender becomes a party to this Agreement shall not
be an Excluded Tax).

 

1.65                           “Existing
Agreement” shall mean the Loan and Security Agreement, dated as of December 23,
2002, by and among Agent, Lenders, certain Borrowers and certain Guarantors.

 

1.66                           “Fee
Letter” shall mean the amended and restated letter agreement, dated on or about
the date hereof, by and among Borrowers, Guarantors and Agent, setting forth
certain fees payable by Borrowers to Agent for the benefit of itself and
Lenders, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

 

1.67                           “Financing
Agreements” shall mean, collectively, this Agreement and all notes, guarantees,
security agreements, deposit account control agreements, investment property
control agreements, intercreditor agreements and all other agreements,
documents and instruments now or at any time hereafter executed and/or
delivered by any Borrower or Obligor or any other person in connection with
this Agreement; provided, that, in no event shall the term
Financing Agreements be deemed to include any Hedge Agreement.

 

1.68                           “Fixed
Interest Charge Coverage Ratio” shall mean, as to any Person, with respect to
any period, the ratio of (a) the amount equal to EBITDA of such Person and its
Subsidiaries for such period to (b) the Fixed Interest Charges of such Person
and its Subsidiaries for such period.

 

1.69                           “Fixed
Interest Charges” shall mean, as to any Person and its Subsidiaries with
respect to any twelve (12) consecutive month period, the sum of, without
duplication, (i) all cash

 

18

 

Interest Expense during such
period, plus (ii) all cash dividends or other distributions in respect of
Capital Stock at any time used or to be used to make regularly scheduled (as
determined at the beginning of the respective period) interest payments on any
Indebtedness of Holdings or Intermediate during such period,  plus (iii) all Capital Expenditures during
such period, plus (iv) the cash portion of any Provision for Taxes paid in such
period and unpaid amounts of any Provision for Taxes the last date for payment
of which before becoming past due occurs during such period plus (v) the
aggregate amount of the payments made during such period in respect of the
Indebtedness permitted under Section 9.9(t) hereof in excess of $2,500,000.

 

1.70                           “Foreign
Lender” shall mean any Lender, Participant or Transferee that is not a “United
States person” within the meaning of Section 7701(a)(30) of the Code.

 

1.71                           “GAAP”
shall mean generally accepted accounting principles in the United States of
America as in effect from time to time as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the circumstances
as of the date of determination consistently applied, except that, for purposes
of Sections 9.18 and 9.19 hereof and the calculation of EBITDA of Parent and
its Subsidiaries (or any component thereof) for purposes of this Agreement,
GAAP shall be determined on the basis of such principles in effect on the date
hereof and consistent with those used in the preparation of the most recent
audited financial statements delivered to Agent prior to the date hereof.

 

1.72                           “Governmental
Authority” shall mean any nation or government, any state, province, or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

 

1.73                           “Guarantors”
shall mean, collectively, the following (together with their respective
successors and assigns):  (a) J. Crew
Group, Inc., a New York corporation; (b) J. Crew International, Inc., a
Delaware corporation, and (c) J. Crew Intermediate LLC, a Delaware limited
liability company; each sometimes being referred to herein individually as a “Guarantor”.

 

1.74                           “Hazardous
Materials” shall mean any hazardous, toxic or dangerous substances, materials
and wastes, including hydrocarbons (including naturally occurring or man-made
petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde
insulation, radioactive materials, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including materials which include hazardous constituents), sewage, sludge,
industrial slag, solvents and including any other substances, materials or
wastes that are or become regulated under any Environmental Law (including any
that are or become classified as hazardous or toxic under any Environmental
Law).

 

1.75                           “Hedge
Agreement” shall mean an agreement between any Borrower or Guarantor and Agent,
any Lender, any Affiliate of any Lender or any other financial institution
acceptable to Agent (and in each case as to any such Lender, Affiliate or other
financial institution only to the extent approved by Agent) that is a rate swap
agreement, basis swap, forward rate agreement, commodity swap, interest rate
option, forward foreign exchange

 

19

 

agreement, spot foreign
exchange agreement, rate cap agreement rate, floor agreement, rate collar
agreement, currency swap agreement, cross-currency rate swap agreement,
currency option, any other similar agreement (including any option to enter
into any of the foregoing or a master agreement for any the foregoing together
with all supplements thereto) for the purpose of protecting against or managing
exposure to fluctuations in interest or exchange rates, currency valuations or
commodity prices; sometimes being collectively referred to herein as “Hedge
Agreements”.

 

1.76                           “Inactive
Subsidiary” shall mean any Subsidiary, direct or indirect, that (a) has total
assets not in excess of $50,000; (b) conducts no business; and (c) has no
Indebtedness; provided,  that,
if more than one Subsidiary is deemed an Inactive Subsidiary pursuant to this
definition, all Inactive Subsidiaries shall be considered to be a single
consolidated subsidiary for purposes of determining whether the conditions
specified above are satisfied.

 

1.77                           “Indebtedness”
shall mean, with respect to any Person, any liability, whether or not
contingent, (a) in respect of borrowed money (whether or not the recourse of
the lender is to the whole of the assets of such Person or only to a portion
thereof) or evidenced by bonds, notes, debentures or similar instruments; (b)
representing the balance deferred and unpaid of the purchase price of any
property or services (except any such balance that constitutes an account
payable to a trade creditor (whether or not an Affiliate) created, incurred,
assumed or guaranteed by such Person in the ordinary course of business of such
Person in connection with obtaining goods, materials or services that is not
overdue by more than ninety (90) days, unless the trade payable is being
contested in good faith); (c) all obligations as lessee under leases which have
been, or should be, in accordance with GAAP recorded as Capital Leases; (d) any
contractual obligation, contingent or otherwise, of such Person to pay or be
liable for the payment of any indebtedness described in this definition of
another Person, including, without limitation, any such indebtedness, directly
or indirectly guaranteed, or any agreement to purchase, repurchase, or
otherwise acquire such indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge thereof, or to
maintain solvency, assets, level of income, or other financial condition; (e)
all obligations with respect to redeemable stock and redemption or repurchase
obligations under any Capital Stock or other equity securities issued by such
Person; (f) all reimbursement obligations and other liabilities of such Person
with respect to surety bonds (whether bid, performance or otherwise), letters
of credit, banker’s acceptances, drafts or similar documents or instruments
issued for such Person’s account; (g) all indebtedness of such Person in
respect of indebtedness of another Person for borrowed money or indebtedness of
another Person otherwise described in this definition which is secured by any
consensual lien, security interest, collateral assignment, conditional sale,
mortgage, deed of trust, or other encumbrance on any asset of such Person,
whether or not such obligations, liabilities or indebtedness are assumed by or
are a personal liability of such Person, all as of such time; provided, that,
to the extent that such Indebtedness is non-recourse to such Person, the amount
of such Indebtedness shall not be deemed to exceed the lesser of the amount of
such Indebtedness and the value of the assets securing such Indebtedness; (h)
all obligations, liabilities and indebtedness of such Person (marked to market)
arising under swap agreements, cap agreements and collar agreements and other
agreements or arrangements designed to protect such person against fluctuations
in interest rates or currency or commodity values; and (i) all obligations owed
by such Person under License Agreements with respect to non-refundable, advance
or minimum guarantee royalty payments.

 

20

1.78                           “Indemnified
Taxes” shall mean Taxes other than Excluded Taxes.

 

1.79                           “Information
Certificate” shall mean the Information Certificate of Borrowers and Guarantors
constituting Exhibit B hereto.

 

1.80                           “Intellectual
Property” shall mean, as to each Borrower and Guarantor, such Borrower’s and
Guarantor’s now owned and hereafter arising or acquired:  patents, patent rights, patent applications,
copyrights, works which are the subject matter of copyrights, copyright
registrations, trademarks, trade names, trade styles, trademark and service
mark applications, and licenses and rights to use any of the foregoing; all
extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to sue for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints,
surveys, reports, manuals, and operating standards; goodwill (including any
goodwill associated with any trademark or the license of any trademark);
customer and other lists in whatever form maintained; trade secret rights,
copyright rights, rights in works of authorship, domain names and domain name
registration; software and contract rights relating to computer software
programs, in whatever form created or maintained.

 

1.81                           “Intercompany
Note” shall mean the Revolving Line of Credit Note, dated as of July 18,
1998, by Operating, as maker, in favor of JCI, as payee, in the original
principal amount of $50,000,000, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.82                           “Interest
Expense” shall mean, for any period, as to any Person, as determined in
accordance with GAAP, the total interest expense of such Person, whether paid
or accrued during such period (including the interest component of Capital
Leases for such period), including discounts in connection with the sale of any
Accounts, but excluding interest paid in property other than cash and any other
interest expense not payable in cash.

 

1.83                           “Interest
Period” shall mean for any Eurodollar Rate Loan, a period of approximately one
(1), two (2), or three (3) months duration as any Borrower (or Borrower Agent
on behalf of such Borrower) may elect, the exact duration to be determined in
accordance with the customary practice in the applicable Eurodollar Rate
market; provided, that, such Borrower (or Borrower Agent on
behalf of such Borrower) may not elect an Interest Period which will end after
the last day of the then-current term of this Agreement.

 

1.84                           “Interest
Rate” shall mean,

 

(a)                    subject
to clause (b) of this definition below:

 

(i)                       as
to Prime Rate Loans, a rate equal to the then Applicable Margin for Prime Rate
Loans on a per annum basis in excess of the Prime Rate, and

 

(ii)                    as
to Eurodollar Rate Loans, a rate equal to the then applicable Margin for
Eurodollar Rate Loans on a per annum basis in excess of the Adjusted Eurodollar
Rate.

 

21

 

(b)                   Notwithstanding
anything to the contrary contained herein, Agent may, at its option, and Agent
shall, at the direction of the Required Lenders, increase the Applicable Margin
otherwise used to calculate the Interest Rate for Prime Rate Loans and
Eurodollar Rate Loans in each case to the highest percentage set forth in the
definition of the term Applicable Margin for each category of Revolving Loans
(without regard to the amount of Quarterly Average Excess Availability) plus
two (2%) percent per annum: (A) for the period (1) from and after the effective
date of termination or non-renewal hereof until Agent and Lenders have received
full and final payment of all outstanding and unpaid Obligations which are not
contingent and cash collateral or letter of credit, as Agent may specify, in
the amounts and on the terms required under Section 14.1 hereof for contingent
Obligations (notwithstanding entry of a judgment against any Borrower or
Guarantor) and (2) from and after the date of the occurrence of an Event of Default
and for so long as such Event of Default is continuing and (B) on Revolving
Loans at any time outstanding in excess of the Borrowing Base (whether or not
such excess(es) arise or are made with or without the knowledge or consent of
Agent or any Lender and whether made before or after an Event of Default), but
only to the extent of such excess.

 

1.85                           “Intermediate”
shall mean J. Crew Intermediate LLC, a Delaware limited liability company,
together with its successors and assigns.

 

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

 

1.87                           “Investment
Property Control Agreement” shall mean an agreement in writing, in form and
substance satisfactory to Agent, by and among Agent, any Borrower or Guarantor
(as the case may be) and any securities intermediary, commodity intermediary or
other person who has custody, control or possession of any investment property
of such Borrower or Guarantor acknowledging that such securities intermediary,
commodity intermediary or other person has custody, control or possession of
such investment property on behalf of Agent, that it will comply with
entitlement orders originated by Agent with respect to such investment
property, or other instructions of Agent, or (as the case may be) apply any
value distributed on account of any commodity contract as directed by Agent, in
each case, without the further consent of such Borrower or Guarantor and
including such other terms and conditions as Agent may require.

 

1.88                           “J.
Crew Card” shall mean the private label credit card issued by World Financial
Network National Bank pursuant to the Credit Card Agreement of Operating with
such Bank (or any subsequent Credit Card Issuer with respect to such private
label credit card as to which there has been compliance with Section 9.15
hereof) to customers or prospective customers of Borrowers.

 

1.89                           “Lenders”
shall mean the financial institutions who are signatories hereto as Lenders and
other persons made a party to this Agreement as a Lender in accordance with
Section 14.7 hereof, and their respective successors and assigns; each
sometimes being referred to herein individually as a “Lender”.

 

22

 

1.90                           “Letter
of Credit Accommodations” shall mean, collectively,  the letters of credit, merchandise purchase
or other guaranties which are from time to time either (a) issued or opened by
Agent or any Lender for the account of any Borrower or Obligor or (b) with
respect to which Agent or Lenders have agreed to indemnify the issuer or
guaranteed to the issuer the performance by any Borrower or Obligor of its
obligations to such issuer; sometimes being referred to herein individually as “Letter
of Credit Accommodation”.

 

1.91                           “License
Agreements” shall have the meaning set forth in Section 8.13 hereof.

 

1.92                           Material
Adverse Effect” shall mean a material adverse effect on (a) the financial
condition, business, performance or operations of Borrowers, taken as a whole,
or the legality, validity or enforceability of this Agreement or any of the
other Financing Agreements; (b) the legality, validity, enforceability,
perfection or priority of the security interests and liens of Agent upon the
Collateral; (c) the Collateral or its value, (d) the ability of Borrowers to
repay the Obligations or of Borrowers or Guarantors to perform their obligations
under this Agreement or any of the other Financing Agreements as and when to be
performed; or (e) the ability of Agent or any Lender to enforce the Obligations
or realize upon the Collateral or otherwise with respect to the rights and
remedies of Agent and Lenders under this Agreement or any of the other
Financing Agreements (taken as a whole).

 

1.93                           
“Material Contract” shall mean (a) any contract or other agreement (other than
the Financing Agreements or purchase orders for merchandise entered into in the
ordinary course of the business of any Borrower or Guarantor), written or oral,
of any Borrower or Guarantor involving monetary liability of or to any Person
in an amount in excess of $5,000,000 in any fiscal year and (b) any other
contract or other agreement (other than the Financing Agreements), whether
written or oral, to which any Borrower or Guarantor is a party as to which the
breach, nonperformance, cancellation or failure to renew by any party thereto
would have a Material Adverse Effect.

 

1.94                           “Maximum
Credit” shall mean $170,000,000, subject to increase in accordance with Section
2.9 hereof.

 

1.95                           “Mortgages”
shall mean, individually and collectively, each of the following (as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced):  (a) the
Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture
Filing, dated December 23, 2002, by Retail in favor of Agent with respect to
the Real Property and related assets of such Borrower located in Asheville,
North Carolina and (b) the Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Fixture Filing, dated December 23, 2002, by J. Crew
and Parent in favor of Agent with respect to the Real Property and related assets
of such Borrower and Parent located in Lynchburg, Virginia.

 

1.96                           “Multiemployer
Plan” shall mean a “multiemployer plan” as defined in Section 4001(a)(3) of
ERISA which is or was at any time during the current year or the immediately
preceding six (6) years contributed to by any Borrower, Guarantor or any ERISA
Affiliate.

 

1.97                           “Net
Recovery Percentage” shall mean the fraction, expressed as a percentage,  (a) the numerator of which is the amount
equal to the recovery on the aggregate amount of the

 

23

 

Inventory at such time on a “going
out of business sale” basis as set forth in the most recent appraisal of
Inventory received by Agent in accordance with Section 7.3, net of operating
expenses, liquidation expenses and commissions, and (b) the denominator of
which is the applicable original cost of the aggregate amount of the Inventory
subject to appraisal.  Except for the
month of December as provided in Section 1.10(a)(i)(B) and (C), the Net
Recovery Percentage for any category of Inventory used in Section 1.21 shall be
based on the percentage in the appraisal for the time period for which the
Borrowing Base is being calculated.

 

1.98                           “Noteholder
Collateral Agent” shall mean U.S. Bank, National Association, and any successor
or replacement agent or any sub-agent under the Black Canyon Documents. 

 

1.99                           “Obligations”
shall mean (a) any and all Revolving Loans, Letter of Credit Accommodations and
all other obligations, liabilities and indebtedness of every kind, nature and
description owing by any or all of Borrowers to Agent or any Lender and/or any
of their Affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, arising under this Agreement or any of the other Financing
Agreements, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to such Borrower under the United States
Bankruptcy Code or any similar statute (including the payment of interest and
other amounts which would accrue and become due but for the commencement of
such case, whether or not such amounts are allowed or allowable in whole or in
part in such case), whether direct or indirect, absolute or contingent, joint
or several, due or not due, primary or secondary, liquidated or unliquidated,
or secured or unsecured and (b) for purposes only of Section 5.1 hereof and subject
to the priority in right of payment set forth in Section 6.4 hereof, all
obligations, liabilities and indebtedness of every kind, nature and description
owing by any or all of Borrowers or Guarantors to Agent, any Lender, any
Affiliate of any Lender or any other financial institution acceptable to Agent
(and in each case as to any such Lender, Affiliate of any Lender or other
financial institution only to the extent approved by Agent) arising under or
pursuant to a Hedge Agreement, whether now existing or hereafter arising, provided,
that, (i) such obligations, liabilities and indebtedness shall only be
included within the Obligations if upon Agent’s request, Agent shall have
entered into an agreement, in form and substance satisfactory to Agent, with any
Lender, any Affiliate of any Lender or any other financial institution
acceptable to Agent that is a counterparty to such Hedge Agreement, as
acknowledged and agreed to by Borrowers and Guarantors, providing for the
delivery to Agent by such counterparty of information with respect to the
amount of such obligations and providing for the other rights of Agent and such
Lender, Affiliate of any Lender or any other financial institution acceptable
to Agent, as the case may be, in connection with such arrangements and (ii) in
no event shall the party to such Hedge Agreement to whom such obligations,
liabilities or indebtedness are owing be deemed a Lender for purposes hereof to
the extent of and as to such obligations, liabilities or indebtedness other
than for purposes of Section 5.1 hereof and other than for purposes of Sections
12.1, 12.2, 12.3(b), 12.6, 12.7, 12.9, 12.12 and 14.6 hereof and in no event
shall the approval of any such person be required in connection with the
release or termination of any security interest or lien of Agent.  Without limiting the generality of the
foregoing, the Obligations shall also include, in addition and not in
limitation, any obligations, liabilities or Indebtedness of any other Borrower
or Guarantor to Agent and Lenders resulting from the exercise by Agent of its
remedies with respect to any Indebtedness or other obligations of any Borrower
or Guarantor to any other Borrower or Guarantor, whether

 

24

 

such Indebtedness or other
obligations of a Borrower or Guarantor to any other Borrower or Guarantor arose
from the sale or transfer of Inventory, the payment of the purchase price of
Inventory by a Borrower or Guarantor on behalf of such other Borrower or
Guarantor, loans or other extensions of credit for the benefit of such other
Borrower or Guarantor or otherwise.

 

1.100                     “Obligor”
shall mean any guarantor, endorser, acceptor, surety or other person liable on
or with respect to the Obligations or who is the owner of any property which is
security for the Obligations (including, without limitation, Guarantors), other
than Borrowers.

 

1.101                     “Other
Taxes” shall mean 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 from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any of the other Financing
Agreements.

 

1.102                     “Parent”
shall mean  J. Crew Group, Inc., a New
York corporation, and its successors and assigns.

 

1.103                     “Participant”
shall mean any financial institution that acquires and holds a participation in
the interest of any Lender in any of the Revolving Loans and Letter of Credit
Accommodations in conformity with the provisions of Section 14.7 of this
Agreement governing participations.

 

1.104  
“Permitted Holders” shall mean, collectively, (a) TPG Partners II, L.P.
and its Affiliates, (b) Millard S. Drexler and his immediate family members,
(c) Emily Woods and her immediate family members and (d) trusts for the benefit
of any of the forgoing Persons, or any of their heirs, executors, successors or
legal representatives.

 

1.105                     “Person”
or “person” shall mean any individual, sole proprietorship, partnership,
corporation (including any corporation which elects subchapter S status under
the Code), limited liability company, limited liability partnership, business
trust, unincorporated association, joint stock corporation, trust, joint
venture or other entity or any government or any agency or instrumentality or
political subdivision thereof.

 

1.106                     “Plan”
means an employee benefit plan (as defined in Section 3(3) of ERISA) which any
Borrower or Guarantor sponsors, maintains, or to which it makes, is making, or
is obligated to make contributions, including a Multiemployer Plan.

 

1.107                     “Prime
Rate” shall mean the rate from time to time publicly announced by Wachovia
Bank, National Association, or its successors, as its prime rate, whether or
not such announced rate is the best rate available at such bank.

 

1.108                     “Prime
Rate Loans” shall mean any Revolving Loans or portion thereof on which interest
is payable based on the Prime Rate in accordance with the terms thereof.

 

1.109                     “Pro
Rata Share” shall mean as to any Lender, the fraction (expressed as a
percentage) the numerator of which is such Lender’s Commitment and the
denominator of which is the aggregate amount of all of the Commitments of
Lenders, as adjusted from time to time in accordance with the provisions of
Section 14.7 hereof; provided, that, if the Commitments have

 

25

 

been terminated, the numerator
shall be the unpaid amount of such Lender’s Revolving Loans and its interest in
the Letter of Credit Accommodations and the denominator shall be the aggregate
amount of all unpaid Revolving Loans and Letter of Credit Accommodations.

 

1.110                     “Provision
for Taxes” shall mean an amount equal to all taxes imposed on or measured by
net income, whether Federal, State, Provincial, county or local, and whether
foreign or domestic, that are paid or payable by any Person in respect of any
period in accordance with GAAP.

 

1.111                     “Qualified
Cash” shall mean unrestricted cash or Cash Equivalents of Borrowers that are
subject to the valid, enforceable and first priority perfected security
interest of Agent in an investment account or deposit account at an institution
reasonably acceptable to Agent pursuant to a Deposit Account Control Agreement
or an Investment Property Control Agreement, as applicable, and which cash and
Cash Equivalents are not subject to any other security interest, pledge, lien,
encumbrance or claim, except to the extent that the holder of any of the same
has entered into an intercreditor agreement with Agent, in form and substance reasonably
satisfactory to Agent (other than customary liens or rights of setoff of the
institution maintaining such accounts permitted hereunder solely in its
capacity as a depository, provided, that, for purposes of the amount of
Qualified Cash included in the calculation of Excess Availability, such amount
may be reduced, at Agent’s option, by any obligations owing to such institution
and Borrowers shall provide such information with respect to such obligations
as Agent may from time to time request).

 

1.112                     “Quarterly
Average Excess Availability” shall mean, at any time, the daily average of the
aggregate amount of the Excess Availability of Borrowers for the immediately
preceding fiscal quarter.

 

1.113                     “Real
Property” shall mean all now owned and hereafter acquired real property of each
Borrower and Guarantor, including leasehold interests (other than with respect
to retail store locations), together with all buildings, structures, and other
improvements located thereon and all licenses, easements and appurtenances
relating thereto, wherever located, including the real property and related
assets more particularly described in the Mortgages.

 

1.114                     “Real
Property Availability” shall mean $4,074,000, provided, that, the
Real Property Availability shall be adjusted after the date hereof to mean the
amount equal to the lesser of $8,000,000 or sixty-five (65%) percent of the
appraised fair market value of the Eligible Real Property then owned by
Borrowers; provided, that, such adjustment shall be effective on
the first day of the month after each of the following conditions is satisfied
or such earlier date following the satisfaction of such conditions as agreed to
by Agent: (a) Agent shall have received the written request of Borrower Agent
for such adjustment, (b) as of the date of such adjustment, no Event of Default
shall exist or have occurred and be continuing, (c) Agent shall have received
at the expense of Borrowers not less than ten (10) Business Days’ prior to the
effectiveness of such adjustment, a final written report of an updated, current
appraisal of the Eligible Real Property by an appraiser reasonably acceptable
to Agent (which shall be one of the appraisers selected by Agent from its list
of approved appraisers), on which Agent and Lenders shall be expressly
permitted to rely, and that is in form, scope and methodology reasonably
satisfactory to

 

26

 

Agent, and (d) the amount of
the appraised fair market value of the Eligible Real Property used for purposes
of adjusting the Real Property Availability shall be based on such appraisal.

 

1.115                     “Receivables”
shall mean all of the following now owned or hereafter arising or acquired
property of each Borrower and Guarantor: (a) all Accounts; (b) all interest,
fees, late charges, penalties, collection fees and other amounts due or to
become due or otherwise payable in connection with any Account; (c) all payment
intangibles of such Borrower or Guarantor; (d) 
letters of credit, indemnities, guarantees, security or other deposits
and proceeds thereof issued payable to any Borrower or Guarantor or otherwise
in favor of or delivered to any Borrower or Guarantor in connection with any
Account or any Credit Card Receivables; or (e) all other accounts, contract rights,
chattel paper, instruments, notes, general intangibles and other forms of
obligations owing to any Borrower or Guarantor, whether from the sale and lease
of goods or other property, licensing of any property (including Intellectual
Property or other general intangibles), rendition of services or from loans or
advances by any Borrower or Guarantor or to or for the benefit of any third
person (including loans or advances to any Affiliates or Subsidiaries of any
Borrower or Guarantor) or otherwise associated with any Accounts, Inventory or
general intangibles of any Borrower or Guarantor (including, without
limitation, choses in action, causes of action, tax refunds, tax refund claims,
any funds which may become payable to any Borrower or Guarantor in connection
with the termination of any Plan or other employee benefit plan and any other
amounts payable to any Borrower or Guarantor from any Plan or other employee
benefit plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, casualty
or any similar types of insurance and any proceeds thereof and proceeds of
insurance covering the lives of employees on which any Borrower or Guarantor is
a beneficiary).

 

1.116                     “Records”
shall mean, as to each Borrower and Guarantor, all of such Borrower’s and
Guarantor’s present and future books of account of every kind or nature,
purchase and sale agreements, invoices, ledger cards, bills of lading and other
shipping evidence, statements, correspondence, memoranda, credit files and
other data relating to the Collateral or any account debtor, together with the
tapes, disks, diskettes and other data and software storage media and devices,
file cabinets or containers in or on which the foregoing are stored (including
any rights of any Borrower or Guarantor with respect to the foregoing
maintained with or by any other person).

 

1.117                     “Reference
Bank” shall mean Wachovia Bank, National Association, or such other bank as
Agent may from time to time designate.

 

1.118                     “Refinancing
Indebtedness” shall have meaning set forth in Section 9.9 hereof.

 

1.119                     “Renewal
Date” shall the meaning set forth in Section 14.1 hereof.

 

1.120                     “Register”
shall have the meaning set forth in Section 14.7 hereof.

 

1.121                     “Required
Lenders” shall mean, at any time, those Lenders whose Pro Rata Shares aggregate
sixty-six and two-thirds (66 2/3%) percent or more of the aggregate of the
Commitments of all Lenders, or if the Commitments shall have been terminated,
Lenders to

 

27

 

whom at least sixty-six and
two-thirds (66 2/3%) percent of the then outstanding Obligations are owing.

 

1.122                     “Reserves”
shall mean as of any date of determination, such amounts as Agent may from time
to time establish and revise in good faith reducing the amount of Revolving
Loans and Letter of Credit Accommodations which would otherwise be available to
any Borrower under the lending formula(s) provided for herein:  (a) to reflect events, conditions,
contingencies or risks which adversely affect, or would have a reasonable
likelihood of adversely affecting, either (i) any of the Collateral of the
types or categories included in the Borrowing Base or related thereto or its
value or (ii) the assets or business of any Borrower or Obligor or (iii) the
security interests and other rights of Agent or any Lender in the Collateral
(including the enforceability, perfection and priority thereof) or (b) to
reflect Agent’s good faith belief that any collateral report or financial
information furnished by or on behalf of any Borrower or Obligor to Agent is or
may have been incomplete, inaccurate or misleading in any material respect or
(c) to reflect outstanding Letter of Credit Accommodations as provided in
Section 2.2 hereof or (d) in respect of any state of facts which Agent
determines in good faith constitutes a Default or an Event of Default.  Without limiting the generality of the
foregoing, Reserves may be established to reflect any of the following:  (i) that dilution with respect to the Credit
Card Receivables (based on the ratio of the aggregate amount of non-cash
reductions in Credit Card Receivables for any period to the aggregate dollar
amount of the sales of Borrowers giving rise to Credit Card Receivables for
such period) as calculated by Agent for any period is or is reasonably
anticipated to be greater than five (5%) percent, (ii) to the extent that
the fair market value of any of the Real Property subject to the Mortgages as
set forth in the most recent acceptable appraisals received by Agent with
respect thereto has declined so that the amount of the Real Property
Availability is greater than sixty (60%) percent of such appraised fair market
value, (iii) inventory shrinkage, (iv) reserves in respect of markdowns and
cost variances (pursuant to discrepancies between the purchase order price of
Inventory and the actual cost thereof), (v) amounts due or to become due in
respect of sales, use and/or withholding taxes, (vi) any rental payments,
service charges or other amounts to become due to lessors of real property to
the extent Inventory or Records are located in or on such property or such
Records are needed to monitor or otherwise deal with the Collateral, provided,
that, the Reserves established pursuant to this clause (vi) as to
retail store locations (including factory store locations) that are leased
shall not exceed at any time the aggregate of amounts payable for the next
three (3) months to the lessors of such retail store locations (including
factory store locations) located in those States where any right of the lessor
to Collateral may have priority over the security interest and lien of Agent
therein, provided, that, such limitation on the amount of the
Reserves pursuant to this clause (vi) shall only apply so long as: (A) no
Event of Default shall exist or have occurred and be continuing, (B) neither a
Borrower, Guarantor nor Agent shall have received notice of any event of
default by the lessee under the lease with respect to such location and (C) no
Borrower has granted to the lessor a security interest or lien upon any assets
of such Borrower, (vii) any rental payments, service changes or other amounts
due or to become due to lessors of personal property; (viii) amounts owing by
Borrowers to Credit Card Issuers or Credit Card Processors in connection with
the Credit Card Agreements, (ix) up to fifty (50%) percent of the aggregate
amount of merchandise gift certificates and coupons, (x) an increase in the
number of days of the turnover of Inventory or a change in the mix of the
Inventory that results in an overall decrease in the value thereof or a
deterioration in its nature or quality (but only to the extent not addressed by
the lending formulas in a manner satisfactory to Agent), (xi) variances between
the perpetual inventory records of

 

28

 

Borrowers and the results of
the test counts of Inventory conducted by Agent with respect thereto in excess
of the percentage acceptable to Agent, (xii) the aggregate amount of deposits,
if any, received by any Borrower from its retail customers in respect of
unfilled orders for merchandise and the purchase price of layaway goods, and
(xiii) obligations, liabilities or indebtedness (contingent or otherwise) of
Borrowers or Guarantors to Agent, any Lender, any Affiliate of any Lender or
any other financial institution acceptable to Agent (and in each case as to any
such Lender, Affiliate of any Lender or other financial institution only to the
extent approved by Agent) arising under or in connection with any Hedge
Agreement of any Borrower or Guarantor with Agent, any Lender, any Affiliate of
any Lender or any other financial institution acceptable to Agent or as such
Person may otherwise require in connection therewith to the extent that such
obligation, liabilities or indebtedness constitute Obligations as such term is
defined herein or otherwise receive the benefit of the security interest of
Agent in any Collateral.  The amount of
any Reserve established by Agent shall have a reasonable relationship to the
event, condition or other matter which is the basis for such Reserve as
determined by Agent in good faith.  In
the event that based on the calculation of the Borrowing Base by Agent at the
time, the establishment of a Reserve at such time will result in there being no
Excess Availability at such time, Agent shall give Borrower Agent one (1)
Business Day’s notice prior to establishing such new Reserves.  Promptly upon the receipt of such notice,
Borrowers shall take such action as may be required so that the event,
condition or matters that is the basis for the Reserve no longer exists in a
manner and to the extent satisfactory to Agent. 
In no event shall such notice and opportunity  limit the right of Agent to establish such
Reserve unless Agent shall have determined that the event, condition or other
matter that is the basis for such new Reserve no longer exists or has otherwise
been addressed in a manner and to the extent satisfactory to Agent so that
Agent determines that such Reserve does not need to be established.

 

1.123                     “Restricted
Payment” shall mean any dividend or other distribution (whether in cash,
securities or other property) with respect to any shares of any class of
Capital Stock of Parent, Operating or any Subsidiary of either of them, or any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such shares of Capital Stock of
Parent, Operating or any Subsidiary or any option, warrant or other right to
acquire any such shares of Capital Stock of Parent, Operating or any such
Subsidiary.

 

1.124                     “Revolving
Loans” shall mean the loans now or hereafter made by or on behalf of any Lender
or by Agent for the account of any Lender on a revolving basis pursuant to the
Credit Facility (involving advances, repayments and readvances) as set forth in
Section 2.1 hereof and any reference to the term “Loans” used herein shall have
the same meaning as the term Revolving Loans.

 

1.125                     “Securities
Laws” shall mean the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and all rules, regulations and
interpretations issued pursuant thereto or in connection therewith, and all
state and local statutes, rules and regulations issued in connection therewith
or related thereto, as the same now exist or may hereafter be amended,
modified, interpreted, recodified or supplemented.

 

1.126                     “Senior
Debenture Indenture” shall mean the Indenture, dated as of October 17, 1997,
between Parent, as issuer, and State Street Bank and Trust Company, as trustee,
with

 

29

 

respect to the Senior Discount
Debentures as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

 

1.127                     “Senior
Discount Debentures” shall mean, collectively, the 13 1/8% Senior Discount
Debentures due 2008 issued by Parent pursuant to the Senior Debenture
Indenture, as the same now exist or may hereafter be amended, modified,
supplemented, extended, modified, supplemented, extended, renewed, restated or
replaced.

 

1.128                     “16%
Senior Discount Note Indenture” shall mean the Indenture, dated May 6, 2003,
between Intermediate, as issuer and 16% Senior Discount Note Trustee, with
respect to the 16% Senior Discount Notes, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

 

1.129                     “16%
Senior Discount Notes” shall mean, collectively, the 16.0% Senior Discount
Contingent Principal Notes due 2008 issued by Intermediate under the 16% Senior
Discount Note Indenture, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

 

1.130                     “16%
Senior Discount Note Trustee” shall mean U.S. Bank, National Association, and
its successors and assigns, and any replacement trustee permitted pursuant to
the terms and conditions of the 16% Senior Discount Note Indenture.

 

1.131                     “Solvent”
shall mean, at any time with respect to any Person, that at such time such
Person (a) is able to pay its debts as they mature and has (and has a
reasonable basis to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business consistent with its
practices as of the date hereof, and (b) the assets and properties of such
Person at a fair valuation (and including as assets for this purpose at a fair
valuation all rights of subrogation, contribution or indemnification arising
pursuant to any guarantees given by such Person) are greater than the
Indebtedness of such Person, and including subordinated and contingent
liabilities computed at the amount which, such person has a reasonable basis to
believe, represents an amount which can reasonably be expected to become an
actual or matured liability (and including as to contingent liabilities arising
pursuant to any guarantee the face amount of such liability as reduced to
reflect the probability of it becoming a matured liability).

 

1.132                     “Special
Agent Advances” shall have the meaning set forth in Section 12.11 hereof.

 

1.133                     “Standby
Letter of Credit” shall mean all Letter of Credit Accommodations other than
Commercial Letters of Credit.

 

1.134                     “Store
Accounts” shall have the meaning set forth in Section 6.3 hereof.

 

1.135                     “Subsidiary”
or “subsidiary” shall mean, with respect to any Person, any corporation,
limited liability company, limited liability partnership or other limited or general
partnership, trust, association or other business entity of which an aggregate
of at least a majority of the outstanding Capital Stock or other interests
entitled to vote in the election of the board of directors of such corporation
(irrespective of whether, at the time, Capital Stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the

 

30

 

happening of any contingency),
managers, trustees or other controlling persons, or an equivalent controlling
interest therein, of such Person is, at the time, directly or indirectly, owned
by such Person and/or one or more subsidiaries of such Person.

 

1.136                     “Syndication
Agent” shall mean Bank of America N.A., in its capacity as syndication agent on
behalf of Lenders pursuant to the terms hereof and any replacement or successor
syndication agent hereunder.

 

1.137                     “Taxes”
shall mean any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding,
in the case of Agent or any Lender, such taxes (including income taxes,
franchise taxes or capital taxes) as are imposed on or measured by such Lender’s
net income or capital by any jurisdiction (or any political subdivision
thereof).

 

1.138                     “10
3/8% Subordinated Notes” shall mean, collectively, the 10 3/8% Senior
Subordinated Notes due 2007 issued by Operating under the 10 3/8% Subordinated
Note Indenture, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.

 

1.139                     “10
3/8% Subordinated Note Indenture” shall mean the Indenture, dated as of October
17, 1997, by and among Operating, as issuer, Borrowers, and certain Affiliates
of Borrowers, as guarantors, and State Street Bank and Trust Company, as
trustee, with respect to the 10 3/8% Subordinated Notes, as the same now exists
or may hereafter be amended, modified, supplemented, extended, renewed,
restated, or replaced.

 

1.140                     “TPG
Partners” shall mean (a) TPG Partners II, L.P.; (b) any managing director,
principal, officer or employee of TPG Partners II, L.P. who control it as of
the date of this Agreement; and (c) any other Person controlled by any of the
Persons included in clauses (a) and (b) of this definition.  For the purposes of this definition, the term
“control” (including with correlative meanings, the terms “controlled by” and “under
common control with”), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of Voting Stock, by agreement or otherwise.

 

1.141                     “Transferee”
shall mean any transferee or assignee of a Lender or a Participant.

 

1.142                     “UCC”
shall mean the Uniform Commercial Code as in effect in the State of New York,
and any successor statute, as in effect from time to time (except that terms
used herein which are defined in the Uniform Commercial Code as in effect in
the State of New York on the date hereof shall continue to have the same
meaning notwithstanding any replacement or amendment of such statute except as
Agent may otherwise determine).

 

1.143                     “Value”
shall mean, as determined by Agent in good faith, with respect to Inventory,
the lower of (a) cost computed on a first-in first-out basis in accordance with
GAAP or (b) market value, provided, that, for purposes of the
calculation of the Borrowing Base, (i) the Value of the Inventory shall not
include:  (A) the portion of the Value of
Inventory equal to the profit earned by any Affiliate on the sale thereof to
any Borrower or (B) write-ups or write-downs in value with respect to currency
exchange rates and (ii) notwithstanding anything to the

 

31

 

contrary contained herein, the
cost of the Inventory shall be computed in the same manner and consistent with
the most recent appraisal of the Inventory received by Agent prior to the date
hereof, if any.

 

1.144                     “Voting
Stock” shall mean with respect to any Person, (a) one (1) or more classes of
Capital Stock of such Person having general voting powers to elect at least a
majority of the board of directors, managers or trustees of such Person,
irrespective of whether at the time Capital Stock of any other class or classes
have or might have voting power by reason of the happening of any contingency,
and (b) any Capital Stock of such Person convertible or exchangeable without
restriction at the option of the holder thereof into Capital Stock of such
Person described in clause (a) of this definition.

 

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

 

SECTION 2.                                 CREDIT
FACILITIES

 

2.1                   Revolving Loans. Subject to and upon the terms
and conditions contained herein, each Lender severally (and not jointly) agrees
to make its Pro Rata Share of Revolving Loans to Borrowers from time to time in
amounts requested by Borrowers (or Borrower Agent on behalf of Borrowers) up to
the amount outstanding at any time equal to the Borrowing Base at such time.

 

2.2                   Letter of Credit Accommodations.

 

(a)                    Subject
to and upon the terms and conditions contained herein, at the request of a
Borrower (or Borrower Agent on behalf of such Borrower), Agent agrees, for the
ratable risk of each Lender according to its Pro Rata Share, to provide or
arrange for Letter of Credit Accommodations for the account of such Borrower
containing terms and conditions acceptable to Agent and the issuer
thereof.  Any payments made by or on
behalf of Agent or any Lender to any issuer thereof and/or related parties in
connection with the Letter of Credit Accommodations provided to or for the
benefit of a Borrower shall constitute additional Revolving Loans to such
Borrower pursuant to this Section 2 (or Special Agent Advances as the case may
be).

 

(b)                   In
addition to any charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations, Borrowers shall pay to
Agent, for the benefit of Lenders, monthly a letter of credit fee at a rate
equal to the percentage (on a per annum basis) set forth below on the daily
outstanding balance of the Letter of Credit Accommodations during the
immediately preceding month (or part thereof), payable in arrears as of the
first of each succeeding month, provided, that, such percentage
shall be increased or decreased, as the case may be, to the percentage (on a
per annum basis) set forth below based on the Quarterly

 

32

 

Average Excess Availability for the immediately
preceding fiscal quarter being at or within the amounts indicated for such
percentage:

 

	
  Tier

  	
   

  	
  Quarterly Average

  Excess Availability

  	
   

  	
  Documentary

  L/C Rate

  	
   

  	
  Standby L/C

  Rate

  	
   

  
	
  1

  	
   

  	
  Greater than
  $55,000,000

  	
   

  	
  .625

  	
  %

  	
  1.250

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  Less than or
  equal to $55,000,000 and greater than $40,000,000

  	
   

  	
  .750

  	
  %

  	
  1.250

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3

  	
   

  	
  Less than or
  equal to $40,000,000 and greater than $20,000,000

  	
   

  	
  .875

  	
  %

  	
  1.250

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4

  	
   

  	
  Less than or
  equal to $20,000,000

  	
   

  	
  1.000

  	
  %

  	
  1.250

  	
  %

  

 

provided, that,
(i) the applicable percentage shall be calculated and established once each
fiscal quarter and shall remain in effect until adjusted thereafter after the
end of the next fiscal quarter, (ii) if the Excess Availability is greater than
$40,000,000 as of the date hereof, the applicable percentage through the last
day of the sixth (6th) month after the date hereof shall be the amount for Tier
2 set forth above, and (iii) notwithstanding anything to the contrary contained
herein, Agent may, and upon the written direction of Required Lenders shall,
require Borrowers to pay to Agent for the benefit of Lenders, such letter of
credit fee at a rate equal to two (2%) percent per annum on such daily
outstanding balance higher than the otherwise applicable percentage: (A) for
the period (1) from and after the effective date of termination or non-renewal
hereof until Agent and Lenders have received full and final payment of all
outstanding and unpaid Obligations which are not contingent and cash collateral
or letter of credit, as Agent may specify, in the amounts and on the terms
required under Section 14.1 hereof for contingent Obligations (notwithstanding
entry of a judgment against any Borrower or Guarantor) and (2) from and after
the date of the occurrence of an Event of Default and for so long as such Event
of Default is continuing.

 

(c)                    The
Borrower requesting such Letter of Credit Accommodation (or Borrower Agent on
behalf of such Borrower) shall give Agent two (2) Business Days’ prior written
notice of such Borrower’s request for the issuance of a Letter of Credit
Accommodation.  Such notice shall be
irrevocable and shall specify the original face amount of the Letter of Credit
Accommodation requested, the effective date (which date shall be a Business Day
) of issuance of such requested Letter of Credit Accommodation, whether such
Letter of Credit Accommodations may be drawn in a single or in partial draws,
the date on which such requested Letter of Credit Accommodation is to expire
(which date shall be a Business Day and in no event shall the expiration date
of any Letter of Credit Accommodation be a date less than five (5)

 

33

 

Business Days prior to the end of the then
current term of this Agreement), the purpose for which such Letter of Credit
Accommodation is to be issued, and the beneficiary of the requested Letter of
Credit Accommodation.  The Borrower
requesting the Letter of Credit Accommodation (or Borrower Agent on behalf of
such Borrower) shall attach to such notice the proposed form of the Letter of
Credit Accommodation.

 

(d)                   In
addition to being subject to the satisfaction of the applicable conditions
precedent contained in Section 4 hereof and the other terms and conditions
contained herein, no Letter of Credit Accommodations shall be available unless
each of the following conditions precedent have been satisfied in a manner
satisfactory to Agent:  (i) the Borrower
requesting such Letter of Credit Accommodation (or Borrower Agent on behalf of
such Borrower) shall have delivered to the proposed issuer of such Letter of
Credit Accommodation at such times and in such manner as such proposed issuer
may require, an application, in form and substance satisfactory to such
proposed issuer and Agent, for the issuance of the Letter of Credit
Accommodation and such other documents as may be required pursuant to the terms
thereof, and the form and terms of the proposed Letter of Credit Accommodation
shall be satisfactory to Agent and such proposed issuer, (ii) as of the date of
issuance, no order of any court, arbitrator or other Governmental Authority
shall purport by its terms to enjoin or restrain money center banks generally
from issuing letters of credit of the type and in the amount of the proposed
Letter of Credit Accommodation, and no law, rule or regulation applicable to
money center banks generally and no request or directive (whether or not having
the force of law) from any Governmental Authority with jurisdiction over money
center banks generally shall prohibit, or request that the proposed issuer of
such Letter of Credit Accommodation refrain from, the issuance of letters of
credit generally or the issuance of such Letters of Credit Accommodation; and
(iii) the Excess Availability, prior to giving effect to any Reserves with respect
to such Letter of Credit Accommodations, on the date of the proposed issuance
of any Letter of Credit Accommodation shall be equal to or greater than: (A) if
the proposed Letter of Credit Accommodation is a Commercial Letter of Credit
for the purpose of purchasing Inventory and the documents of title with respect
thereto are consigned to the issuer or delivered to and in the possession of a
Customs Broker (provided, that, as to such Customs Broker, Agent
shall have received a Collateral Access Agreement duly authorized, executed and
delivered by such person, such agreement shall be in full force and effect and
such person shall be in compliance in all material respects with the terms
thereof), the sum of: (1) the percentage equal to one hundred (100%) percent
minus the then applicable percentage with respect to the category of Eligible
Inventory to be purchased with such Letter of Credit Accommodation plus (2) the
amount of the Reserve to be established based on freight, taxes, duty and other
amounts which Agent estimates must be paid in connection with such Inventory
being purchased with such Letter of Credit Accommodation calculated as
described below and (B) if the proposed Letter of Credit Accommodation is a
Standby Letter of Credit or for any other purpose or the documents of title are
note consigned to the issuer or are not delivered to and in the possession of a
Customs Broker (or if delivered to and in the possession of a Customs Broker,
an of the conditions set forth in clause (A) are not satisfied as to such
Customs Broker) in connection with a Letter of Credit Accommodation for the
purpose of purchasing Inventory, an amount equal to one hundred (100%) percent
of the face amount thereof and all other commitments and obligations made or
incurred by Agent with respect thereto. 
Effective on the issuance of each Letter of Credit Accommodation, a
Reserve shall be established in the applicable amount set forth in Section
2.2(d)(iii)(A) or Section 2.2(d)(iii)(B).

 

34

 

(e)                    The
amount of the Reserve based on freight, taxes, duty and other amounts referred
to above shall be calculated from time to time as follows: (i) the amount equal
to (A) the most recent determination by Agent of the average of the freight,
taxes, duty and other amounts referred to above as a percentage of the
outstanding Letter of Credit Accommodations consisting of Commercial Letters of
Credit used to purchase Inventory as of the date of such calculation in
accordance with the current practices and procedures of Agent as of the date
hereof, multiplied by (B) the then outstanding amount of such Letter of Credit
Accommodations multiplied  by (ii) the percentage equal to (A) the
percentage of one hundred (100%) percent minus (B) the average of the
percentages used for Inventory at such time in the calculation of the Borrowing
Base.

 

(f)                      Except
in Agent’s discretion, with the consent of all Lenders (except as otherwise
provided herein), the amount of all outstanding Letter of Credit Accommodations
and all other commitments and obligations made or incurred by Agent or any
Lender in a connection therewith shall not at any time exceed the Maximum
Credit less any Revolving Loans outstanding.

 

(g)                   Borrowers
and Guarantors shall indemnify and hold Agent and Lenders harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Agent or any Lender may suffer or incur in connection with any Letter of
Credit Accommodations and any documents, drafts or acceptances relating
thereto, including any losses, claims, damages, liabilities, costs and expenses
due to any action taken by any issuer or correspondent with respect to any
Letter of Credit Accommodation, except for such losses, claims, damages,
liabilities, costs or expenses that are a direct result of the gross negligence
or wilful misconduct of Agent or any Lender as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.  Each Borrower and Guarantor assumes all risks
with respect to the acts or omissions of the drawer under or beneficiary of any
Letter of Credit Accommodation and for such purposes the drawer or beneficiary
shall be deemed such Borrower’s agent. 
Each Borrower and Guarantor assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any
goods subject to any Letter of Credit Accommodations or any documents, drafts
or acceptances thereunder.  Each Borrower
and Guarantor hereby releases and holds Agent and Lenders harmless from and
against any acts, waivers, errors, delays or omissions, whether caused by any
Borrower, Guarantor, by any issuer or correspondent or otherwise with respect
to or relating to any Letter of Credit Accommodation, except for the gross
negligence or wilful misconduct of Agent or any Lender as determined pursuant
to a final, non-appealable order of a court of competent jurisdiction.  The provisions of this Section 2.2(f) shall
survive the payment of Obligations and the termination of this Agreement.

 

(h)                   In
connection with Inventory purchased pursuant to Letter of Credit
Accommodations, Borrowers and Guarantors shall, at Agent’s request, instruct
all suppliers, carriers, forwarders, customs brokers, warehouses or others
receiving or holding cash, checks, Inventory, documents or instruments in which
Agent holds a security interest to deliver them to Agent and/or subject to
Agent’s order, and if they shall come into such Borrower’s or Guarantor’s
possession, to deliver them, upon Agent’s request, to Agent in their original
form; provided, that, Agent shall not exercise the rights under
this clause (g) to have such persons deliver any cash, checks, Inventory,
documents or instruments (but as to such documents and instruments, Agent shall
not exercise such rights only so long as the same are held by a Customs Broker
and the conditions set forth in Section 2.2(d)(iii)(A) hereof as to such
Customs Broker are satisfied), unless an Event of Default shall exist or have
occurred and be continuing.  Borrowers and
Guarantors shall also, at Agent’s request, designate Agent as the consignee on
all bills of lading and other negotiable and non-negotiable documents.

 

(i)                       Each
Borrower and Guarantor hereby irrevocably authorizes and directs any issuer of
a Letter of Credit Accommodation to name such Borrower or Guarantor as the
account party therein and to deliver to Agent all instruments, documents and
other writings and property received by issuer pursuant to the Letter of Credit
Accommodations and to accept and rely upon Agent’s instructions and agreements
with respect to all matters arising in connection with the Letter of Credit
Accommodations or the applications therefor. 
Nothing contained herein shall be deemed or construed to grant any
Borrower or Guarantor any right or authority to pledge the credit of Agent or
any Lender in any manner.  Agent and
Lenders shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Agent or any Lender
unless Agent has duly executed and delivered to such issuer the application or
a guarantee or indemnification in writing with respect to such Letter of Credit
Accommodation.  Borrowers and Guarantors
shall be bound by any reasonable interpretation made in good faith by Agent, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of any Borrower or Guarantor.

 

(j)                       At
any time an Event of Default exists or has occurred and is continuing, Agent
shall have the right and authority to, and Borrowers shall not, without the
prior consent of Agent, (i) approve or resolve any questions of non-compliance
of documents, (ii) give any instructions as to acceptance or rejection of any
documents or goods, (iii) execute any and all applications for steamship or
airway guaranties, indemnities or delivery orders, (iv) grant any extensions of
the maturity of, time of payments for, or time of presentation of, any drafts,
acceptances, or documents, and (v) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit Accommodations, or
documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral.  Agent may take such
actions either in its own name or in any Borrower’s name.

 

(k)                    At
any time, so long as no Event of Default exists or has occurred and is
continuing, a Borrower may, with Agent’s consent, (i) grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents, and (ii) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit Accommodations, or
documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral; provided, that, Borrowers may approve or
resolve any questions of non-compliance of documents following notice to Agent
thereof and without Agent’s consent except as otherwise provided in Section
2.2(i).

 

(l)                       Any
rights, remedies, duties or obligations granted or undertaken by any Borrower
or Guarantor to any issuer or correspondent in any application for any Letter
of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed
to have been granted or undertaken by such

 

35

 

Borrower or Guarantor to Agent for the
ratable benefit of Lenders.  Any duties
or obligations undertaken by Agent to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Agent in favor of any issuer or correspondent to the extent relating to any
Letter of Credit Accommodation, shall be deemed to have been undertaken by
Borrowers and Guarantors to Agent for the ratable benefit of Lenders and to
apply in all respects to Borrowers and Guarantors.

 

(m)                 Immediately
upon the issuance or amendment of any Letter of Credit Accommodation, each
Lender shall be deemed to have irrevocably and unconditionally purchased and
received, without recourse or warranty, an undivided interest and participation
to the extent of such Lender’s Pro Rata Share of the liability with respect to
such Letter of Credit Accommodation (including, without limitation, all
Obligations with respect thereto).

 

(n)                   Each
Borrower is irrevocably and unconditionally obligated, without presentment,
demand or protest, to pay to Agent any amounts paid by an issuer of a Letter of
Credit Accommodation with respect to such Letter of Credit Accommodation
(whether through the borrowing of Revolving Loans in accordance with Section
2.2(a) or otherwise).  In the event that
any Borrower fails to pay Agent on the date of any payment under a Letter of
Credit Accommodation in an amount equal to the amount of such payment, Agent (to
the extent it has actual notice thereof) shall promptly notify each Lender of
the unreimbursed amount of such payment and each Lender agrees, upon one (1)
Business Day’s notice, to fund to Agent the purchase of its participation in
such Letter of Credit Accommodation in an amount equal to its Pro Rata Share of
the unpaid amount.  The obligation of
each Lender to deliver to Agent an amount equal to its respective participation
pursuant to the foregoing sentence is absolute and unconditional and such remittance
shall be made notwithstanding the occurrence or continuance of any Event of
Default, the failure to satisfy any other condition set forth in Section 4 or
any other event or circumstance.  If such
amount is not made available by a Lender when due, Agent shall be entitled to
recover such amount on demand from such Lender with interest thereon, for each
day from the date such amount was due until the date such amount is paid to
Agent at the interest rate then payable by any Borrower in respect of Revolving
Loans that are Prime Rate Loans as set forth in Section 3.1(a) hereof.

 

2.3                   Intentionally Omitted.

 

2.4                   Commitments. The aggregate amount of each Lender’s
Pro Rata Share of the Revolving Loans and Letter of Credit Accommodations shall
not exceed the amount of such Lender’s Commitment, as the same may from time to
time be amended in accordance with the provisions hereof.

 

2.5                   Loan Limits.

 

(a)                    Notwithstanding
anything to the contrary contained herein, except in Agent’s determination,
with the consent of all Lenders, or as otherwise provided herein, the sum of
the aggregate principal amount of the Revolving Loans and the Letter of Credit
Accommodations outstanding at any time shall not exceed the Borrowing Base.

 

36

 

(b)                                 To
the extent that the 10 3/8% Subordinated Note Indenture is in effect and
contains a limitation upon the amount of Revolving Loans and Letter of Credit
Accommodations (and, in each case, interest and fees thereon) that may be
incurred hereunder by Borrowers other than Operating, then, notwithstanding any
other provision of this Agreement (including, without limitation, Sections 2.1,
2.2, and 2.8) and the books and records of Lenders or Agent or any Borrower,
(i) at any date, all Revolving Loans (and interest thereon) and Letter of
Credit Accommodations (and fees thereon) in excess of the amounts permitted to
be incurred by Borrowers other than Operating in accordance with the 10 3/8%
Subordinated Note Indenture (including amounts permitted under Section 4.09
of the 10 3/8% Subordinated Note Indenture other than under subsection (i)
thereof) are deemed made and shall be made solely to Operating and (ii) in no
event at any date shall the amount of Indebtedness (as defined in the 10 3/8%
Subordinated Note Indenture) arising pursuant to Revolving Loans and Letter of
Credit Accommodations to Borrowers other than Operating exceed the amount
thereof that such Borrowers (other than Operating) are permitted to incur at
such time under the terms of the 10 3/8% Subordinated Note Indenture and (iii)
Borrowers shall determine that the Indebtedness of Borrowers hereunder (other
than Operating) is, and the Indebtedness of Borrowers hereunder (other than
Operating) shall be deemed, permitted under such subsections of Section 4.09
of the 10 3/8% Subordinated Note Indenture, other than subsection (i)
thereof, to the extent that the amounts permitted under such other subsections
are not otherwise then the basis for permitting Indebtedness of Borrowers
(other than the Indebtedness hereunder) and to the extent that such other
subsections are applicable to the Indebtedness of Borrowers hereunder (other
than Operating).  The limitation on
Revolving Loans and Letter of Credit Accommodations of Borrowers other than
Operating set forth in Section 2.5(b) above shall automatically be
adjusted from time to time upon the incurrence or repayment of any Indebtedness
(as defined in the 10 3/8% Subordinated Note Indenture) permitted under the
applicable subsections of Section 4.09 of the 10 3/8% Subordinated Note
Indenture.

 

2.6                                 Mandatory Prepayments.

 

(a)                                  In
the event that at any time (i) the aggregate principal amount of the Revolving
Loans and the Letter of Credit Accommodations outstanding exceed the Borrowing
Base, or (ii) the aggregate principal amount of the Revolving Loans and Letter
of Credit Accommodations outstanding to all of Borrowers exceed the Maximum
Credit, or (iii) the aggregate amount of the outstanding Letter of Credit
Accommodations exceed the sublimit for Letter of Credit Accommodations set
forth in Section 2.2(e) hereof, or (iv) the aggregate amount of the
Revolving Loans and Letter of Credit Accommodations exceed the Maximum Credit,
any such event shall not limit, waive or otherwise affect any rights of Agent
or Lenders in such circumstances or on any future occasions and Borrowers
shall, upon demand by Agent, which may be made at any time or from time to
time, immediately repay to Agent the entire amount of any such excess(es) for
which payment is demanded.  Except to the
extent Agent is permitted to make certain additional Revolving Loans and Letter
of Credit Accommodations as provided in Section 12.8 hereof, Agent shall
make such demand upon the request of the Required Lenders.

 

(b)                                 Without
limiting any of the rights of Agent or Lenders pursuant hereto or otherwise, on
each date when any reduction in the Real Property Availability becomes
effective pursuant to the terms hereof, regardless of the value of the Real
Property, Borrowers shall, absolutely and unconditionally, automatically and
without demand make a payment to Agent, for

 

38

 

the benefit of Lenders,
in respect of the Revolving Loans in an amount equal to the excess, if any, of
the aggregate unpaid principal amount of the Revolving Loans over the Borrowing
Base as so reduced.

 

(c)                                  Subject
to Section 14.1(c) and Section 3.3(d) hereof, all such payments in
respect of the Revolving Loans pursuant to this Section 2.6 shall be
without premium or penalty.  All interest
accrued on the principal amount of the Revolving Loans paid pursuant to this Section 2.6
shall be paid, or may be charged by Agent to any loan account(s) of Borrowers,
at Agent’s option, on the date of such payment. 
Interest shall accrue and be due, until the next Business Day, if the
amount so paid by Borrowers to the bank account designated by Agent for such
purpose is received in such bank account after 12:00 noon, New York City
time.

 

2.7                                 Intentionally Omitted.

 

2.8                                 Joint and Several Liability.  Subject to Section 2.5(b) hereof, all
Borrowers shall be jointly and severally liable for all amounts due to Agent
and Lenders under this Agreement and the other Financing Agreements, regardless
of which Borrower actually receives the Revolving Loans or Letter of Credit
Accommodations hereunder or the amount of such Revolving Loans received or the
manner in which Agent or any Lender accounts for such Revolving Loans, Letter
of Credit Accommodations or other extensions of credit on its books and
records.  Subject to Section 2.5(b)
hereof, all references herein or in any of the other Financing Agreements to
any of the obligation of Borrowers to make any payment hereunder or thereunder
shall constitute joint and several obligations of Borrowers. The Obligations with
respect to Revolving Loans made to a Borrower, and the Obligations arising as a
result of the joint and several liability of a Borrower hereunder, with respect
to Revolving Loans made to the other Borrowers, shall be separate and distinct
obligations, but all such other Obligations shall be primary obligations of all
Borrowers.  Subject to Section 2.5(b)
hereof, the Obligations arising as a result of the joint and several liability
of a Borrower hereunder with respect to Revolving Loans, Letter of Credit
Accommodations or other extensions of credit made to the other Borrowers shall,
to the fullest extent permitted by law, be unconditional irrespective of (a)
the validity or enforceability, avoidance or subordination of the Obligations
of the other Borrowers or of any promissory note or other document evidencing
all or any part of the Obligations of the other Borrowers, (b) the absence of
any attempt to collect the Obligations from the other Borrowers, any Guarantor
or any other security therefor, or the absence of any other action to enforce
the same, (c) the waiver, consent, extension, forbearance or granting of any
indulgence by Agent or any Lender with respect to any provisions of any
instrument evidencing the Obligations of the other Borrowers, or any part
thereof, or any other agreement now or hereafter executed by the other
Borrowers and delivered to Agent or any Lender, (d) the failure by Agent or any
Lender to take any steps to perfect and maintain its security interest in, or
to preserve its rights and maintain its security or collateral for the
Obligations of the other Borrowers, (e) the election of Agent and Lenders in
any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)
of the Bankruptcy Code, (f) the disallowance of all or any portion of the
claim(s) of Agent or any Lender for the repayment of the Obligations of the
other Borrowers under Section 502 of the Bankruptcy Code, or (g) any other
circumstances which might constitute a legal or equitable discharge or defense
of a Guarantor or of the other Borrowers other than the gross negligence or
wilful misconduct of Agent or a Lender as determined pursuant to a final
non-appealable order of a court of competent jurisdiction. With respect to the
Obligations arising as a result of the joint

 

39

 

and several liability of
a Borrower hereunder with respect to Revolving Loans, Letter of Credit
Accommodations or other extensions of credit made to the other Borrowers hereunder,
each Borrower waives, until the Obligations shall have been paid in full and
this Agreement shall have been terminated, any right to enforce any right of
subrogation or any remedy which Agent or any Lender now has or may hereafter
have against any Borrower or Guarantor and any benefit of, and any right to
participate in, any security or collateral given to Agent or any Lender.  Upon any Event of Default, and for so long as
such Event of Default is continuing, Agent may proceed directly and at once,
without notice, against any Borrower to collect and recover the full amount, or
any portion of the Obligations, without first proceeding against the other
Borrowers or any other Person, or against any security or collateral for the
Obligations.  Each Borrower consents and
agrees that Agent and Lenders shall be under no obligation to marshall any
assets in favor of Borrower(s) or against or in payment of any or all of the
Obligations.

 

2.9                                 Maximum Credit Increase.

 

(a)                                  Borrower
Agent may, at any time, deliver a written request to Agent to increase the
Maximum Credit.  Any such written request
shall specify the amount of the increase in the Maximum Credit that Borrowers
are requesting, provided, that, (i) in no event shall the aggregate amount of
any such increase in the Maximum Credit cause the Maximum Credit to exceed
$250,000,000, (ii)  such request shall be
for an increase of not less than $10,000,000, (iii)  any such request shall be irrevocable, and
(iv) in no event shall more than one such written request be delivered to Agent
in any calendar quarter.

 

(b)                                 Upon
the receipt by Agent of any such written request, Agent shall notify each of
the Lenders of such request and each Lender shall have the option (but not the
obligation) to increase the amount of its Commitment by an amount up to its Pro
Rata Share of the amount of the increase in the Maximum Credit requested by
Borrower Agent as set forth in the notice from Agent to such Lender.  Each Lender shall notify Agent within fifteen
(15) days after the receipt of such notice from Agent whether it is willing to
so increase its Commitment, and if so, the amount of such increase; provided,
that, (i) the minimum increase in the Commitments of each such Lender
providing the additional Commitments shall equal or exceed $2,000,000,  and (ii) no Lender shall be obligated to
provide such increase in its Commitment and the determination to increase the
Commitment of a Lender shall be within the sole and absolute discretion of such
Lender.  If the aggregate amount of the
increases in the Commitments received from the Lenders equals or exceeds the
amount of the increase in the Maximum Credit requested by Borrower Agent, such
increase shall be effective on the date five (5) Business Days after each of
the conditions set forth in Section 2.9(c) have been satisfied or such
earlier date after such conditions have been satisfied as Agent may agree.  If the aggregate amount of the increases in
the Commitments received from the Lenders does not equal or exceed the amount
of the increase in the Maximum Credit requested by Borrower Agent, Agent may
seek additional increases from Lenders or Commitments from such Eligible
Transferees as it may determine, after consultation with Borrower Agent.  In the event Lenders (or Lenders and any such
Eligible Transferees, as the case may be) have committed in writing to provide
increases in their Commitments or new Commitments in an aggregate amount in
excess of the increase in the Maximum Credit requested by Borrowers or
permitted hereunder, Agent shall then have the right to allocate such
commitments, first to Lenders and then to Eligible Transferees, in such amounts
and manner as Agent may determine, after consultation with Borrower Agent.

 

40

 

(c)                                  The
Maximum Credit shall be increased by the amount of the increase in Commitments
from Lenders or new Commitments from Eligible Transferees, in each case
selected in accordance with Section 2.9(a) above, for which Agent has
received Assignment and Acceptances sixty (60) days after the date of the
request by Borrower Agent for the increase or such earlier date as Borrower
Agent may request (such earlier date being referred to herein as the “Early
Increase Date”) after five (5) Business Days’ prior written notice to Agent
(but subject to the satisfaction of the conditions set forth below), whether or
not the aggregate amount of the increase in Commitments and new Commitments, as
the case may be, equal or exceed the amount of the increase in the Maximum
Credit requested by Borrower Agent in accordance with the terms hereof,
effective on the date that each of the following conditions have been
satisfied:

 

(i)                                     Agent
shall have received from each Lender or Eligible Transferee that is providing
an additional Commitment as part of the increase in the Maximum Credit, an
Assignment and Acceptance duly executed by such Lender or Eligible Transferee
and each Borrower, provided, that, the aggregate Commitments set
forth in such Assignment and Acceptance(s) shall be not less than $10,000,000;

 

(ii)                                  the
conditions precedent to the making of Revolving Loans set forth in Section 4.2
shall be satisfied as of the date of the increase in the Maximum Credit, both
before and after giving effect to such increase;

 

(iii)                               Agent
shall have received an opinion of counsel to Borrowers in form and substance
and from counsel reasonably satisfactory to Agent and Lenders addressing such
matters as Agent may reasonably request (including an opinion as to no
conflicts with other Indebtedness);

 

(iv)                              such
increase in the Maximum Credit on the date of the effectiveness thereof shall
not violate any applicable law, regulation or order or decree of any court or
other Governmental Authority and shall not be enjoined, temporarily,
preliminarily or permanently;

 

(v)                                 there
shall have been paid to each Lender and Eligible Transferee providing an
additional Commitment in connection with such increase in the Maximum Credit
all fees and expenses due and payable to such Person on or before the
effectiveness of such increase;

 

(vi)                              there
shall have been paid to Agent, for the account of the Agent and Lenders (in
accordance with any agreement among them) all fees and expenses (including
reasonable fees and expenses of counsel) due and payable pursuant to any of the
Financing Agreements on or before the effectiveness of such increase.

 

(d)                                 In
the event that Borrower requests that the Maximum Credit is increased on an
Early Increase Date, and the aggregate amount of the increases in the
Commitments received from the Lenders and new Commitments from Eligible
Transferees, as the case may be, as of the Early Increase Date (based upon the
satisfaction of the conditions set forth above) does not equal or exceed the
amount of the increase in the Maximum Credit requested by Borrower Agent, the
Maximum Credit may thereafter be increased again on the date that is sixty (60)
days after the date of the original request by Borrower Agent for such increase
based on any additional

 

41

 

increase in Commitments
or new Commitments received by Agent (i) after the Early Increase Date but (ii)
prior to the date that is sixty (60) days after the date of such original
request by Borrower Agent for any such increase.

 

(e)                                  As
of the effective date of any such increase in the Maximum Credit, each
reference to the term Maximum Credit herein, and in any of the other Financing
Agreements shall be deemed amended to mean the amount of the Maximum Credit
specified in the most recent written notice from Agent to Borrower Agent of the
increase in the Maximum Credit.

 

SECTION 3.                            INTEREST
AND FEES

 

3.1                                 Interest.

 

(a)                                  Borrowers
shall pay to Agent, for the benefit of itself and Lenders, interest on the
outstanding principal amount of the Revolving Loans at the Interest Rate.  All interest accruing hereunder on and after
the date of any Event of Default or termination hereof shall be payable on
demand.

 

(b)                                 Each
Borrower (or Borrower Agent on behalf of such Borrower) may from time to time
request Eurodollar Rate Loans or may request that Prime Rate Loans be converted
to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue
for an additional Interest Period.  Such
request from a Borrower (or Borrower Agent on behalf of such Borrower) shall
specify the amount of the Eurodollar Rate Loans or the amount of the Prime Rate
Loans to be converted to Eurodollar Rate Loans or the amount of the Eurodollar
Rate Loans to be continued (subject to the limits set forth below) and the
Interest Period to be applicable to such Eurodollar Rate Loans.  Subject to the terms and conditions contained
herein, three (3) Business Days after receipt by Agent of such a request from a
Borrower (or Borrower Agent on behalf of such Borrower), such Eurodollar Rate
Loans shall be made or Prime Rate Loans shall be converted to Eurodollar Rate
Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided,
that, (i) no Event of Default shall exist or have occurred and be
continuing, (ii) no party hereto shall have sent any notice of termination of
this Agreement, (iii) such Borrower (or Borrower Agent on behalf of such
Borrower) shall have complied with such customary procedures as are reasonably
established by Agent and specified by Agent to Borrower Agent from time to time
for requests by Borrowers for Eurodollar Rate Loans, (iv) no more than eight
(8) Interest Periods may be in effect at any one time, (v) the aggregate amount
of the Eurodollar Rate Loans must be in an amount not less than $2,000,000 or
an integral multiple of $1,000,000 in excess thereof, and (vi) Agent and each
Lender shall have determined that the Interest Period or Adjusted Eurodollar
Rate is available to Agent and such Lender and can be readily determined as of
the date of the request for such Eurodollar Rate Loan by such Borrower.  Any request by or on behalf of a Borrower for
Eurodollar Rate Loans or to convert Prime Rate Loans to Eurodollar Rate Loans
or to continue any existing Eurodollar Rate Loans shall be irrevocable.  Notwithstanding anything to the contrary
contained herein, Agent and Lenders shall not be required to purchase United
States Dollar deposits in the London interbank market or other applicable
Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions
hereof shall be deemed to apply as if Agent and Lenders had purchased such
deposits to fund the Eurodollar Rate Loans.

 

42

 

(c)                                  Any
Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the
last day of the applicable Interest Period, unless Agent has received and
obtained bank approval with respect to a request to continue such Eurodollar
Rate Loan at least three (3) Business Days prior to such last day in accordance
with the terms hereof.  Any Eurodollar
Rate Loans shall, at Agent’s option, upon notice by Agent to Borrower Agent, be
subsequently converted to Prime Rate Loans on the effective date of the
termination of this Agreement in the event that this Agreement shall terminate
or not be renewed.  Borrowers shall pay
to Agent, for the benefit of Lenders, upon demand by Agent (or Agent may, at
its option, charge any loan account of any Borrower) any amounts required to
compensate any Lender or Participant for any loss, cost or expense incurred by
such person, as a result of the conversion of Eurodollar Rate Loans to Prime
Rate Loans pursuant to any of the foregoing. 
At the request of Borrower Agent, Agent shall provide to Borrower Agent
all available supporting documentation with respect to such loss, cost or
expense.  No loss, cost or expense will
arise upon the conversion of a Eurodollar Rate Loan to a Prime Rate Loan on the
last day of the Interest Period for such Eurodollar Rate Loan.

 

(d)                                 Interest
shall be payable by Borrowers to Agent, for the account of Lenders, monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed.  The interest rate on
non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or
decrease by an amount equal to each increase or decrease in the Prime Rate
effective on the first day of the month after any change in such Prime Rate is
announced based on the Prime Rate in effect on the last day of the month in
which any such change occurs.  In no
event shall charges constituting interest payable by Borrowers to Agent and
Lenders exceed the maximum amount or the rate permitted under any applicable
law or regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.

 

3.2                                 Fees.

 

(a)                                  Borrowers
shall pay to Agent, for the account of Lenders, monthly an unused line fee at a
rate equal to the percentage (on a per annum basis) set forth below calculated
upon the amount by which the Maximum Credit exceeds the average daily principal
balance of the outstanding Revolving Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while the Loan
Agreement is in effect and for so long thereafter as any Obligations are
outstanding.  Such fee shall be payable
on the first day of each month in arrears. 
The percentage used for determining the unused line fee shall be as set
forth below if the Quarterly Average Excess Availability for the immediately
preceding fiscal quarter is at or within the amounts indicated for such
percentage:

 

43

 

	
  Quarterly
  Average

  Excess Availability

  	
   

  	
  Unused Line

  Fee Percentage

  	
   

  
	
  Greater
  than $55,000,000

  	
   

  	
  .375

  	
  %

  
	
  Less
  than or equal to $55,000,000 and greater than $40,000,000

  	
   

  	
  .375

  	
  %

  
	
  Less
  than or equal to $40,000,000 and greater than $20,000,000

  	
   

  	
  .250

  	
  %

  
	
  Less
  than $20,000,000 or equal to $20,000,000

  	
   

  	
  .250

  	
  %

  

 

provided,
that, the unused line fee percentage shall be calculated and established
based on the foregoing once each fiscal quarter.  Such unused line fee percentage shall be used
commencing on the date hereof based on the Quarterly Average Excess
Availability during the fiscal quarter of Borrowers ending immediately prior to
the date hereof.

 

(b)                                 Borrowers
agree to pay to Agent the other fees and amounts set forth in the Fee Letter in
the amounts and at all times specified therein.

 

3.3                                 Changes in Laws and Increased Costs
of Revolving Loans.

 

(a)                                  If
after the date hereof, either (i) any change in, or in the interpretation of,
any law or regulation is introduced, including, without limitation, with
respect to reserve requirements, applicable to Agent or any banking or
financial institution from whom any Lender borrows funds or obtains credit (a “Funding
Bank”), or (ii) a Funding Bank or any Lender complies with any future guideline
or request from any central bank or other Governmental Authority or (iii) a
Funding Bank or any Lender determines that the adoption of any applicable law,
rule or regulation regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof has or would have the effect described below, or a
Funding Bank or any Lender complies with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, and in the case of any event set
forth in this clause (iii), such adoption, change or compliance has or would
have the direct or indirect effect of reducing the rate of return on any Lender’s
capital as a consequence of its obligations hereunder to a level below that
which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration the Funding Bank’s or Lender’s policies
with respect to capital adequacy) by an amount deemed by such Lender to be
material, and the result of any of the foregoing events described in clauses
(i), (ii) or (iii) is or results in an increase in the cost to any Lender of
funding or maintaining the Revolving Loans, the Letter of Credit Accommodations
or its Commitment, then Borrowers and Guarantors shall from time to time upon
demand by Agent pay to Agent additional amounts sufficient to indemnify Lenders
against such increased cost on an after-tax basis (after taking into account
applicable deductions and credits in respect of the amount indemnified).  A certificate as to the amount of such
increased cost shall be submitted to Borrower Agent by Agent and shall be
conclusive, absent manifest error.

 

44

 

(b)                                 If
prior to the first day of any Interest Period, (i) Agent shall have determined
in good faith (which determination shall be conclusive and binding upon
Borrowers and Guarantors) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for ascertaining
the Eurodollar Rate for such Interest Period, (ii)Agent has received notice
from the Required Lenders that the Eurodollar Rate determined or to be
determined for such Interest Period will not adequately and fairly reflect the
cost to Lenders of making or maintaining Eurodollar Rate Loans during such
Interest Period, or (iii) Dollar deposits in the principal amounts of the
Eurodollar Rate Loans to which such Interest Period is to be applicable are not
generally available in the London interbank market, Agent shall give telecopy
or telephonic notice thereof to Borrower Agent as soon as practicable
thereafter, and will also give prompt written notice to Borrower Agent when
such conditions no longer exist.  If such
notice is given (A) any Eurodollar Rate Loans requested to be made on the first
day of such Interest Period shall be made as Prime Rate Loans, (B) any
Revolving Loans that were to have been converted on the first day of such
Interest Period to or continued as Eurodollar Rate Loans shall be converted to
or continued as Prime Rate Loans and (C) each outstanding Eurodollar Rate Loan
shall be converted, on the last day of the then-current Interest Period
thereof, to Prime Rate Loans.  Until such
notice has been withdrawn by Agent, no further Eurodollar Rate Loans shall be
made or continued as such, nor shall any Borrower (or Borrower Agent on behalf
of any Borrower) have the right to convert Prime Rate Loans to Eurodollar Rate
Loans.

 

(c)                                  Notwithstanding
any other provision herein, if the adoption of or any change in any law,
treaty, rule or regulation or final, non-appealable determination of an
arbitrator or a court or other Governmental Authority or in the interpretation
or application thereof occurring after the date hereof shall make it unlawful
for Agent or any Lender to make or maintain Eurodollar Rate Loans as
contemplated by this Agreement, (i) Agent or such Lender shall promptly give
written notice of such circumstances to Borrower Agent (which notice shall be
withdrawn whenever such circumstances no longer exist), (ii) the commitment of
such Lender hereunder to make Eurodollar Rate Loans, continue Eurodollar Rate
Loans as such and convert Prime Rate Loans to Eurodollar Rate Loans shall
forthwith be canceled and, until such time as it shall no longer be unlawful
for such Lender to make or maintain Eurodollar Rate Loans, such Lender shall
then have a commitment only to make a Prime Rate Loan when a Eurodollar Rate
Loan is requested and (iii) such Lender’s Revolving Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate
Loans on the respective last days of the then current Interest Periods with
respect to such Revolving Loans or within such earlier period as required by
law.  If any such conversion of a
Eurodollar Rate Loan occurs on a day which is not the last day of the then
current Interest Period with respect thereto, Borrowers and Guarantors shall
pay to such Lender such amounts, if any, as may be required pursuant to Section 3.3(d)
below.

 

(d)                                 Borrowers
and Guarantors shall indemnify Agent and each Lender and hold Agent and each
Lender harmless from any loss or expense which Agent or such Lender may sustain
or incur as a consequence of (i) default by Borrower in making a borrowing of,
conversion into or extension of Eurodollar Rate Loans after such Borrower (or
Borrower Agent on behalf of such Borrower) has given a notice requesting the
same in accordance with the provisions of this Loan Agreement, (ii) default by
any Borrower in making any prepayment of a Eurodollar Rate Loan after such
Borrower has given a notice thereof in accordance with the provisions of this
Agreement, and (iii) the making of a prepayment of Eurodollar Rate Loans on

 

45

 

a day which is not the
last day of an Interest Period with respect thereto.  With respect to Eurodollar Rate Loans, such
indemnification may include an amount equal to the excess, if any, of (A) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or extended, for the period from the date of such
prepayment or of such failure to borrow, convert or extend to the last day of
the applicable Interest Period (or, in the case of a failure to borrow, convert
or extend, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Eurodollar
Rate Loans provided for herein over (B) the amount of interest (as
determined by such Agent or such Lender) which would have accrued to Agent or
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market.  This covenant shall survive the termination or
non-renewal of this Loan Agreement and the payment of the Obligations.

 

SECTION 4.                            CONDITIONS
PRECEDENT

 

4.1                                 Conditions Precedent to Amendment
and Restatement.  Each of the
following is a condition precedent to the effectiveness hereof:

 

(a)                                  all
requisite corporate or limited liability company action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
reasonably satisfactory in form and substance to Agent, and Agent shall have
received all information and copies of all documents, including records of
requisite corporate or limited liability company action and proceedings which
Agent may have reasonably requested in connection therewith, such documents
where requested by Agent or its counsel to be certified by appropriate
corporate officers or Governmental Authority (and including a copy of the
articles or certificate of incorporation, certificate of formation, operating
agreement or comparable organizational documents of each Borrower and Guarantor
certified by the Secretary of State (or equivalent Governmental Authority)
which shall set forth the same complete corporate or limited liability company
name of such Borrower or Guarantor as is set forth herein and such document as
shall set forth the organizational identification number of each Borrower or
Guarantor, if one is issued in its jurisdiction of organization;

 

(b)                                 Agent
shall have received evidence, in form and substance reasonably satisfactory to
Agent, that Borrowers and Guarantors have obtained all necessary consents and
approvals to the execution, delivery and performance of this Agreement;

 

(c)                                  Agent shall have received evidence, in form
consistent with the current practices and procedures of Agent, that the aggregate
amount of the Excess Availability after provision for payment of all fees and
expenses of the transactions contemplated hereby, shall be not less than
$20,000,000;

 

(d)                                 Agent shall have received evidence, in form
consistent with the current practices and procedures of Agent, that the
accounts payable of Borrowers are at the same historical level for comparable
prior periods;

 

46

 

(e)                                  Agent
shall have received evidence, in a form reasonably satisfactory to Agent, that
Borrowers have received the gross proceeds of the loans under the Black Canyon Credit Agreement in an amount of
not less than $275,000,000;

 

(f)                                    Agent
shall have received, in form and substance reasonably satisfactory to Agent,
such opinion letters of counsel to Borrowers and Guarantors with respect to
this Agreement and such other matters as Agent may request;

 

(g)                                 this
Agreement and any other agreements, documents and instruments related thereto
required hereunder shall have been duly executed and delivered to Agent, in
form and substance reasonably satisfactory to Agent.

 

4.2                                 Conditions Precedent to All
Revolving Loans and Letter of Credit Accommodations.  Each of the following is an additional
condition precedent to the Revolving Loans and/or providing Letter of Credit
Accommodations to Borrowers, including the initial Loans and Letter of Credit
Accommodations and any future Revolving Loans and Letter of Credit
Accommodations and the effectiveness hereof:

 

(a)                                  all
representations and warranties contained herein and in the other Financing
Agreements shall be true and correct in all material respects with the same
effect as though such representations and warranties had been made on and as of
the date of the making of each such Revolving Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto, except to the
extent that such representations and warranties expressly relate solely to an
earlier date (in which case such representations and warranties shall have been
true and correct in all material respects on and as of such earlier date);

 

(b)                                 no
law, regulation, order, judgment or decree of any Governmental Authority shall
exist, and no action, suit, investigation, litigation or proceeding shall be
pending or threatened in any court or before any arbitrator or Governmental
Authority, which in each case in the good faith judgment of Agent (i) purports
to enjoin, prohibit, restrain or otherwise affect (A) the making of the
Revolving Loans or providing the Letter of Credit Accommodations, or (B) the
consummation of the transactions contemplated pursuant to the terms hereof or
the other Financing Agreements or (ii) has or has a reasonable likelihood of
having a Material Adverse Effect; and

 

(c)                                  no
Event of Default shall exist or have occurred and be continuing on and as of
the date of the making of such Revolving Loan or providing each such Letter of
Credit Accommodation and after giving effect thereto.

 

SECTION 5.                            GRANT
AND PERFECTION OF SECURITY INTEREST

 

5.1                                 Grant of Security Interest.  To secure payment and performance of all
Obligations, each Borrower and Guarantor hereby grants to Agent, for itself and
the benefit of Lenders, a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Agent, for itself and the
benefit of Lenders, as security, and hereby confirms, reaffirms and restates
the prior grant thereof to Agent, for itself and Lenders, pursuant to the
Existing Agreements, all personal property and real property subject to the
Mortgages and fixtures, and interests in property and fixtures, of each
Borrower and Guarantor, whether now owned or

 

47

 

hereafter acquired or
existing, and wherever located (together with all other collateral security for
the Obligations at any time granted to or held or acquired by Agent or any
Lender, collectively, the “Collateral”), including:

 

(i)                                     all
Accounts;

 

(ii)                                  all
general intangibles, including, without limitation, all Intellectual Property;

 

(iii)                               all
goods, including, without limitation, Inventory and Equipment;

 

(iv)                              all
Real Property subject to the Mortgages and fixtures;

 

(v)                                 all
chattel paper, including, without limitation, all tangible and electronic
chattel paper;

 

(vi)                              all
instruments, including, without limitation, all promissory notes;

 

(vii)                           all
documents;

 

(viii)                        all
deposit accounts;

 

(ix)                                all
letters of credit, banker’s acceptances and similar instruments and including
all letter-of-credit rights;

 

(x)                                   all
supporting obligations and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Receivables and
other Collateral, including (A) rights and remedies under or relating to
guaranties, contracts of suretyship, letters of credit and credit and other
insurance related to the Collateral, (B) rights of stoppage in transit,
replevin, repossession, reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party, (C) goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, Receivables or other Collateral, including returned, repossessed
and reclaimed goods, and (D) deposits by and property of account debtors or
other persons securing the obligations of account debtors;

 

(xi)                                all
(A) investment property (including securities, whether certificated or
uncertificated, securities accounts, security entitlements, commodity contracts
or commodity accounts) and (B) monies, credit balances, deposits and other
property of any Borrower or Guarantor now or hereafter held or received by or
in transit to Agent, any Lender or its Affiliates or at any other depository or
other institution from or for the account of any Borrower or Guarantor, whether
for safekeeping, pledge, custody, transmission, collection or otherwise;

 

(xii)                             all
commercial tort claims, including, without limitation, those identified in the
Information Certificate;

 

(xiii)                          to
the extent not otherwise described above, all Receivables;

 

(xiv)                         all
Records; and

 

48

 

(xv)                            all
products and proceeds of the foregoing, in any form, including insurance
proceeds and all claims against third parties for loss or damage to or
destruction of or other involuntary conversion of any kind or nature of any or
all of the other Collateral.

 

(b)                                 Notwithstanding
anything to the contrary set forth in Section 5.1(a) above, the types or
items of Collateral described in such Section shall not include:

 

(i)                                     any
rights or interests in any contract, lease, permit, license, charter or license
agreement covering real or personal property, as such, if under the terms of
such contract, lease, permit, license, charter or license agreement, or
applicable law with respect thereto, the valid grant of a security interest or
lien therein to Agent is prohibited and such prohibition has not been or is not
waived or the consent of the other party to such contract, lease, permit,
license, charter or license agreement has not been or is not otherwise obtained
or under applicable law such prohibition cannot be waived; provided, that,
the foregoing exclusion shall in no way be construed (A) to apply if any such
prohibition is unenforceable under Sections 9-406, 9-407 or 9-408 of the UCC or
other applicable law or (B) so as to limit, impair or otherwise affect Agent’s
unconditional continuing security interests in and liens upon any rights or
interests of a Borrower or Guarantor in or to monies due or to become due under
any such contract, lease, permit, license, charter or license agreement
(including any Receivables); or

 

(ii)                                  the
Capital Stock of J. Crew Japan, Inc. (“J. Crew Japan”) to the extent that (A)
J. Crew Japan is a “controlled foreign corporation” (as such term is defined in
Section 957(a) of the Code or a successor provision thereof) of a Borrower
or Guarantor, (B) such Capital Stock is in excess of sixty five (65%) percent
of all of the issued and outstanding shares of Capital Stock of J. Crew Japan
entitled to vote (within the meaning of Treasury Regulation Section 1.956-2)
and (C) a pledge of more than such percentage would result in adverse tax
consequences to any Borrower or Guarantor.

 

5.2                                 Perfection of Security Interests.

 

(a)                                  Each
Borrower and Guarantor irrevocably and unconditionally authorizes Agent (or its
agent) to file at any time and from time to time such financing statements with
respect to the Collateral naming Agent or its designee as the secured party and
such Borrower or Guarantor as debtor, as Agent may require, and including any
other information with respect to such Borrower or Guarantor or otherwise
required by part 5 of Article 9 of the Uniform Commercial Code of such
jurisdiction as Agent may determine, together with any amendment and
continuations with respect thereto, which authorization shall apply to all
financing statements filed on, prior to or after the date hereof.  Each Borrower and Guarantor hereby ratifies
and approves all financing statements naming Agent or its designee as secured
party and such Borrower or Guarantor, as the case may be, as debtor with
respect to the Collateral (and any amendments with respect to such financing
statements) filed by or on behalf of Agent prior to the date hereof and
ratifies and confirms the authorization of Agent to file such financing
statements (and amendments, if any). 
Each Borrower and Guarantor hereby authorizes Agent to adopt on behalf
of such Borrower and Guarantor any symbol required for authenticating any
electronic filing.  In the event that the
description of the collateral in any financing statement naming Agent or its
designee as the secured party and any Borrower or Guarantor as debtor includes
assets and properties of such Borrower or Guarantor that do not at any time
constitute Collateral, whether

 

49

 

hereunder, under any of
the other Financing Agreements or otherwise, the filing of such financing
statement shall nonetheless be deemed authorized by such Borrower or Guarantor
to the extent of the Collateral included in such description and it shall not
render the financing statement ineffective as to any of the Collateral or
otherwise affect the financing statement as it applies to any of the
Collateral.  In no event shall any
Borrower or Guarantor at any time file, or permit or cause to be filed, any
correction statement or termination statement with respect to any financing
statement (or amendment or continuation with respect thereto) naming Agent or
its designee as secured party and such Borrower or Guarantor as debtor.

 

(b)                                 Each
Borrower and Guarantor does not have any chattel paper (whether tangible or
electronic) or instruments as of the date hereof, except as set forth in the
Information Certificate.  In the event
that any Borrower or Guarantor shall be entitled to or shall receive any
chattel paper or instrument after the date hereof, Borrowers and Guarantors
shall promptly notify Agent thereof in writing. 
Promptly upon the receipt thereof by or on behalf of any Borrower or
Guarantor (including by any agent or representative), such Borrower or
Guarantor shall deliver, or cause to be delivered to Agent, all tangible
chattel paper and instruments that such Borrower or Guarantor has or may at any
time acquire, accompanied by such instruments of transfer or assignment duly
executed in blank as Agent may from time to time specify, in each case except
as Agent may otherwise agree.  At Agent’s
option, each Borrower and Guarantor shall, or Agent may at any time on behalf
of any Borrower or Guarantor, cause the original of any such instrument or
chattel paper to be conspicuously marked in a form and manner acceptable to
Agent with the following legend referring to chattel paper or instruments as
applicable: “This [chattel paper][instrument] is subject to the security
interest of Congress Financial Corporation and any sale, transfer, assignment
or encumbrance of this [chattel paper][instrument] violates the rights of such
secured party.”

 

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

 

(d)                                 Each
Borrower and Guarantor does not have any deposit accounts as of the date
hereof, except as set forth in the Information Certificate.  Borrowers and Guarantors shall not, directly or
indirectly, after the date hereof open, establish or maintain any deposit
account unless each of the following conditions is satisfied:  (i) Agent shall have received not less than
five (5) Business Days prior written notice of the intention of any Borrower or
Guarantor to open or establish such account which notice shall specify in
reasonable detail and specificity reasonably acceptable to Agent the name of
the account, the owner of the account, the name and address of the bank at
which such account is to be opened or established, the individual at such bank
with whom such Borrower or Guarantor is dealing and the purpose of the account,
except as to any Store Account opened or established after the date
hereof, so long as no Event of

 

50

 

Default shall exist or
have occurred, Agent shall only have received such information as to such Store
Account on the next monthly report with respect to deposit accounts in
accordance with Section 7.1(a) hereof, (ii) the bank where such account is
opened or maintained shall be reasonably acceptable to Agent, and (iii) on or
before the opening of such deposit account (other than as to a Store Account so
long as no Event of Default shall exist or have occurred and be continuing),
such Borrower or Guarantor shall as Agent may specify either (A) deliver to
Agent a Deposit Account Control Agreement with respect to such deposit account
duly authorized, executed and delivered by such Borrower or Guarantor and the
bank at which such deposit account is opened and maintained or (B) arrange for
Agent to become the customer of the bank with respect to the deposit account on
terms and conditions reasonably acceptable to Agent. The terms of this subsection (d)
shall not apply to deposit accounts specifically and exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for
the benefit of any Borrower’s or Guarantor’s salaried employees or the escrow
of security deposits with respect to Real Property subject to lease.

 

(e)                                  No
Borrower or Guarantor owns or holds, directly or indirectly, beneficially or as
record owner or both, any investment property, as of the date hereof, or have
any investment account, securities account, commodity account or other similar
account with any bank or other financial institution or other securities
intermediary or commodity intermediary as of the date hereof, in each case
except as set forth in the Information Certificate.

 

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

 

(ii)                                  Borrowers
and Guarantors shall not, directly or indirectly, after the date hereof open,
establish or maintain any investment account, securities account, commodity
account or any other similar account (other than a deposit account) with any
securities intermediary or commodity intermediary unless each of the following
conditions is satisfied: (A)  Agent shall
have received not less than two (2) Business Days prior written notice of the
intention of such Borrower or Guarantor to open or establish such account which
notice shall specify in reasonable detail and specificity acceptable to Agent
the name of the account, the owner of the account, the name and address of the
securities intermediary or commodity intermediary at which such account is to
be opened or established, the individual at such intermediary with whom such
Borrower or Guarantor is dealing and the purpose of the account, (B) the
securities intermediary or commodity intermediary (as the case may be) where
such account is opened or maintained shall be reasonably acceptable to Agent,
and (C) on or before the opening of such investment account, securities account
or other similar account with a securities intermediary or commodity
intermediary, such Borrower or Guarantor shall as Agent

 

51

 

may specify either (1)
execute and deliver, and cause to be executed and delivered to Agent, an Investment
Property Control Agreement with respect thereto duly authorized, executed and
delivered by such Borrower or Guarantor and such securities intermediary or
commodity intermediary or (2) arrange for Agent to become the entitlement
holder with respect to such investment property on terms and conditions
acceptable to Agent.

 

(f)                                    Borrowers
and Guarantors are not the beneficiary or otherwise entitled to any right to
payment under any letter of credit, banker’s acceptance or similar instrument
as of the date hereof, except as set forth in the Information Certificate.  In the event that any Borrower or Guarantor
shall be entitled to or shall receive any right to payment under any letter of
credit, banker’s acceptance or any similar instrument with a face amount in
excess of $500,000, whether as beneficiary thereof or otherwise after the date
hereof, such Borrower or Guarantor shall promptly notify Agent thereof in
writing.  Such Borrower or Guarantor
shall immediately, as Agent may specify, either (i) deliver, or cause to be
delivered to Agent, with respect to any such letter of credit, banker’s
acceptance or similar instrument, the written agreement of the issuer and any
other nominated person obligated to make any payment in respect thereof
(including any confirming or negotiating bank), in form and substance
satisfactory to Agent, consenting to the assignment of the proceeds of the
letter of credit to Agent by such Borrower or Guarantor and agreeing to make
all payments thereon directly to Agent or as Agent may otherwise direct or (ii)
cause Agent to become, at Borrowers’ expense, the transferee beneficiary of the
letter of credit, banker’s acceptance or similar instrument (as the case may
be).

 

(g)                                 Borrowers
and Guarantors do not have any commercial tort claims as of the date hereof,
except as set forth in the Information Certificate.  In the event that any Borrower or Guarantor
shall at any time after the date hereof have any commercial tort claims in
excess of $1,000,000, such Borrower or Guarantor (or Borrower Agent) shall
promptly notify Agent thereof in writing, which notice shall (i) set forth in
reasonable detail the basis for and nature of such commercial tort claim and
(ii) include the express grant by such Borrower or Guarantor to Agent of a
security interest in such commercial tort claim (and the proceeds
thereof).  In the event that such notice
does not include such grant of a security interest, the sending thereof by such
Borrower or Guarantor to Agent shall be deemed to constitute such grant to Agent.
Upon the sending of such notice, any commercial tort claim described therein
shall constitute part of the Collateral and shall be deemed included
therein.  Without limiting the
authorization of Agent provided in Section 5.2(a) hereof or otherwise arising
by the execution by such Borrower or Guarantor of this Agreement or any of the
other Financing Agreements, Agent is hereby irrevocably authorized from time to
time and at any time to file such financing statements naming Agent or its
designee as secured party and such Borrower or Guarantor as debtor, or any
amendments to any financing statements, covering any such commercial tort claim
as Collateral. In addition, each Borrower and Guarantor shall promptly upon
Agent’s request, execute and deliver, or cause to be executed and delivered, to
Agent such other agreements, documents and instruments as Agent may require in
connection with such commercial tort claim.

 

(h)                                 Borrowers
and Guarantors do not have any goods, documents of title or other Collateral in
the custody, control or possession of a third party as of the date hereof,
except as set forth in the Information Certificate and except for goods located
in the United States in transit to a location of a Borrower or Guarantor
permitted herein in the ordinary course of business of such Borrower or
Guarantor in the possession of the carrier transporting such goods.

 

52

 

In the event that any
goods, documents of title or other Collateral are at any time after the date
hereof in the custody, control or possession of any other person not referred
to in the Information Certificate or such carriers, Borrowers and Guarantors
shall promptly notify Agent thereof in writing. 
Promptly upon Agent’s request, Borrowers and Guarantors shall deliver to
Agent a Collateral Access Agreement duly authorized, executed and delivered by
such person and the Borrower or Guarantor that is the owner of such Collateral.

 

(i)                                     Borrowers
and Guarantors shall take any other actions reasonably requested by Agent from
time to time to cause the attachment, perfection and first priority of, and the
ability of Agent to enforce, the security interest of Agent in any and all of
the Collateral, including, without limitation, (i) executing, delivering and,
where appropriate, filing financing statements and amendments relating thereto
under the UCC or other applicable law, to the extent, if any, that any Borrower’s
or Guarantor’s signature thereon is required therefor, (ii) causing Agent’s
name to be noted as secured party on any certificate of title for a titled good
if such notation is a condition to attachment, perfection or priority of, or
ability of Agent to enforce, the security interest of Agent in such Collateral
(other than motor vehicles, if any), (iii) complying with any provision of any
statute, regulation or treaty of the United States as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of Agent to enforce, the security interest of Agent in
such Collateral, (iv) obtaining the consents and approvals of any Governmental
Authority or third party, including, without limitation, any consent of any
licensor, lessor or other person obligated on Collateral, and taking all
actions required by any earlier versions of the UCC or by other law, as
applicable in any relevant jurisdiction.

 

SECTION 6.                            COLLECTION
AND ADMINISTRATION

 

6.1                                 Borrowers’ Loan Accounts.  Agent, for and on behalf of Lenders, shall
maintain one or more loan account(s) on its books in which shall be recorded
(a) all Revolving Loans, Letter of Credit Accommodations and other Obligations
and the Collateral, (b) all payments made by or on behalf of Borrowers and (c)
all other appropriate debits and credits as provided in this Agreement,
including, without limitation, fees, charges, costs, expenses and
interest.  All entries in the loan
account(s) shall be made in accordance with Agent’s customary practices as in
effect from time to time.

 

6.2                                 Statements.  Agent
shall render to Borrower Agent, as agent for Borrowers, each month a statement
setting forth the balance in Borrowers’ loan account(s) maintained by Agent for
Borrowers pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses.  Each
such statement shall be subject to subsequent adjustment by Agent but shall,
absent manifest errors or omissions, be considered correct and deemed accepted
by Borrowers and Guarantors and conclusively binding upon Borrowers and
Guarantors as an account stated except to the extent that Agent receives
a written notice from Borrower Agent of any specific exceptions of Borrower
Agent thereto within sixty (60) days after the date such statement has been
received by Borrower Agent.  Until such
time as Agent shall have rendered to any Borrower or Borrower Agent, a written
statement as provided above, the balance in a Borrower’s loan account(s) shall
be presumptive evidence of the amounts due and owing to Agent by Borrowers.

 

53

 

6.3                                 Collection of Accounts.

 

(a)                                  Each
Borrower and Guarantor shall establish and maintain, at its expense, deposit
account arrangements and merchant payment arrangements with the banks set forth
on Schedule 8.10 to the Information Certificate and subject to Section 5.2(d)
hereof such other banks as such Borrower or Guarantor may hereafter
select.  The banks set forth on Schedule 8.10
to the Information Certificate constitute all of the banks with which Borrowers
and Guarantors have deposit account arrangements and merchant payment
arrangements as of the date hereof and identifies each of the deposit accounts
at such banks that are used solely for receiving store receipts from a retail
store location of a Borrower (together with any other deposit accounts at any
time established or used by any Borrower for receiving such store receipts from
any retail store location, collectively, the “Store Accounts” and each
individually, a “Store Account”) or otherwise describes the nature of the use of
such deposit account by such Borrower.

 

(i)                                     Each
Borrower shall deposit all proceeds from sales of Inventory in every form,
including, without limitation, cash, checks, credit card sales drafts, credit
card sales or charge slips or receipts and other forms of daily store receipts,
from each retail store location of such Borrower on each Business Day into the
Store Account of such Borrower used solely for such purpose.  All such funds deposited into the Store
Accounts shall be sent by wire transfer or other electronic funds transfer no
less frequently than weekly or more frequently upon Agent’s request at any time
that an Event of Default exists or has occurred and is continuing to the
Blocked Accounts as provided in Section 6.3(a)(ii) below, except nominal
amounts which are required to be maintained in such Store Accounts under the
terms of such Borrower’s arrangements with the bank at which such Store
Accounts are maintained, which nominal amounts shall not exceed $5,000 as to
any individual Store Account at any time.

 

(ii)                                  Each
Borrower shall establish and maintain, at its expense, deposit accounts with
such banks as are reasonably acceptable to Agent (the “Blocked Accounts”) into
which each Borrower shall promptly either cause all amounts on deposit in the
Store Accounts of such Borrower to be sent as provided in Section 6.3(a)(i)
above or shall itself deposit or cause to be deposited all proceeds from sales
of Inventory, all amounts payable to each Borrower from Credit Card Issuers and
Credit Card Processors and all other proceeds of Collateral.  Borrowers and Guarantors shall deliver, or
cause to be delivered to Agent a Deposit Account Control Agreement duly
authorized, executed and delivered by each bank where a Blocked Account is
maintained as provided in Section 5.2 hereof or at any time and from time
to time Agent may become the bank’s customer with respect to any of the Blocked
Accounts and promptly upon Agent’s request, Borrowers shall execute and deliver
such agreements and documents as Agent may reasonably require in connection
therewith. Each Borrower and Guarantor agrees that all payments made to such
Blocked Accounts or other funds received and collected by Agent or any Lender,
whether in respect of the Receivables, as proceeds of Inventory or other
Collateral or otherwise shall be treated as payments to Agent, for the benefit
of Lenders, in respect of the Obligations and therefore shall constitute the
property of Agent and Lenders to the extent of the then outstanding
Obligations.

 

(b)                                 For
purposes of calculating the amount of the Revolving Loans available to each
Borrower and for purposes of calculating interest on the Obligations, such
payments will be applied (conditional upon final collection) to the Obligations
on the Business Day of receipt by

 

54

 

Agent of immediately
available funds in the Agent Payment Account provided such payments and notice
thereof are received in accordance with Agent’s usual and customary practices
as in effect from time to time and within sufficient time to credit such
Borrower’s loan account on such day, and if not, then on the next Business Day.

 

(c)                                  Each
Borrower and Guarantor and their respective shareholders, directors, employees,
agents, Subsidiaries or other Affiliates shall, acting as trustee for Agent,
receive, as the property of Agent, any monies, checks, notes, drafts or any
other payment relating to and/or proceeds of Receivables or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Agent.  In no event shall the same be
commingled with a Borrower’s own funds. 
Each Borrower agrees to reimburse Agent and Lenders on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of the payments by Agent or any Lender to or
indemnification of such bank or person in connection with such Blocked Account
or any amounts received therein or transferred therefrom.  The obligation of Borrowers to reimburse Agent
and Lenders for such amounts pursuant to this Section 6.3 shall survive
the termination or non-renewal of this Agreement.

 

(d)                                 On
or before April 30, 2005, (i) Borrowers and Guarantors shall use
reasonable efforts to execute and deliver, and cause to be executed and
delivered to, Agent the Deposit Account Control Agreements by and among Agent,
each Borrower and Guarantor, as the case may be, and Wachovia Bank, National
Association as to any deposit account of a Borrower or Guarantor maintained at
such bank and (ii)  Borrowers and
Guarantors shall execute and deliver, and cause to be executed and delivered to
Agent, the Deposit Account Control Agreements or Investment Property Control
Agreements by and among Agent, each Borrower and Guarantor, as the case may be,
at each other bank or other institution where such Borrower (or Guarantor) has
a deposit account or investment account for which it is required to obtain a
Deposit Account Control Agreement pursuant to Section 6.3 hereof or an
Investment Property Control Agreement pursuant to Section 5.2(e) or
otherwise, in each case, duly authorized, executed and delivered by such bank
and Borrower or Guarantor, as the case may be.

 

6.4                                 Payments.

 

(a)                                  All
Obligations shall be payable to the Agent Payment Account as provided in Section 6.3
or such other place as Agent may designate from time to time.  Agent shall apply payments received or
collected from any Borrower or Guarantor or for the account of any Borrower or
Guarantor (including the monetary proceeds of collections or of realization
upon any Collateral) as follows: first, to pay any fees, indemnities or
expense reimbursements then due to Agent and Lenders from any Borrower or
Guarantor; second, to pay interest due in respect of any Revolving Loans
(and including any Special Agent Advances); third, to pay or prepay
principal in respect of Special Agent Advances; fourth, to pay principal
due in respect of the Revolving Loans and to pay any Obligations then due
arising under or pursuant to any Hedge Agreements of a Borrower or Guarantor
with Agent, any Lender, any Affiliate of any Lender or any other financial
institution acceptable to Agent (up to the amount of any then effective Reserve
established in respect of such Obligations), on a pro  rata basis;
fifth, to pay or prepay

 

55

 

any other Obligations
consisting of Revolving Loans, whether or not then due, and any other
Obligations then due, in each case in such order and manner as Agent determines
or on and after an Event of Default, to be held as cash collateral in
connection with any Letter of Credit Accommodations or other contingent
Obligations (but not including for this purpose any Obligations arising under
or pursuant to any Hedge Agreements) and sixth, to pay any Obligations
then due arising under or pursuant to Hedge Agreements (other than to the
extent provided for above) on a pro  rata basis.  Notwithstanding anything to the contrary
contained in this Agreement, (i) unless so directed by Borrower Agent, or
unless a Default or an Event of Default shall exist or have occurred and be
continuing, Agent shall not apply any payments which it receives to any
Eurodollar Rate Loans, except (A) on the expiration date of the Interest Period
applicable to any such Eurodollar Rate Loans or (B) in the event that there are
no outstanding Prime Rate Loans and (ii) to the extent any Borrower uses any
proceeds of the Revolving Loans or Letter of Credit Accommodations to acquire
rights in or the use of any Collateral or to repay any Indebtedness used to
acquire rights in or the use of any Collateral, payments in respect of the
Obligations shall be deemed applied first to the Obligations arising from
Revolving Loans and Letter of Credit Accommodations that were not used for such
purposes and second to the Obligations arising from Revolving Loans and Letter
of Credit Accommodations the proceeds of which were used to acquire rights in
or the use of any Collateral in the chronological order in which such Borrower
acquired such rights in or the use of such Collateral.  So long as no Event of Default shall exist or
have occurred and be continuing and there is Excess Availability after giving
effect thereto, amounts received by Agent from Borrowers pursuant to this Section 6.4(a)
that are not applied to the Obligations in accordance herewith shall, at the
request of Borrower Agent received by Agent on or before 12:00 noon New York
City time on any Business Day, be remitted to Borrower Agent or any Borrower as
Agent may direct.

 

(b)                                 At
Agent’s option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of any Borrower maintained by Agent.

 

(c)                                  Except
as otherwise required by law, any and all payments by or on behalf of any
Borrower or Guarantor hereunder and under any other Financing Agreement shall
be made, in accordance with Section 6.4 hereof, free and clear of and
without deduction for any and all Indemnified Taxes.  In addition, Borrowers agree to pay to the
relevant Governmental Authority in accordance with applicable law any Other
Taxes.

 

(d)                                 If
any Borrower or Guarantor shall be required by law to deduct or withhold in
respect of any Indemnified Taxes or Other Taxes from or in respect of any sum
payable hereunder to Agent or any Lender, then:

 

(i)                                     the
sum payable shall be increased as necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable
to additional sums payable under this Section) such Lender (or Agent on behalf
of such Lender) receives an amount equal to the sum it would have received had
no such deductions or withholdings been made;

 

56

 

(ii)                                  such
Borrower or Guarantor shall make such deductions and withholdings;

 

(iii)                               such
Borrower or Guarantor shall pay the full amount deducted or withheld to the
relevant taxing authority or other authority in accordance with applicable law;
and

 

(iv)                              to
the extent not paid to Agent and Lenders pursuant to clause (i) above, such
Borrower or Guarantor shall also pay to Agent or any Lender, at the time
interest is paid, all additional amounts which Agent or any Lender specifies as
necessary to preserve the after-tax yield such Lender would have received if
such Indemnified Taxes or Other Taxes had not been imposed.

 

(e)                                  Within
thirty (30) days after the date of any payment by any Borrower or Guarantor of
Indemnified Taxes or Other Taxes, upon Agent’s request, such Borrower or
Guarantor shall furnish to Agent the original or a certified copy of a receipt
evidencing payment thereof, or other evidence of payment reasonably
satisfactory to Agent.

 

(f)                                    Borrowers
will indemnify Agent and each Lender (or Transferee) for the full amount of
Indemnified Taxes and Other Taxes paid by Agent or such Lender (or Transferee,
as the case may be).  If Agent or such
Lender (or Transferee) receives a refund in respect of any Indemnified Taxes or
Other Taxes for which Lender (or Transferee) has received payment from any
Borrower or Guarantor hereunder, so long as no Default or Event of Default
shall exist or have occurred and be continuing, Agent or such Lender (as the
case may be) shall credit to the loan account of Borrowers the amount of such
refund plus any interest received (but only to the extent of indemnity payments
made, or additional amounts paid, by Borrowers or Guarantors under this Section 6.4
with respect to the Indemnified Taxes or Other Taxes giving rise to such
refund).  If a Lender (or any Transferee)
claims a tax credit in respect of any Indemnified Taxes or Other Taxes for
which it has been indemnified by Borrowers or Guarantors pursuant to this Section 6.4,
such Lender will apply the amount of the actual dollar benefit received by such
Lender as a result thereof, as reasonably calculated by Lender and net of all
expenses related thereto, to the Revolving Loans.  If Indemnified Taxes or Other Taxes were not
correctly or legally asserted, Agent or such Lender shall, upon Borrower Agent’s
request and at Borrowers’ expense, provide such documents to Borrower Agent in
form and substance reasonably satisfactory to both Borrower Agent and Agent, as
Borrower Agent may reasonably request, to enable Borrowers to contest such
Indemnified Taxes or Other Taxes pursuant to appropriate proceedings then
available to such Borrower (so long as providing such documents shall not, in
the good faith determination of Agent, have a reasonable likelihood of
resulting in any liability of Agent or any Lender).

 

(g)                                 If
after receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Agent or any Lender is required to
surrender or return such payment or proceeds to any Person for any reason, then
the Obligations intended to be satisfied by such payment or proceeds shall be
reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Agent or such
Lender.  Borrowers and Guarantors shall
be liable to pay to Agent, and do hereby indemnify and hold Agent and Lenders
harmless for the amount of any payments or proceeds surrendered or

 

57

 

returned.  This Section 6.4(g) shall remain
effective notwithstanding any contrary action which may be taken by Agent or
any Lender in reliance upon such payment or proceeds.  This Section 6.4 shall survive the
payment of the Obligations and the termination of this Agreement.

 

(h)                                 Each
Foreign Lender, on or prior to the date of its execution and delivery of this
Agreement, or on or prior to the date on which it first becomes a Lender in the
case of each Transferee, and from time to time thereafter if requested in
writing by Borrower Agent or the Agent, shall provide Borrower Agent and Agent
with (i) two duly completed copies of Internal Revenue Service
Form W-8BEN, or any successor form prescribed by the Internal Revenue
Service, certifying that such Foreign Lender is entitled to benefits under any
income tax treaty to which the United States is a party which reduces to zero
the rate of withholding tax on payments of interest, or (ii) two duly
completed copies of Internal Revenue Service Form W-8ECI, or any successor
form prescribed by the Internal Revenue Service, certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States. 
Each Foreign Lender (or Transferee) also agrees to deliver to Borrower
Agent and Agent two further copies of Form W-8BEN or W-8ECI or successor
applicable forms on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event (including, without limitation, a
change in such Foreign Lender’s (or Transferee’s) lending office) requiring a
change in the most recent form previously delivered by it to Borrower Agent and
Agent, and to obtain such extensions of the time for filing and to renew such
forms as may reasonably be requested by Borrower Agent or Agent.  Notwithstanding the foregoing provisions of
this Section 6.4(h), no Foreign Lender (or Transferee) shall be required
to deliver or provide any form pursuant to this Section 6.4 if such
Foreign Lender (or Transferee) is not then legally able to do so as a result of
a Change in Law that occurs following the date such Foreign Lender (or
Transferee) becomes a party hereto.  From
time to time if requested in writing by Borrower Agent, Agent shall provide
Borrower Agent with Internal Revenue Service Form W-8ECI, or any successor
form prescribed by the Internal Revenue Service, certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States. 
Each Lender or Transferee that is a “United States person,” as defined
under Section 7701(a)(30) of the Code, and that is not a corporation,
agrees that it will deliver to Borrower Agent and Agent a Form W-9 stating
that it is entitled to an exemption from United States backup withholding tax.

 

6.5                                 Authorization to Make Revolving Loans.  Agent and Lenders are authorized to make the
Loans and provide the Letter of Credit Accommodations based upon telephonic or
other instructions received from anyone purporting to be an officer of Borrower
Agent or any Borrower or other authorized person or, at the discretion of
Agent, if such Loans are necessary to satisfy any Obligations.  All requests for Revolving Loans or Letter of
Credit Accommodations hereunder shall specify the date on which the requested
advance is to be made or Letter of Credit Accommodations established (which day
shall be a Business Day) and the amount of the requested Revolving Loan.  Requests received after 12:00 noon New
York City time on any day shall be deemed to have been made as of the opening
of business on the immediately following Business Day.  All Revolving Loans and Letter of Credit
Accommodations under this Agreement shall be conclusively presumed to have been
made to, and at the request of and for the benefit of, any Borrower or
Guarantor when deposited to the credit of any Borrower or Guarantor or
otherwise disbursed or established in accordance with the instructions of any
Borrower or Guarantor or in accordance with the terms and conditions of this
Agreement.

 

58

 

 

6.6                   Use of Proceeds.  All Revolving Loans made or Letter of Credit
Accommodations provided to or for the benefit of any Borrower pursuant to the
provisions hereof shall be used by such Borrower only for general operating,
working capital and other corporate purposes of such Borrower not otherwise
prohibited by the terms hereof.  None of
the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to purchase or carry
any margin security or for any other purpose which might cause any of the
Revolving Loans to be considered a “purpose credit” within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, as
amended.

 

6.7                   Appointment of Borrower Agent as Agent
for Requesting Revolving Loans and Receipts of Revolving Loans and Statements.

 

(a)                    Each
Borrower hereby irrevocably appoints and constitutes Borrower Agent as its
agent to request and receive Revolving Loans and Letter of Credit
Accommodations pursuant to this Agreement and the other Financing Agreements
from Agent or any Lender in the name or on behalf of such Borrower.  Agent and Lenders may disburse the Loans to
such bank account of Borrower Agent or a Borrower or otherwise make such Loans
to a Borrower and provide such Letter of Credit Accommodations to a Borrower as
Borrower Agent may designate or direct, without notice to any other Borrower or
Obligor.  Notwithstanding anything to the
contrary contained herein, Agent may at any time and from time to time require
that Loans to or for the account of any Borrower be disbursed directly to an
operating account of such Borrower.

 

(b)                   Borrower
Agent hereby accepts the appointment by Borrowers to act as the agent of
Borrowers pursuant to this Section 6.7.

 

(c)                    Borrower
Agent shall ensure that the disbursement of any Revolving Loans to each
Borrower requested by or paid to or for the account of Parent, or the issuance
of any Letter of Credit Accommodations for a Borrower hereunder, shall be paid
to or for the account of such Borrower.

 

(d)                   Each
Borrower and other Guarantor hereby irrevocably appoints and constitutes
Borrower Agent as its agent to receive statements on account and all other notices
from Agent and Lenders with respect to the Obligations or otherwise under or in
connection with this Agreement and the other Financing Agreements.

 

(e)                    Any
notice, election, representation, warranty, agreement or undertaking by or on
behalf of any other Borrower or any Guarantor by Borrower Agent shall be deemed
for all purposes to have been made by such Borrower or Guarantor, as the case
may be, and shall be binding upon and enforceable against such Borrower or
Guarantor to the same extent as if made directly by such Borrower of Guarantor.

 

(f)                      No
purported termination of the appointment of Borrower Agent as agent as
aforesaid shall be effective, except after ten (10) days’ prior written notice
to Agent.

 

6.8                   Pro Rata Treatment.  Except to the extent otherwise provided in
this Agreement:  (a) the making and
conversion of Revolving Loans shall be made among the Lenders based on their
respective Pro Rata Shares as to the Revolving Loans and (b) each payment on
account of any

 

59

 

Obligations to
or for the account of one or more of Lenders in respect of any Obligations due
on a particular day shall be allocated among the Lenders entitled to such
payments based on their respective Pro Rata Shares and shall be distributed
accordingly.

 

6.9                   Sharing of Payments, Etc.

 

(a)                    Each
Borrower and Guarantor agrees that, in addition to (and without limitation of)
any right of setoff, banker’s lien or counterclaim Agent or any Lender may
otherwise have, each Lender shall be entitled, at its option (but subject, as
among Agent and Lenders, to the provisions of Section 12.3(b) hereof), to
offset balances held by it for the account of such Borrower or Guarantor at any
of its offices, in dollars or in any other currency, against any principal of
or interest on any Revolving Loans owed to such Lender or any other amount
payable to such Lender hereunder, that is not paid when due (regardless of
whether such balances are then due to such Borrower or Guarantor), in which
case it shall promptly notify Borrower Agent and Agent thereof; provided,
that, such Lender’s failure to give such notice shall not affect the
validity thereof.

 

(b)                   If
any Lender (including Agent) shall obtain from any Borrower or Guarantor
payment of any principal of or interest on any Revolving Loan owing to it or
payment of any other amount under this Agreement or any of the other Financing
Agreements through the exercise of any right of setoff, banker’s lien or
counterclaim or similar right or otherwise (other than from Agent as provided
herein), and, as a result of such payment, such Lender shall have received more
than its Pro Rata Share of the principal of the Revolving Loans or more than
its share of such other amounts then due hereunder or thereunder by any
Borrower or Guarantor to such Lender than the percentage thereof received by
any other Lender, it shall promptly pay to Agent, for the benefit of Lenders,
the amount of such excess and simultaneously purchase from such other Lenders a
participation in the Loans or such other amounts, respectively, owing to such
other Lenders (or such interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all Lenders shall share the benefit of such excess
payment (net of any expenses that may be incurred by such Lender in obtaining
or preserving such excess payment) in accordance with their respective Pro Rata
Shares or as otherwise agreed by Lenders. 
To such end all Lenders shall make appropriate adjustments among
themselves (by the resale of participation sold or otherwise) if such payment
is rescinded or must otherwise be restored.

 

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

 

(d)                   Nothing
contained herein shall require any Lender to exercise any right of setoff,
banker’s lien, counterclaims or similar rights or shall affect the right of any
Lender to exercise, and retain the benefits of exercising, any such right with
respect to any other Indebtedness or obligation of any Borrower or
Guarantor.  If, under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured
claim in lieu of a setoff to which this Section applies, such Lender
shall, to the extent practicable, assign such rights to Agent for

 

60

 

the benefit of
Lenders and, in any event, exercise its rights in respect of such secured claim
in a manner consistent with the rights of Lenders entitled under this Section to
share in the benefits of any recovery on such secured claim.

 

6.10             Settlement
Procedures.

 

(a)                    In
order to administer the Credit Facility in an efficient manner and to minimize
the transfer of funds between Agent and Lenders, Agent may, at its option,
subject to the terms hereof, make available, on behalf of Lenders, the full
amount of the Revolving Loans requested or charged to any Borrower’s loan
account(s) or otherwise to be advanced by Lenders pursuant to the terms hereof,
without requirement of prior notice to Lenders of the proposed Loans.

 

(b)                   With
respect to all Loans made by Agent on behalf of Lenders as provided in this
Section, the amount of each Lender’s Pro Rata Share of the outstanding Loans
shall be computed weekly, and shall be adjusted upward or downward on the basis
of the amount of the outstanding Loans as of 5:00 p.m. New York City time on
the Business Day immediately preceding the date of each settlement computation;
provided, that, Agent retains the absolute right at any time or
from time to time to make the above described adjustments at intervals more
frequent than weekly, but in no event more than twice in any week.  Agent shall deliver to each of the Lenders
after the end of each week, or at such lesser period or periods as Agent shall
determine, a summary statement of the amount of outstanding Loans for such
period (such week or lesser period or periods being hereinafter referred to as
a “Settlement Period”).  If the summary
statement is sent by Agent and received by a Lender prior to 12:00 p.m. New
York City time, then such Lender shall make the settlement transfer described
in this Section by no later than 3:00 p.m. New York City time on the same
Business Day and if received by a Lender after 12:00 p.m. New York City time,
then such Lender shall make the settlement transfer by not later than 3:00 p.m.
New York City time on the next Business Day following the date of receipt.  If, as of the end of any Settlement Period,
the amount of a Lender’s Pro Rata Share of the outstanding Revolving Loans is
more than such Lender’s Pro Rata Share of the outstanding Loans as of the end
of the previous Settlement Period, then such Lender shall forthwith (but in no
event later than the time set forth in the preceding sentence) transfer to
Agent by wire transfer in immediately available funds the amount of the
increase.  Alternatively, if the amount
of a Lender’s Pro Rata Share of the outstanding Revolving Loans in any
Settlement Period is less than the amount of such Lender’s Pro Rata Share of
the outstanding Loans for the previous Settlement Period, Agent shall forthwith
transfer to such Lender by wire transfer in immediately available funds the
amount of the decrease.  The obligation
of each of the Lenders to transfer such funds and effect such settlement shall
be irrevocable and unconditional and without recourse to or warranty by Agent.  Agent and each Lender agrees to mark its books
and records at the end of each Settlement Period to show at all times the
dollar amount of its Pro Rata Share of the outstanding Revolving Loans and
Letter of Credit Accommodations.  Each
Lender shall only be entitled to receive interest on its Pro Rata Share of the
Revolving Loans to the extent such Loans have been funded by such Lender.  Because the Agent on behalf of Lenders may be
advancing and/or may be repaid Loans prior to the time when Lenders will
actually advance and/or be repaid such Revolving Loans, interest with respect
to Revolving Loans shall be allocated by Agent in accordance with the amount of
Revolving Loans actually advanced by and repaid to each Lender and the Agent
and shall accrue from and including the date such

 

61

 

Revolving
Loans are so advanced to but excluding the date such Revolving Loans are either
repaid by Borrowers or actually settled with the applicable Lender as described
in this Section.

 

(c)                    To
the extent that Agent has made any such amounts available and the settlement
described above shall not yet have occurred, upon repayment of any Revolving
Loans by Borrowers, Agent may apply such amounts repaid directly to any amounts
made available by Agent pursuant to this Section.  In lieu of weekly or more frequent
settlements, Agent may, at its option, at any time require each Lender to
provide Agent with immediately available funds representing its Pro Rata Share
of each Revolving Loan, prior to Agent’s disbursement of such Revolving Loan to
Borrowers.  In such event, all Revolving
Loans under this Agreement shall be made by the Lenders simultaneously and
proportionately to their Pro Rata Shares. 
No Lender shall be responsible for any default by any other Lender in
the other Lender’s obligation to make a Revolving Loan requested hereunder nor
shall the Commitment of any Lender be increased or decreased as a result of the
default by any other Lender in the other Lender’s obligation to make a
Revolving Loan hereunder.

 

(d)                   If
Agent is not funding a particular Revolving Loan to Borrowers (or Borrower
Agent for the benefit of Borrowers) pursuant to this Section on any day,
Agent may assume that each Lender will make available to Agent such Lender’s
Pro Rata Share of the Revolving Loan requested or otherwise made on such day
and Agent may, in its discretion, but shall not be obligated to, cause a
corresponding amount to be made available to or for the benefit of such
Borrower on such day.  If Agent makes
such corresponding amount available to a Borrower and such corresponding amount
is not in fact made available to Agent by such Lender, Agent shall be entitled
to recover such corresponding amount on demand from such Lender together with
interest thereon for each day from the date such payment was due until the date
such amount is paid to Agent at the Federal Funds Rate for each day during such
period (as published by the Federal Reserve Bank of New York or at Agent’s
option based on the arithmetic mean determined by Agent of the rates for the
last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New
York City time) on that day by each of the three leading brokers of Federal
funds transactions in New York City selected by Agent) and if such amounts are
not paid within three (3) days of Agent ‘s demand, at the highest Interest Rate
provided for in Section 3.1 hereof applicable to Prime Rate Loans.  During the period in which such Lender has
not paid such corresponding amount to Agent, notwithstanding anything to the
contrary contained in this Agreement or any of the other Financing Agreements,
the amount so advanced by Agent to or for the benefit of any Borrower shall,
for all purposes hereof, be a Loan made by Agent for its own account.  Upon any such failure by a Lender to pay
Agent, Agent shall promptly thereafter notify Borrower Agent of such failure
and Borrowers shall pay such corresponding amount to Agent for its own account
within five (5) Business Days of Borrower Agent’s receipt of such notice.  A Lender who fails to pay Agent its Pro Rata
Share of any Loans made available by the Agent on such Lender’s behalf, or any
Lender who fails to pay any other amount owing by it to Agent, is a “Defaulting
Lender”.  Agent shall not be obligated to
transfer to a Defaulting Lender any payments received by Agent for the
Defaulting Lender’s benefit, nor shall a Defaulting Lender be entitled to the
sharing of any payments hereunder (including any principal, interest or
fees).  Amounts payable to a Defaulting
Lender shall instead be paid to or retained by Agent.  Agent may hold and, in its discretion, relend
to a Borrower the amount of all such payments received or retained by it for
the account of such Defaulting Lender. 
For purposes of voting or consenting to matters with respect to this
Agreement and the other

 

62

 

Financing
Agreements and determining Pro Rata Shares, such Defaulting Lender shall be
deemed not to be a “Lender” and such Lender’s Commitment shall be deemed to be
zero (0).  This Section shall remain
effective with respect to a Defaulting Lender until such default is cured.  The operation of this Section shall not
be construed to increase or otherwise affect the Commitment of any Lender, or
relieve or excuse the performance by any Borrower or Obligor of their duties
and obligations hereunder.

 

(e)                    Nothing
in this Section or elsewhere in this Agreement or the other Financing
Agreements shall be deemed to require Agent to advance funds on behalf of any
Lender or to relieve any Lender from its obligation to fulfill its Commitment
hereunder or to prejudice any rights that any Borrower may have against any
Lender as a result of any default by any Lender hereunder in fulfilling its
Commitment.

 

6.11             Obligations Several; Independent Nature
of Lenders’ Rights. The obligation of each Lender hereunder is several, and
no Lender shall be responsible for the obligation or commitment of any other
Lender hereunder.  Nothing contained in
this Agreement or any of the other Financing Agreements and no action taken by
the Lenders pursuant hereto or thereto shall be deemed to constitute the
Lenders to be a partnership, an association, a joint venture or any other kind
of entity.  The amounts payable at any time
hereunder to each Lender shall be a separate and independent debt, and subject
to Section 12.3 hereof, each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.

 

SECTION 7.           COLLATERAL
REPORTING AND COVENANTS

 

7.1                   Collateral Reporting.

 

(a)                    Borrowers,
or Borrower Agent on behalf of Borrowers, shall provide Agent with the
following documents in a form reasonably satisfactory to Agent:

 

(i)                       as
soon as possible after the end of each month (but in any event within ten (10)
Business Days after the end thereof) so long as no Default or Event of Default
exists and Excess Availability shall be greater than $20,000,000 (and more
frequently as Agent may require at any time a Default or Event of Default
exists or Excess Availability is less than $20,000,000), a Borrowing Base
Certificate setting forth the calculation of the Borrowing Base as of the last
Business Day of the immediately preceding period as to the Accounts and
Inventory, duly completed and executed by the chief financial officer, vice
president of finance, treasurer or controller of Borrower Agent, together with
all schedules required pursuant to the terms of the Borrowing Base Certificate
duly completed, including but not limited to (A) a monthly aging of Credit Card
Receivables identifying those outstanding more than five (5) Business Days
since the sale date giving rise thereto and (B) an inventory summary report by
category (consisting of retail, factory outlet and direct inventory (and upon
Agent’s request, letter of credit inventory) and identifying in the case of
each of retail, factory outlet and direct, the applicable store and warehouse
where such Inventory is located;

 

(ii)                    as
soon as possible after the end of each month (but in any event within ten (10)
Business Days after the end thereof), on a monthly basis or more frequently as

 

63

 

Agent may
request, (A) perpetual inventory reports by location and category (and
including the amounts of Inventory and the value thereof at any leased
locations and at premises of warehouses, processors or other third parties),
(B) list of outstanding accounts payable (and including information indicating
the amounts owing to owners and lessors of leased premises, warehouses,
fulfillment centers, processors and other third parties from time to time in
possession of any Collateral), and (C) reports on sales and use tax
collections, deposits and payments, including monthly sales and use tax
accruals;

 

(iii)                 as
soon as possible after the end of each month (but in any event ten (10)
Business Days after the end thereof), in each case certified by the chief
financial officer or controller of Borrowers or Borrower Agent as true and
correct: (A) a statement confirming the payment of rent and other amounts due
to owners and lessors of real property used by Borrower in the immediately
preceding month, subject to year-end or monthly percentage rent payment adjustments,
(B) the addresses of all new retail store locations (including factory store
locations) of Borrowers and Guarantors opened and existing retail store
locations (including factory store locations) closed or sold, in each case
since the date of the most recent certificate delivered to Agent containing the
information required under this clause, and (C) a report of any new deposit
account established or used by any Borrower or Guarantor with any bank or other
financial institution, including the Borrower or Guarantor in whose name the
account is maintained, the account number, the name and address of the
financial institution at which such account is maintained, the purpose of such
account and, if any, the amount held in such account on or about the date of
such report;

 

(iv)                upon
Agent’s request, (A) reports of sales for each category of Inventory, (B)  reports of aggregate Inventory purchases
(including all costs related thereto, such as freight, duty and taxes) and
identifying items of Inventory in transit to any Borrower or Guarantor related
to the applicable documentary letter of credit and/or bill of lading number,
(C) copies of remittance advices and reports, and copies of deposit slips and
bank statements, (D) copies of shipping and delivery documents, (E) copies of
purchase orders, invoices and delivery documents for Inventory and Equipment
acquired by Borrowers and Guarantor, and (F) reports by retail store location
of sales and operating profits for each such retail store location;

 

(v)                   upon
Agent’s request, the monthly statements received by any Borrower or any of its
Affiliates from any Credit Card Issuers or Credit Card Processors, together
with such additional information with respect thereto as shall be sufficient to
enable Agent to monitor the transactions pursuant to the Credit Card
Agreements;

 

(vi)                such
other reports as to the Collateral as Agent shall reasonably request from time
to time.

 

(b)                   Nothing
contained in any Borrowing Base Certificate shall be deemed to limit, impair or
otherwise affect the rights of Agent contained herein and in the event of any
conflict or inconsistency between the calculation of the Borrowing Base as set
forth in any Borrowing Base Certificate and as determined by Agent in its good
faith, the determination of Agent shall govern and be conclusive and binding
upon Borrowers and Guarantors, absent manifest error. Without limiting the
foregoing, Borrowers shall furnish to Agent any information which Agent may
reasonably request regarding the determination and calculation of any of the

 

64

 

amounts set
forth in any Borrowing Base Certificate. The Borrowing Base may be adjusted
based on the information set forth in the reports received by Agent pursuant to
Section 7.1(a)(i) above.

 

7.2                   Accounts Covenants.

 

(a)                    Each
Borrower shall notify Agent promptly of the assertion of (i) any claims,
offsets, defenses or counterclaims by any account debtor, Credit Card Issuer or
Credit Card Processor or any disputes with any of such persons or any
settlement, adjustment or compromise thereof, to the extent any of the
foregoing exceeds $75,000 in any one case or $200,000 in the aggregate and (ii)
all material adverse information relating to the financial condition of any
account debtor, Credit Card Issuer or Credit Card Processor.  No credit, discount, allowance or extension
or agreement for any of the foregoing shall be granted to any account debtor,
Credit Card Issuer or Credit Card Processor except in the ordinary course of a
Borrower’s business in accordance with the current practices of such Borrower
as in effect on the date hereof.  So long
as no Event of Default exists or has occurred and is continuing, no Borrower
shall settle, adjust or compromise any claim, offset, counterclaim or dispute
with any account debtor, Credit Card Issuer, Credit Card Processor.  At any time that an Event of Default exists
or has occurred and is continuing, Agent shall, at its option, have the
exclusive right to settle, adjust or compromise any claim, offset, counterclaim
or dispute with account debtors, Credit Card Issuers or Credit Card Processors
or grant any credits, discounts or allowances.

 

(b)                   With
respect to each Account:  (i) no payments
shall be made thereon except payments delivered to Agent pursuant to the terms
of this Agreement, (ii) there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or asserted with respect thereto
except as reported to Agent in accordance with the terms of this Agreement and
(iii) none of the transactions giving rise thereto will violate in any material
respect any applicable State or Federal Laws or regulations, all documentation
relating thereto will be legally sufficient under such laws and regulations and
all such documentation will be legally enforceable in accordance with its
terms.

 

(c)                    Each
Borrower shall notify Agent promptly of: 
(i) any notice of a material default by such Borrower under any of the
Credit Card Agreements or of any default which has a reasonable likelihood of resulting
in the Credit Card Issuer or Credit Card Processor ceasing to make payments or
suspending payments to such Borrower, (ii) any notice from any Credit Card
Issuer or Credit Card Processor that such person is ceasing or suspending, or
will cease or suspend, any present or future payments due or to become due to
such Borrower from such person, or that such person is terminating or will
terminate any of the Credit Card Agreements, and (iii) the failure of such
Borrower to comply with any material terms of the Credit Card Agreements or any
terms thereof which has a reasonable likelihood of resulting in the Credit Card
Issuer or Credit Card Processor ceasing or suspending payments to such
Borrower.

 

(d)                   Agent
shall have the right at any time or times, in Agent’s name or in the name of a
nominee of Agent, to verify the validity, amount or any other matter relating
to any Receivables or other Collateral, by mail, telephone, facsimile
transmission or otherwise.

 

65

 

7.3                   Equipment and Real Property Covenants.  With respect to the Inventory:  (a) each Borrower and Guarantor shall at all
times maintain inventory records reasonably satisfactory to Agent, keeping
correct and accurate records itemizing and describing the kind, type, quality
and quantity of Inventory, such Borrower’s or Guarantor’s cost therefor and
daily withdrawals therefrom and additions thereto; (b) Borrowers and Guarantors
shall conduct a physical count of the Inventory either through periodic cycle counts
or wall to wall counts, so that all Inventory is subject to such counts at
least once each year, but at any time or times as Agent may request at any time
an Event of Default exists or has occurred and is continuing, and promptly
following such physical inventory (whether through periodic cycle counts or
wall to wall counts) shall supply Agent with a report in the form and with such
specificity as may be reasonably satisfactory to Agent concerning such physical
count; (c) Borrowers and Guarantors shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Agent, except for sales of Inventory in the ordinary course of Borrowers’
business and except to move Inventory directly from one location set forth or
permitted herein to another such location and except for Inventory shipped from
the manufacturer thereof to such Borrower or Guarantor which is in transit to
the locations set forth or permitted herein; (d) upon Agent’s request,
Borrowers shall, at their expense, no more than three (3) times in any twelve
(12) month period, but at any time or times as Agent may request at Agent’s
expense, or at any time or times as Agent may request at Borrowers’ expense at
any time an Event of Default exists or has occurred and is continuing, deliver
or cause to be delivered to Agent written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Agent and by an
appraiser acceptable to Agent, addressed to Agent and upon which Agent and
Lenders are expressly permitted to rely; (e) upon Agent’s request, Borrowers
shall, at their expense, conduct through RGIS Inventory Specialists, Inc. or
another inventory counting service acceptable to Agent, a physical count of the
Inventory in form, scope and methodology acceptable to Agent no more than two
(2) times in any twelve (12) month period, but at any time or times as Agent
may request at any time an Event of Default exists or has occurred and is
continuing or at any time or times as Agent may request in the event of test
count variances in excess of the shrinkage reserve established by any Borrower,
the results of which shall be reported directly by such inventory counting
service to Agent and Borrowers shall promptly deliver confirmation in a form
satisfactory to Agent that appropriate adjustments have been made to the
inventory records of Borrowers to reconcile the inventory count to Borrowers’
inventory records; (f) each Borrower and Guarantor shall produce, use, store
and maintain the Inventory, with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(g) none of the Inventory or other Collateral constitutes farm products or the
proceeds thereof; (h) each Borrower and Guarantor assumes all responsibility
and liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (i) Borrowers and Guarantors shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate any Borrower or Guarantor to repurchase such
Inventory except for the right of return given to retail customers of such
Borrower in the ordinary course of the business of such Borrower in accordance
with the then current return policy of such Borrower; (j) Borrowers and
Guarantors shall keep the Inventory in good and marketable condition; (k)
Borrowers and Guarantors shall not, without prior written notice to Agent or
the specific identification of such Inventory in a

 

66

 

report with
respect thereto provided by Borrower Agent to Agent pursuant to Section 7.1(a)
hereof, acquire or accept any Inventory on consignment or approval.

 

7.4                   Equipment and Real Property Covenants.  With respect to the Equipment and Real
Property subject to the Mortgages: (a) Borrowers and Guarantors shall keep the
Equipment in good order, repair, running and marketable condition (ordinary
wear and tear excepted); (b) Borrowers and Guarantors shall use the Equipment
and Real Property with all reasonable care and caution and in accordance with
applicable standards of any insurance and in material conformity with all
applicable laws; (c) the Equipment is and shall be used in the business of
Borrowers and Guarantors and not for personal, family, household or farming
use; (d) Borrowers and Guarantors shall not remove any Equipment from the
locations set forth or permitted herein, except to the extent necessary to have
any Equipment repaired or maintained in the ordinary course of its business or
to move Equipment directly from one location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or
for the benefit of such Borrower or Guarantor in the ordinary course of
business; (e) the Equipment is now and shall remain personal property and
Borrowers and Guarantors shall not permit any of the Equipment to be or become
a part of or affixed to real property; and (f) each Borrower and Guarantor
assumes all responsibility and liability arising from the use of the Equipment
and Real Property.

 

7.5                   Power of Attorney.  Each Borrower and Guarantor hereby
irrevocably designates and appoints Agent (and all persons designated by Agent)
as such Borrower’s and Guarantor’s true and lawful attorney-in-fact, and
authorizes Agent, in such Borrower’s, Guarantor’s or Agent’s name, to: (a) at
any time an Event of Default exists or has occurred and is continuing (i)
demand payment on Receivables or other Collateral, (ii) enforce payment of
Receivables by legal proceedings or otherwise, (iii) exercise all of such
Borrower’s or Guarantor’s rights and remedies to collect any Receivable or
other Collateral, (iv) sell or assign any Receivable upon such terms, for such
amount and at such time or times as the Agent deems advisable, (v) settle,
adjust, compromise, extend or renew an Account, (vi) discharge and release any
Receivable, (vii) prepare, file and sign such Borrower’s or Guarantor’s name on
any proof of claim in bankruptcy or other similar document against an account
debtor or other obligor in respect of any Receivables or other Collateral,
(viii) notify the post office authorities to change the address for delivery of
remittances from account debtors or other obligors in respect of Receivables or
other proceeds of Collateral to an address designated by Agent, and open and dispose
of all mail addressed to such Borrower or Guarantor and handle and store all
mail relating to the Collateral; (ix) sign any Borrower’s or Guarantor’s name
on any verification of Receivables and notices thereof to account debtors or
any secondary obligors or other obligors in respect thereof, and (x) do all
acts and things which are necessary, in Agent’s determination, to fulfill such
Borrower’s or Guarantor’s obligations under this Agreement and the other
Financing Agreements and (b) at any time to (i) take control in any manner of
any item of payment in respect of Receivables or constituting Collateral or
otherwise received in or for deposit in the Blocked Accounts or otherwise
received by Agent or any Lender, (ii) have access to any lockbox or postal box
into which remittances from account debtors or other obligors in respect of
Receivables or other proceeds of Collateral are sent or received, (iii) endorse
such Borrower’s or Guarantor’s name upon any items of payment in respect of
Receivables or constituting Collateral or otherwise received by Agent and any
Lender and deposit the same in Agent’s account for application to the
Obligations, (iv) endorse such Borrower’s or Guarantor’s name upon any chattel
paper,

 

67

 

document,
instrument, invoice, or similar document or agreement relating to any
Receivable or any goods pertaining thereto or any other Collateral, including
any warehouse or other receipts, or bills of lading and other negotiable or
non-negotiable documents, and (v) clear Inventory the purchase of which was
financed with Letter of Credit Accommodations through U.S. Customs or foreign
export control authorities in such Borrower’s or Guarantor’s name, Agent’s name
or the name of Agent’s designee, and to sign and deliver to customs officials
powers of attorney in such Borrower’s or Guarantor’s name for such purpose, and
to complete in such Borrower’s or Guarantor’s or Agent’ s name, any order, sale
or transaction, obtain the necessary documents in connection therewith and
collect the proceeds thereof.  Each
Borrower and Guarantor hereby releases Agent and Lenders and their respective
officers, employees and designees from any liabilities arising from any act or
acts under this power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Agent’s or any Lender’s own gross
negligence or wilful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.

 

7.6                   Right to Cure. 
Agent may, at its option, upon notice to Borrower Agent, (a) cure any
default by any Borrower or Guarantor under any material agreement with a third
party that affects the Collateral, its value or the ability of Agent to
collect, sell or otherwise dispose of the Collateral or the rights and remedies
of Agent or any Lender therein or the ability of any Borrower or Guarantor to
perform its obligations hereunder or under any of the other Financing
Agreements, (b) pay or bond on appeal any judgment entered against any Borrower
or Guarantor, (c) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and pay any amount, incur any expense or perform any act which, in Agent’s good
faith judgment, is necessary or appropriate to preserve, protect, insure or
maintain the Collateral and the rights of Agent and Lenders with respect
thereto.  Agent may add any amounts so
expended to the Obligations and charge any Borrower’s account therefor, such
amounts to be repayable by Borrowers on demand. 
Agent and Lenders shall be under no obligation to effect such cure,
payment or bonding and shall not, by doing so, be deemed to have assumed any
obligation or liability of any Borrower or Guarantor.  Any payment made or other action taken by
Agent or any Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.

 

7.7                   Access to Premises.  From time to time as requested by Agent, at
the cost and expense of Borrowers, (a) Agent or its designee shall have
complete access to all of each Borrower’s and Guarantor’s premises during
normal business hours and after reasonable notice to Parent, or at any time and
without notice to Borrower Agent if an Event of Default exists or has occurred
and is continuing, for the purposes of inspecting, verifying and auditing the
Collateral and all of each Borrower’s and Guarantor’s books and records,
including the Records, and (b) each Borrower and Guarantor shall promptly
furnish to Agent such copies of such books and records or extracts therefrom as
Agent may reasonably request, and Agent or any Lender or Agent’s designee may
use during normal business hours such of any Borrower’s and Guarantor’s
personnel, equipment, supplies and premises as may be reasonably necessary for
the foregoing (provided, that, Borrowers and Guarantors shall
make such personnel, equipment, supplies and premises available to Agent or its
designee in such manner so as to minimize any interference with the operations
of Borrowers and Guarantors) and if an Event of Default exists or has occurred
and is continuing for the collection of Receivables and realization of other
Collateral.

 

68

 

7.8                   Intellectual Property Appraisal.  At Agent’s request, no more than once in any
twelve (12) month period, but at any time or times as Agent may request at
Agent’s expense, or at any time as Agent may request at Borrowers’ expense on
or after an Event of Default, deliver or cause to be delivered to Agent written
appraisals as to the Intellectual Property by an appraiser acceptable to Agent,
in form, scope and methodology acceptable to Agent, addressed to Agent and upon
which Agent and Lenders are expressly permitted to rely.

 

SECTION 8.           REPRESENTATIONS AND
WARRANTIES

 

Each Borrower
and Guarantor hereby represents and warrants to Agent and Lenders the following
(which shall survive the execution and delivery of this Agreement), the truth
and accuracy of which are a continuing condition of the making of Revolving
Loans and providing Letter of Credit Accommodations to Borrowers:

 

8.1                   Corporate or Limited Liability Company
Existence, Power and Authority.  Each
Borrower and Guarantor is a corporation or limited liability company duly
organized and in good standing under the laws of its state of organization and
is duly qualified as a foreign corporation or limited liability company and in
good standing in all states or other jurisdictions where the nature and extent
of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a Material Adverse Effect.  The execution, delivery and performance of
this Agreement, the other Financing Agreements and the transactions
contemplated hereunder and thereunder (a) are all within each Borrower’s and
Guarantor’s corporate or limited liability company powers, (b) have been duly
authorized, (c) are not in contravention of law or the terms of any Borrower’s
or Guarantor’s certificate of incorporation, certificate of formation, by-laws,
membership agreement or other organizational documentation, or any indenture,
agreement or undertaking to which any Borrower or Guarantor is a party or by
which any Borrower or Guarantor or its property are bound and (d) will not
result in the creation or imposition of, or require or give rise to any
obligation to grant, any lien, security interest, charge or other encumbrance
upon any property of any Borrower or Guarantor. 
This Agreement and the other Financing Agreements to which any Borrower
or Guarantor is a party constitute legal, valid and binding obligations of such
Borrower and Guarantor enforceable in accordance with their respective terms.

 

8.2                   Name; State of Organization; Chief
Executive Office; Collateral Locations.

 

(a)                    The
exact legal name of each Borrower and Guarantor is as set forth on the
signature page of this Agreement and in the Information Certificate.  No Borrower or Guarantor has, during the past
five years, been known by or used any other corporate or fictitious name or
been a party to any merger or consolidation, or acquired all or substantially
all of the assets of any Person, or acquired any of its property or assets out
of the ordinary course of business, except as set forth in the Information
Certificate.

 

(b)                   Each
Borrower and Guarantor is an organization of the type and organized in the
jurisdiction set forth in the Information Certificate.  The Information Certificate accurately sets
forth the organizational identification number of each Borrower and Guarantor
or accurately states that such Borrower or Guarantor has none and accurately
sets forth the federal employer identification number of each Borrower and Guarantor.

 

69

 

(c)                    The
chief executive office and mailing address of each Borrower and Guarantor and
each Borrower’s and Guarantor’s Records concerning Accounts are located only at
the address identified as such in Schedule 8.2 to the Information
Certificate and its only other places of business and the only other locations
of Collateral, if any, are the addresses set forth in Schedule 8.2 to the
Information Certificate, subject to the rights of any Borrower or Guarantor to
establish new locations in accordance with Section 9.2 below.  The Information Certificate correctly
identifies any of such locations which are not owned by a Borrower or Guarantor
and sets forth the owners and/or operators thereof.

 

8.3                   Financial Statements; No Material
Adverse Change.  All financial
statements relating to any Borrower or Guarantor which have been or may
hereafter be delivered by any Borrower or Guarantor to Agent and Lenders have
been prepared in accordance with GAAP (except as to any interim financial
statements, to the extent such statements are subject to normal year-end
adjustments and do not include any notes) and fairly present in all material
respects the financial condition and the results of operation of such Borrower
and Guarantor as at the dates and for the periods set forth therein.  Except as disclosed in any interim financial
statements furnished by Borrowers and Guarantors to Agent prior to the date of
this Agreement, there has been no act, condition or event which has had or is
reasonably likely to have a Material Adverse Effect since the date of the most
recent audited financial statements of any Borrower or Guarantor furnished by
any Borrower or Guarantor to Agent prior to the date of the Existing Agreement.

 

8.4                   Priority of Liens; Title to Properties.  The security interests and liens granted to
Agent under this Agreement and the other Financing Agreements constitute valid
and upon the filing of a financing statement, control or possession by Agent,
as applicable, perfected first priority liens and security interests in and
upon the Collateral subject only to the liens indicated on Schedule 8.4 to
the Information Certificate and the other liens permitted under Section 9.8
hereof, including as to priority to the extent that such liens have priority
under applicable law or as specified in Section 9.8.  Each Borrower and Guarantor has good and
marketable fee simple title to or valid leasehold interests in all of its Real
Property and good, valid and merchantable title to all of its other properties
and assets subject to no liens, mortgages, pledges, security interests,
encumbrances or charges of any kind, except those granted to Agent and such
others as are specifically listed on Schedule 8.4 to the Information Certificate
or permitted under Section 9.8 hereof.

 

8.5                   Tax Returns. 
Each Borrower and Guarantor has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to
be filed by it, where the failure to so file has or could reasonably be
expected to have a Material Adverse Effect. 
All information in such tax returns, reports and declarations is
complete and accurate in all material respects. 
Each Borrower and Guarantor has paid or caused to be paid all material
Taxes due and payable or claimed due and payable in any assessment received by
it, except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to such Borrower or
Guarantor and with respect to which adequate reserves have been set aside on
its books.  Adequate provision has been
made for the payment of all accrued and unpaid Federal, State, county, local,
foreign and other Taxes whether or not yet due and payable and whether or not
disputed.

 

70

 

8.6                   Litigation.  Except
as set forth on Schedule 8.6 to the Information Certificate, (a) there is
no investigation by any Governmental Authority pending, or to the best of any
Borrower’s or Guarantor’s knowledge threatened, against or affecting any
Borrower or Guarantor, its or their assets or business and (b) there is no
action, suit, proceeding or claim by any Person pending, or to the best of any
Borrower’s or Guarantor’s knowledge threatened, against any Borrower or
Guarantor or its or their assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, in each case, which has a
reasonable possibility of being adversely determined and which, if adversely
determined against such Borrower or Guarantor, has or could reasonably be
expected to have a Material Adverse Effect.

 

8.7                   Compliance with Other Agreements and
Applicable Laws.  To Borrowers’ and
Guarantors’ knowledge, no Borrower or Guarantor is in default in any respect
under, or in violation in any respect of any of the terms of, any material
agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound where such default or
violation has or could reasonably be expected to have a Material Adverse
Effect.  To Borrowers’ and Guarantors’
knowledge, each Borrower is in compliance with the requirements of all
applicable laws, rules, regulations and orders of any Governmental Authority
relating to its business, including, without limitation, those set forth in or
promulgated pursuant to the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as
amended, and the rules and regulations thereunder, all Federal, State and local
statutes, regulations, rules and orders relating to consumer credit (including,
without limitation, as each has been amended, the Truth-in-Lending Act, the
Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act, and regulations, rules and orders promulgated thereunder), all
Federal, State and local states, regulations, rules and orders pertaining to
sales of consumer goods (including, without limitation, the Consumer Products
Safety Act of 1972, as amended, and the Federal Trade Commission Act of 1914,
as amended, and all regulations, rules and orders promulgated thereunder) where
the failure to so comply has or could reasonably be expected to have a Material
Adverse Effect.

 

8.8                   Environmental Compliance.

 

(a)                    Except
as set forth on Schedule 8.8 to the Information Certificate, Borrowers,
Guarantors and any Subsidiary of any Borrower or Guarantor have not generated,
used, stored, treated, transported, manufactured, handled, produced or disposed
of any Hazardous Materials, on or off its premises (whether or not owned by it)
in any manner which at any time violates any applicable Environmental Law or
Permit that is required under any applicable Environmental Laws where such
violation has or could reasonably be expected to have a Material Adverse
Effect, and the operations of Borrowers, Guarantors and any Subsidiary of any
Borrower or Guarantor complies with all Environmental Laws and all Permits that
are required under any applicable Environmental Law where the failure to so
comply has or could reasonably be expected to have a Material Adverse Effect.

 

(b)                   Except
as set forth on Schedule 8.8 to the Information Certificate, there has
been no investigation by any Governmental Authority or any proceeding,
complaint, order, directive, claim, citation or notice by any Governmental
Authority or any other person nor is any pending or to any Borrower’s or
Guarantor’ s knowledge threatened, with respect to any non-

 

71

 

compliance
with or violation of the requirements of any Environmental Law by any Borrower
or Guarantor and any Subsidiary of any Borrower or Guarantor or the release,
spill or discharge, threatened or actual, of any Hazardous Material or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or
safety matter, which has or could reasonably be expected to have a Material
Adverse Effect.

 

(c)                    Except
as set forth on Schedule 8.8 to the Information Certificate, Borrowers,
Guarantors and their Subsidiaries have no liability (contingent or otherwise)
in connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials, which
has had or could reasonably be expected to have a Material Adverse Effect.

 

(d)                   Borrowers,
Guarantors and their Subsidiaries have all Permits required to be obtained or
filed in connection with the operations of Borrowers and Guarantors under any
Environmental Law and all of such licenses, certificates, approvals or similar
authorizations and other Permits are valid and in full force and effect, where
failure to have obtained or filed such could reasonably be expected to have a
Material Adverse Effect.

 

8.9                   Credit Card Agreements.  Set forth in Schedule 8.9 hereto is a
correct and complete list of all of the Credit Card Agreements and all other
agreements, documents and instruments existing as of the date hereof between or
among any Borrower, any of its Affiliates, the Credit Card Issuers, the Credit
Card Processors and any of their Affiliates. 
The Credit Card Agreements constitute all of such agreements necessary
for each Borrower to operate its business as presently conducted with respect
to credit cards and debit cards and no Receivables of any Borrower arise from
purchases by customers of Inventory with credit cards or debit cards, other
than those which are issued by Credit Card Issuers with whom such Borrower has
entered into one of the Credit Card Agreements set forth on Schedule 8.9
hereto or with whom Borrower has entered into a Credit Card Agreement in accordance
with Section 9.16 hereof.  Each of
the Credit Card Agreements constitutes the legal, valid and binding obligations
of the Borrower that is party thereto and to the best of each Borrower’s and
Guarantor’s knowledge, the other parties thereto, enforceable in accordance
with their respective terms and is in full force and effect.  No material default or material event of
default, or act, condition or event which after notice or passage of time or
both, would constitute a material default or a material event of default under
any of the Credit Card Agreements (other than any Credit Card Agreement with a
Credit Card Issuer or Credit Card Processor where the sales using the
applicable card are less than ten (10%) percent of all such sales in the
immediately preceding fiscal year) exists or has occurred that would entitle
the other party thereto to suspend, withhold or reduce amounts that would
otherwise be payable to a Borrower.  Each
Borrower and the other parties thereto have complied in all material respects
with all of the terms and conditions of the Credit Card Agreements (other than
any Credit Card Agreement with a Credit Card Issuer or Credit Card Processor
where the sales using the applicable card are less than ten (10%) percent of
all such sales in the immediately preceding fiscal year) to the extent
necessary for such Borrower to be entitled to receive all payments
thereunder.  Borrowers have delivered, or
caused to be delivered to Agent, true, correct and complete copies of all of
the Credit Card Agreements.

 

72

 

8.10             Interrelated Businesses.  Borrowers and Guarantors make up a related
organization of various entities constituting a single economic and business
enterprise so that Borrowers and Guarantors share an identity of interests such
that any benefit received by any one of them benefits the others.  Borrowers and Guarantors render services to
or for the benefit of the other Borrowers and/or Guarantors, as the case may
be, purchase or sell and supply goods to or from or for the benefit of the
others, make loans, advances and provide other financial accommodations to or
for the benefit of the other Borrowers and Guarantors (including inter  alia,
the payment by Borrowers and Guarantors of creditors of the other Borrowers or
Guarantors and guarantees by Borrowers and Guarantors of indebtedness of the
other Borrowers and Guarantors and provide administrative, marketing, payroll
and management services to or for the benefit of the other Borrowers and Guarantors).  Substantially all of the Inventory is paid
for pursuant to Letter of Credit Accommodations funded by Operating on behalf
of the other Borrowers or are otherwise paid for by Operating, and Borrowers
use substantially all of the proceeds from the disposition of the Inventory so
purchased to repay the amounts owing to Operating as a result of such
arrangements.  Borrowers and Guarantors
(other than JCI) have the same chief executive office, centralized accounting and
legal services, certain common officers and directors and generally do not
provide consolidating financial statements to creditors.  Nothing contained herein should be construed
to mean that each Borrower and Guarantor is not a separate corporate entity and
entitled to the rights and privileges thereof, and except to the extent
contractually agreed or required under applicable law, no Borrower or Guarantor
is obligated for the liabilities of any other Borrower or Guarantor.

 

8.11             Employee Benefits.

 

(a)                    Each
Plan is in compliance in all material respects with the applicable provisions
of ERISA, the Code and other Federal or State law.  Each Plan which is intended to qualify under Section 401(a)
of the Code has received a favorable determination letter from the Internal
Revenue Service and to the best of any Borrower’s or Guarantor’s knowledge,
nothing has occurred which would cause the loss of such qualification.  Each Borrower and its ERISA Affiliates have
made all required contributions to any Plan subject to Section 412 of the
Code, and no application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code has been made with
respect to any Plan.

 

(b)                   There
are no pending, or to the best of any Borrower’s or Guarantor’s knowledge,
threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan, which has resulted or could reasonably be
expected to result in a Material Adverse Effect.  There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan, which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.

 

(c)                    (i)  No ERISA Event has occurred or is reasonably
expected to occur; (ii) the current value of each Plan’s assets are not less
than such Plan’s liabilities under Section 4001(a)(16) of ERISA; (iii)
each Borrower and Guarantor, and their ERISA Affiliates, have not incurred and
do not reasonably expect to incur, any liability under Title IV of ERISA with
respect to any Plan (other than premiums due and not delinquent under Section 4007
of ERISA); (iv) each Borrower and Guarantor, and their ERISA Affiliates, have
not incurred and do not reasonably expect to incur, any liability (and no event
has occurred which, with the giving of

 

73

 

notice under Section 4219
of ERISA, would result in such liability) under Section 4201 or 4243 of
ERISA with respect to a Multiemployer Plan; and (v) each Borrower and
Guarantor, and their ERISA Affiliates, have not engaged in a transaction that
would be subject to Section 4069 or 4212(c) of ERISA.

 

8.12             Bank
Accounts.  All of the deposit
accounts, investment accounts or other accounts in the name of or used by any
Borrower or Guarantor maintained at any bank or other financial institution are
set forth on Schedule 8.10 to the Information Certificate, subject to the
right of each Borrower and Guarantor to establish new accounts in accordance
with Section 5.2 hereof.

 

8.13             Intellectual Property.  Each Borrower and Guarantor owns or licenses
or otherwise has the right to use all Intellectual Property necessary for the
operation of its business as presently conducted or proposed to be
conducted.  As of the date hereof,
Borrowers and Guarantors do not have any Intellectual Property registered, or
subject to pending applications, in the United States Patent and Trademark
Office or any similar office or agency in the United States, any State thereof,
any political subdivision thereof or in any other country, other than those
described in Schedule 8.11 or Schedule 8.6 to the Information
Certificate and has not granted any licenses with respect thereto other than as
set forth in Schedule 8.11 to the Information Certificate.  To the best of any Borrower’s and Guarantor’s
knowledge, no slogan or other advertising device, product, process, method,
substance or other Intellectual Property or goods bearing or using any
Intellectual Property presently contemplated to be sold by or employed by any
Borrower or Guarantor infringes any patent, trademark, servicemark, tradename,
copyright, license or other Intellectual Property owned by any other Person
presently and no claim or litigation is pending or threatened against or
affecting any Borrower or Guarantor contesting its right to sell or use any
such Intellectual Property except as set forth on Schedule 8.11 to the
Information Certificate.  Schedule 8.11
to the Information Certificate sets forth all of the agreements or other
arrangements of each Borrower and Guarantor pursuant to which such Borrower or
Guarantor has a license or other right to use any trademarks, logos, designs,
representations or other Intellectual Property owned by another person as in
effect on the date hereof and the dates of the expiration of such agreements or
other arrangements of such Borrower or Guarantor as in effect on the date
hereof (collectively, together with such agreements or other arrangements as
may be entered into by any Borrower or Guarantor after the date hereof,
collectively, the “License Agreements” and individually, a “License Agreement”).  No trademark, servicemark, copyright or other
Intellectual Property at any time used by any Borrower or Guarantor which is
owned by another person, or owned by such Borrower or Guarantor subject to any
security interest, lien, collateral assignment, pledge or other encumbrance in
favor of any person other than Agent, is affixed to any Eligible Inventory,
except (a) to the extent permitted under the term of the license agreements
listed on Schedule 8.11 to the Information Certificate and (b) to the
extent the sale of Inventory to which such Intellectual Property is affixed is
permitted to be sold by such Borrower or Guarantor under applicable law
(including the United States Copyright Act of 1976) and (c) to the extent
permitted under Section 9.8(o) hereof.

 

74

 

8.14             Subsidiaries; Affiliates;
Capitalization; Solvency; Inactive Entities.

 

(a)                    Each
Borrower and Guarantor does not have any direct or indirect Subsidiaries or
Affiliates and is not engaged in any joint venture or partnership except as set
forth in Schedule 8.12 to the Information Certificate.

 

(b)                   Each
Borrower and Guarantor is the record and beneficial owner of all of the issued
and outstanding shares of Capital Stock of each of the Subsidiaries listed on Schedule 8.12
to the Information Certificate as being owned by such Borrower or Guarantor and
there are no proxies, irrevocable or otherwise, with respect to such shares and
no equity securities of any of the Subsidiaries are or may become required to
be issued by reason of any options, warrants, rights to subscribe to, calls or
commitments of any kind or nature and there are no contracts, commitments,
understandings or arrangements by which any Subsidiary is or may become bound
to issue additional shares of it Capital Stock or securities convertible into
or exchangeable for such shares.

 

(c)                    The
issued and outstanding shares of Capital Stock of each Borrower and Guarantor
are directly and beneficially owned and held by the persons indicated in the
Information Certificate, and in each case all of such shares or membership
interests have been duly authorized and are fully paid and non-assessable, free
and clear of all claims, liens, pledges and encumbrances of any kind, except as
disclosed in writing to Agent prior to the date hereof.

 

(d)                   There
is no debt outstanding that is convertible into membership interests in
Intermediate, and there are no outstanding rights, options or warrants to
acquire any membership interests in or debt convertible into membership
interests in Intermediate.

 

(e)                    Each
Borrower and International is Solvent and will continue to be Solvent after the
creation of the Obligations, the security interests of Agent and the other transaction
contemplated hereunder.

 

(f)                      Each
of C&W Outlet Inc., a New York corporation, J. Crew
Services, Inc., a Delaware corporation, and ERL, Inc., a
New Jersey corporation, is an Inactive Subsidiary and does not and will
not engage in any business or commercial activities and each does not and will
not own or hold any assets or properties. 
The only activity of J. Crew Virginia, Inc., a Virginia corporation, is
in connection with the issuance of gift cards and store credits for and on
behalf of Borrowers.  J. Crew
Virginia, Inc. does not and will not engage in any other business or activity
and does not and will not hold any assets or properties.

 

8.15             Labor Disputes.

 

(a)                    Set
forth on Schedule 8.13 to the Information Certificate is a list (including
dates of termination) of all collective bargaining or similar agreements
between or applicable to each Borrower and Guarantor and any union, labor
organization or other bargaining agent in respect of the employees of any
Borrower or Guarantor on the date hereof.

 

(b)                   There
is (i) no significant unfair labor practice complaint pending against any
Borrower or Guarantor or, to the best of any Borrower’s or Guarantor’s
knowledge, threatened against it, before the National Labor Relations Board,
and no significant grievance or significant arbitration proceeding arising out
of or under any collective bargaining agreement is pending on the date hereof
against any Borrower or Guarantor or, to best of any Borrower’s or

 

75

 

Guarantor’ s
knowledge, threatened against it, and (ii) no significant strike, labor
dispute, slowdown or stoppage is pending against any Borrower or Guarantor or,
to the best of any Borrower’s or Guarantor’s knowledge, threatened against any
Borrower or Guarantor.

 

8.16             Restrictions on Subsidiaries.  Except for restrictions contained in this
Agreement or any other agreement with respect to Indebtedness of any Borrower
or Guarantor permitted hereunder as in effect on the date hereof, there are no
contractual or consensual restrictions on any Borrower or Guarantor or any of
its Subsidiaries which prohibit or otherwise restrict (a) the transfer of cash
or other assets (i) between any Borrower or Guarantor and any of its or their
Subsidiaries or (ii) between any Subsidiaries of any Borrower or Guarantor or
(b) the ability of any Borrower or Guarantor or any of its or their
Subsidiaries to incur Indebtedness or grant security interests to Agent or any
Lender in the Collateral.

 

8.17             Material Contracts.  Schedule 8.15 to the Information
Certificate sets forth all Material Contracts to which any Borrower or
Guarantor is a party or is bound as of the date hereof.  Agent has received true, correct and complete
copies of such Material Contracts on or before the date hereof.  To Borrowers’ and Guarantors’ knowledge,
Borrowers and Guarantors are not in breach (for a period equal to the lesser of
ten (10) days or the applicable cure period, if any, with respect thereto) or
in default in any material respect of or under any Material Contract and have
not received any notice of the intention of any other party thereto to
terminate any Material Contract.

 

8.18             Black Canyon Documents.  Neither the execution and delivery of any of
the Black Canyon Documents nor the consummation of the transactions therein
contemplated, nor compliance with the provisions thereof (a) has violated or
will violate any of the Securities Laws or any other law or regulation or any
order or decree of any court or governmental instrumentality in any respect, or
(b) does or shall conflict with or result in the breach of, or constitute a
default in any respect under, any indenture, mortgage, deed of trust, security
agreement, agreement or instrument to which any Borrower or Guarantor is a
party or by which it or any of its assets may be bound, or (c) violate any
provision of the Certificate of Incorporation, By-Laws, Articles of Formation
or Operating Agreement of any Borrower or Guarantor.

 

8.19             Accuracy and Completeness of
Information.  All written information
furnished by or on behalf of any Borrower or Guarantor to Agent or any Lender
in connection with this Agreement or any of the other Financing Agreements or
any transaction contemplated hereby or thereby, including all information on
the Information Certificate is true and correct in all material respects on the
date as of which such information is dated or certified and does not omit any
material fact necessary in order to make such information not misleading.  No event or circumstance has occurred prior
to the date hereof which has had or could reasonably be expected to have a
Material Adverse Affect, which has not been disclosed to Agent in writing prior
to the date hereof.

 

8.20             Survival of Warranties; Cumulative.  All representations and warranties contained
in this Agreement or any of the other Financing Agreements shall survive the
execution and delivery of this Agreement and shall be deemed to have been made
again to Agent and Lenders on the date of each additional borrowing or other
credit accommodation hereunder and shall be

 

76

 

conclusively
presumed to have been relied on by Agent and Lenders regardless of any
investigation made or information possessed by Agent or any Lender.  The representations and warranties set forth
herein shall be cumulative and in addition to any other representations or
warranties which any Borrower or Guarantor shall now or hereafter give, or
cause to be given, to Agent or any Lender.

 

SECTION 9.           AFFIRMATIVE AND
NEGATIVE COVENANTS

 

9.1                   Maintenance of Existence.

 

(a)                    Each
Borrower and Guarantor shall at all times preserve, renew and keep in full
force and effect its corporate or limited liability company existence and
rights and franchises with respect thereto and maintain in full force and
effect all licenses, trademarks, tradenames, approvals, authorizations, leases,
contracts and Permits necessary to carry on the business as presently or
proposed to be conducted, except as to any Guarantor other than Parent as
permitted in Section 9.7 hereof or to the extent that the failure to
maintain the same has or could reasonably be expected to have a Material
Adverse Effect.

 

(b)                   No
Borrower or Guarantor shall change its name unless each of the following
conditions is satisfied: (i) Agent shall have received not less than thirty
(30) days prior written notice from Borrower Agent of such proposed change in
its corporate or limited liability company name, which notice shall accurately
set forth the new name; and (ii) Agent shall have received a copy of the
amendment to the Certificate of Incorporation or Articles of Incorporation (or
Certificate of Formation or other organizational document as applicable) of
such Borrower or Guarantor providing for the name change certified by the Secretary
of State of the jurisdiction of incorporation or organization of such Borrower
or Guarantor as soon as it is available.

 

(c)                    No
Borrower or Guarantor shall change its chief executive office or its mailing
address or organizational identification number (or if it does not have one,
shall not acquire one) unless Agent shall have received not less than thirty
(30) days’ prior written notice from Borrower Agent of such proposed change,
which notice shall set forth such information with respect thereto as Agent may
require and Agent shall have received such agreements as Agent may reasonably
require in connection therewith.  No
Borrower or Guarantor shall change its type of organization, jurisdiction of
organization or other legal structure.

 

9.2                   New Collateral Locations.  Each Borrower and Guarantor may only open any
new location within the continental United States provided such Borrower or
Guarantor (a) gives Agent ten (10) days prior written notice of the intended
opening of any such new location and (b) executes and delivers, or causes to be
executed and delivered, to Agent such agreements, documents, and instruments as
Agent may deem reasonably necessary or desirable to protect its interests in
the Collateral at such location; provided, that, without limiting the
obligations of Borrowers and Guarantors pursuant to Section 7.1 hereof or
otherwise hereunder, Borrowers and Guarantors shall not be required to comply
with the foregoing conditions with respect to the opening by them of any new
retail or factory store locations.

 

77

 

9.3                   Compliance with Laws, Regulations, Etc.

 

(a)                    Each
Borrower and Guarantor shall, and shall cause any Subsidiary to, at all times,
comply in all material respects with all laws, rules, regulations, licenses,
approvals, orders and other Permits applicable to it and duly observe all
requirements of any foreign, Federal, State or local Governmental Authority,
including ERISA, the Code, the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, all Federal, State
and local statutes, regulations, rules and orders relating to consumer credit
(including, without limitation, as each has been amended, the Truth-in-Lending
Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair
Credit Reporting Act, and regulations, rules and orders promulgated
thereunder), all Federal, State and local statutes, regulations, rules and
orders pertaining to sales of consumer goods (including, without limitation,
the Consumer Products Safety Act of 1972, as amended, and the Federal Trade
Commission Act of 1914, as amended, and all regulations, rules and orders
promulgated thereunder) and all applicable Environmental Laws, in each case
where the failure to so comply or observe has or could reasonably be expected
to have a Material Adverse Effect.

 

(b)                   Borrowers
and Guarantors shall give written notice to Agent promptly upon any Borrower’s
or Guarantor’s receipt of any notice of, or any Borrower’s or Guarantor’s
otherwise obtaining knowledge of, with respect to the Real Property subject to
the Mortgages, (i) the occurrence of any event involving the release, spill or
discharge, threatened or actual, of any Hazardous Material or (ii) any investigation,
proceeding, complaint, order, directive, claims, citation or notice with
respect to: (A) any non-compliance with or violation of any Environmental Law
by any Borrower or Guarantor or (B) the release, spill or discharge, threatened
or actual, of any Hazardous Material other than in the ordinary course of
business and other than as permitted under any applicable Environmental Law
which is reasonably likely to result in a material liability.  Copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial investigations of such
matters shall be promptly furnished, or caused to be furnished, by such
Borrower or Guarantor to Agent.  Each
Borrower and Guarantor shall take action in a commercially reasonable manner to
respond to any material non-compliance with any of the Environmental Laws as
required by law and shall regularly report to Agent on such response.

 

(c)                    Without
limiting the generality of the foregoing, whenever Agent reasonably determines
that, with respect to the Real Property subject to the Mortgages, there is
non-compliance, or any condition which requires any action by or on behalf of
any Borrower or Guarantor in order to avoid any non-compliance, with any
Environmental Law which is reasonably likely to result in a material liability,
Borrowers shall, at Agent’s request and Borrowers’ expense: (i) cause an
independent environmental engineer reasonably acceptable to Agent to conduct
such tests of any such Real Property subject to the Mortgages where non-compliance
or alleged non-compliance with such Environmental Laws has occurred as to such
non-compliance and prepare and deliver to Agent a report as to such
non-compliance setting forth the results of such tests, a proposed plan for
responding to any requirements of Environmental Laws with respect to the
findings of such tests and an estimate of the costs thereof and (ii) provide to
Agent a supplemental report of such engineer whenever the scope of such
non-compliance, or such Borrower’s or Guarantor’s response thereto or the
estimated costs thereof, shall change in any material respect.

 

78

 

(d)                   Each
Borrower and Guarantor shall indemnify and hold harmless Agent and Lenders and
their respective directors, officers, employees, agents, invitees,
representatives, successors and assigns, from and against any and all losses,
claims, damages, liabilities, costs, and expenses (including reasonable
attorneys’ fees and expenses) directly or indirectly arising out of or attributable
to the use, generation, manufacture, reproduction, storage, release, threatened
release, spill, discharge, disposal or presence of a Hazardous Material at the
Real Property subject to the Mortgages, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any Real
Property of any Borrower or Guarantor subject to the Mortgages and the
preparation and implementation of any closure, remedial or other plans required
by Environmental Laws.  All representations,
warranties, covenants and indemnifications in this Section 9.3 shall
survive the payment of the Obligations and the termination of this Agreement.

 

9.4                   Payment of Taxes and Claims.  Each Borrower and Guarantor shall, and shall
cause any Subsidiary to, duly pay and discharge all Taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for Taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to such
Borrower, Guarantor or Subsidiary, as the case may be, and with respect to
which adequate reserves have been set aside on its books.  Each Borrower and Guarantor shall be liable
for any Tax or penalties other than Excluded Taxes imposed on Agent or any
Lender as a result of the financing arrangements provided for herein and each
Borrower and Guarantor agrees to indemnify and hold Agent harmless with respect
to the foregoing, and to repay to Agent, for the benefit of Lenders, on demand the
amount thereof, and until paid by such Borrower or Guarantor such amount shall
be added and deemed part of the Revolving Loans, provided, that,
nothing contained herein shall be construed to require any Borrower or
Guarantor to pay any income or franchise taxes attributable to the income of
Agent or Lenders from any amounts charged or paid hereunder to Agent or
Lenders. The foregoing indemnity shall survive the payment of the Obligations
and the termination of this Agreement. 
If Agent or any Lender receives a tax refund or credit (“Tax Benefit”),
or otherwise would have received a Tax Benefit in respect of Agent’s or such
Lender’s Taxes which, in the good faith determination of Agent or such Lender,
as the case may be, is allocable to a Borrower or Guarantor, Agent shall
promptly remit such Tax Refund to such Borrower or Guarantor; provided, that,
no Event of Default exists or has occurred and is continuing.

 

9.5                   Insurance.  Each
Borrower and Guarantor shall, and shall cause any Subsidiary to, at all times,
maintain with financially sound and reputable insurers insurance with respect
to the Collateral against loss or damage and all other insurance of the kinds
and in the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated.  Said policies of insurance
shall be reasonably satisfactory to Agent as to form, amount and insurer.  Borrowers and Guarantors shall furnish
certificates, policies or endorsements to Agent as Agent shall reasonably
require as proof of such insurance, and, if any Borrower or Guarantor fails to
do so, Agent is authorized, but not required, to obtain such insurance at the
expense of Borrowers.  All policies shall
provide for at least thirty (30) days prior written notice to Agent of any
cancellation or reduction of coverage and that Agent may act as attorney for
each Borrower and Guarantor in obtaining, and at any time an Event of Default
exists or has occurred and is continuing, adjusting, settling, amending and
canceling such insurance.  Borrowers and
Guarantors shall cause Agent to be named as a loss

 

79

 

payee and an
additional insured (but without any liability for any premiums) under such insurance
policies and Borrowers and Guarantors shall obtain non-contributory lender’s
loss payable endorsements to all insurance policies in form and substance
satisfactory to Agent.  Such lender’s
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Agent as its interests may appear and further specify that
Agent and Lenders shall be paid regardless of any act or omission by any
Borrower, Guarantor or any of its or their Affiliates. Without limiting any
other rights of Agent or Lenders, any insurance proceeds received by Agent at
any time may be applied to payment of the Obligations, whether or not then due,
in any order and in such manner as Agent may determine.  Upon application of such proceeds to the
Revolving Loans, Revolving Loans may be available subject and pursuant to the
terms hereof to be used for the costs of repair or replacement of the
Collateral lost or damages resulting in the payment of such insurance proceeds.

 

9.6                   Financial Statements and Other Information.

 

(a)                    Each
Borrower and Guarantor shall, and shall cause any Subsidiary to, keep proper
books and records in which true and complete entries shall be made of all
dealings or transactions of or in relation to the Collateral and the business
of such Borrower, Guarantor and its Subsidiaries in accordance with GAAP.  Borrowers and Guarantors shall furnish or
cause to be furnished to Agent, the following: (i) within thirty (30) days
after the end of each fiscal month, monthly unaudited consolidated financial
statements (including balance sheets, statements of income and loss, statements
of cash flow and statements of shareholders’ equity), and unaudited
consolidating financial statements (consisting of balance sheets and statements
of income and loss), all in reasonable detail, fairly presenting in accordance
with GAAP the financial position and the results of the operations of Parent
and its Subsidiaries as of the end of and through such fiscal month, certified
by the chief financial officer or controller of Parent, subject to normal
year-end adjustments and no footnotes and accompanied by a compliance
certificate substantially in the form of Exhibit C hereto, along with a schedule in
a form satisfactory to Agent of the calculations used in determining, as of the
end of such month, whether Borrowers and Guarantors are in compliance with the
covenants set forth in Sections 9.18 and 9.19 of this Agreement for such month
and (ii) within ninety (90) days after the end of each fiscal year, audited
consolidated financial statements (including in each case, balance sheets and
statements of income and loss, statements of cash flow and statements of
shareholders’ equity) of Parent and its Subsidiaries, and the accompanying
notes thereto (including in each case, balance sheets and statements of income
and loss, statements of cash flow, and statements of shareholders’ equity), all
in reasonable detail, fairly presenting the financial position and the results
of the operations of Parent and its Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants with respect to the audited consolidated financial
statements, which accountants shall be an independent accounting firm selected
by Borrowers and acceptable to Agent, that such audited consolidated financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Parent and its Subsidiaries as
of the end of and for the fiscal year then ended.

 

(b)                   At
such time as available, but in no event later than five (5) days prior to the
end of each fiscal year (commencing with the fiscal year of Parent ending in January of
2003), projected consolidated financial statements (including in each case,
balance sheets and

 

80

 

statements of
income and loss, statements of cash flow, and statements of shareholders’
equity) of Parent and its Subsidiaries for the next fiscal year (including
forecasted income statements, cash flow statements and balance sheets and
statements of income and loss), all in reasonable detail, and in a format
consistent with the projections delivered by Parent to Agent prior to the date
hereof, together with such supporting information as Agent may reasonably
request.  Such projected financial
statements shall be prepared on a monthly basis for the next succeeding year.
Such projections shall represent Borrowers’ reasonable best estimate of the
future financial performance of Borrowers for the periods set forth therein and
shall have been prepared on the basis of the assumptions set forth therein
which Borrowers believe are fair and reasonable as of the date of preparation
in light of current and reasonably foreseeable business conditions (it being
understood that actual results may differ from those set forth in such
projected financial statements).  Each
year Borrowers shall provide to Agent a semi-annual update with respect to such
projections.

 

(c)                    At
such time as available, but in no event later than thirty (30) days after the
end of each fiscal quarter, Borrower Agent shall furnish to Agent a profit and
loss summary analysis on a store-by-store basis for all store locations with
respect to the immediately preceding twelve (12) months.

 

(d)                   Borrowers
and Guarantors shall promptly notify Agent in writing of the details of (i) any
loss, damage, investigation, action, suit, proceeding or claim relating to
Collateral having a value of more than $1,000,000 or which if adversely
determined would have a Material Adverse Effect, (ii) any Material Contract
being terminated or amended or any new Material Contract entered into (in which
event Borrowers and Guarantors shall provide Agent with a copy of such Material
Contract), (iii) any order, judgment or decree in excess of $1,000,000 shall
have been entered against any Borrower or Guarantor any of its or their
properties or assets, (iv) any written notification of a material violation of
laws or regulations received by any Borrower or Guarantor, (v) any ERISA Event,
and (vi) the occurrence of any Default or Event of Default.

 

(e)                    Borrowers
and Guarantors shall promptly after the sending or filing thereof furnish or
cause to be furnished to Agent copies of all reports which any Borrower or
Guarantor sends to its stockholders generally and copies of all reports and
registration statements which any Borrower or Guarantor files with the
Securities and Exchange Commission, any national securities exchange or the
National Association of Securities Dealers, Inc.

 

(f)                      Borrowers
and Guarantors shall furnish or cause to be furnished to Agent such budgets,
forecasts, projections and other information respecting the Collateral and the
business of Borrowers and Guarantors, as Agent may, from time to time,
reasonably request.  Agent is hereby
authorized to deliver a copy of any financial statement or any other
information relating to the business of Borrowers and Guarantors to any court
or other Governmental Authority or to any Lender or Participant or prospective
Lender or Participant or any Affiliate of any Lender or Participant. Each
Borrower and Guarantor hereby irrevocably authorizes and directs all
accountants or auditors to deliver to Agent, at Borrowers’ expense, copies of
the financial statements of any Borrower and Guarantor and any reports or
management letters prepared by such accountants or auditors on behalf of any
Borrower or Guarantor and to disclose to Agent and Lenders such information as
they may have regarding the business of any Borrower

 

81

 

and
Guarantor.  Any documents, schedules,
invoices or other papers delivered to Agent or any Lender may be destroyed or
otherwise disposed of by Agent or such Lender one (1) year after the same are delivered
to Agent or such Lender, except as otherwise designated by Borrower Agent to
Agent or such Lender in writing.

 

9.7                   Sale of Assets, Consolidation, Merger,
Dissolution, Etc.  Each Borrower and
Guarantor shall not, and shall not permit any Subsidiary to, directly or
indirectly,

 

(a)                    merge
into or with or consolidate with any other Person or permit any other Person to
merge into or with or consolidate with it except  that any
wholly-owned Subsidiary of Parent (other than any Borrower) may merge with and
into or consolidate with any other wholly-owned Subsidiary of Parent (other
than any Borrower), and any Borrower may merge with and into or consolidate
with any other Borrower, provided, that, each of the following
conditions is satisfied as determined by Agent in good faith:  (i) Agent shall have received not less than
ten (10) Business Days’ prior written notice of the intention of such
Subsidiaries to so merge or consolidate, which notice shall set forth in
reasonable detail satisfactory to Agent, the persons that are merging or
consolidating, which person will be the surviving entity, the locations of the
assets of the persons that are merging or consolidating, and the material
agreements and documents relating to such merger or consolidation, (ii) Agent
shall have received such other information with respect to such merger or
consolidation as Agent may reasonably request, (iii) as of the effective date
of the merger or consolidation and after giving effect thereto, no Default or
Event of Default shall exist or have occurred, (iv) Agent shall have received,
true, correct and complete copies of all agreements, documents and instruments
relating to such merger or consolidation, including, but not limited to, the
certificate or certificates of merger to be filed with each appropriate
Secretary of State (with a copy as filed promptly after such filing), (v) the
surviving corporation shall expressly confirm, ratify and assume the
Obligations and the Financing Agreements to which it is a party in writing, in form
and substance reasonably satisfactory to Agent, and Borrowers and Guarantors
shall execute and deliver such other agreements, documents and instruments as
Agent may request in connection therewith;

 

(b)                   sell,
issue, assign, lease, license, transfer, abandon or otherwise dispose of any
Capital Stock or Indebtedness to any other Person or any of its assets to any
other Person, except  for

 

(i)                       sales
of Inventory in the ordinary course of business,

 

(ii)                    the
sale or other disposition of Equipment (including worn-out or obsolete
Equipment or Equipment no longer used or useful in the business of any Borrower
or Guarantor) so long as such sales or other dispositions do not involve
Equipment having an aggregate fair market value in excess of $7,500,000 for all
such Equipment disposed of in any fiscal year of Borrowers or as Agent may
otherwise agree,

 

(iii)                 the
issuance and sale by any Borrower or Guarantor of Capital Stock of such
Borrower or Guarantor after the date hereof; provided, that, (A)
Agent shall have received not less than ten (10) Business Days’ prior written
notice of such issuance and sale by such Borrower or Guarantor, which notice
shall specify the parties to whom such shares are to be sold, the terms of such
sale, the total amount which it is anticipated will be realized from the

 

82

 

issuance and
sale of such stock and the net cash proceeds which it is anticipated will be
received by such Borrower or Guarantor from such sale, (B) such Borrower or Guarantor
shall not be required to pay any cash dividends or repurchase or redeem such
Capital Stock or make any other payments in respect thereof, except as
otherwise permitted in Section 9.11 hereof and except after the end of the
then current term of this Agreement and the payment in full in cash or other
immediately available funds of all of the Obligations, (C) the terms of such
Capital Stock, and the terms and conditions of the purchase and sale thereof,
shall not include any terms that include any limitation on the right of any
Borrower to request or receive Revolving Loans or Letter of Credit
Accommodations or the right of any Borrower and Guarantor to amend or modify
any of the terms and conditions of this Agreement or any of the other Financing
Agreements or otherwise in any way relate to or affect the arrangements of
Borrowers and Guarantors with Agent and Lenders or are more restrictive or
burdensome to any Borrower or Guarantor than the terms of any Capital Stock in
effect on the date hereof, (D) except with respect to any sale and issuance of
Capital Stock of Parent or Operating and as to the other Borrowers and
Guarantors and their respective Subsidiaries, except as Agent may otherwise
agree in writing, all of the proceeds of the sale and issuance of such Capital
Stock shall be paid to Agent for application to the Obligations in accordance
with Section 6.4(a) hereof and (E) after giving effect thereto, no Default
or Event of Default shall exist or have occurred,

 

(iv)                the
issuance of Capital Stock of any Borrower or Guarantor consisting of common
stock pursuant to an employee stock option or grant or similar equity plan or
401(k) plans of such Borrower or Guarantor for the benefit of its employees,
directors and consultants, provided, that, in no event shall such
Borrower or Guarantor be required to issue, or shall such Borrower or Guarantor
issue, Capital Stock pursuant to such stock plans or 401(k) plans which would
result in a Change of Control or other Event of Default,

 

(v)                   sales
or other dispositions by any Borrower of assets in connection with the closing
or sale of a retail store location of such Borrower in the ordinary course of
such Borrower’s business which consist of leasehold interests in the premises
of such store, the Equipment and fixtures located at such premises and the
books and records relating exclusively and directly to the operations of such
store; provided, that, as to each and all such sales and
closings, (A) on the date of, and after giving effect to, any such closing or
sale, the aggregate number of retail store locations operated by Retail and
Factory closed or sold by Borrowers in any fiscal year minus the number of
retail stores operated by Retail and Factory opened by Borrowers in such fiscal
year, shall not exceed the amount equal to twenty (20%) percent of the number
of retail store locations of Borrowers operated by Retail and Factory, as of
the end of the immediately preceding fiscal year, (B) Agent shall have received
not less than ten (10) Business Days prior written notice of such sale or
closing, which notice shall set forth in reasonable detail satisfactory to
Agent, the parties to such sale or other disposition, the assets to be sold or
otherwise disposed of, the purchase price and the manner of payment thereof and
such other information with respect thereto as Agent may request, (C) after
giving effect thereto, no Event of Default shall exist or have occurred and be
continuing, (D) such sale shall be on commercially reasonable prices and terms
in a bona  fide arm’s length transaction, and (E) any and all
proceeds payable or delivered to such Borrower in respect of such sale or other
disposition shall be paid or delivered, or caused to be paid or delivered, to
Agent in accordance with the terms of this Agreement (except to the extent such
proceeds reflect payment in respect of Indebtedness

 

83

 

secured by a
properly perfected first priority security interest in the assets sold, in
which case, such proceeds shall be applied to such indebtedness secured
thereby),

 

(vi)                the
grant by any Borrower or Guarantor after the date hereof of a non-exclusive
license or an exclusive license to any person for the use of any Intellectual
Property consisting of trademarks owned by such Borrower or Guarantor; provided,
that, as to any such license, each of the following conditions is
satisfied, (A) such license is only for the use of trademarks in the
manufacture, distribution or sale of products outside the United States of
America and Canada or, if such license is for the use of such trademarks in the
manufacture, distribution or sale of products within the United States of
America or Canada, it is only for categories or types of Inventory other than
men’s or women’s wearing apparel of the type or category being sold by any
Borrower or Guarantor as of the date of this Agreement or that Borrower and
Guarantors do not manufacture, distribute or sell, (B) such licenses shall be
on commercially reasonable prices and terms in a bona  fide arms’
length transactions, (C) in the case of a non-exclusive license, the rights of
the licensee shall be subject to the rights of Agent, and in the case of any
license, shall not adversely affect, limit or restrict the rights of Agent to
use any Intellectual Property of a Borrower or Guarantor to sell or otherwise
dispose of any Inventory or other Collateral, (D) Agent shall have received,
true, correct and complete copies of the executed license agreement, promptly
upon the execution thereof and (E) as of the date of the grant of any such
license, and after giving effect thereto, no Event of Default shall exist or
have occurred and be continuing,

 

(vii)             sales,
transfers and dispositions to Operating or a Subsidiary of Operating (other
than an Inactive Subsidiary); provided, that, any such sales,
transfers or dispositions involving a Subsidiary that is not a Borrower or
Guarantor shall be made in compliance with Section 9.12 hereof,

 

(c)                    wind
up, liquidate or dissolve except  that any Guarantor (other than
Parent) may wind up, liquidate and dissolve, provided, that, each
of the following conditions is satisfied, (i) the winding up, liquidation and
dissolution of such Guarantor shall not violate any law or any order or decree
of any court or other Governmental Authority in any material respect and shall
not conflict with or result in the breach of, or constitute a default under,
any indenture, mortgage, deed of trust, or any other agreement or instrument to
which any Borrower or Guarantor is a party or may be bound, (ii) such winding
up, liquidation or dissolution shall be done in accordance with the
requirements of all applicable laws and regulations, (iii) effective upon such
winding up, liquidation or dissolution, all of the assets and properties of
such Guarantor shall be duly and validly transferred and assigned to its
shareholders, free and clear of any liens, restrictions or encumbrances other
than the security interest and liens of Agent (and Agent shall have received
such evidence thereof as Agent may require) and Agent shall have received such
deeds, assignments or other agreements as Agent may request to evidence and
confirm the transfer of such assets to of such Guarantor to such shareholders,
(iv) Agent shall have received all documents and agreements that any Borrower
or Guarantor has filed with any Governmental Authority or as are otherwise
required to effectuate such winding up, liquidation or dissolution, (v) no
Borrower or Guarantor shall assume any Indebtedness, obligations or liabilities
as a result of such winding up, liquidation or dissolution, or otherwise become
liable in respect of any obligations or liabilities of the entity that is
winding up, liquidating or dissolving, unless such Indebtedness is otherwise
expressly permitted hereunder, (vi) Agent shall have received not less

 

84

 

than ten (10)
Business Days prior written notice of the intention of such Guarantor to wind
up, liquidate or dissolve, and (vii) as of the date of such winding up,
liquidation or dissolution and after giving effect thereto, no Event of Default
shall exist or have occurred; or

 

(d)                   agree
to any of the foregoing set forth in subsections (a) through (c) of this Section 9.7.

 

9.8                   Encumbrances. 
Each Borrower and Guarantor shall not, and shall not permit any
Subsidiary to, create, incur, assume or suffer to exist any security interest,
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
any of its assets or properties, including the Collateral, or file or permit
the filing of, or permit to remain in effect, any financing statement or other
similar notice of any security interest or lien with respect to any such assets
or properties, except:

 

(a)                    the
security interests and liens of Agent for itself and the benefit of Lenders and
the security interests and liens of Agent for the benefit of itself, any
Lender, any Affiliate of any Lender or any other financial institution
acceptable to Agent (and in each case as to any such Lender, Affiliate or other
financial institution only to the extent approved by Agent) that is party to a
Hedge Agreement to the extent provided for herein and subject to the terms
hereof;

 

(b)                   liens
securing the payment of taxes, assessments or other governmental charges or
levies either not yet overdue or the validity of which are being contested in
good faith by appropriate proceedings diligently pursued and available to such
Borrower, or Guarantor or Subsidiary, as the case may be and with respect to
which adequate reserves have been set aside on its books;

 

(c)                    non-consensual
statutory liens (other than liens securing the payment of taxes) arising in the
ordinary course of such Borrower’s, Guarantor’s or Subsidiary’s business to the
extent: (i) such liens secure Indebtedness which is not overdue or which is
being contested in good faith and by appropriate proceedings, diligently
pursued and available to such Borrower, Guarantor or Subsidiary or (ii) such
liens secure Indebtedness relating to claims or liabilities that are fully
insured and being defended at the sole cost and expense and at the sole risk of
the insurer or being contested in good faith by appropriate proceedings
diligently pursued and available to such Borrower, Guarantor or such
Subsidiary, but in each case under clause (i) and (ii) hereof, (A) prior to the
commencement of foreclosure or other similar proceedings, (B) with respect to
which adequate reserves have been set aside on its books, (C) subject to the
right of Agent, at its option, to establish a Reserve in respect thereof (which
Reserve shall be terminated upon the payment and satisfaction in full of such
Indebtedness and the receipt by Agent of evidence thereof satisfactory to Agent
or may be used by Agent to pay such Indebtedness after notice to Borrower Agent
in the event of the commencement or threatened commencement (to the extent such
threat is imminent as determined in good faith by Agent) of any action by the
party to whom such Indebtedness is owed to exercise its remedies with respect
thereto or to the extent necessary for Agent to exercise any of its rights or
remedies); and (D) as to any such liens (or the Indebtedness secured thereby)
that are being contested, the aggregate amount of the Indebtedness secured by
all such liens at any time outstanding shall not exceed $1,000,000;

 

85

 

(d)                   zoning
restrictions, easements, licenses, covenants and other restrictions affecting
the use of Real Property which do not interfere in any material respect with
the use of such Real Property or ordinary conduct of the business of such
Borrower, Guarantor or such Subsidiary as presently conducted thereon or, in
the case of Real Property subject to the Mortgages, materially impair the value
of the Real Property which may be subject thereto;

 

(e)                    purchase money
security interests in Equipment (including Capital Leases) and purchase money
mortgages on Real Property to secure Indebtedness permitted under Section 9.9(b)
hereof;

 

(f)                      pledges and
deposits of cash by any Borrower or Guarantor after the date hereof in the
ordinary course of business in connection with workers’ compensation,
unemployment insurance and other types of social security benefits consistent
with the current practices of such Borrower or Guarantor as of the date hereof;

 

(g)                   pledges and
deposits of cash by any Borrower or Guarantor after the date hereof to secure
the performance of tenders, bids, leases, trade contracts (other than for the
repayment of Indebtedness), statutory obligations and other similar obligations
in each case in the ordinary course of business consistent with the current
practices of such Borrower or Guarantor as of the date hereof; provided,
that, in connection with any performance bonds issued by a surety or
other person, the issuer of such bond shall have waived in writing any rights
in or to, or other interest in, any of the Collateral in an agreement, in form
and substance satisfactory to Agent in good faith;

 

(h)                   liens arising
from (i) operating leases and the precautionary UCC financing statement filings
in respect thereof and (ii) equipment or other materials which are not owned by
any Borrower or Guarantor located on the premises of such Borrower or Guarantor
(but not in connection with, or as part of, the financing thereof) from time to
time in the ordinary course of business and consistent with current practices
of such Borrower or Guarantor and the precautionary UCC financing statement
filings in respect thereof;

 

(i)                       liens or
rights of setoff against credit balances of Borrowers with Credit Card Issuers
or Credit Card Processors or amounts owing by such Credit Card Issuers or
Credit Card Processors to Borrower in the ordinary course of business, but not
liens on or rights of setoff against any other property or assets of Borrowers,
pursuant to the Credit Card Agreements (as in effect on the date hereof) to secure
the obligations of Borrowers to the Credit Card Issuers or Credit Card
Processors as a result of fees and chargebacks;

 

(j)                       statutory
or common law liens or rights of setoff of depository banks with respect to
funds of Borrowers or Guarantors at such banks to secure fees and charges in
connection with returned items or the standard fees and charges of such banks
in connection with the deposit accounts maintained by Borrowers and Guarantors
at such banks (but not any other Indebtedness or obligations);

 

(k)                    deposits of
cash with the owner or lessor of premises leased and operated by Borrowers in
the ordinary course of the business of Borrowers to secure the performance by
Borrowers of their respective obligations under the terms of the lease for such
premises;

 

86

 

(l)                       judgments
and other similar liens arising in connection with court proceedings that do
not constitute an Event of Default, provided, that, (i) such
liens are being contested in good faith and by appropriate proceedings
diligently pursued and available to such Borrower, Guarantor or Subsidiary,
(ii) adequate reserves or other appropriate provision, if any, as are required
by GAAP have been made therefor, (iii) a stay of enforcement of any such liens
is in effect and (iv) Agent may establish a Reserve with respect thereto (which
Reserve shall be terminated simultaneously with the payment and satisfaction in
full of the Indebtedness secured thereby and the receipt by Agent of evidence
thereof satisfactory to Agent or may be used by Agent to pay such Indebtedness
after notice to Borrower Agent in the event of the commencement or threatened
commencement (to the extent such threat is imminent as determined in good faith
by Agent) of any action by the party to whom such Indebtedness is owed to
exercise its remedies with respect thereto or to the extent necessary for Agent
to exercise any of its rights or remedies); and

 

(m)                 the security
interests and liens set forth on Schedule 8.4 to the Information
Certificate;

 

(n)                   the security
interests and liens of the Noteholder Collateral Agent in the Collateral
pursuant to the Black Canyon Security Agreement to secure (i) the Indebtedness
of Operating and the Black Canyon Guarantors under the Black Canyon Documents
to the extent such Indebtedness is permitted under Section 9.9(r) hereof
and (ii) the Indebtedness of Intermediate 
evidenced by the remaining portion of the 16% Senior Discount Notes on
an equal and ratable basis to the extent such Indebtedness is permitted under Section 9.9(q)
hereof, which security interests and liens of the Noteholder Collateral Agent
are and shall at all times be junior and subordinate to the security interests
and liens of Agent pursuant to the Black Canyon Intercreditor Agreement;

 

(o)                   the security
interests and liens of the financial institution or institutions providing the
Indebtedness permitted pursuant to Section 9.9(t) hereof on the
Intellectual Property and all other Collateral, in each case to secure the
Indebtedness of Borrowers and Guarantors permitted under Section 9.9(t)
hereof, which security interests and liens of such financial institution or
institutions shall at all times be subject to an intercreditor agreement on
terms and conditions reasonably acceptable to Agent, including a subordinate
and junior lien of such financial institution or institutions as to all
Collateral (other than Intellectual Property) and the priority of the security
interests and liens of such financial institution or institutions as to the Intellectual
Property and the right of Agent to use the Intellectual Property to realize on
the Collateral.

 

9.9                   Indebtedness.  Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary to, incur, create, assume, become or be liable
in any manner with respect to, or permit to exist, any Indebtedness, or
guarantee, assume, endorse, or otherwise become responsible for (directly or
indirectly), the Indebtedness, performance, obligations or dividends of any
other Person, except:

 

(a)                    the Obligations;

 

87

 

(b)                   purchase money
Indebtedness (including Capital Leases) arising after the date hereof to the
extent secured by purchase money security interests in Equipment (including
Capital Leases) and purchase money mortgages on Real Property not to exceed
$20,000,000 in the aggregate at any time outstanding so long as such security
interests and mortgages do not apply to any property of such Borrower,
Guarantor or Subsidiary other than the Equipment or Real Property so acquired,
and the Indebtedness secured thereby does not exceed the cost of the Equipment
or Real Property so acquired, as the case may be;

 

(c)                    guarantees by
any Borrower or Guarantor of the Obligations of the other Borrowers or
Guarantors in favor of Agent for the benefit of Lenders;

 

(d)                   unsecured
guarantees by Parent or a Borrower of the obligations of a Borrower arising
pursuant to a lease or license by a third party in a bona  fide
arm’s length transaction of real property for use as a retail store location in
the ordinary course of the business of such Borrower; provided, that,
(i) the Person issuing such guarantee is permitted hereunder to incur directly
the obligation that is being guaranteed and (ii) as of the date on which such
guarantee is issued no Event of Default exists or has occurred and is
continuing;

 

(e)                    unsecured
guarantees by any Borrower or Guarantor of the obligations to a third party of
any other Borrower or Guarantor (other than Parent); provided, that,
(i) the Person issuing such guarantee is permitted hereunder to incur
directly the Indebtedness that is being guaranteed, and (ii) as of the
date on which such guarantee is issued, no Event of Default exists or has
occurred and is continuing;

 

(f)                      the
Indebtedness of any Borrower or Guarantor to any other Borrower or Guarantor
arising after the date hereof pursuant to loans by any Borrower or Guarantor
permitted under Section 9.10(g) hereof;

 

(g)                   unsecured
Indebtedness of any Borrower or Guarantor arising after the date hereof to any
third party (but not to any other Borrower or Guarantor and other than any
Indebtedness permitted under Sections 9.9(h) or 9.9(i) below) pursuant to loans
in cash or other immediately available funds by such person to such Borrower or
Guarantor, provided, that, each of the following conditions is
satisfied as determined by Agent: (i) such Indebtedness shall be on terms and
conditions reasonably acceptable to Agent, (ii) in no event shall any Borrower
or Guarantor make, or be required to make under the terms thereof, payments in
respect of such Indebtedness prior to the date one hundred eighty (180) days
after the end of the then current term of this Agreement (other than regularly
scheduled payments of interest and fees or payments pursuant to the issuance of
additional Indebtedness on substantially the same terms as the initial
Indebtedness), (iii) Agent shall have received not less than ten (10) Business
Days’ prior written notice of the intention of such Borrower or Guarantor to
incur such Indebtedness, which notice shall set forth in reasonable detail
satisfactory to Agent the amount of such Indebtedness, the person or persons to
whom such Indebtedness will be owed, the interest rate, the schedule of
repayments and maturity date with respect thereto and such other information as
Agent may reasonably request with respect thereto, (iv) Agent shall have
received true, correct and complete copies of all agreements, documents and
instruments evidencing or otherwise related to such Indebtedness, (v) except as
Agent may otherwise agree in writing, all of the proceeds of the loans or other
accommodations giving rise to such Indebtedness shall be paid to

 

88

 

Agent for
application to the Obligations in such order and manner as Agent may determine,
(vi) the aggregate principal amount of all such Indebtedness shall not exceed
$20,000,000, (vii) as of the date of incurring such Indebtedness and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred, (viii) such Borrower and Guarantor shall not, directly or indirectly,
(A) amend, modify, alter or change the terms of such Indebtedness or any
agreement, document or instrument related thereto, except, that,
such Borrower or Guarantor may, after prior written notice to Agent, amend,
modify, alter or change the terms thereof so as to extend the maturity thereof,
or defer the timing of any payments in respect thereof, or to forgive or cancel
any portion of such Indebtedness (other than pursuant to payments thereof), or
to reduce the interest rate or any fees in connection therewith, or (B) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness (except
pursuant to regularly scheduled payments permitted herein), or set aside or
otherwise deposit or invest any sums for such purpose, and (ix) Borrowers and
Guarantors shall furnish to Agent all notices or demands in connection with
such Indebtedness either received by any Borrower or Guarantor or on its behalf
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf concurrently with the sending thereof, as the case may be;

 

(h)                   unsecured
Indebtedness of Parent arising after the date hereof to any Person (but not to
any other Borrower or Guarantor and other than any Indebtedness permitted under
Sections 9.9(g) above or 9.9(i) below) pursuant to loans in cash or other
immediately available funds by such person to Parent, provided, that,
each of the following conditions is satisfied as determined by Agent: (i) such
Indebtedness shall be on terms and conditions reasonably acceptable to Agent,
(ii) in no event shall any Borrower or Guarantor make, or be required to make
under the terms thereof, payments in respect of such Indebtedness prior to the
termination of this Agreement and the payment in full in cash or other
immediately available funds of all of the Obligations (other than payments
pursuant to the issuance of additional Indebtedness by Parent on substantially
the same terms as the initial Indebtedness), (iii) Agent shall have received
prior written notice of the intention of Parent to incur such Indebtedness,
which notice shall set forth in reasonable detail satisfactory to Agent the
amount of such Indebtedness, the person or persons to whom such Indebtedness
will be owed, the interest rate, the schedule of repayments and maturity
date with respect thereto and such other information as Agent may reasonably
request with respect thereto, (iv) Agent shall have received true, correct and
complete copies of all agreements, documents and instruments evidencing or
otherwise related to such Indebtedness, (v) Parent shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such Indebtedness
or any agreement, document or instrument related thereto, except, that,
Parent may, after prior written notice to Agent, amend, modify, alter or change
the terms thereof so as to extend the maturity thereof, or defer the timing of
any payments in respect thereof, or to forgive or cancel any portion of such
Indebtedness (other than pursuant to payments thereof), or to reduce the
interest rate or any fees in connection therewith, or (B) redeem, retire,
defease, purchase or otherwise acquire such Indebtedness (except pursuant to
payments in the form permitted herein), or set aside or otherwise deposit or
invest any sums for such purpose, and (vi) Borrowers and Guarantors shall
furnish to Agent all notices or demands in connection with such Indebtedness
either received by any Borrower or Guarantor or on its behalf promptly after
the receipt thereof, or sent by any Borrower or Guarantor or on its behalf
concurrently with the sending thereof, as the case may be;

 

89

 

(i)                       unsecured
Indebtedness of Operating arising after the date hereof to TPG Partners, any
Affiliate of TPG Partners or any third party to the extent such Indebtedness of
Operating to such third party is guaranteed by TPG Partners or any Affiliate of
TPG Partners (other than any Indebtedness permitted under Sections 9.9(g) or
9.9(h) above) pursuant to loans in cash or other immediately available funds by
such person to Operating, provided, that, each of the following
conditions is satisfied as determined by Agent: (i) such Indebtedness shall be
on terms and conditions reasonably acceptable to Agent, and such Indebtedness
shall be subject and subordinate in right of payment to the right of Agent and
Lenders to receive the prior indefeasible payment and satisfaction in full in
cash or other immediately available funds of all of the Obligations pursuant to
the terms of an intercreditor agreement between Agent and the person to whom
such Indebtedness is owed, in form and substance satisfactory to Agent, (ii)
Agent shall have received prior written notice of the intention of Operating to
incur such Indebtedness, which notice shall set forth in reasonable detail
satisfactory to Agent the amount of such Indebtedness, the person or persons to
whom such Indebtedness will be owed, the interest rate, the schedule of
repayments and maturity date with respect thereto and such other information as
Agent may reasonably request with respect thereto, (iii) Agent shall have
received true, correct and complete copies of all agreements, documents and
instruments evidencing or otherwise related to such Indebtedness, (iv)
Operating shall not, directly or indirectly, (A) amend, modify, alter or change
the terms of such Indebtedness or any agreement, document or instrument related
thereto, except, that, Operating may, after prior written notice
to Agent, amend, modify, alter or change the terms thereof so as to extend the
maturity thereof, or defer the timing of any payments in respect thereof, or to
forgive or cancel any portion of such Indebtedness (other than pursuant to payments
thereof), or to reduce the interest rate or any fees in connection therewith,
or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness
(except pursuant to regularly scheduled payments that may be permitted under
the terms of the intercreditor agreement referred to above), or set aside or
otherwise deposit or invest any sums for such purpose, and (v) Borrowers and
Guarantors shall furnish to Agent all notices or demands in connection with
such Indebtedness either received by any Borrower or Guarantor or on its behalf
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf concurrently with the sending thereof, as the case may be;

 

(j)                       Indebtedness
of Parent evidenced by the Senior Discount Debentures as in effect on the date
hereof or as permitted to be amended pursuant to the terms hereof, provided,
that:

 

(i)                       the
aggregate amount of such Indebtedness shall not exceed $25,000,000, less the
aggregate amount of all repayments or redemptions, whether optional or
mandatory, in respect thereof, plus interest thereon at the rate provided for
in the Senior Discount Debentures as in effect on the date hereof,

 

(ii)                    the Credit
Facility is and shall at all times continue to be the “New Credit Facility” as
such term is defined in the Senior Debenture Indenture as in effect on the date
hereof and is and shall be entitled to all of the rights and benefits thereof,
if any,  under the Senior Debenture
Indenture as in effect on the date hereof,

 

(iii)                 Borrowers and
Guarantors shall not, directly or indirectly, make any payments in respect of
such Indebtedness, except  that they may make (A) regularly
scheduled

 

90

 

payments of
interest and fees, if any, in respect of such Indebtedness when due in
accordance with the terms of the Senior Discount Debentures and the Senior
Debenture Indenture, in each case as in effect on the date hereof and any
reasonable and customary fees required to be paid to holders of the Senior Discount
Debentures in connection with a consent solicitation and (B) payments permitted
under clause (j)(v) below of this Section 9.9,

 

(iv)                Borrowers and
Guarantors shall not, directly or indirectly, amend, modify, alter or change,
in each case, in any material respect any terms of such Indebtedness or any of
the Senior Discount Debentures, the Senior Debenture Indenture or any related
agreements, documents and instruments, except  that Borrowers and
Guarantors may, after prior written notice to Agent, amend, modify, alter or
change the terms thereof so as to extend the maturity thereof or defer the
timing of any payments in respect thereof, or to forgive or cancel any portion
of such Indebtedness other than pursuant to payments thereof, or to reduce the
interest rate or any fees in connection therewith, or to eliminate any
covenants contained therein, or make any such covenants less restrictive or
otherwise more favorable to any Borrower or Guarantor, and

 

(v)                   Borrowers and
Guarantors shall not, directly or indirectly, redeem, retire, defease, purchase
or otherwise acquire all or any part of such Indebtedness other than at
maturity (as set forth in the Senior Debenture Indenture as in effect on the
date hereof or as extended after the date hereof), or set aside or otherwise
deposit or invest any sums for such purpose, except  that

 

(A)                Borrowers or
Guarantors may redeem, retire, defease, purchase or otherwise acquire all or
any part of such Indebtedness with Refinancing Indebtedness with respect
thereto to the extent permitted under Section 9.9(o) hereof,

 

(B)                  Borrowers or
Guarantors may redeem, retire, defease, purchase or otherwise acquire all or
any portion of such Indebtedness with the net proceeds of the issuance and sale
of Capital Stock of Parent or Operating permitted hereunder received by such
Borrower or Guarantor in cash or other immediately available funds, provided,
that, as of the date of any such redemption or purchase or any payment
in respect thereof and after giving effect thereto, (1) Borrowers and
Guarantors shall have complied with all of the requirements of Sections
9.7(b)(iii)(A), (B), (C) and (E) with respect to such issuance and sale of
Capital Stock and in addition to such requirements, the notice provided to
Agent pursuant thereto shall specify that the proceeds are to be used for the
redemption, retirement, defeasance, purchase or acquisition of all or any part
all of such Indebtedness (and shall specify which of the foregoing is
intended), the maximum amount that Borrowers and Guarantors will pay in respect
thereof and the range of the principal amount of the Senior Discount Debentures
that Borrowers and Guarantors anticipate will be so redeemed, retired,
defeased, purchased or otherwise acquired, (2) the redemption, retirement,
defeasance, repurchase or acquisition of all or any part of such Indebtedness
shall be substantially contemporaneous with the issuance and sale of the
Capital Stock of Parent or Operating subject to such notice provided to Agent,
(3) as of the date of any such payment and after giving effect thereto,
there shall be Excess Availability, and (4) as of the date of any such payment
and after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing,

 

91

 

(C)                  Borrowers or
Guarantors may redeem or repurchase such Indebtedness in cash or other
immediately available funds (other than with proceeds of the issuance and sale
of Capital Stock of Parent or Operating as provided in clause (B) above); provided,
that, (1) Borrower Agent shall have provided to Agent not less than ten
(10) Business Days’ notice of the intention of such Borrower or Guarantor to
redeem or repurchase such Indebtedness (specifying the amount to be paid by
Borrowers or Guarantors and the principal amount of the Senior Discount
Debentures that Borrowers and Guarantors anticipate will be so redeemed or
repurchased), (2) for the two consecutive month period immediately prior to the
date of any payment in respect of such redemption or repurchase, Excess
Availability shall have been not less than $30,000,000, (3)  Agent shall have received, not more than
twenty (20) Business Days prior to such payment and not less than five (5)
Business Days prior to such payment, current, updated projections of the amount
of the Borrowing Base and Excess Availability for the one month period after
the date of any payment in respect of such redemption or repurchase, in a form
reasonably satisfactory to Agent, representing Borrowers’ reasonable best
estimate of the future Borrowing Base and Excess Availability for the period
set forth therein as of the date not more than ten (10) days prior to the date
of the payment in respect of such redemption and repurchase, which projections
shall have been prepared on the basis of the assumptions set forth therein
which Borrowers believe are fair and reasonable as of the date of preparation
in light of current and reasonably foreseeable business conditions, (4) the
amount of the Excess Availability as set forth in such projections for such one
month period shall be not less than $20,000,000, and (5) as of the date of any
such payment and after giving effect thereto, no Default or Event of Default
exists or has occurred and is continuing;

 

(k)                    intentionally
omitted;

 

(l)                       contingent
Indebtedness arising pursuant to the guarantee existing on the date hereof by
any Subsidiary of Operating of the Indebtedness of Operating evidenced by the
10 3/8% Subordinated Notes to the extent such Indebtedness of Operating is permitted
hereunder, set forth in the 10 3/8% Subordinated Note Indenture as in effect on
the date hereof;

 

(m)                 Indebtedness
incurred in respect of workers’ compensation claims, self-insurance
obligations, performance, surety and similar bonds and completion guarantees
provided by a Borrower or Guarantor in the ordinary course of business
consistent with current practices as of the date hereof;

 

(n)                   Indebtedness
arising from the honoring by a bank or other financial institution of a check,
draft or similar instrument (other than daylight overdrafts and drafts in the
controlled disbursement accounts to be covered by Revolving Loans)
inadvertently drawn against insufficient funds in the ordinary course of
business; provided, that, such Indebtedness shall be repaid
within five (5) days of its incurrence and shall not exceed $1,000,000
outstanding at any one time;

 

(o)                   Indebtedness of
Parent, Operating or Intermediate, as the case may be, arising after the date
hereof issued in exchange for, or the proceeds of which are used to extend,
refinance, replace or substitute for Indebtedness permitted under Sections
9.9(j), 9.9(q), 9.9(r), 9.9(s), 9.9(t) or 9.9(u) hereof (the “Refinancing
Indebtedness”); provided, that, as to any such Refinancing
Indebtedness, each of the following conditions is satisfied: (i) Agent shall
have

 

92

 

received not
less than ten (10) Business Days’ prior written notice of the intention to
incur such Indebtedness, which notice shall set forth in reasonable detail
satisfactory to Agent, the amount of such Indebtedness, the schedule of
repayments and maturity date with respect thereto and such other information
with respect thereto as Agent may reasonably request, (ii) promptly upon Agent’s
request, Agent shall have received true, correct and complete copies of all
agreements, documents and instruments evidencing or otherwise related to such
Indebtedness, as duly authorized, executed and delivered by the parties
thereto, (iii) the Refinancing Indebtedness shall have a Weighted Average Life
to Maturity and a final maturity equal to or greater than the Weighted Average
Life to Maturity and the final maturity, respectively, of the Indebtedness
being extended, refinanced, replaced, or substituted for, (iv) the Refinancing
Indebtedness shall rank in right of payment no more senior than, and be at
least as subordinated (if subordinated) to, the Obligations as the Indebtedness
being extended, refinanced, replaced or substituted for, (v) the
Refinancing Indebtedness shall not include terms and conditions with respect to
any Borrower or Guarantor which are more burdensome or restrictive in any
material respect than those included in the Indebtedness so extended,
refinanced, replaced or substituted for, (vi) such Indebtedness incurred by any
Borrower or Guarantor shall be at rates and with fees or other charges that are
commercially reasonable, (vii) the incurring of such Indebtedness shall
not result in an Event of Default, (viii) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount of the Indebtedness so
extended, refinanced, replaced or substituted for (plus the amount of
refinancing fees and expenses incurred in connection therewith outstanding on
the date of such event), (ix) Borrowers and Guarantors may only make
payments of principal, interest and fees, if any, in respect of such
Indebtedness to the extent such payments would have been permitted hereunder in
respect of the Indebtedness so extended, refinanced, replaced or substituted
for (and except as otherwise permitted below), (x) Borrowers and Guarantors
shall not, directly or indirectly, (A) amend, modify, alter or change any terms
of the agreements with respect to such Refinancing Indebtedness, except  that
Borrowers and Guarantors may, after prior written notice to Agent, amend,
modify, alter or change the terms thereof to the extent permitted with respect
to the Indebtedness so extended, refinanced, replaced or substituted for, or
(B) redeem, retire, defease, purchase or otherwise acquired such
Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose (other than with Refinancing Indebtedness to the extent permitted
herein and to the extent permitted with respect to the Indebtedness so extended,
refinanced, replaced or substituted for), and (xi) Borrowers and Guarantors
shall furnish to Agent copies of all material notices or demands in connection
with Indebtedness received by any Borrower or Guarantor or on its behalf
promptly after the receipt thereof or sent by any Borrower or Guarantor or on
its behalf concurrently with the sending thereof, as the case may be; and

 

(p)                   the
Indebtedness set forth on Schedule 9.9 to the Information Certificate; provided,
that, (i) Borrowers and Guarantors may only make regularly scheduled
payments of principal and interest in respect of such Indebtedness in
accordance with the terms of the agreement or instrument evidencing or giving
rise to such Indebtedness as in effect on the date hereof, (ii) Borrowers and Guarantors
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such Indebtedness or any agreement, document or instrument related thereto
as in effect on the date hereof except, that, Borrowers and
Guarantors may, after prior written notice to Agent, amend, modify, alter or
change the terms thereof so as to extend the maturity thereof, or defer the
timing of any payments in respect thereof, or to forgive or cancel any portion
of such Indebtedness (other than pursuant to payments thereof), or to reduce
the

 

93

 

interest rate
or any fees in connection therewith, or (B) redeem, retire, defease, purchase
or otherwise acquire such Indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (iii) Borrowers and Guarantors shall
furnish to Agent all notices or demands in connection with such Indebtedness
either received by any Borrower or Guarantor or on its behalf, promptly after
the receipt thereof, or sent by any Borrower or Guarantor or on its behalf,
concurrently with the sending thereof, as the case may be.

 

(q)                   Indebtedness of
Intermediate evidenced by the 16% Senior Discount Notes as in effect on the
date hereof or as permitted to be amended pursuant to the terms hereof, provided,
that:

 

(i)                       the
aggregate amount of such Indebtedness shall not exceed $75,000,000, plus
Contingent Principal, less the aggregate amount of all repayments or
redemptions, whether optional or mandatory, in respect thereof, plus interest
thereon at the rate provided for in the 16% Senior Discount Note Indenture as
in effect on the date hereof;

 

(ii)                    the Credit
Facility is and shall at all times continue to be the “New Credit Facility” as
such term is defined in the 16% Senior Discount Note Indenture as in effect on
the date hereof and is and shall be entitled to all of the rights and benefits
thereof, if any, under the 16% Senior Discount Note Indenture as in effect on
the date hereof,

 

(iii)                 Borrowers and
Guarantors shall not, directly or indirectly, make any payments in respect of
such Indebtedness, except  that (A) they may make  regularly scheduled payments of interest by
capitalizing such interest and adding such capitalized amount to the
outstanding principal amount of such Indebtedness, and fees, if any, in respect
of such Indebtedness when due in accordance with the terms of the 16% Senior
Discount Notes in effect on the date hereof and the 16% Senior Discount Note
Indenture as in effect on the date hereof, in each case in accordance with the
terms of the Exchange Offer Documents as in effect on the date hereof and any
reasonable and customary fees required to be paid to holders of the 16% Senior
Discount Notes in connection with a consent solicitation, it being understood
and agreed that in no event shall the provisions of the 16% Senior Discount
Notes as in effect on the date hereof and the 16% Senior Discount Note
Indenture as in effect on the date hereof with respect thereto, vary from the
provisions of the Exchange Offer Documents and (B) payments permitted under
clause (q)(v) below of this Section 9.9,

 

(iv)                Borrowers and
Guarantors shall not, directly or indirectly, amend, modify, alter or change,
in each case, in any material respect any terms of such Indebtedness or any of
the 16% Senior Discount Notes, the 16% Senior Discount Note Indenture or any
related agreements, documents and instruments, except  that
Borrowers and Guarantors may, after prior written notice to Agent, amend,
modify, alter or change the terms thereof so as to extend the maturity thereof
or defer the timing of any payments in respect thereof, or to forgive or cancel
any portion of such Indebtedness other than pursuant to payments thereof, or to
reduce the interest rate or any fees in connection therewith, or to eliminate
any covenants contained therein, or make any such covenants less restrictive or
otherwise more favorable to any Borrower or Guarantor, and

 

94

 

(v)                   Borrowers and
Guarantors shall not, directly or indirectly, redeem, retire, defease, purchase
or otherwise acquire all or any part of such Indebtedness other than at
maturity (as set forth in the 16% Senior Discount Note Indenture as in effect
on the date hereof or as extended after such date), or set aside or otherwise
deposit or invest any sums for such purpose, except  that

 

(A)                Borrowers or
Guarantors may redeem, retire, defease, purchase or otherwise acquire all or
any part of such Indebtedness with Refinancing Indebtedness with respect
thereto to the extent permitted under Section 9.9(o) hereof,

 

(B)                  Borrowers or
Guarantors may redeem, retire, defease, purchase or otherwise acquire all or
any portion of such Indebtedness with the net proceeds of the issuance and sale
of Capital Stock of Parent or Operating permitted hereunder received by such
Borrower or Guarantor in cash or other immediately available funds; provided,
that, as of the date of any such redemption or purchase or any payment
in respect thereof and after giving effect thereto, (1) Borrowers and
Guarantors shall have complied with all of the requirements of Sections
9.7(b)(iii)(A), (B), (C) and (E) with respect to such issuance and sale of
Capital Stock and in addition to such requirements, the notice provided to
Agent pursuant thereto shall specify that the proceeds are to be used for the
redemption, retirement, defeasance, purchase or acquisition of all or any part
all of such Indebtedness (and shall specify which of the foregoing is
intended), the maximum amount that Borrowers and Guarantors will pay in respect
thereof and the range of the principal amount of the 16% Senior Discount Notes
that Borrowers and Guarantors anticipate will be so redeemed, retired,
defeased, purchased or otherwise acquired, (2) the redemption, retirement, defeasance,
repurchase or acquisition of all or any part of such Indebtedness shall be
substantially contemporaneous with the issuance and sale of the Capital Stock
of Parent or Operating subject to such notice provided to Agent, (3) as of the
date of any such payment and after giving effect thereto, there shall be Excess
Availability, and (4) as of the date of any such payment and after giving
effect thereto, no Default or Event of Default shall exist or have occurred and
be continuing, and

 

(C)                  Borrowers or Guarantors
may redeem or repurchase such Indebtedness in cash or other immediately
available funds (other than with proceeds of the issuance and sale of Capital
Stock of Parent or Operating as provided in clause (B) above); provided,
that, (1) Borrower Agent shall have provided to Agent not less than ten
(10) Business Days’ notice of the intention of such Borrower or Guarantor to
redeem or purchase such Indebtedness (specifying the amount to be paid by
Borrowers or Guarantors and the principal amount of the 16% Senior Discount
Notes that Borrowers and Guarantors anticipate will be so redeemed or
repurchased), (2) for the two consecutive month period immediately prior to the
date of any payment in respect of such redemption or repurchase, Excess
Availability shall have been not less than $30,000,000, (3)  Agent shall have received, not more than
twenty (20) Business Days prior to such payment and not less than five (5)
Business Days prior to such payment, current, updated projections of the amount
of the Borrowing Base and Excess Availability for the one month period after
the date of any payment in respect of such redemption or repurchase, in a form
reasonably satisfactory to Agent, representing Borrowers’ reasonable best
estimate of the future Borrowing Base and Excess Availability for the period
set forth therein as of the date not more than ten (10) days prior to the date
of the payment in respect of such redemption and repurchase, which projections
shall have been prepared on the basis of the

 

95

 

assumptions
set forth therein which Borrowers believe are fair and reasonable as of the
date of preparation in light of current and reasonably foreseeable business
conditions, and (4)  the amount of the
Excess Availability as set forth in such projections for such one month period
shall be not less than $20,000,000, and (5) as of the date of any such payment
and after giving effect thereto, no Default or Event of Default exists or has
occurred and is continuing;

 

(r)                      Indebtedness
of Operating arising on the Black Canyon Closing Date under the Black Canyon
Credit Agreement (or under the Black Canyon Indenture upon its execution and
delivery after the Black Canyon Closing Date), provided, that:

 

(i)                       the
aggregate amount of such Indebtedness shall not exceed $275,000,000 (or such
greater amount as is permitted below), less the aggregate amount of all
repayments or redemptions, whether optional or mandatory, in respect thereof,
plus interest thereon at the rate provided for in the Black Canyon Credit
Agreement (or provided for in the Black Canyon Indenture upon its execution and
delivery after the date hereof), except, that, at the option of
Borrowers, the aggregate principal amount of such Indebtedness outstanding at
such time may be increased, provided, that, (A) Agent shall have
received not less than ten (10) Business Days’ prior written notice of the
intention of Borrowers to exercise such option, which notice shall specify the
then current amounts of such Indebtedness, the amount of such increase and such
other information with respect thereto as Agent may reasonably request, (B)
each of the conditions to any such increase under the terms of the Black Canyon
Credit Agreement as in effect on the date hereof have been satisfied and Agent
shall have received such evidence thereof as Agent may request, (C) such
Indebtedness shall be on the same terms and conditions as the Indebtedness of
Borrowers under the Black Canyon Credit Agreement as in effect on the date
hereof (or as permitted to be amended hereunder) or the same terms and
conditions of the Black Canyon Indenture (as such terms and conditions are
permitted hereunder) or terms and conditions more favorable to Borrowers and
Guarantors and subject in all respects to the Black Canyon Intercreditor
Agreement or other intercreditor agreements no less favorable to Agent in any
respect, (D) Agent shall receive written confirmation from Borrower Agent that
Borrowers have received the proceeds of the loans in immediately available
funds giving rise to such increase in Indebtedness promptly upon the receipt
thereof and the amount of such funds, (E) in no event shall the aggregate
amount of all such increases exceed at any time the amount equal to $50,000,000
minus the amount of the outstanding Indebtedness permitted under Section 9.9(u)
hereof, (F) after giving effect to any such increase, Excess Availability shall
be not less than $20,000,000 and (G) as of the date of such increase and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing,

 

(ii)                    the Credit
Facility is and shall at all times continue to be the “Congress Credit Facility”
as such term is defined in the Black Canyon Documents  and the Obligations are and shall at all times
constitute “Senior Debt” and “Designated Senior Debt” as each of such terms is
defined in the Black Canyon Documents and is and shall be entitled to all of
the rights and benefits thereof, if any, under the Black Canyon Documents,

 

(iii)                 Borrowers and
Guarantors shall not, directly or indirectly, make any payments in respect of
such Indebtedness, except  that (A) they may make regularly
scheduled payments of interest and fees, if any, in respect of such
Indebtedness when due in accordance with the terms of the Black Canyon Credit
Agreement (or in accordance with the terms of the

 

96

 

Black Canyon
Indenture upon its execution and delivery after the Black Canyon Closing Date),
and any reasonable and customary fees required to be paid to lenders or holders
of the Indebtedness of Operating under the Black Canyon Documents and (B)
payments permitted under clause (r)(v) below of this Section 9.9,

 

(iv)                Borrowers and
Guarantors shall not, directly or indirectly, amend, modify, alter or change,
in each case, in any material respect any terms of such Indebtedness or any of
the Black Canyon Documents or any related agreements, documents and
instruments, except  that Borrowers and Guarantors may, after
prior written notice to Agent, amend, modify, alter or change the terms thereof
so as to extend the maturity thereof or defer the timing of any payments in
respect thereof, or to forgive or cancel any portion of such Indebtedness other
than pursuant to payments thereof, or to reduce the interest rate or any fees
in connection therewith, or to eliminate any covenants contained therein, or
make any such covenants less restrictive or otherwise more favorable to any
Borrower or Guarantor or to execute and deliver a loan guarantee in the form
attached as Exhibit B to the Black Canyon Credit Agreement (or the equivalent
form attached to the Black Canyon Indenture), and

 

(v)                   Borrowers and
Guarantors shall not, directly or indirectly, redeem, retire, defease, purchase
or otherwise acquire all or any part of such Indebtedness other than at
maturity (as set forth in the Black Canyon Credit Agreement or the Black Canyon
Indenture upon its execution and delivery after the Black Canyon Closing Date),
or set aside or otherwise deposit or invest any sums for such purpose, except
that

 

(A)                Borrowers or
Guarantors may redeem, retire, defease, purchase or otherwise acquire all or
any part of such Indebtedness with Refinancing Indebtedness with respect
thereto to the extent permitted under Section 9.9(o) hereof,

 

(B)                  Borrowers or
Guarantors may redeem, retire, defease, purchase or otherwise acquire all or
any portion of such Indebtedness with the net proceeds of the issuance and sale
of Capital Stock of Parent or Operating permitted hereunder received by such
Borrower or Guarantor in cash or other immediately available funds; provided,
that, as of the date of any such redemption or purchase or any payment
in respect thereof and after giving effect thereto, (1) Borrowers and
Guarantors shall have complied with all of the requirements of Sections
9.7(b)(iii)(A), (B), (C) and (E) with respect to such issuance and sale of
Capital Stock and in addition to such requirements, the notice provided to
Agent pursuant thereto shall specify that the proceeds are to be used for the
redemption, retirement, defeasance, purchase or acquisition of all or any part
all of such Indebtedness (and shall specify which of the foregoing is
intended), the maximum amount that Borrowers and Guarantors will pay in respect
thereof and the range of the principal amount of such Indebtedness that
Borrowers and Guarantors anticipate will be so redeemed, retired, defeased,
purchased or otherwise acquired, (2) the redemption, retirement, defeasance,
repurchase or acquisition of all or any part of such Indebtedness shall be
substantially contemporaneous with the issuance and sale of the Capital Stock
of Parent or Operating subject to such notice provided to Agent, (3) as of the
date of any such payment and after giving effect thereto, there shall be Excess
Availability, and (4)  as of the date of
any such payment and after giving effect thereto, no Default or Event of
Default shall exist or have occurred and be continuing, and

 

97

 

(C)                  
Borrowers or Guarantors may redeem or repurchase such Indebtedness in cash or
other immediately available funds (other than with proceeds of the issuance and
sale of Capital Stock of Parent or Operating as provided in clause (B) above); provided,
that, (1) Borrower Agent shall have provided to Agent not less than ten
(10) Business Days’ notice of the intention of such Borrower or Guarantor to
redeem or repurchase such Indebtedness (specifying the amount to be paid by
Borrowers or Guarantors and the principal amount of such Indebtedness that
Borrowers and Guarantors anticipate will be so redeemed or repurchased), (2)
for the two consecutive month period immediately prior to the date of any
payment in respect of such redemption or repurchase, Excess Availability shall
have been not less than $30,000,000, (3) 
Agent shall have received, not more than ten (10) Business Days prior to
such payment and not less than five (5) Business Days prior to such payment,
current, updated projections of the amount of the Borrowing Base and Excess
Availability for the one month period after the date of any payment in respect
of such redemption or repurchase, in a form reasonably satisfactory to Agent,
representing Borrowers’ reasonable best estimate of the future Borrowing Base
and Excess Availability for the period set forth therein as of the date not
more than ten (10) days prior to the date of the payment in respect of such
redemption and repurchase, which projections shall have been prepared on the
basis of the assumptions set forth therein which Borrowers believe are fair and
reasonable as of the date of preparation in light of current and reasonably
foreseeable business conditions, (4) the amount of the Excess Availability as
set forth in such projections for such one month period shall be not less than
$20,000,000, and (5) as of the date of any such payment and after giving effect
thereto, no Default or Event of Default exists or has occurred and is
continuing.

 

(s)                    contingent
Indebtedness arising pursuant to the guarantees existing on November 24, 2004
by the Black Canyon Guarantors (or thereafter pursuant to any person that
becomes a Black Canyon Guarantor after November 24, 2004 in accordance with the
terms of the Black Canyon Documents) of the Indebtedness of Operating arising
under the Black Canyon Documents to the extent such Indebtedness of Operating
is permitted hereunder, set forth in the Black Canyon Credit Agreement, or on
substantially the same terms, in the Black Canyon Indenture upon the execution
and delivery thereof.

 

(t)                      Indebtedness
of any Borrower or Guarantor arising after the date hereof to any financial
institution or institutions pursuant to loans in cash or other immediately
available funds by such institution or institutions to such Borrower or Guarantor,
provided, that, each of the following conditions is satisfied as
determined by Agent: (i) such Indebtedness shall be owing to a financial
institution or institutions reasonably acceptable to Agent, (ii) in no event
shall any Borrower or Guarantor make, or be required to make under the terms
thereof, any payments in respect of such Indebtedness prior to the date one
hundred eighty (180) days after the end of the then current term of this
Agreement, except for (A) regularly scheduled payments of interest and
(B) regularly scheduled payments of principal so long as the aggregate amount
of such payments of principal in any twelve (12) consecutive month period (but
not including payments on the final maturity date of such Indebtedness) do not
exceed $10,000,000 (provided, that, the amount of any such
payments of principal in excess of $2,500,000 to be made in any such twelve
(12) month period shall be included in the calculation of the Fixed Interest
Charge Coverage Ratio as provided herein), (iii) the terms and conditions of
such Indebtedness shall be on “market” terms (based on the market for a secured
term loan provided in conjunction with an asset-based facility of the type
provided for in this Agreement) and otherwise on commercially

 

98

 

reasonable rates and terms in a bona fide
transaction, (iv) such Indebtedness shall be secured only by a first priority
security interest in the Intellectual Property and a security interest in such
other Collateral as such financial institution or institutions may require
which is subordinate and junior in all respects to the security interest and
lien of Agent therein, (v) Agent shall have received an intercreditor
agreement, in form and substance reasonably satisfactory to Agent, duly
authorized, executed and delivered by the persons to whom such Indebtedness is
owed, and acknowledged and agreed to by Borrowers and Guarantors, (vi) Agent
shall have received not less than ten (10) Business Days’ prior written notice
of the intention of such Borrower or Guarantor to incur such Indebtedness,
which notice shall set forth in reasonable detail satisfactory to Agent the
amount of such Indebtedness, the person or persons to whom such Indebtedness
will be owed, the interest rate, the schedule of repayments and maturity date
with respect thereto and such other information as Agent may reasonably request
with respect thereto, (vii) on and after the incurrence of such Indebtedness,
the Adjusted Borrowing Base shall be used for purposes hereof and as of the
date of incurring such Indebtedness, immediately after giving effect to the
Adjusted Borrowing Base, Excess Availability shall be not less than
$20,000,000, (viii) Agent shall have received true, correct and complete copies
of all material agreements, documents and instruments evidencing or otherwise
related to such Indebtedness and such other agreements, documents and
instruments as Agent may reasonably request, (ix) the net cash proceeds of such
loans received by the Borrowers shall not be less than $20,000,000 and shall
not exceed $80,000,000, (x) as of the date of incurring such Indebtedness and
after giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing, (xi) such Borrower and Guarantor shall not,
directly or indirectly, (A) amend, modify, alter or change the terms of such
Indebtedness or any agreement, document or instrument related thereto, except,
that, such Borrower or Guarantor may, after prior written notice to Agent,
amend, modify, alter or change the terms thereof so as to extend the maturity
thereof, or defer the timing of any payments in respect thereof, or to forgive
or cancel any portion of such Indebtedness (other than pursuant to payments
thereof), or to reduce the interest rate or any fees in connection therewith,
or in such other manner as Agent may agree or (B) redeem, retire, defease,
purchase or otherwise acquire such Indebtedness (except pursuant to regularly
scheduled payments permitted herein), or set aside or otherwise deposit or
invest any sums for such purpose, and (xii) Borrowers and Guarantors shall
furnish to Agent all material notices or demands in connection with such
Indebtedness either received by any Borrower or Guarantor or on its behalf
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf concurrently with the sending thereof, as the case may be;

 

(u)                   Indebtedness
of any Borrower or Guarantor arising after the date hereof to any financial
institution or institutions pursuant to loans in cash or other immediately
available funds by such institution or institutions to such Borrower or
Guarantor, provided, that, each of the following conditions is
satisfied as determined by Agent: (i) such Indebtedness shall be owing to a
financial institution or institutions reasonably acceptable to Agent, (ii) each
of the conditions to any increase in the amount of Indebtedness under the terms
of the Black Canyon Credit Agreement as in effect on the date hereof shall have
been satisfied and Agent shall have received such evidence thereof as Agent may
request, (iii) such Indebtedness shall be on the same terms and conditions as
the Indebtedness of Borrowers under the Black Canyon Credit Agreement as in
effect on the date hereof (or as permitted to be amended hereunder) or the
terms and conditions of the Black Canyon Indenture (as such terms and
conditions are permitted hereunder) or terms and conditions more favorable to
Borrowers and Guarantors, (iv) Agent shall

 

99

 

have received an intercreditor agreement, in
form and substance satisfactory to Agent, duly authorized, executed and
delivered by the persons to whom such Indebtedness is owed, and acknowledged
and agreed to by Borrowers and Guarantors, which shall be no less favorable to
Agent and Lenders than the Black Canyon Intercreditor Agreement, (v)  Agent shall receive written confirmation from
Borrower Agent that Borrowers have received the proceeds of the loans in
immediately available funds giving rise to such Indebtedness on the date of the
receipt thereof and the amount of such funds, (vi) in no event shall the
aggregate amount of all such Indebtedness exceed at any time the amount equal
to $50,000,000 minus the amount of all increases in the Indebtedness permitted
under Section 9.9(r)(i) hereof above, (vii) after giving effect to any such
Indebtedness, Excess Availability shall be not less than $20,000,000, (vii)
Agent shall have received not less than ten (10) Business Days’ prior written
notice of the intention of such Borrower or Guarantor to incur such
Indebtedness, which notice shall set forth in reasonable detail satisfactory to
Agent the amount of such Indebtedness, the person or persons to whom such
Indebtedness will be owed, the interest rate, the schedule of repayments and
maturity date with respect thereto and such other information as Agent may
reasonably request with respect thereto, (viii) Agent shall have received true,
correct and complete copies of all material agreements, documents and
instruments evidencing or otherwise related to such Indebtedness and such other
agreements, documents and instruments as Agent may reasonably request, (ix) as
of the date of incurring such Indebtedness and after giving effect thereto, no
Default or Event of Default shall exist or have occurred and be continuing, (x)
such Borrower and Guarantor shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto, except, that, such Borrower or
Guarantor may, after prior written notice to Agent, amend, modify, alter or
change the terms thereof so as to extend the maturity thereof, or defer the
timing of any payments in respect thereof, or to forgive or cancel any portion
of such Indebtedness (other than pursuant to payments thereof), or to reduce
the interest rate or any fees in connection therewith, or in such other manner
as Agent may agree, (B) redeem, retire, defease, purchase or otherwise acquire
such Indebtedness (except pursuant to regularly scheduled payments permitted
herein), or set aside or otherwise deposit or invest any sums for such purpose,
and (xi) Borrowers and Guarantors shall furnish to Agent all material notices
or demands in connection with such Indebtedness either received by any Borrower
or Guarantor or on its behalf promptly after the receipt thereof, or sent by
any Borrower or Guarantor or on its behalf concurrently with the sending
thereof, as the case may be; and 

 

(v)                   Indebtedness
of any Borrower or Guarantor entered into in the ordinary course of business
pursuant to a Hedge Agreement; provided, that, (i) such
arrangements are either with Agent, any Lender, or any Affiliate of any Lender
or other financial institutions acceptable to Agent (and in each case as to any
such Lender, Affiliate or other financial institution only to the extent
approved by Agent), (ii) such arrangements are not for speculative purposes,
and (iii) such Indebtedness shall be unsecured, except to the extent such
Indebtedness constitutes part of the Obligations arising under or pursuant to
Hedge Agreements with Agent, any Lender, any Affiliate of any Lender or another
financial institution that are secured under the terms hereof.

 

9.10             Loans, Investments, Etc.  Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary to, directly or indirectly, make any loans or
advance money or property to any person, or invest in (by capital contribution
or otherwise) or purchase or repurchase the

 

100

 

Capital Stock or Indebtedness or all or a
substantial part of the assets or property of any person, or form or acquire
any Subsidiaries, or agree to do any of the foregoing, except:

 

(a)                    the
endorsement of instruments for collection or deposit in the ordinary course of
business;

 

(b)                   investments
in cash or Cash Equivalents, provided, that, (i) no Revolving
Loans are then outstanding and (ii) the terms and conditions of Section 5.2
hereof shall have been satisfied with respect to the deposit account,
investment account or other account in which such cash or Cash Equivalents are
held;

 

(c)                    the
equity investments of each Borrower and Guarantor in its Subsidiaries, provided,
that, no Borrower or Guarantor shall have any further obligations or
liabilities to make any capital contributions or other additional investments
or other payments to or in or for the benefit of any of such Subsidiaries;

 

(d)                   loans
and advances by any Borrower or Guarantor to employees of such Borrower or
Guarantor not to exceed the principal amount of $3,000,000 in the aggregate at
any time outstanding for: (i) reasonably and necessary work-related travel or
other ordinary business expenses to be incurred by such employee in connection
with their work for such Borrower or Guarantor and (ii) reasonable and
necessary relocation expenses of such employees (including home mortgage
financing for relocated employees); 

 

(e)                    stock
or obligations issued to any Borrower or Guarantor by any Person (or the representative
of such Person) in respect of Indebtedness of such Person owing to such
Borrower or Guarantor in connection with the insolvency, bankruptcy,
receivership or reorganization of such Person or a composition or readjustment
of the debts of such Person; provided, that, the original of any
such stock or instrument evidencing such obligations shall be promptly
delivered to Agent, upon Agent’s request, together with such stock power,
assignment or endorsement by such Borrower or Guarantor as Agent may request;

 

(f)                      obligations
of account debtors to any Borrower or Guarantor arising from Accounts which are
past due evidenced by a promissory note made by such account debtor payable to
such Borrower or Guarantor; provided, that, promptly upon the
receipt of the original of any such promissory note by such Borrower or
Guarantor, such promissory note shall be endorsed to the order of Agent by such
Borrower or Guarantor and promptly delivered to Agent as so endorsed;

 

(g)                   loans
by Operating to any Subsidiary of Operating (other than an Inactive Subsidiary)
or by Intermediate or any Subsidiary of Operating to Operating or any other
Subsidiary of Operating (other than an Inactive Subsidiary); provided, that,  as to all of such loans, the Indebtedness
arising pursuant to any such loan shall not be evidenced by a promissory note
or other instrument, unless the single original of such note or other
instrument is promptly delivered to Agent upon its request to hold as part of
the Collateral, with such endorsement and/or assignment by the payee of such
note or other instrument as Agent may require,

 

(h)                   the
formation by Parent of a direct wholly-owned Subsidiary after the date hereof
that is incorporated under the laws of a State of the United States of America;
provided,

 

101

 

that, each of the
following conditions is satisfied:  (i)
the only asset of such wholly-owned Subsidiary shall be Capital Stock of
Operating issued after the date hereof to the extent such issuance is permitted
under this Agreement and such Subsidiary shall not engage in any business or
commercial activity or own or hold any other assets or properties, (ii) Parent
shall cause any such Subsidiary to execute and deliver to Agent, each of the
following, in each case in form and substance satisfactory to Agent:
(A) an absolute and unconditional guarantee of payment of the Obligations,
(B) a security agreement granting to Agent a first security interest in and
lien upon all of the assets of any such Subsidiary, and (C) such other
agreements, documents and instruments as Agent may require and (iii) Parent
shall (A) execute and deliver to Agent, a pledge and security agreement, in
form and substance satisfactory to Agent, granting to Agent a first pledge of and
lien on all of the issued and outstanding shares of Capital Stock of any such
Subsidiary, and (B) deliver the original stock certificates evidencing
such shares of Capital Stock (or such other evidence as may be issued in the
case of a limited liability company), together with stock powers with respect
thereto duly executed in blank (or the equivalent thereof in the case of a
limited liability company in which such interests are certificated, or
otherwise take such actions as Agent shall require with respect to Agent’s
security interests therein),

 

(i)                       other
investments in an aggregate amount not to exceed $1,000,000 at any time
outstanding, provided, that,
as of the date of any such investment and after giving effect thereto, no
Default or Event of Default shall exist or have occurred and be continuing;

 

(j)                       the
loans and advances set forth on Schedule 9.10 to the Information Certificate; provided,
that, as to such loans and advances, Borrowers and Guarantors shall not,
directly or indirectly, amend, modify, alter or change the terms of such loans
and advances or any agreement, document or instrument related thereto and
Borrowers and Guarantors shall furnish to Agent all notices or demands in
connection with such loans and advances either received by any Borrower or
Guarantor or on its behalf, promptly after the receipt thereof, or sent by any
Borrower or Guarantor or on its behalf, concurrently with the sending thereof,
as the case may be;

 

(k)                    an
intercompany loan by Operating to Intermediate on or about the Black Canyon
Closing Date with a portion of the proceeds of the loans received by Operating
under the Black Canyon Credit Agreement, the proceeds of which shall be used on
or about the Black Canyon Closing Date by Intermediate solely to prepay a portion
of the 16% Senior Discount Notes, provided, that, the
Indebtedness arising pursuant to such loan shall not be evidenced by a
promissory note or other instrument, unless the single original of such note or
other instrument is promptly delivered to Agent upon its request to hold as
part of the Collateral, with such endorsement and/or assignment by the payee of
such note or other instrument as Agent may require.

 

(l)                       the
acquisition after the date of the date hereof by any Borrower or Guarantor of
any direct wholly-owned Subsidiary of such Borrower or Guarantor organized
under the laws of a jurisdiction in the United States of America; provided,
that, as to any such acquisition of any such Subsidiary, each of the
following conditions is satisfied:

 

102

 

(i)                       as
of the date of any such acquisition of such Subsidiary or any payments in
connection with the acquisition of such Subsidiary, and in each case after
giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing,

 

(ii)                    as
of the date of any such acquisition of such Subsidiary or any payments in
connection with the acquisition of such Subsidiary, for the two consecutive
month period immediately prior to the date of any payment in respect of such
redemption or repurchase, Excess Availability shall have been not less than
$30,000,000, 

 

(iii)                 Agent
shall have received, not more than twenty (20) Business Days prior to the
acquisition of such Subsidiary or any payment in connection with the
acquisition of such Subsidiary, and not less than five (5) Business Days prior
to such payment, current, updated projections of the amount of the Borrowing
Base and Excess Availability for the one month period after the date of any
payment in respect of such acquisition, in a form reasonably satisfactory to
Agent, representing Borrowers’ reasonable best estimate of the future Borrowing
Base and Excess Availability for the period set forth therein as of the date
not more than term (10) days prior to the date of such acquisition or any
payment in connection with it, which projections shall have been prepared on
the basis of the assumptions set forth therein which Borrowers believe are fair
and reasonable as of the date of preparation in light of current and reasonably
foreseeable business conditions, 

 

(iv)                the
amount of the Excess Availability as set forth in such projections for such one
month period shall be not less than $20,000,000, 

 

(v)                   the
Subsidiary acquired shall be engaged in a business related, ancillary or
complementary to the business of Borrowers permitted in this Agreement, 

 

(vi)                the
Borrower or Guarantor forming such Subsidiary shall, except as Agent may
otherwise agree, (A) execute and deliver to Agent, a pledge and security agreement,
in form and substance satisfactory to Agent, granting to Agent a first pledge
of and lien on all of the issued and outstanding shares of Capital Stock of any
such Subsidiary, and (B) deliver the original stock certificates evidencing
such shares of Capital Stock (or such other evidence as may be issued in the
case of a limited liability company), together with stock powers with respect
thereto duly executed in blank (or the equivalent thereof in the case of a
limited liability company in which such interests are certificated, or
otherwise take such actions as Agent shall require with respect to Agent’s
security interests therein),

 

(vii)             as
to any such Subsidiary, except as Agent may otherwise agree, (A) the Borrower
or Guarantor forming such Subsidiary shall cause any such Subsidiary to execute
and deliver to Agent, the following (each in form and substance satisfactory to
Agent), (A) an absolute and unconditional guarantee of payment of the
Obligations, (B) a security agreement granting to Agent a first security
interest and lien (except as otherwise consented to in writing by Agent) upon
all of the assets of any such Subsidiary, and (C) such other agreements,
documents and instruments as Agent may reasonably require in connection with
the documents referred to above, including, but not limited to, supplements and
amendments hereto and other loan agreements or instruments evidencing
Indebtedness of such new Subsidiary to Agent,

 

103

 

(viii)          Agent
shall have received (A) not less than ten (10) Business Days’ prior written
notice thereof setting forth in reasonable detail the nature and terms thereof,
(B) true, correct and complete copies of all material agreements, documents and
instruments relating thereto and (C) such other agreements, documents and
instruments relating thereto and information with respect thereto as Agent may
reasonably request.

 

9.11             Restricted Payments.  Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except:

 

(a)                    Parent
or Operating may make Restricted Payments with respect to its Capital Stock
payable solely in additional shares of its Capital Stock that satisfies the
requirements for issuance of Capital Stock by Parent or Operating under Section
9.7(b)(iii) hereof;

 

(b)                   Parent
may make Restricted Payments with respect to the 14.50% Series A Preferred
Stock of Parent and the 14.50% payment-in-kind Series B Redeemable Cumulative
Preferred Stock of Parent, payable solely in additional shares of such
preferred stock;

 

(c)                    Subsidiaries
of Operating may make Restricted Payments to Operating and to wholly owned
Subsidiaries of Operating (other than Inactive Subsidiaries) and may declare
and pay dividends ratably with respect to their common stock;

 

(d)                   if
at the time thereof and after giving effect thereto, no Default or Event of
Default shall exist or have occurred and be continuing, Operating may pay cash
dividends to Parent, in an aggregate amount not exceeding $1,500,000 during any
fiscal year, at such time and in such amounts as shall be necessary to permit
Parent to (i) pay Taxes imposed upon it and liabilities incidental to its
existence when due and (ii) pay directors’ fees and management compensation to
its directors when due; provided, that, any dividends permitted
to be paid to Parent shall not be paid prior to the date that Parent will apply
the proceeds of such dividends to the purposes for which such dividends are
permitted;

 

(e)                    Operating
and its Subsidiaries may make payments to Parent pursuant to and in accordance
with the tax sharing agreement by and among Parent and its Subsidiaries to
reimburse Parent for their respective shares of income taxes paid by Parent
determined as if Operating or such Subsidiary had filed its tax returns
separately from Parent;

 

(f)                      
(i) Operating may declare and pay a dividend to Parent (directly, or by payment
of such dividend to Intermediate), and Intermediate may declare and pay a
dividend to Parent, from time to time, (A) in the amount equal to any payment
by Parent of cash interest permitted to be made by Parent pursuant to Section
9.9(j) hereof in respect of the Senior Discount Debentures, the proceeds of
which shall be used by Parent only to make a payment of the interest then due
and payable in accordance with the terms of the Senior Discount Debentures as
in effect on the date hereof, and (B) in the amount up to the amount of any
prepayments of principal that Parent is then permitted to make in respect of
the Senior Discount Debentures under Section 9.9(j)(v)(C) hereof, the proceeds
of which shall only be used by Parent to make prepayments of principal under
the Senior Discount Debentures to the extent that Parent is

 

104

 

permitted to make such prepayments permitted
under Section 9.9(j)(v)(C) hereof and (C) in the amount of the payment of
principal required to be made by Parent on the scheduled final maturity date
under the Senior Discount Debentures as in effect on the date hereof (or as
such maturity date may be extended), the proceeds of which shall only be used
by Parent to make such required payment on such scheduled final maturity date
and (ii) Operating may declare and pay a dividend to Intermediate, from time to
time, (A) in the amount up to the amount of any prepayments of principal that
Intermediate is then permitted to make in respect of the 16% Senior Discount
Notes under Section 9.9(q)(v)(C) hereof, the proceeds of which shall only be
used by Intermediate to make such prepayments permitted under Section
9.9(q)(v)(C) and (B) in the amount of the payment of principal required to be
made by Intermediate on the scheduled final maturity date under the 16% Senior
Discount Notes as in effect on the date hereof (or as such maturity date may be
extended), the proceeds of which shall only be used by Intermediate to make
such required payment on such scheduled final maturity date; provided, that,
as to any of the dividends referred to in clauses (i)(A) and (i) (C) and
(ii)(B) above, any such dividend shall not be paid more than ninety (90) days
prior to the date such payment of interest or principal is due and payable and
if such dividend is paid by Operating to Parent or Intermediate prior to the
date that such interest or principal is due and payable, all such funds shall
be held in an investment account or deposit account subject to an Investment
Property Control Agreement or Deposit Account Control Agreement, as the case
may be, in favor of Agent, as duly authorized, executed and delivered by the
financial intermediary where such funds are held, Parent and/or Intermediate
and Agent and as to any of the dividends referred to in clause (i)(B) and
(ii)(A) above, any such dividend shall not be paid more than five (5) Business
Days prior to the date of such prepayment and Agent shall have received not
less than ten (10) Business Days’ prior written notice of the intention of
Operating to pay such dividends, which notice shall set forth the amount
thereof that Operating is intending to pay,

 

(g)                   Operating
may declare and pay to a dividend to Parent from time to time, in each case, in
the amount equal to any payment by Parent of cash interest permitted to be made
by Parent pursuant to Section 9.9(o) hereof in respect of Refinancing
Indebtedness with respect to the Senior Discount Debentures, the proceeds of
which shall be used by Parent only to make a payment of the interest then due
and payable in accordance with the terms of such Refinancing Indebtedness, provided,
that, any such dividend shall not be paid more than ninety (90) days
prior to the date such payment of interest is due and payable and if such
dividend is paid by Operating to Parent prior to the date that such interest is
due and payable, all such funds shall be held in an investment account subject
to an Investment Property Control Agreement in favor of Agent, as duly
authorized, executed and delivered by the financial intermediary where such
funds are held, Parent and Agent;

 

(h)                   Borrowers
and Guarantors may repurchase Capital Stock consisting of common stock held by
employees pursuant to any employee stock ownership plan thereof upon the
termination, retirement or death of any such employee in accordance with the
provisions of such plan, provided, that, as to any such
repurchase, each of the following conditions is satisfied: (i) as of the date
of the payment for such repurchase and after giving effect thereto, no Default
or Event of Default shall exist or have occurred and be continuing, (ii) such
repurchase shall be paid with funds legally available therefor, (iii) such
repurchase shall not violate any law or regulation or the terms of any
indenture, agreement or undertaking to which such Borrower or Guarantor is a
party or by which such Borrower or Guarantor or its or their property are
bound,

 

105

 

and (iv) the aggregate amount of all payments
for such repurchases in any calendar year shall not exceed $500,000;

 

(i)                       Borrowers
and Guarantors may make Restricted Payments for the purpose of paying dividends
and paying other distributions in respect of Capital Stock or the repurchase of
Capital Stock, provided, that, (A) Borrower Agent shall have
provided to Agent not less than ten (10) Business Days’ prior written notice of
the intention of such Borrower or Guarantor to pay such dividends or other
distributions or make such other repurchases (specifying the amount to be paid
by Borrowers or Guarantors), (B) for the two consecutive month period
immediately prior to the date of any payment in respect of such dividends or
other distributions or repurchases, Excess Availability shall have been not
less than $30,000,000, (C) Agent shall have received, not more than twenty (20)
Business Days prior to such payment and not less than five (5) Business Days
prior to such payment, current, updated projections of the amount of the
Borrowing Base and Excess Availability for the one month period after the date
of any payment in respect of such dividends, other distributions or
repurchases, in a form reasonably satisfactory to Agent, representing
Borrowers’ reasonable best estimate of the future Borrowing Base and Excess
Availability for the period set forth therein as of the date not more than ten
(10) days prior to the date of the payment in respect of such dividend or other
distributions, which projections shall have been prepared on the basis of the
assumptions set forth therein which Borrowers believe are fair and reasonable
as of the date of preparation in light of current and reasonably foreseeable
business conditions, (D) the amount of the Excess Availability as set forth in
such projections for such one month period shall be not less than $20,000,000,
and (E) as of the date of any such payment and after giving effect thereto, no
Default or Event of Default exists or has occurred and is continuing.

 

9.12             Transactions with Affiliates.  Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary, directly or indirectly, to sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except: (a) transactions in
the ordinary course of business that do not involve Parent and are at prices
and on terms no less favorable to such Borrower or Guarantor than could be
obtained on an arm’s-length basis from unrelated third parties or are otherwise permitted under Section
9.9(i) hereof, (b) transactions between and among Operating and
the other Borrowers and Guarantors not involving any other Affiliate, and (c)
any Restricted Payment permitted by Section 9.11.

 

9.13             Compliance with ERISA.  Each Borrower and Guarantor shall, and shall
cause each of its ERISA Affiliates, to: (a) maintain each Plan in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other Federal and State law; (b) cause each Plan which is qualified under
Section 401(a) of the Code to maintain such qualification; (c) not terminate
any of such Plans so as to incur any liability to the Pension Benefit Guaranty
Corporation that would have a Material Adverse Effect; (d) not allow or suffer
to exist any prohibited transaction involving any of such Plans or any trust
created thereunder which would subject such Borrower, Guarantor or such ERISA
Affiliate to a material tax or penalty or other material liability on
prohibited transactions imposed under Section 4975 of the Code or ERISA; (e)
make all required contributions to any Plan which it is obligated to pay under
Section 302 of ERISA, Section 412 of the Code or the terms of such Plan; (f)
not allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such Plan; or (g)

 

106

 

allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any such Plan
that is a single employer plan, which termination could result in any liability
in excess of $5,000,000.

 

9.14             End of Fiscal Years; Fiscal Quarters.  Each Borrower and Guarantor shall, for
financial reporting purposes, cause its, and each of its Subsidiaries’ (a)
fiscal years to end on the Saturday closest to January 31st of each year and
(b) fiscal quarters to end on or around each of April 30th, July 31st, October
31st, and January 31st of each year.

 

9.15             Credit Card Agreements.  Each Borrower shall (a) observe and perform
all material terms, covenants, conditions and provisions of the Credit Card
Agreements to be observed and performed by it at the times set forth therein;
and (b) at all times maintain in full force and effect the Credit Card Agreements
and not terminate, cancel, surrender, modify, amend, waive or release any of
the Credit Card Agreements, or consent to or permit to occur any of the
foregoing; except, that, (i) any Borrower may terminate or cancel any of the
Credit Card Agreements in the ordinary course of the business of such Borrower;
provided, that, such Borrower shall give Agent not less than
fifteen (15) days prior written notice of its intention to so terminate or
cancel any of the Credit Card Agreements; (d) not enter into any new Credit
Card Agreements with any new Credit Card Issuer unless (i) Agent shall have
received not less than thirty (30) days prior written notice of the intention
of such Borrower to enter into such agreement (together with such other
information with respect thereto as Agent may request) and (ii) such Borrower
delivers, or causes to be delivered to Agent, a Credit Card Acknowledgment in
favor of Agent, (e) give Agent immediate written notice of any Credit Card
Agreement entered into by such Borrower after the date hereof, together with a
true, correct and complete copy thereof and such other information with respect
thereto as Agent may request; and (f) furnish to Agent, promptly upon the
request of Agent, such information and evidence as Agent may require from time
to time concerning the observance, performance and compliance by such Borrower
or the other party or parties thereto with the terms, covenants or provisions
of the Credit Card Agreements.

 

9.16             Changes in Business.  Each Borrower and Guarantor shall not engage
in any business other than the business of such Borrower or Guarantor on the
date hereof and any business reasonably related, ancillary or complimentary to
the business in which such Borrower or Guarantor is engaged on the date hereof.  Operating does and shall continue to fund the
payments under the Letter of Credit Accommodations and issue checks and other
payments for the purchase of substantially all of the Inventory for which the
other Borrowers shall repay Operating on a regular basis in a manner consistent
with the current practices of Borrowers as of the date hereof.

 

9.17             Limitation of Restrictions
Affecting Subsidiaries.  Each
Borrower and Guarantor shall not, directly, or indirectly, create or otherwise
cause or suffer to exist any encumbrance or restriction which prohibits or
limits the ability of any Subsidiary of such Borrower or Guarantor to (a) pay
dividends or make other distributions or pay any Indebtedness owed to such
Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor; (b) make
loans or advances to such Borrower or Guarantor or any Subsidiary of such
Borrower or Guarantor, (c) transfer any of its properties or assets to such
Borrower or Guarantor or any Subsidiary of such Borrower or Guarantor; or (d)
create, incur, assume or suffer to exist any lien upon any of its property,
assets

 

107

 

or revenues, whether now owned or hereafter
acquired, other than encumbrances and restrictions arising under (i) applicable
law, (ii) this Agreement, (iii) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor, (iv) customary
restrictions on dispositions of real property interests found in reciprocal
easement agreements of such Borrower or Guarantor or any Subsidiary of such
Borrower or Guarantor, (v) any agreement relating to permitted Indebtedness
incurred by a Subsidiary of such Borrower or Guarantor prior to the date on
which such Subsidiary was acquired by such Borrower or such Guarantor and
outstanding on such acquisition date, and (vi) the extension or continuation of
contractual obligations in existence on the date hereof; provided, that,
any such encumbrances or restrictions contained in such extension or
continuation are no less favorable to Agent and Lenders than those encumbrances
and restrictions under or pursuant to the contractual obligations so extended
or continued.

 

9.18             Fixed Interest Charge Coverage Ratio.  At any time that Excess Availability is less
than $20,000,000, the Fixed Interest Charge Coverage Ratio of Operating and its
Subsidiaries (on a consolidated basis) for the immediately preceding twelve
(12) consecutive fiscal months (treated as a single account period) ending on
the last day of the most recent fiscal month for which financial statements of
Operating and its Subsidiaries have been received by Agent pursuant to Section
9.6(a) shall be not less than 1.10 to 1.00 with respect to such period. 

 

9.19             Capital Expenditures.  

 

(a)                    Subject
to the terms of Section 9.19(b) below, Borrowers and Guarantors shall not
permit the aggregate amount of all Capital Expenditures of Borrowers and
Guarantors during the fiscal year of Borrowers and Guarantors ending on or
about:

 

(i)                       January
31, 2005, to exceed $15,000,000;

 

(ii)                    January
31, 2006, to exceed the greater of (A) the amount equal to: (1)   $40,000,000 as reduced by the amount by
which the EBITDA of Operating and its Subsidiaries for the fiscal year ending
January 31, 2005 as set forth in the audited year-end financial statements for
such period  is less than $75,000,000 or
(B) $25,000,000; 

 

(iii)                 January
31, 2007, to exceed the greater of (A) the amount equal to: (1)   $50,000,000 as reduced by the amount by
which the EBITDA of Operating and its Subsidiaries for the fiscal year ending
January 31, 2006 as set forth in the audited year-end financial statements for
such period  is less than $85,000,000 or
(B) $25,000,000; 

 

(iv)                January
31, 2008, to exceed the greater of (A) the amount equal to: (1)   $60,000,000 as reduced by the amount by
which the EBITDA of Operating and its Subsidiaries for the fiscal year ending
January 31, 2007 as set forth in the audited year-end financial statements for
such period  is less than $95,000,000 or
(B) $25,000,000; 

 

(v)                   January
31, 2009, to exceed the greater of (A) the amount equal to: (1)   $70,000,000 as reduced by the amount by
which the EBITDA of Operating and its Subsidiaries for the fiscal year ending
January 31, 2008 as set forth in the audited year-end financial statements for
such period  is less than $105,000,000 or
(B) $25,000,000;

 

108

 

(vi)                January
31, 2010, to exceed the greater of (A) the amount equal to: (1)   $80,000,000 as reduced by the amount by
which the EBITDA of Operating and its Subsidiaries for the fiscal year ending
January 31, 2009 as set forth in the audited year-end financial statements for
such period  is less than $115,000,000 or
(B) $25,000,000. 

 

(b)                   To
the extent that the actual amount of Capital Expenditures in any fiscal year
shall be less than the amount otherwise permitted hereunder for such fiscal
year, Capital Expenditures may be made in the immediately subsequent fiscal
year in the amount of up to $10,000,000 of such excess, in addition to the
amount otherwise permitted hereunder for such subsequent fiscal year.

 

9.20             License Agreements.

 

(a)                    With
respect to a License Agreement applicable to Intellectual Property that is
owned by a third party and licensed to a Borrower or Guarantor and that is
affixed to or otherwise used in connection with the manufacture, sale or
distribution of any Inventory, each Borrower and Guarantor shall (i) give
Agent not less than ninety (90) days prior written notice of its intention to
not renew or to terminate, cancel, surrender or release its rights under any
such License Agreement, or to amend any such License Agreement or related
arrangements to limit the scope of the right of such Borrower or Guarantor to
use the Intellectual Property subject to such License Agreement, either with
respect to product, territory, term or otherwise, or to increase the amounts to
be paid by such Borrower or Guarantor thereunder or in connection therewith (and
Agent may establish such Reserves as a result of any of the foregoing as Agent
may reasonably determine), (ii) give Agent prompt written notice of any
such License Agreement entered into by such Borrower or Guarantor after the
date hereof, or any material amendment to any such License Agreement existing
on the date hereof, in each case together with a true, correct and complete
copy thereof and such other information with respect thereto as Agent may in
good request, (iii) give Agent prompt written notice of any material
breach of any obligation, or any default, by the third party that is the
licensor or by the Borrower or Guarantor that is the licensee or any other
party under any such License Agreement, and deliver to Agent (promptly upon the
receipt thereof by such Borrower or Guarantor in the case of a notice to such
Borrower or Guarantor and concurrently with the sending thereof in the case of
a notice from such Borrower or Guarantor) a copy of each notice of default and
any other notice received or delivered by such Borrower or Guarantor in
connection with any such a License Agreement that relates to the scope of the
right, or the continuation of the right, of such Borrower or Guarantor to use
the Intellectual Property subject to such License Agreement or the amounts
required to be paid thereunder.

 

(b)                   With
respect to a License Agreement applicable to Intellectual Property that is
owned by a third party and licensed to a Borrower or Guarantor and that is
affixed to or otherwise used in connection with the manufacture, sale or
distribution of any Inventory, at any time an Event of Default shall exist or
have occurred and be continuing or if after giving effect to any Reserves, or
the reduction in the applicable Borrowing Base as a result of Eligible Inventory
using such licensed Intellectual Property ceasing to be Eligible Inventory,
Agent shall have, and is hereby granted, the irrevocable right and authority,
at its option, to renew or extend the term of such License Agreement, whether
in its own name and behalf, or in the name and behalf of a designee or nominee
of Agent or in the name and behalf of such Borrower or Guarantor, subject

 

109

 

to and in accordance with the terms of such
License Agreement.  Agent may, but shall
not be required to, perform any or all of such obligations of such Borrower or
Guarantor under any of the License Agreements, including, but not limited to,
the payment of any or all sums due from such Borrower or Guarantor thereunder.  Any sums so paid by Agent shall constitute
part of the Obligations.

 

9.21             After Acquired Real Property.  If any Borrower or Guarantor hereafter
acquires any Real Property, fixtures or any other property that is of the kind
or nature described in the Mortgages and such Real Property, fixtures or other
property is adjacent to, contiguous with or necessary or related to or used in
connection with any Real Property then subject to a Mortgage, or if such Real
Property is not adjacent to, contiguous with or related to or used in
connection with such Real Property, then if such Real Property, fixtures or
other property at any location (or series of adjacent, contiguous or related
locations, and regardless of the number of parcels) has a fair market value in
an amount equal to or greater than $1,000,000 (or if an Event of Default
exists, then regardless of the fair market value of such assets), without
limiting any other rights of Agent or any Lender, or duties or obligations of
any Borrower or Guarantor, promptly upon Agent’s request, such Borrower or
Guarantor shall execute and deliver to Agent a mortgage, deed of trust or deed
to secure debt, as Agent may determine, in form and substance substantially
similar to the Mortgages and as to any provisions relating to specific state
laws satisfactory to Agent and in form appropriate for recording in the real
estate records of the jurisdiction in which such Real Property or other
property is located granting to Agent a first and only lien and mortgage on and
security interest in such Real Property, fixtures or other property (except as
such Borrower or Guarantor would otherwise be permitted to incur hereunder or
under the Mortgages or as otherwise consented to in writing by Agent) and such
other agreements, documents and instruments as Agent may require in connection
therewith provided, that, as to any such Real Property that is
not adjacent, contiguous or related to Real Property then subject to a
Mortgage, if the purchase price for such Real Property is paid with the initial
proceeds of a loan from a financial institution giving rise to Indebtedness
permitted under Section 9.9(b) hereof, then such Borrower or Guarantor shall
not be required to execute and deliver such mortgage, deed of trust or deed to
secure debt in favor of Agent with respect to such Real Property.

 

9.22             Costs and Expenses.  Borrowers and Guarantors shall pay to Agent
on demand all costs, expenses, filing fees and taxes paid or payable in
connection with the preparation, negotiation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of the
Obligations, Agent’s rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including:  (a) all
out-of-pocket costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b)
out-of-pocket costs and expenses and fees for insurance premiums, environmental
audits, title insurance premiums, surveys, assessments, engineering reports and
inspections, appraisal fees and search fees, costs and expenses of remitting
loan proceeds, collecting checks and other items of payment, and establishing
and maintaining the Blocked Accounts, together with Agent’s customary charges
and fees with respect thereto; (c) charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit

 

110

 

Accommodations; (d) costs and expenses of
preserving and protecting the Collateral; (e) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Agent, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Agent or any Lender arising out of the transactions contemplated hereby and
thereby (including preparations for and consultations concerning any such matters);
(f) all out-of-pocket expenses and costs heretofore and from time to time
hereafter incurred by Agent during the course of periodic field examinations of
the Collateral and such Borrower’s or Guarantor’s operations, plus a per diem
charge at Agent’s then standard rate for Agent’s examiners in the field and
office (which rate as of the date hereof is $850 per person per day), provided
that periodic field examinations will be limited to two in any twelve
(12) consecutive month period unless (i) Excess Availability is less than
$30,000,000, in which case, Agent shall be entitled to conduct a third field
examination, and (ii) if an Event of Default shall have occurred and be
continuing, there shall be no restriction on field examinations; and (g) the reasonable
fees and disbursements of counsel (including legal assistants) to Agent in
connection with any of the foregoing.

 

9.23             Further Assurances.  At the request of Agent at any time and from
time to time, Borrowers and Guarantors shall, at their expense, duly execute
and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements.  Agent may at
any time and from time to time request a certificate from an officer of any
Borrower or Guarantor representing that all conditions precedent to the making
of Revolving Loans and providing Letter of Credit Accommodations contained
herein are satisfied.  In the event of
such request by Agent, Agent and Lenders may, at Agent’ s option, cease to make
any further Revolving Loans or provide any further Letter of Credit
Accommodations until Agent has received such certificate and, in addition,
Agent has determined that such conditions are satisfied. 

 

9.24             Minimum Excess Availability.  Operating and its Subsidiaries (on a
consolidated basis) shall maintain Excess Availability at all times in excess
of $5,000,000. 

 

9.25             Black Canyon Closing.

 

(a)                    On
or prior to the Black Canyon Closing Date, the Black Canyon Credit Agreement
shall have been duly authorized, issued and delivered by Operating, and the
transactions contemplated thereunder shall have been performed in accordance
with their terms by the respective parties thereto in all respects to the
extent to be performed thereunder on or before the Black Canyon Closing Date,
including the fulfillment (or the waiver) of all conditions precedent set forth
therein.

 

(b)                   On
or prior to the Black Canyon Closing Date, all actions and proceedings required
by the Black Canyon Documents, applicable law or regulations, including,
without limitation, all Securities Laws, shall have been taken in all material
respects, and the transactions

 

111

 

required thereunder shall have been (or will
be when required to under the Black Canyon Documents or applicable law) duly
and validly taken and consummated.

 

(c)                    Borrowers
shall provide written notice to Agent of the Black Canyon Closing Date on such
date.

 

(d)                   The Black Canyon
Closing Date shall occur on or about December 23, 2004 and Borrowers and
Guarantors shall have received the proceeds of the initial loans under the
Black Canyon Credit Agreement on or about such date.

 

SECTION 10.                          EVENTS
OF DEFAULT AND REMEDIES

 

10.1             Events of Default.  The occurrence or existence of any one or
more of the following events are referred to herein individually as an “Event
of Default”, and collectively as “Events of Default”: 

 

(a)                    (i)
any Borrower fails to pay any of the Obligations when due or (ii) any Borrower
or Obligor fails to perform any of the covenants contained in Sections
7.1(a)(i), 7.1(a)(ii) or 7.1(a)(iii) of this Agreement and such failure shall
continue for ten (10) days or  Sections
9.2, 9.3, 9.4, 9.6(a), 9.6(c), 9.13, 9.14, 9.16 and 9.17 of this Agreement or
any covenants contained in any of the Financing Agreements other than any note,
guarantee, security agreement, mortgage or deed of trust and such failure shall
continue for fifteen (15) days; provided, that, such five (5) day
period or ten (10) day period, as applicable, shall  not apply in the case of: (A) any failure to
observe any such covenant which is not capable of being cured at all or within
such ten (10) or fifteen (15) day period, as applicable, or which in the case
of a failure to perform any covenant contained in Sections 7.1(a)(i),
7.1(a)(ii) or 7.1(a)(iii) has been the subject of two (2) prior failures within
a calendar year or, in the case of a failure to perform any of the other
covenants set forth in this clause (a)(ii) has been the subject of a prior
failure within a six (6) month period or (B) an intentional breach by any
Borrower or Obligor of any such covenant or (iii) any Borrower or Obligor fails
to perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements other than those
described in Sections 10.1(a)(i) and 10.1(a)(ii) above;

(b)                   any
representation, warranty or statement of fact made by any Borrower or Guarantor
to Agent in this Agreement, the other Financing Agreements shall when made or
deemed made be false or misleading in any material respect; 

 

(c)                    any
Obligor revokes or terminates or purports to revoke or terminate or fails to
perform any of the terms, covenants, conditions or provisions of any guarantee,
endorsement or other agreement of such party in favor of Agent or any Lender;

 

(d)                   any
judgment for the payment of money is rendered against any Borrower or Obligor
in excess of $7,500,000 in any one case or in excess of $10,000,000 in the
aggregate outstanding at any time (to the extent not covered by insurance where
the insurer has assumed responsibility in writing for such judgment) and shall
remain undischarged and unvacated for a period in excess of sixty (60) days or
execution shall at any time not be effectively stayed, or any judgment other
than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against any Borrower or Obligor that has or is reasonably
likely to have a

 

112

 

Material Adverse Effect or any of the
Collateral having a value in excess of $7,000,000 and shall remain undischarged
and unvacated for a period in excess of sixty (60) days;

 

(e)                    any
Obligor (being a natural person or a general partner of an Obligor which is a
partnership) dies or any Borrower or Obligor, which is a partnership, limited
liability company, limited liability partnership or a corporation, dissolves or
suspends or discontinues doing business;

 

(f)                      any
Borrower or Obligor makes an assignment for the benefit of creditors, makes or
sends notice of a bulk transfer;

(g)                   a
case or proceeding under the bankruptcy laws of the United States of America
now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against any Borrower or Obligor or all or any part of its properties and
such petition or application is not dismissed or vacated within sixty (60) days
after the date of its filing or any Borrower or Obligor shall file any answer
admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or
the relief requested is granted sooner;

 

(h)                   a
case or proceeding under the bankruptcy laws of the United States of America
now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by any Borrower or Obligor or for all or any part of its property;

 

(i)                       any
default by any Borrower or any Obligor under any agreement, document or
instrument relating to any Indebtedness owing to any person other than Lenders,
or any capitalized lease obligations, contingent indebtedness in connection
with any guarantee, letter of credit, indemnity or similar type of instrument
in favor of any person other than Lenders, in any case in an amount in excess
of $5,000,000, which default continues for more than the applicable cure
period, if any, with respect thereto, or any default by any Borrower or any
Obligor under any Material Contract (including, without limitation, any of the
Credit Card Agreements), which default continues for more than the applicable
cure period, if any, with respect thereto which default has or could reasonably
be expected to have a Material Adverse Effect, or any Credit Card Issuer or Credit
Card Processor (other than with a Credit Card Issuer or Credit Card Processor
where the sales using the applicable card are less than ten (10%) percent of
all such sales in the immediately preceding fiscal year) withholds payment of
amounts otherwise payable to a Borrower to fund a reserve account or otherwise
hold as collateral, or shall require a Borrower to pay funds into a reserve
account or for such Credit Card Issuer or Credit Card Processor to otherwise
hold as collateral, or any Borrower shall provide a letter of credit,
guarantee, indemnity or similar instrument to or in favor of such Credit Card
Issuer or Credit Card Processor such that in the aggregate all of such funds in
the reserve account, other amounts held as collateral and the amount of such
letters of credit, guarantees, indemnities or similar instruments shall exceed
$2,000,000 or any such Credit Card Issuer or Credit Card Processor shall debit
or deduct any amounts in excess of $50,000 in the aggregate in any fiscal year
of Borrowers and Guarantors from any deposit account of any Borrower;

 

113

 

(j)                       any
Credit Card Issuer or Credit Card Processor shall send written notice to any
Borrower that it is ceasing to make or suspending payments to any Borrower of
amounts due or to become due to any Borrower or shall cease or suspend such
payments, or shall send written notice to any Borrower that it is terminating
its arrangements with any Borrower or such arrangements shall terminate as a
result of any event of default under such arrangements, which continues for
more than the applicable cure period, if any, with respect thereto, unless such
Borrower shall have entered into arrangements with another Credit Card Issuer
or Credit Card Processor, as the case may be, within sixty (60) days after the
date of any such notice;

 

(k)                    any
material provision hereof or of any of the other Financing Agreements shall for
any reason cease to be valid, binding and enforceable with respect to any party
hereto or thereto (other than Agent) in accordance with its terms, or any such
party shall challenge the enforceability hereof or thereof, or shall assert in
writing, or take any action or fail to take any action based on the assertion
that any provision hereof or of any of the other Financing Agreements has
ceased to be or is otherwise not valid, binding or enforceable in accordance
with its terms, or any security interest provided for herein or in any of the
other Financing Agreements shall cease to be a valid and perfected first
priority security interest in any of the Collateral purported to be subject
thereto (except as otherwise permitted herein or therein);

 

(l)                       an
ERISA Event shall occur which results in or could reasonably be expected to
result in liability of any Borrower in an aggregate amount in excess of
$5,000,000;

 

(m)                 any
Change of Control;

 

(n)                   the
indictment by any Governmental Authority, or as Agent may reasonably and in
good faith determine, the threatened indictment by any Governmental Authority
of any Borrower or Obligor of which any Borrower, Obligor or Agent receives
notice, in either case, as to which there is a reasonable possibility of an
adverse determination, in the good faith determination of Agent, under any
criminal statute, or commencement or threatened commencement of criminal or
civil proceedings against such Borrower or Obligor, pursuant to which statute
or proceedings the penalties or remedies sought or available include forfeiture
of (i) any of the Collateral having a value in excess of $5,000,000 or (ii) any
other property of any Borrower or Guarantor which is necessary or material to
the conduct of its business; or

 

(o)                   there
shall be a Material Adverse Effect (it being understood that this
Section 10.1(p) shall not constitute a limitation upon the dollar
threshold amounts set forth in Section 10.1(d) hereof).

 

10.2             Remedies.

 

(a)                    At
any time an Event of Default exists or has occurred and is continuing, Agent
and Lenders shall have all rights and remedies provided in this Agreement, the
other Financing Agreements, the UCC and other applicable law, all of which
rights and remedies may be exercised without notice to or consent by any
Borrower or Obligor, except as such notice or consent is expressly provided for
hereunder or required by applicable law. 
All rights, remedies and powers granted to Agent and Lenders hereunder,
under any of the other Financing Agreements, the UCC or other applicable law,
are cumulative, not exclusive and enforceable, in

 

114

 

Agent’s discretion, alternatively,
successively, or concurrently on any one or more occasions, and shall include,
without limitation, the right to apply to a court of equity for an injunction
to restrain a breach or threatened breach by any Borrower or Obligor of this
Agreement or any of the other Financing Agreements.  Subject to Section 12 hereof, Agent may, and
at the direction of the Required Lenders shall, at any time or times, proceed
directly against any Borrower or Obligor to collect the Obligations without
prior recourse to the Collateral.

 

(b)                   Without
limiting the foregoing, at any time an Event of Default exists or has occurred
and is continuing, Agent may, in its discretion, and upon the direction of the
Required Lenders, shall (i) accelerate the payment of all Obligations and
demand immediate payment thereof to Agent for itself and the ratable benefit of
Lenders (provided, that, upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h), all Obligations shall
automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require any Borrower or Obligor, at Borrowers’
expense, to assemble and make available to Agent any part or all of the
Collateral at any place and time designated by Agent, (iv) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (v)
remove any or all of the Collateral from any premises on or in which the same
may be located for the purpose of effecting the sale, foreclosure or other disposition
thereof or for any other purpose, (vi) sell, lease, transfer, assign, deliver
or otherwise dispose of any and all Collateral (including entering into
contracts with respect thereto, public or private sales at any exchange,
broker’s board, at any office of Agent or elsewhere) at such prices or terms as
Agent may deem reasonable, for cash, upon credit or for future delivery, with
the Agent having the right to purchase the whole or any part of the Collateral
at any such public sale, all of the foregoing being free from any right or
equity of redemption of any Borrower or Obligor, which right or equity of
redemption is hereby expressly waived and released by Borrowers and Obligors
and/or (vii) terminate this Agreement. 
If any of the Collateral is sold or leased by Agent upon credit terms or
for future delivery, the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Agent.  If notice of disposition of Collateral is required
by law, ten (10) days prior notice by Agent to Borrower Agent designating the
time and place of any public sale or the time after which any private sale or
other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrowers and Obligors waive any other
notice.  In the event Agent institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, each Borrower and Obligor waives the posting of any bond
which might otherwise be required. At any time an Event of Default exists or
has occurred and is continuing, upon Agent’s request, Borrowers will either, as
Agent shall specify, furnish cash collateral to the issuer to be used to secure
and fund Agent’s reimbursement obligations to the issuer in connection with any
Letter of Credit Accommodations or furnish cash collateral to Agent for the
Letter of Credit Accommodations.  Such
cash collateral shall be in the amount equal to one hundred ten (110%) percent
of the amount of the Letter of Credit Accommodations plus the amount of any
fees and expenses payable in connection therewith through the end of the latest
expiration date of such Letter of Credit Accommodations.

 

(c)                    At
any time or times that an Event of Default exists or has occurred and is continuing,
Agent may, in its discretion, and upon the direction of the Required Lenders,
Agent

 

115

 

shall, enforce the rights of any Borrower or
Obligor against any account debtor, secondary obligor or other obligor in
respect of any of the Accounts or other Receivables.  Without limiting the generality of the
foregoing, Agent may, in its discretion, and upon the direction of the Required
Lenders, Agent shall, at such time or times (i) notify any or all account debtors
(including Credit Card Issuers and Credit Card Processors), secondary obligors
or other obligors in respect thereof that the Receivables have been assigned to
Agent and that Agent has a security interest therein and Agent may direct any
or all accounts debtors (including Credit Card Issuers and Credit Card
Processors), secondary obligors and other obligors to make payment of
Receivables directly to Agent, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Receivables or other obligations included
in the Collateral and thereby discharge or release the account debtor or any
secondary obligors or other obligors in respect thereof without affecting any
of the Obligations,  (iii) demand,
collect or enforce payment of any Receivables or such other obligations, but
without any duty to do so, and Agent and Lenders shall not be liable for any
failure to collect or enforce the payment thereof nor for the negligence of its
agents or attorneys with respect thereto and (iv) take whatever other action
Agent may deem necessary or desirable for the protection of its interests and
the interests of Lenders.  At any time that
an Event of Default exists or has occurred and is continuing, at Agent’s
request, all invoices and statements sent to any account debtor shall state
that the Accounts and such other obligations have been assigned to Agent and
are payable directly and only to Agent and Borrowers and Obligors shall deliver
to Agent such originals of documents evidencing the sale and delivery of goods
or the performance of services giving rise to any Accounts as Agent may
require.  In the event any account debtor
returns Inventory when an Event of Default exists or has occurred and is
continuing, Borrowers shall, upon Agent’s request, hold the returned Inventory
in trust for Agent, segregate all returned Inventory from all of its other
property, dispose of the returned Inventory solely according to Agent’s instructions,
and not issue any credits, discounts or allowances with respect thereto without
Agent’s prior written consent. 

 

(d)                   To
the extent that applicable law imposes duties on Agent or any Lender to
exercise remedies in a commercially reasonable manner (which duties cannot be
waived under such law), each Borrower and Guarantor acknowledges and agrees
that it is not commercially unreasonable for Agent or any Lender (i) to fail to
incur expenses reasonably deemed significant by Agent or any Lender to prepare
Collateral for disposition or otherwise to complete raw material or work in
process into finished goods or other finished products for disposition, (ii) to
fail to obtain third party consents for access to Collateral to be disposed of,
or to obtain or, if not required by other law, to fail to obtain consents of
any Governmental Authority or other third party for the collection or
disposition of Collateral to be collected or disposed of, (iii) to fail to
exercise collection remedies against account debtors, secondary obligors or
other persons obligated on Collateral or to remove liens or encumbrances on or
any adverse claims against Collateral, (iv) to exercise collection remedies
against account debtors and other persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other persons, whether or not in the same business as any Borrower or
Guarantor, for expressions of interest in acquiring all or any portion of the
Collateral, (vii) to hire one or more professional auctioneers to assist in the
disposition of Collateral, whether or not the collateral is of a specialized
nature, (viii) to dispose of Collateral by utilizing Internet sites that
provide for the auction of assets of the

 

116

 

types included in the Collateral or that have
the reasonable capability of doing so, or that match buyers and sellers of
assets, (ix) to dispose of assets in wholesale rather than retail markets, (x)
to disclaim disposition warranties, (xi) to purchase insurance or credit
enhancements to insure Agent or Lenders against risks of loss, collection or
disposition of Collateral or to provide to Agent or Lenders a guaranteed return
from the collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by Agent, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist Agent in the collection
or disposition of any of the Collateral. Each Borrower and Guarantor
acknowledges that the purpose of this Section is to provide non-exhaustive
indications of what actions or omissions by Agent or any Lender would not be
commercially unreasonable in the exercise by Agent or any Lender of remedies
against the Collateral and that other actions or omissions by Agent or any
Lender shall not be deemed commercially unreasonable solely on account of not
being indicated in this Section. Without limitation of the foregoing, nothing
contained in this Section shall be construed to grant any rights to any
Borrower or Guarantor or to impose any duties on Agent or Lenders that would
not have been granted or imposed by this Agreement or by applicable law in the
absence of this Section.

 

(e)                    For
the purpose of enabling Agent to exercise the rights and remedies hereunder,
each Borrower and Obligor hereby grants to Agent, to the extent assignable, an
irrevocable, non-exclusive license (exercisable at any time an Event of Default
shall exist or have occurred and for so long as the same is continuing) without
payment of royalty or other compensation to any Borrower or Obligor, to use,
assign, license or sublicense any of the trademarks, service-marks, trade
names, business names, trade styles, designs, logos and other source of
business identifiers and other Intellectual Property and general intangibles
now owned or hereafter acquired by any Borrower or Obligor, wherever the same
maybe 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, which license shall be
provided for in, and subject to, the terms of the intercreditor agreement
described in Section 9.8(o) hereof on and after the incurrence of any
Indebtedness permitted pursuant to Section 9.9(t) hereof.

 

(f)                      Agent
may apply the cash proceeds of Collateral actually received by Agent from any
sale, lease, foreclosure or other disposition of the Collateral to payment of
the Obligations, in whole or in part and in such order as Agent may elect,
whether or not then due.  Borrowers and
Guarantors shall remain liable to Agent and Lenders for the payment of any
deficiency with interest at the highest rate provided for herein and all costs
and expenses of collection or enforcement, including attorneys’ fees and
expenses.

 

(g)                   Without
limiting the foregoing, (i) upon the occurrence of a Default (other than a
Default as a result of the failure of any Borrower or Obligor to perform any of
the covenants contained in Sections 7.1(a)(i), 7.1(a)(ii), 7.1(a)(iii), 9.6(a),
9.6(b) or 9.6(c) hereof) or an Event of Default, Agent and Lenders may, at
Agent’s option, and upon the occurrence of an Event of Default at the direction
of the Required Lenders, Agent and Lenders shall, without notice, (A) cease
making Revolving Loans or arranging for Letter of Credit Accommodations or
reduce the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrowers and/or (B) terminate any provision of
this Agreement providing for any future Revolving Loans or Letter of Credit Accommodations
to be made by

 

117

 

Agent and Lenders to Borrowers
and (ii) Agent may, at its option, establish such Reserves as Agent determines,
without limitation or restriction, notwithstanding anything to the contrary
contained herein.

 

SECTION 11.                          JURY
TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

 

11.1             Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver.

 

(a)                    The
validity, interpretation and enforcement of this Agreement and the other
Financing Agreements (other than the Mortgages to the extent provided therein)
and any dispute arising out of the relationship between the parties hereto,
whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of New York but excluding any principles of
conflicts of law or other rule of law that would cause the application of the
law of any jurisdiction other than the laws of the State of New York.

 

(b)                   Borrowers,
Guarantors, Agent and Lenders irrevocably consent and submit to the
non-exclusive jurisdiction of the Supreme Court of the State of New York for
New York County and the United States District Court for the Southern District
of New York, whichever Agent may elect, and waive any objection based on venue
or forum  non  conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the
dealings of the parties hereto in respect of this Agreement or any of the other
Financing Agreements or the transactions related hereto or thereto, in each
case whether now existing or hereafter arising, and whether in contract, tort,
equity or otherwise, and agree that any dispute with respect to any such matters
shall be heard only in the courts described above (except that Agent and
Lenders shall have the right to bring any action or proceeding against any
Borrower or Guarantor or its or their property in the courts of any other
jurisdiction which Agent deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against any Borrower or
Guarantor or its or their property).

 

(c)                    Each
Borrower and Guarantor hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth herein and
service so made shall be deemed to be completed five (5) days after the same
shall have been so deposited in the U.S. mails, or, at Agent’s option, by
service upon any Borrower or Guarantor (or Borrower Agent on behalf of such
Borrower or Guarantor) in any other manner provided under the rules of any such
courts.  Within thirty (30) days after
such service, such Borrower or Guarantor shall appear in answer to such
process, failing which such Borrower or Guarantor shall be deemed in default
and judgment may be entered by Agent against such Borrower or Guarantor for the
amount of the claim and other relief requested.

 

(d)                   BORROWERS,
GUARANTORS, AGENT AND LENDERS EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR
ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN

 

118

 

RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER
FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE.  BORROWERS,
GUARANTORS, AGENT AND LENDERS EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY BORROWER, ANY GUARANTOR, AGENT OR ANY LENDER MAY
FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

 

(e)                    Agent
and Lenders shall not have any liability to any Borrower or Guarantor (whether
in tort, contract, equity or otherwise) for losses suffered by such Borrower or
Guarantor in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by
a final and non-appealable judgment or court order binding on Agent and such
Lender, that the losses were the result of acts or omissions constituting gross
negligence or willful misconduct.  Each
Borrower and Guarantor:  (i) certifies
that neither Agent, any Lender nor any representative, agent or attorney acting
for or on behalf of Agent or any Lender has represented, expressly or otherwise,
that Agent and Lenders would not, in the event of litigation, seek to enforce
any of the waivers provided for in this Agreement or any of the other Financing
Agreements and (ii) acknowledges that in entering into this Agreement and the
other Financing Agreements, Agent and Lenders are relying upon, among other
things, the waivers and certifications set forth in this Section 11.1 and
elsewhere herein and therein.

 

11.2                           Waiver of Notices.  Each Borrower and Guarantor hereby expressly
waives demand, presentment, protest and notice of protest and notice of
dishonor with respect to any and all instruments and chattel paper, included in
or evidencing any of the Obligations or the Collateral, and any and all other
demands and notices of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein.  No notice to or
demand on any Borrower or Guarantor which Agent or any Lender may elect to give
shall entitle such Borrower or Guarantor to any other or further notice or
demand in the same, similar or other circumstances.

 

11.3             Amendments and Waivers.

 

(a)                    Neither
this Agreement nor any other Financing Agreement nor any terms hereof or
thereof may be amended, waived, discharged or terminated unless such amendment,
waiver, discharge or termination is in writing signed by Agent and the Required
Lenders or at Agent’s option, by Agent with the authorization of the Required
Lenders, and as to amendments to any of the Financing Agreements (other than
with respect to any provision of Section 12 hereof), by any Borrower; except,
that, no such amendment, waiver, discharge or termination shall:  

 

(i)                       reduce
the interest rate or any fees or extend the time of payment of principal,
interest or any fees or reduce the principal amount of any Loan or Letter of
Credit Accommodations, in each case without the consent of each Lender directly
affected thereby,

 

119

 

(ii)                    increase
the Commitment of any Lender over the amount thereof then in effect or provided
hereunder, in each case without the consent of the Lender directly affected
thereby,

 

(iii)                 release
any Collateral (except as expressly required hereunder or under any of the
other Financing Agreements or applicable law and except as permitted under
Section 12.11(b) hereof), without the consent of Agent and all of Lenders, 

 

(iv)                reduce
any percentage specified in the definition of Required Lenders, without the
consent of Agent and all of Lenders,

 

(v)                   consent
to the assignment or transfer by any Borrower or Guarantor of any of their
rights and obligations under this Agreement, without the consent of Agent and
all of Lenders,

 

(vi)                amend,
modify or waive any terms of this Section 11.3 hereof, without the consent of
Agent and all of Lenders, or

 

(vii)             increase
the advance rates constituting part of the Borrowing Base, without the consent
of Agent and all of Lenders.

 

(b)                   Agent
and Lenders shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its or their rights, powers and/or
remedies unless such waiver shall be in writing and signed as provided
herein.  Any such waiver shall be
enforceable only to the extent specifically set forth therein.  A waiver by Agent or any Lender of any right,
power and/or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy which Agent or any Lender would
otherwise have on any future occasion, whether similar in kind or otherwise.

 

(c)                    Notwithstanding
anything to the contrary contained in Section 11.3(a) above, in connection with
any amendment, waiver, discharge or termination, in the event that any Lender
whose consent thereto is required shall fail to consent or fail to consent in a
timely manner (such Lender being referred to herein as a “Non-Consenting
Lender”), but the consent of any other Lenders to such amendment, waiver,
discharge or termination that is required are obtained, if any, then Congress
shall have the right, but not the obligation, at any time thereafter, and upon
the exercise by Congress of such right, such Non-Consenting Lender shall have
the obligation, to sell, assign and transfer to Congress or such Eligible
Transferee as Congress may specify, the Commitment of such Non-Consenting
Lender and all rights and interests of such Non-Consenting Lender pursuant
thereto.  Congress shall provide the
Non-Consenting Lender with prior written notice of its intent to exercise its
right under this Section, which notice shall specify on date on which such
purchase and sale shall occur.  Such
purchase and sale shall be pursuant to the terms of an Assignment and
Acceptance (whether or not executed by the Non-Consenting Lender), except that
on the date of such purchase and sale, Congress, or such Eligible Transferee
specified by Congress, shall pay to the Non-Consenting Lender the amount equal
to: (i) the principal balance of the Revolving Loans held by the Non-Consenting
Lender outstanding as of the close of business on the business day immediately
preceding the effective date of such purchase and sale, plus (ii) amounts
accrued and unpaid in respect of interest and fees payable to

 

120

 

the Non-Consenting Lender to the effective
date of the purchase (but in no event shall the Non-Consenting Lender be deemed
entitled to any early termination fee), minus (iii) the amount of the closing
fee received by the Non-Consenting Lender pursuant to the terms hereof or of
any of the other Financing Agreements multiplied by the fraction, the numerator
of which is the number of months remaining in the then current term of the
Credit Facility and the denominator of which is the number of months in the
then current term thereof.  Such purchase
and sale shall be effective on the date of the payment of such amount to the
Non-Consenting Lender and the Commitment of the Non-Consenting Lender shall
terminate on such date.

 

(d)                   The
consent of Agent shall be required for any amendment, waiver or consent
affecting the rights or duties of Agent hereunder or under any of the other
Financing Agreements, in addition to the consent of the Lenders otherwise
required by this Section and the exercise by Agent of any of its rights
hereunder with respect to Reserves or Eligible Credit Card Receivables or
Eligible Inventory shall not be deemed an amendment to the advance rates
provided for in this Section 11.3.

 

(e)                    The
consent of Agent and any Lender, any Affiliate of any Lender or any other
financial institution acceptable to Agent, as the case may be, that is party to
a Hedge Agreement  at such time shall be
required for any amendment to the priority of payment of Obligations arising
under or pursuant to any Hedge Agreements of a Borrower or Guarantor  as set forth in Section 6.4(a) hereof.

 

11.4             Waiver of Counterclaims.  Each Borrower and Guarantor waives all rights
to interpose any claims, deductions, setoffs or counterclaims of any nature
(other then compulsory counterclaims) in any action or proceeding with respect
to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.

 

11.5             Indemnification.  Each Borrower and Guarantor shall, jointly
and severally, indemnify and hold Agent and each Lender, and its officers,
directors, agents, employees, advisors and counsel and their respective
Affiliates (each such person being an “Indemnitee”), harmless from and against
any and all losses, claims, damages, liabilities, costs or expenses (including
reasonable attorneys’ fees and expenses) imposed on, incurred by or asserted
against any of them in connection with any litigation, investigation, claim or
proceeding commenced or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or administration of this
Agreement, any other Financing Agreements, or any undertaking or proceeding
related to any of the transactions contemplated hereby or any act, omission,
event or transaction related or attendant thereto, including amounts paid in settlement
(but only after notice to Borrower Agent), court costs, and the reasonable fees
and expenses of counsel except that Borrowers and Guarantors shall not have any
obligation under this Section 11.5 to indemnify an Indemnitee with respect to a
matter covered hereby resulting from the gross negligence or wilful misconduct
of such Indemnitee as determined pursuant to a final, non-appealable order of a
court of competent jurisdiction (but without limiting the obligations of
Borrowers or Guarantors as to any other Indemnitee) or which is a liability for
Taxes (to the extent that the indemnification for such Taxes is subject to
Section 6.4 hereof).   To the extent that
the undertaking to indemnify, pay and hold harmless set forth in this Section
may be unenforceable because it violates any law or public policy, Borrowers
and Guarantors shall pay the maximum portion which it is permitted to pay under
applicable law to Agent and Lenders in

 

121

 

satisfaction of indemnified matters under
this Section.  To the extent permitted by
applicable law, no Borrower or Guarantor shall assert, and each Borrower and
Guarantor hereby waives, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement, any of the other Financing Agreements or any undertaking or
transaction contemplated hereby.  All
amounts due under this Section shall be payable upon demand. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.

 

SECTION 12.                          THE
AGENT

 

12.1             Appointment, Powers and Immunities.  Each Lender irrevocably designates, appoints
and authorizes Congress to act as Agent hereunder and under the other Financing
Agreements with such powers as are specifically delegated to Agent by the terms
of this Agreement and of the other Financing Agreements, together with such
other powers as are reasonably incidental thereto.  Agent (a) shall have no duties or
responsibilities except those expressly set forth in this Agreement and in the
other Financing Agreements, and shall not by reason of this Agreement or any
other Financing Agreement be a trustee or fiduciary for any Lender; (b) shall
not be responsible to Lenders for any recitals, statements, representations or
warranties contained in this Agreement or in any of the other Financing
Agreements, or in any certificate or other document referred to or provided for
in, or received by any of them under, this Agreement or any other Financing
Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Financing
Agreement or any other document referred to or provided for herein or therein
or for any failure by any Borrower or any Obligor or any other Person to
perform any of its obligations hereunder or thereunder; and (c) shall not be
responsible to Lenders for any action taken or omitted to be taken by it
hereunder or under any other Financing Agreement or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful
misconduct as determined by a final non-appealable judgment of a court of
competent jurisdiction.  Agent may employ
agents and attorneys-in-fact and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good
faith.  Agent may deem and treat the
payee of any note as the holder thereof for all purposes hereof unless and
until the assignment thereof pursuant to an agreement (if and to the extent
permitted herein) in form and substance satisfactory to Agent shall have been
delivered to and acknowledged by Agent. 
Wachovia Capital Markets LLC is hereby designated as the sole lead
arranger and sole bookrunner with respect to the Credit Facility, Wachovia
Bank, National Association is hereby designated as the administrative agent
with respect to the Credit Facility and Bank of America, N.A. is hereby
designated as the syndication agent.  The
designation of  Wachovia Capital Markets
LLC as sole lead arranger and sole bookrunner, Wachovia Bank, National
Association as administrative agent  and
Bank of America, N.A. as syndication agent shall not as to any of them create
any rights in favor of it in such capacity nor subject it to any duties or
obligations in such capacity.

 

12.2             Reliance by Agent.  Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent

 

122

 

accountants and other experts selected by
Agent.  As to any matters not expressly
provided for by this Agreement or any other Financing Agreement, Agent shall in
all cases be fully protected in acting, or in refraining from acting, hereunder
or thereunder in accordance with instructions given by the Required Lenders or
all of Lenders as is required in such circumstance, and such instructions of
such Agents and any action taken or failure to act pursuant thereto shall be
binding on all Lenders.

 

12.3             Events of Default.

 

(a)                    Agent
shall not be deemed to have knowledge or notice of the occurrence of a Default
or an Event of Default or other failure of a condition precedent to the
Revolving Loans and Letter of Credit Accommodations hereunder, unless and until
Agent has received written notice from a Lender, or a Borrower specifying such
Event of Default or any unfulfilled condition precedent, and stating that such
notice is a “Notice of Default or Failure of Condition”.  In the event that Agent receives such a
Notice of Default or Failure of Condition, Agent shall give prompt notice
thereof to the Lenders.  Agent shall (subject
to Section 12.7) take such action with respect to any such Event of Default or
failure of condition precedent as shall be directed by the Required Lenders; provided,
that, unless and until Agent shall have received such directions, Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to or by reason of such Event of Default or failure
of condition precedent, as it shall deem advisable in the best interest of
Lenders.  Without limiting the foregoing,
and notwithstanding the existence or occurrence and continuance of an Event of
Default or any other failure to satisfy any of the conditions precedent set
forth in Section 4 of this Agreement to the contrary, Agent may, but shall have
no obligation to, continue to make Revolving Loans and issue or cause to be
issued Letter of Credit Accommodations for the ratable account and risk of
Lenders from time to time if Agent believes making such Revolving Loans or
issuing or causing to be issued such Letter of Credit Accommodations is in the
best interests of Lenders.

 

(b)                   Except
with the prior written consent of Agent, no Lender may assert or exercise any
enforcement right or remedy in respect of the Revolving Loans, Letter of Credit
Accommodations or other Obligations, as against any Borrower or Obligor or any
of the Collateral or other property of any Borrower or Obligor.

 

12.4             Congress in its Individual Capacity.  With respect to its Commitment and the
Revolving Loans made and Letter of Credit Accommodations issued or caused to be
issued by it (and any successor acting as Agent), so long as Congress shall be
a Lender hereunder, it shall have the same rights and powers hereunder as any
other Lender and may exercise the same as though it were not acting as Agent,
and the term “Lender” or “Lenders” shall, unless the context otherwise
indicates, include Congress in its individual capacity as Lender
hereunder.  Congress (and any successor
acting as Agent) and its Affiliates may (without having to account therefor to
any Lender) lend money to, make investments in and generally engage in any kind
of business with Borrowers (and any of its Subsidiaries or Affiliates) as if it
were not acting as Agent, and Congress and its Affiliates may accept fees and
other consideration from any Borrower or Guarantor and any of its Subsidiaries
and Affiliates for services in connection with this Agreement or otherwise
without having to account for the same to Lenders.

 

123

 

12.5             Indemnification.  Lenders agree to indemnify Agent (to the
extent not reimbursed by Borrowers hereunder and without limiting any
obligations of Borrowers hereunder) ratably, in accordance with their Pro Rata
Shares, for any and all claims of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against Agent (including by any Lender)
arising out of or by reason of any investigation in or in any way relating to
or arising out of this Agreement or any other Financing Agreement or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that Agent is
obligated to pay hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided, that, no Lender
shall be liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined
by a final non-appealable judgment of a court of competent jurisdiction.  The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this
Agreement.

 

12.6             Non-Reliance on Agent and Other Lenders.  Each Lender agrees that it has, independently
and without reliance on Agent or other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of
Borrowers and Obligors and has made its own decision to enter into this
Agreement and that it will, independently and without reliance upon Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Financing
Agreements.  Agent shall not be required
to keep itself informed as to the performance or observance by any Borrower or
Obligor of any term or provision of this Agreement or any of the other
Financing Agreements or any other document referred to or provided for herein
or therein or to inspect the properties or books of any Borrower or
Obligor.  Agent will use reasonable
efforts to provide Lenders with any information received by Agent from any
Borrower or Obligor which is required to be provided to Lenders hereunder or
deemed to be requested by Lenders hereunder and with a copy of any Notice of
Default or Failure of Condition received by Agent from any Borrower or any
Lender; provided, that, Agent shall not be liable to any Lender
for any failure to do so, except to the extent that such failure is
attributable to Agent’s own gross negligence or willful misconduct as
determined by a final non-appealable judgment of a court of competent
jurisdiction.  Except for notices,
reports and other documents expressly required to be furnished to Lenders by
Agent hereunder, Agent shall not have any duty or responsibility to provide any
Lender with any other credit or other information concerning the affairs,
financial condition or business of any Borrower or Obligor that may come into
the possession of Agent.

 

12.7             Failing to Act. 
Except for action expressly required of Agent hereunder and under the
other Financing- Agreements, Agent shall in all cases be fully justified in
failing or refusing to act hereunder and thereunder unless it shall receive
further assurances to its satisfaction from Lenders of their indemnification
obligations under Section 12.5 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.

 

12.8             Additional Loans.  Agent shall not make any Revolving Loans
intentionally and with actual knowledge that such Revolving Loans would cause
the aggregate amount of the total outstanding Revolving Loans to exceed the
Borrowing Base or make any Revolving Loans or

 

124

 

provide any Letter of Credit Accommodations
intentionally and with actual knowledge that such Revolving Loans or Letter of
Credit Accommodations would cause the aggregate amount of the total outstanding
Revolving Loans and Letter of Credit Accommodations to exceed the  Borrowing Base, without the prior consent of
all Lenders, except, that, Agent may make such additional
Revolving Loans intentionally and with actual knowledge that such Revolving
Loans will cause the total outstanding Revolving Loans to exceed the Borrowing
Base and Agent may make such additional Revolving Loans and provide such
additional Letter of Credit Accommodations on behalf of Lenders, intentionally
and with actual knowledge that such Revolving Loans or Letter of Credit
Accommodations will cause the total outstanding Revolving Loans and Letter of
Credit Accommodations to exceed the Borrowing Base, as Agent may deem necessary
or advisable in its discretion, provided, that: (a) the total
principal amount of the additional Revolving Loans which Agent may make after
obtaining actual knowledge that the aggregate principal amount of the Revolving
Loans equal or exceed the Borrowing Base and the additional Revolving Loans and
additional Letter of Credit Accommodations which Agent may make or provide
after obtaining such actual knowledge that the aggregate principal amount of
the Revolving Loans and Letter of Credit Accommodations equal or exceed the
Borrowing Base, plus the amount of Special Agent Advances made pursuant to
Section 12.11(a)(ii) hereof then outstanding, shall not exceed the aggregate
amount equal to the lesser of $10,000,000 or ten (10%) percent of the Maximum
Credit outstanding at any time and shall not cause the total principal amount
of the Revolving Loans and Letter of Credit Accommodations to exceed the
Maximum Credit and (b) no such additional Revolving Loan or Letter of Credit
Accommodation shall be outstanding more than sixty (60) days after the date
such additional Revolving Loan or Letter of Credit Accommodation is made or
issued (as the case may be), except as the Required Lenders may otherwise
agree.  Each Lender shall be obligated to
pay Agent the amount of its Pro Rata Share of any such additional Revolving
Loans or Letter of Credit Accommodations. 

 

12.9             Concerning the Collateral and the
Related Financing Agreements.  Each
Lender authorizes and directs Agent to enter into this Agreement and the other
Financing Agreements.  Each Lender agrees
that any action taken by Agent or Required Lenders in accordance with the terms
of this Agreement or the other Financing Agreements and the exercise by Agent
or Required Lenders of their respective powers set forth therein or herein,
together with such other powers that are reasonably incidental thereto, shall
be binding upon all of the Lenders.

 

12.10       Field Audit, Examination Reports and Other
Information; Disclaimer by Lenders. 
By signing this Agreement, each Lender:

 

(a)                    is
deemed to have requested that Agent furnish such Lender, promptly after it
becomes available, a copy of each field audit or examination report and a
report with respect to the Borrowing Base prepared by Agent (each field audit
or examination report and report with respect to the Borrowing Base being
referred to herein as a “Report” and collectively, “Reports”); 

 

(b)                   expressly
agrees and acknowledges that Agent (i) does not make any representation or
warranty as to the accuracy of any Report, or (ii) shall not be liable for any
information contained in any Report;

 

125

 

(c)                    expressly
agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that Agent or any other party performing any audit or examination
will inspect only specific information regarding Borrowers and Guarantors and
will rely significantly upon Borrowers’ and Guarantors’ books and records, as
well as on representations of Borrowers’ and Guarantors’ personnel; and

 

(d)                   agrees
to keep all Reports confidential and strictly for its internal use in
accordance with the terms of Section 14.5 hereof, and not to distribute or use
any Report in any other manner.

 

12.11       Collateral Matters.

 

(a)                    Agent
may, at its option, from time to time, at any time on or after an Event of
Default and for so long as the same is continuing or upon any other failure of
a condition precedent to the Revolving Loans and Letter of Credit
Accommodations hereunder, make such disbursements and advances (“Special Agent
Advances”) which Agent, in its sole discretion, (i) deems necessary or
desirable either to preserve or protect the Collateral or any portion thereof
or  (ii) to enhance the likelihood or
maximize the amount of repayment by Borrowers and Guarantors of the Revolving
Loans and other Obligations, provided, that, the aggregate
principal amount of the Special Agent Advances pursuant to this clause (ii),
plus the then outstanding principal amount of the additional Loans and Letter
of Credit Accommodations which Agent may make or provide as set forth in
Section 12.8 hereof, shall not exceed the aggregate amount of the lesser of
$10,000,000 or ten (10%) percent of the Maximum Credit outstanding at any time
or (iii) to pay any other amount chargeable to any Borrower or Guarantor
pursuant to the terms of this Agreement or any of the other Financing
Agreements consisting of (A) costs, fees and expenses and (B) payments to any
issuer of Letter of Credit Accommodations. 
Special Agent Advances shall be repayable on demand and be secured by
the Collateral.  Special Agent Advances
shall not constitute Revolving Loans but shall otherwise constitute Obligations
hereunder.  Without limitation of its
obligations pursuant to Section 6.10, each Lender agrees that it shall make
available to Agent, upon Agent’s demand, in immediately available funds, the
amount equal to such Lender’s Pro Rata Share of each such Special Agent
Advance.  If such funds are not made
available to Agent by such Lender, such Lender shall be deemed a Defaulting
Lender and Agent shall be entitled to recover such funds, on demand from such
Lender together with interest thereon for each day from the date such payment
was due until the date such amount is paid to Agent at the Federal Funds Rate
for each day during such period (as published by the Federal Reserve Bank of
New York or at Agent’s option based on the arithmetic mean determined by Agent
of the rates for the last transaction in overnight Federal funds arranged prior
to 9:00 a.m. (New York City time) on that day by each of the three leading
brokers of Federal funds transactions in New York City selected by Agent) and
if such amounts are not paid within three (3) days of Agent’s demand, at the
highest Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate
Loans.

 

(b)                   Lenders
hereby irrevocably authorize Agent, at its option and in its discretion to
release any security interest in, mortgage or lien upon, any of the Collateral
(i) upon termination of the Commitments and payment and satisfaction of all of
the Obligations and delivery of cash collateral to the extent required under
Section 14.1 below, or (ii) constituting property being sold or disposed of if
Borrower Agent or any Borrower or Guarantor certifies to

 

126

 

Agent that the sale or disposition is made in
compliance with Section 9.7 hereof (and Agent may rely conclusively on any such
certificate, without further inquiry), or (iii) constituting property in which
any Borrower or Guarantor did not own an interest at the time the security
interest, mortgage or lien was granted or at any time thereafter, or (iv)
having a value in the aggregate in any twelve (12) month period of less than
$5,000,000, or (v) if required or permitted under the terms of any of the other
Financing Agreements, including any intercreditor agreement, or (vi) approved,
authorized or ratified in writing by all of Lenders.  Except as provided above, Agent will not
release any security interest in, mortgage or lien upon, any of the Collateral
without the prior written authorization of all of Lenders. Upon request by
Agent at any time, Lenders will promptly confirm in writing Agent’s authority
to release particular types or items of Collateral pursuant to this Section.

 

(c)                    Without
any manner limiting Agent’s authority to act without any specific or further
authorization or consent by the Required Lenders, each Lender agrees to confirm
in writing, upon request by Agent, the authority to release Collateral
conferred upon Agent under this Section. 
Agent shall (and is hereby irrevocably authorized by Lenders to) execute
such documents as may be necessary to evidence the release of the security
interest, mortgage or liens granted to Agent upon any Collateral to the extent
set forth above; provided, that, 
(i) Agent shall not be required to execute any such document on terms
which, in Agent’s opinion, would expose Agent to liability or create any
obligations or entail any consequence other than the release of such security
interest, mortgage or liens without recourse or warranty and  (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any security interest, mortgage
or lien upon (or obligations of any Borrower or Guarantor in respect of) the
Collateral retained by such Borrower or Guarantor.

 

(d)                   Agent
shall have no obligation whatsoever to any Lender or any other Person to
investigate, confirm or assure that the Collateral exists or is owned by any
Borrower or Guarantor or is cared for, protected or insured or has been
encumbered, or that any particular items of Collateral meet the eligibility
criteria applicable in respect of the Revolving Loans or Letter of Credit
Accommodations hereunder, or whether any particular reserves are appropriate,
or that the liens and security interests granted to Agent pursuant hereto or
any of the Financing Agreements or otherwise have been properly or sufficiently
or lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to Agent in this Agreement
or in any of the other Financing Agreements, it being understood and agreed
that in respect of the Collateral, or any act, omission or event related
thereto, Agent may act in any manner it may deem appropriate, in its
discretion, given Agent’s own interest in the Collateral as a Lender and that
Agent shall have no duty or liability whatsoever to any other Lender.

 

12.12       Agency for Perfections.  Each Lender hereby appoints Agent and each
other Lender as agent and bailee for the purpose of perfecting the security
interests in and liens upon the Collateral of Agent in assets which, in
accordance with Article 9 of the UCC can be perfected only by possession (or
where the security interest of a secured party with possession has priority
over the security interest of another secured party) and Agent and each Lender hereby
acknowledges that it holds possession of any such Collateral for the benefit of
Agent as secured party.  Should any
Lender obtain possession of any such Collateral, such Lender shall notify

 

127

 

Agent thereof, and, promptly upon Agent’s
request therefor shall deliver such Collateral to Agent or in accordance with
Agent’s instructions.

 

12.13       Successor Agent. 
Agent may resign as Agent upon thirty (30) days ‘ notice to Lenders and
Parent. If Agent resigns under this Agreement, the Required Lenders shall
appoint from among the Lenders a successor agent for Lenders.  If no successor agent is appointed prior to
the effective date of the resignation of Agent, Agent may appoint, after
consulting with Lenders and Parent, a successor agent from among Lenders.  Upon the acceptance by the Lender so selected
of its appointment as successor agent hereunder, such successor agent shall
succeed to all of the rights, powers and duties of the retiring Agent and the
term “Agent” as used herein and in the other Financing Agreements shall mean
such successor agent and the retiring Agent’ s appointment, powers and duties
as Agent shall be terminated.  After any
retiring Agent’s resignation hereunder as Agent, the provisions of this Section
12 shall inure to its benefit as to any actions taken or omitted by it while it
was Agent under this Agreement.  If no
successor agent has accepted appointment as Agent by the date which is thirty
(30) days after the date of a retiring Agent ‘s notice of resignation, the
retiring Agent’s resignation shall nonetheless thereupon become effective and
Lenders shall perform all of the duties of Agent hereunder until such time, if
any, as the Required Lenders appoint a successor agent as provided for above.

 

12.14       Co-Agent.  Agent
may at any time and from time to time determine that a Lender may, in addition,
be a “Co-Agent”, “Co-Documentation Agent” or similar designation hereunder and
enter into an agreement with such Lender to have it so identified for purposes
of this Agreement.  Agent shall provide
written notice to Borrower Agent of any such agreement.  Any Lender that is so designated as a
Co-Agent, Co-Documentation Agent or such similar designation by Agent shall
have no right, power, obligation, liability, responsibility or duty under this
Agreement or any of the other Financing Agreements other than those applicable
to all Lenders as such.  Without limiting
the foregoing, the Lenders so identified shall not have or be deemed to have
any fiduciary relationship with any Lender and no Lender shall be deemed to
have relied, nor shall any Lender  rely,
on a Lender so identified as a Co-Agent, Co-Documentation Agent or such similar
designation in deciding to enter into this Agreement or in taking or not taking
action hereunder.

 

SECTION 13.                          ACKNOWLEDGMENT
AND RESTATEMENT  

 

13.1             Existing
Obligations.  Each Borrower
and Guarantor hereby acknowledges, confirms and agrees that (a) Borrowers and
Guarantors are indebted to Agent and Lenders for outstanding loans and advances
to Borrowers under the Existing Agreements and in respect of Letter of Credit
Accommodations (as defined in the Existing Agreements), together with all
interest accrued and accruing thereon (to the extent applicable), and all fees,
costs, expenses and other charges relating thereto, all of which are
unconditionally owing by Borrowers and Guarantors to Agent and Lenders to the
extent set forth in the Existing Agreements, without offset, defense or
counterclaim of any kind, nature or description whatsoever.

 

13.2             Acknowledgment of Security
Interests

 

(a)                    Each
Borrower and Guarantor hereby acknowledges, confirms and agrees that
Agent on behalf of itself and Lenders shall continue to have a security
interest in and lien

 

128

 

upon the Collateral heretofore granted to
Agent pursuant to the Existing Agreements to secure the Obligations, as well as
any Collateral granted under this Agreement or under any of the other Financing
Agreements or otherwise granted to or held by Agent or any Lender.

 

(b)                   The
liens and security interests of Agent in the Collateral shall be deemed to be
continuously granted and perfected from the earliest date of the granting and
perfection of such liens and security interests to Agent, whether under the
Existing Agreements, this Agreement or any of the other Financing Agreements.

 

13.3             Existing Agreements.  Borrowers and
Guarantors each hereby acknowledge, confirm and agree that, subject to Section
13.4 hereof: (a) the Existing Agreements have been duly executed and delivered
by Borrowers and Guarantors and are in full force and effect as of the date
hereof; (b) the agreements and obligations of Borrowers and Guarantors
contained in the Existing Agreements constitute the legal, valid and binding
obligations of Borrowers or Guarantors, as the case may be, enforceable against
such Borrower or Guarantor in accordance with its terms and no Borrower or
Guarantor has a valid defense to the enforcement of such obligations; and (c) Agent
and Lenders are entitled to all of the rights, remedies and benefits provided
for in or arising pursuant to the Existing Agreements.

 

13.4             Restatement. 

 

(a)                    Except
as otherwise stated in Section 13.2 hereof and this Section 13.4, as of
the date hereof, the terms, conditions, agreements, covenants,
representations and warranties set forth in the Existing Agreements are
simultaneously amended and restated in their entirety, and as so amended and
restated, replaced and superseded by the terms, conditions, agreements,
covenants, representations and warranties set forth in this Agreement and the
other Financing Agreements executed and/or delivered on or after the date
hereof, except that nothing herein or in the other Financing Agreements shall
impair or adversely affect the continuation of the liability of Borrowers and
Guarantors for the Obligations heretofore incurred and the security interests,
liens, hypothecs and other interests in the Collateral heretofore granted,
pledged and/or assigned by Borrowers or Guarantors to Agent, Agent or any
Lender (whether directly, indirectly or otherwise).

 

(b)                   The
amendment and restatement contained herein shall not, in any manner, be
construed to constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, the Indebtedness and other obligations and
liabilities of Borrowers or Guarantors evidenced by or arising under the
Existing Agreements, and the liens and security interests of Agent securing
such Indebtedness and other obligations and liabilities, which shall not in any
manner be impaired, limited, terminated, waived or released, but shall continue
in full force and effect in favor of Agent for the benefit of itself and
Lenders.

 

(c)                    All loans, advances and other financial
accommodations under the Existing Agreements and all other Obligations of
Borrowers and Guarantors to Agent and Lenders outstanding and unpaid as of the
date hereof pursuant to the Existing Agreements or otherwise shall be deemed
Obligations of Borrowers and Guarantors pursuant to the terms hereof.  The principal
amount of the Revolving Loans and the amount of the Letters of Credit
Accommodations outstanding as of the date hereof under the Existing Agreements
shall be

 

129

 

allocated to the Revolving Loans and Letter
of Credit Accommodations hereunder in such manner and in such amounts as Agent
shall determine in accordance with the terms hereof.

 

SECTION 14.                          TERM
OF AGREEMENT; MISCELLANEOUS

 

14.1             Term.

 

(a)                    This
Agreement and the other Financing Agreements shall continue in full force and
effect for a term ending on December 23, 2009 (the “Renewal Date”), and from
year to year thereafter, unless sooner terminated pursuant to the terms hereof.  Agent may, at its option (or shall at the
direction of any Lender in writing received by Agent at least ninety (90) days
prior to the Renewal Date or the anniversary of any Renewal Date, as the case
may be), terminate this Agreement and the other Financing Agreements, or Borrower
Agent may terminate this Agreement and the other Financing Agreements, each
case, effective on the Renewal Date or on the anniversary of the Renewal Date
in any year by giving to the other party at least sixty (60) days prior written
notice; provided, that, this Agreement and all other Financing
Agreements must be terminated simultaneously. 
In addition, Borrowers may terminate this Agreement at any time upon ten
(10) days prior written notice to Agent (which notice shall be irrevocable) and
Agent may, at its option, and shall at the direction of Required Lenders,
terminate this Agreement at any time on or after an Event of Default.  Upon any effective date of termination of the
Financing Agreements, Borrowers shall pay to Agent all outstanding and unpaid
monetary Obligations and shall furnish cash collateral to Agent (or at Agent’s
option, a letter of credit issued for the account of Borrowers and at
Borrowers’ expense, in form and substance satisfactory to Agent, by an issuer
acceptable to Agent and payable to Agent as beneficiary) in such amounts as
Agent determines are reasonably necessary to secure Agent and Lenders from
loss, cost, damage or expense, including reasonable attorneys’ fees and
expenses, in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Accommodations and checks or other payments
provisionally credited to the Obligations and/or as to which Agent or any
Lender has not yet received final and indefeasible payment (and including any
contingent liability of Agent to any bank at which deposit accounts of
Borrowers and Guarantors are maintained under any Deposit Account Control
Agreement) and for any of the Obligations arising under or in connection with
any Hedge Agreement in such amounts as the other party to such Hedge Agreement
may require (unless such Obligations arising under or in connection with any
Hedge Agreement are paid in full in cash and terminated in a manner
satisfactory to such other party).  The
amount of such cash collateral (or letter of credit, as Agent may determine) as
to any Letter of Credit Accommodations shall be in the amount equal to one
hundred ten (110%) percent of the amount of the Letter of Credit Accommodations
plus the amount of any fees and expenses payable in connection therewith
through the end of the latest expiration date of such Letter of Credit
Accommodations.  Such payments in respect
of the Obligations and cash collateral shall be remitted by wire transfer in
Federal funds to the Agent Payment Account or such other bank account of Agent,
as Agent may, in its discretion, designate in writing to Borrower Agent for
such purpose.  Interest shall be due
until and including the next Business Day, if the amounts so paid by Borrowers
to the Agent Payment Account or other bank account designated by Agent are
received in such bank account later than 12:00 noon, New York City time.

 

130

 

(b)                   No
termination of this Agreement or the other Financing Agreements shall relieve
or discharge any Borrower or Guarantor of its respective duties, obligations
and covenants under this Agreement or the other Financing Agreements until all
monetary Obligations have been fully and finally discharged and paid and as to
contingent Obligations, Agent shall have received such cash collateral (or
letter of credit, as Agent may determine), as is required pursuant to the terms
hereof, and Agent’s continuing security interest in the Collateral and the
rights and remedies of Agent and Lenders hereunder, under the other Financing
Agreements and applicable law, shall remain in effect until all such monetary
Obligations have been so paid and as to contingent Obligations, Agent shall
have received such cash collateral (or letter of credit, as Agent may determine)
as is required pursuant to the terms hereof. 
Accordingly, each Borrower and Guarantor waives any rights it may have
under the UCC to demand the filing of termination statements with respect to
the Collateral and Agent shall not be required to send such termination
statements to Borrowers or Guarantors, or to file them with any filing office,
unless and until this Agreement shall have been terminated in accordance with
its terms and all monetary Obligations paid in full in immediately available
funds and as to contingent Obligations, Agent shall have received such cash
collateral (or letter of credit, as Agent may determine), as required pursuant
to the terms hereof.

 

(c)                    If
for any reason this Agreement is terminated prior to the Renewal Date and upon
such termination the Obligations are repaid with proceeds of loans that are
secured by any assets of a Borrower or Guarantor not provided by Agent or any
of its Affiliates where Agent or such Affiliate is the administrative and
collateral agent (with rights and duties consistent with the rights and duties
of Agent hereunder), in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Agent’s and each Lender’ s lost profits as a result
thereof, Borrowers agree to pay to Agent for itself and the ratable benefit of
Lenders, upon the effective date of such termination, an early termination fee
in the amount equal to

 

	
  Amount

  	
   

  	
  Period

  	
   

  
	
  (i) 0.50% of Maximum Credit

  	
   

  	
  From the date hereof to
  and including the second anniversary of the date hereof

  
	
   

  	
   

  	
   

  	
   

  
	
  (ii) 0.25% of Maximum Credit

  	
   

  	
  From and
  after the second anniversary of the date hereof to and including the third
  anniversary of the date hereof

  

 

Such early termination fee shall be presumed
to be the amount of damages sustained by Agent and Lenders as a result of such
early termination and Borrowers and Guarantors agree that it is reasonable
under the circumstances currently existing. 

 

(d)                   Notwithstanding
anything to the contrary contained in Section 14.1(c) above, in the event of
the termination of this Agreement at the request of Borrower Agent prior to the
end of the term of this Agreement and the full and final repayment of all
Obligations and the receipt by Agent of cash collateral all as provided in
Section 14.1(a) above, Borrowers shall not be required to pay to Agent, for the
benefit of Lenders an early termination fee if such

 

131

 

payments are made to Agent, for the benefit
of Lenders, with the initial proceeds of an unsecured credit facility provided
by Wachovia Bank, National Association, to Borrowers.

 

14.2             Interpretative Provisions.

 

(a)                    All
terms used herein which are defined in Article 1, Article 8 or Article 9 of the
UCC shall have the meanings given therein unless otherwise defined in this
Agreement.  

 

(b)                   All
references to the plural herein shall also mean the singular and to the
singular shall also mean the plural unless the context otherwise requires.  

 

(c)                    All
references to any Borrower, Guarantor, Agent and Lenders pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns.  

 

(d)                   The
words “hereof”, “herein”, “hereunder”, “this Agreement” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not any particular provision of this Agreement and as this Agreement now exists
or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.  

 

(e)                    The
word “including” when used in this Agreement shall mean “including, without
limitation”.  

 

(f)                      An
Event of Default shall exist or continue or be continuing until such Event of
Default is waived in accordance with Section 11.3 or is cured in a manner
satisfactory to Agent, if such Event of Default is capable of being cured as
determined by Agent.  

 

(g)                   All
references to “store” or “retail store” as applied to Borrowers shall include
both factory outlet stores and other retail stores operated by Borrowers.

 

(h)                   All
references to the term “knowledge” used herein when applicable to any Borrower
or Guarantor shall mean the actual knowledge of the Chief Executive Officer,
Chief Financial Officer, Chief Operating Officer, General Counsel, Chief
Accounting Officer of a Borrower or Guarantor or persons having the same or
similar responsibilities or functions as such positions as in effect on the
date hereof, or as customarily understood to be the case for companies
similarly situated.

 

(i)                       All
references to the term “good faith” used herein or the term “reasonable” or
“reasonably” when applicable to Agent or any Lender shall be based upon the
manner in which a comparable asset-based lender similarly situated, with similar
rights and providing a credit facility of the type and with the Collateral and
information then available to it set forth herein, would act in such
circumstances. 

 

(j)                       Any
accounting term used in this Agreement shall have, unless otherwise specifically
provided herein, the meaning customarily given in accordance with GAAP, and all
financial computations hereunder shall be computed unless otherwise
specifically provided herein, in accordance with GAAP as consistently applied
and using the same method for

 

132

 

inventory valuation as used in the
preparation of the financial statements of Parent most recently received by
Agent prior to the date hereof.

 

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

 

(l)                       Unless
otherwise expressly provided herein, (i) references herein to any agreement,
document or instrument shall be deemed to include all subsequent amendments,
modifications, supplements, extensions, renewals, restatements or replacements
with respect thereto, but only to the extent the same are not prohibited by the
terms hereof or of any other Financing Agreement, and (ii) references to any
statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, recodifying,
supplementing or interpreting the statute or regulation.

 

(m)                 The
captions and headings of this Agreement are for convenience of reference only
and shall not affect the interpretation of this Agreement.

 

(n)                   This
Agreement and other Financing Agreements may use several different limitations,
tests or measurements to regulate the same or similar matters.  All such limitations, tests and measurements
are cumulative and shall each be performed in accordance with their terms.

 

(o)                   This
Agreement and the other Financing Agreements are the result of negotiations
among and have been reviewed by counsel to Agent and the other parties, and are
the products of all parties. 
Accordingly, this Agreement and the other Financing Agreements shall not
be construed against Agent or Lenders merely because of Agent’s or any Lender’s
involvement in their preparation.

 

14.3             Notices.  All
notices, requests and demands hereunder shall be in writing and deemed to have
been given or made:  if delivered in
person, immediately upon delivery; if by nationally recognized overnight
courier service with instructions to deliver the next Business Day, one (1)
Business Day after sending; and if by certified mail, return receipt requested,
five (5) days after mailing.  All
notices, requests and demands upon the parties are to be given to the following
addresses (or to such other address as any party may designate by notice in
accordance with this Section):

 

	
  If to any Borrower or Guarantor:

  	
  J. Crew Group, Inc.

  770 Broadway

  New York, New York 10013

  Attention: Chief Financial Officer

  Telephone No.: 212-209-2545

  
	
   

  	
   

  
	
  with a copy to:

  	
  J. Crew Group, Inc.

  770 Broadway

  New York, New York 10013

  Attention: General Counsel

  Telephone No.: 212-209-8254

  

 

133

 

	
  If to Agent:

  	
  Congress Financial Corporation

  1133 Avenue of the Americas

  New York, New York 10036

  Attention: Portfolio Manager

  Telephone No.: 212-840-2000

  Telecopy No.: 212-545-4283

  

 

14.4             Partial Invalidity.  If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

 

14.5             Confidentiality.

 

(a)                    Agent
and each Lender shall use all reasonable efforts to keep confidential, in
accordance with its customary procedures for handling confidential information
and safe and sound lending practices, any non-public information supplied to it
by any Borrower pursuant to this Agreement which is clearly and conspicuously
marked as confidential at the time such information is furnished by such Borrower
to Agent or such Lender, provided, that, nothing contained herein
shall limit the disclosure of any such information: (i) to the extent required
by statute, rule, regulation, subpoena or court order, (ii) to bank examiners
and other regulators, auditors and/or accountants,  in connection with any litigation to which
Agent or such Lender is a party, (iii) to any Lender or Participant (or
prospective Lender or Participant) or to any Affiliate of any Lender so long as
such Lender or Participant (or prospective Lender or Participant) or Affiliate
shall have been instructed to treat such information as confidential in
accordance with this Section 14.5, or (iv) to counsel for Agent or any Lender
or Participant (or prospective Lender or Participant).

 

(b)                   In
the event that Agent or any Lender receives a request or demand to disclose any
confidential information pursuant to any subpoena or court order, Agent or such
Lender, as the case may be, agrees (i) to the extent permitted by applicable
law or if permitted by applicable law, to the extent Agent or such Lender
determines in good faith that it will not create any risk of liability to Agent
or such Lender, Agent or such Lender will promptly notify Borrower Agent of
such request so that Borrower Agent may seek a protective order or other
appropriate relief or remedy and (ii) if disclosure of such information is
required, disclose such information and, subject to reimbursement by Borrowers
of Agent’s or such Lender’s expenses, cooperate with Borrower Agent in the reasonable
efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to such portion of the disclosed information which
Borrower Agent so designates, to the extent permitted by applicable law or if
permitted by applicable law, to the extent Agent or such Lender determines in
good faith that it will not create any risk of liability to Agent or such
Lender.

 

134

(c)                                  In
no event shall this Section 14.5 or any other provision of this Agreement, any
of the other Financing Agreements or applicable law be deemed: (i) to apply to
or restrict disclosure of information that has been or is made public by any
Borrower, Guarantor or any third party or otherwise becomes generally available
to the public other than as a result of a disclosure in violation hereof, (ii)
to apply to or restrict disclosure of information that was or becomes available
to Agent or any Lender (or any Affiliate of any Lender) on a non-confidential
basis from a person other than a Borrower or Guarantor, (iii) to require Agent
or any Lender to return any materials furnished by a Borrower or Guarantor to
Agent or a Lender or prevent Agent or a Lender from responding to routine
informational requests in accordance with the Code of Ethics for the
Exchange of Credit Information promulgated by The Robert Morris Associates
or other applicable industry standards relating to the exchange of credit
information.  The obligations of Agent
and Lenders under this Section 14.5 shall supersede and replace the obligations
of Agent and Lenders under any confidentiality letter signed prior to the date
hereof.

 

14.6                           Successors.  This Agreement, the other Financing
Agreements and any other document referred to herein or therein shall be
binding upon and inure to the benefit of and be enforceable by Agent, Lenders,
Borrowers, Guarantors and their respective successors and assigns, except that
Borrower may not assign its rights under this Agreement, the other Financing
Agreements and any other document referred to herein or therein without the
prior written consent of Agent and Lenders. 
Any such purported assignment without such express prior written consent
shall be void.  No Lender may assign its
rights and obligations under this Agreement without the prior written consent
of Agent, except as provided in Section 14.7 below. The terms and provisions of
this Agreement and the other Financing Agreements are for the purpose of defining
the relative rights and obligations of Borrowers, Guarantors, Agent and Lenders
with respect to the transactions contemplated hereby and there shall be no
third party beneficiaries of any of the terms and provisions of this Agreement
or any of the other Financing Agreements.

 

14.7                           Assignments; Participations

 

(a)                                  Each
Lender may, with the prior written consent of Agent, assign all or, if less
than all, a portion equal to at least $10,000,000 in the aggregate for the
assigning Lender, of such rights and obligations under this Agreement to one or
more Eligible Transferees (but not including for this purpose any assignments
in the form of a participation), each of which assignees shall become a party
to this Agreement as a Lender by execution of an Assignment and Acceptance; provided,
that, (i) such transfer or assignment will not be effective until
recorded by Agent on the Register and (ii) Agent shall have received for its
sole account payment of a processing fee from the assigning Lender or the
assignee in the amount of $5,000.

 

(b)                                 Agent
shall maintain a register of the names and addresses of Lenders, their
Commitments and the principal amount of their Revolving Loans (the “Register”).  Agent shall also maintain a copy of each
Assignment and Acceptance delivered to and accepted by it and shall modify the
Register to give effect to each Assignment and Acceptance.  The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and any
Borrowers, Obligors, Agent and Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this Agreement.  The Register shall be

 

135

 

available for inspection by Borrower Agent
and any Lender at any reasonable time and from time to time upon reasonable
prior notice.

 

(c)                                  Upon
such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance,  the assignee thereunder shall be a party
hereto and to the other Financing Agreements and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations (including, without limitation, the
obligation to participate in Letter of Credit Accommodations) of a Lender
hereunder and thereunder and the assigning Lender shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement.

 

(d)                                 By
execution and delivery of an Assignment and Acceptance, the assignor and
assignee thereunder confirm to and agree with each other and the other parties
hereto as follows:  (i) other than as
provided in such Assignment and Acceptance, the assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any of the other Financing Agreements or the execution, legality,
enforceability, genuineness, sufficiency or value of this Agreement or any of
the other Financing Agreements furnished pursuant hereto, (ii) the assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower, Obligor or any of their
Subsidiaries or the performance or observance by any Borrower or Obligor of any
of the Obligations; (iii) such assignee confirms that it has received a copy of
this Agreement and the other Financing Agreements, together with such other
documents and information it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance, (iv) such
assignee will, independently and without reliance upon the assigning Lender,
Agent and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Financing Agreements, (v) such
assignee appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Financing
Agreements as are delegated to Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto, and (vi) such assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement and the other Financing
Agreements are required to be performed by it as a Lender.  Agent and Lenders may furnish any information
concerning any Borrower or Obligor in the possession of Agent or any Lender
from time to time to assignees and Participants.

 

(e)                                  Each
Lender may sell participations to one or more banks or other entities in or to
all or a portion of its rights and obligations under this Agreement and the
other Financing Agreements (including, without limitation, all or a portion of
its Commitments and the Revolving Loans owing to it and its participation in
the Letter of Credit Accommodations, without the consent of Agent or the other
Lenders); provided, that, (i) such Lender’s obligations under
this Agreement (including, without limitation, its Commitment hereunder) and
the other Financing Agreements shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, and Borrowers, Guarantors,

 

136

 

the other Lenders and Agent shall continue to
deal solely and directly with such Lender in connection with such Lender’s
rights and obligations under this Agreement and the other Financing Agreements,
and (iii) the Participant shall not have any rights under this Agreement or any
of the other Financing Agreements (the Participant’s rights against such Lender
in respect of such participation to be those set forth in the agreement
executed by such Lender in favor of the Participant relating thereto) and all
amounts payable by any Borrower or Obligor hereunder shall be determined as if
such Lender had not sold such participation.

 

(f)                                    Nothing
in this Agreement shall prevent or prohibit any Lender from pledging its
Revolving Loans hereunder to a Federal Reserve Bank in support of borrowings
made by such Lenders from such Federal Reserve Bank.

 

(g)                                 Borrowers
and Guarantors shall assist Agent or any Lender permitted to sell assignments
or participations under this Section 14.7 in whatever manner reasonably
necessary in order to enable or effect any such assignment or participation,
including (but not limited to) the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the delivery of informational materials, appraisals or other documents for, and
the participation of relevant management in meetings and conference calls with,
potential Lenders or Participants. Borrowers shall certify the correctness,
completeness and accuracy, in all material respects, of all descriptions of
Borrowers and Guarantors and their affairs provided, prepared or reviewed by
any Borrower or Guarantor that are contained in any selling materials and all
other information provided by it and included in such materials.

 

14.8                           Entire
Agreement.  This Agreement, the
other Financing Agreements, any supplements hereto or thereto, and any
instruments or documents delivered or to be delivered in connection herewith or
therewith represents the entire agreement and understanding concerning the
subject matter hereof and thereof between the parties hereto, and supersede all
other prior agreements, understandings, negotiations and discussions,
representations, warranties, commitments, proposals, offers and contracts
concerning the subject matter hereof, whether oral or written.  In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.

 

14.9                           Counterparts,
Etc.  This Agreement or any of the
other Financing Agreements may be executed in any number of counterparts, each
of which shall be an original, but all of which taken together shall constitute
one and the same agreement. Delivery of an executed counterpart of this
Agreement or any of the other Financing Agreements by telefacsimile shall have
the same force and effect as the delivery of an original executed counterpart
of this Agreement or any of such other Financing Agreements.  Any party delivering an executed counterpart
of any such agreement by telefacsimile shall also deliver an original executed
counterpart, but the failure to do so shall not affect the validity,
enforceability or binding effect of such agreement.

 

[REMAINDER OF
PAGE INTENTIONALLY LEFT BLANK]

 

137

 

IN WITNESS
WHEREOF, Administrative Agent, Syndication Agent, Agent, Lenders, Borrowers and
Guarantors have caused these presents to be duly executed as of the day and
year first above written.

 

 

	
   

  	
  BORROWERS

  
	
   

  	
   

  
	
   

  	
  J. CREW
  OPERATING CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  J. CREW INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GRACE
  HOLMES, INC. d/b/a J. CREW RETAIL

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  H.F.D. NO.
  55, INC. d/b/a J. CREW FACTORY

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS

  
	
   

  	
   

  
	
   

  	
  J. CREW
  GROUP, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  J. CREW
  INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  J. CREW
  INTERMEDIATE LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

 

	
   

  	
  ADMINISTRATIVE
  AGENT

  
	
   

  	
   

  
	
   

  	
  WACHOVIA
  BANK, NATIONAL ASSOCIATION,

  as Administrative Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SYNDICATION
  AGENT

  
	
   

  	
   

  
	
   

  	
  BANK OF
  AMERICA, N.A.,

  as Syndication Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AGENT

  
	
   

  	
   

  
	
   

  	
  CONGRESS
  FINANCIAL CORPORATION,

  as Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDERS

  
	
   

  	
   

  
	
   

  	
  CONGRESS
  FINANCIAL CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Commitment:
  $

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA,
  N.A.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Commitment:
  $

  
						

 

2

 

	
   

  	
  THE CIT
  GROUP/BUSINESS CREDIT, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Commitment:
  $

  
	
   

  	
   

  
	
   

  	
  LASALLE
  RETAIL FINANCE, a division of Lasalle Business Credit, as agent for Standard
  Federal Bank National Association

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Commitment:
  $

  
					

 

3

 

EXHIBIT A

to

LOAN AND SECURITY AGREEMENT

 

ASSIGNMENT AND
ACCEPTANCE AGREEMENT

 

This
ASSIGNMENT AND ACCEPTANCE AGREEMENT (this “Assignment and Acceptance”) dated as
of                 ,
200     is made between                                    
(the “Assignor”) and                                    
(the “Assignee”).

 

W I  T  N  E  S  S
E  T  H:

 

WHEREAS, Wachovia
Bank, National Association, in its capacity as administrative agent pursuant to
the Loan Agreement (as hereinafter defined) acting for and on behalf of the
parties thereto as lenders (in such capacity, “Administrative Agent”), Bank of
America, N.A., in its capacity as syndication agent pursuant to the Loan
Agreement acting for and on behalf of the parties thereto as lenders (in such
capacity, “Syndication Agent”), Congress Financial Corporation, in its capacity
as collateral agent pursuant to the Loan Agreement acting for and on behalf of
the parties thereto as lenders (in such capacity, “Agent”), Wachovia Capital
Markets, LLC, in its capacity as sole lead arranger and sole bookrunner (in
such capacity, “Arranger”), and the parties to the Loan Agreement as lenders
(individually, each a “Lender” and collectively, “Lenders”) have entered or are
about to enter into financing arrangements pursuant to which Administrative
Agent, Syndication Agent, Agent and Lenders may make loans and advances and
provide other financial accommodations to J. Crew Operating Corp., J. Crew,
Inc., Grace Holmes, Inc. d/b/a J. Crew Retail, and HFD No. 55, Inc. d/b/a J.
Crew Factory (collectively, “Borrowers”) as set forth in the Amended and
Restated Loan and Security Agreement, dated December __, 2004, by and among
Borrowers, certain of their affiliates, Administrative Agent, Syndication
Agent, Agent, Arranger and Lenders (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the “Loan
Agreement”), and the other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto (all of the foregoing, together with the Loan Agreement, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, being collectively referred to herein as the “Financing
Agreements”);

 

WHEREAS, as
provided under the Loan Agreement, Assignor committed to making Revolving Loans
(the “Committed Loans”) to Borrowers in an aggregate amount not to exceed $                       
(the “Commitment”);

 

WHEREAS,
Assignor wishes to assign to Assignee [part of the] [all] rights and
obligations of Assignor under the Loan Agreement in respect of its Commitment
in an amount equal to $                              
(the “Assigned Commitment Amount”) on the terms and subject to the conditions
set forth herein and Assignee wishes to accept assignment of such rights and to
assume such obligations from Assignor on such terms and subject to such
conditions;

 

A-1

 

NOW,
THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:

 

1.                                       Assignment
and Acceptance.

 

(a)  Subject to the terms and conditions of this
Assignment and Acceptance,  Assignor
hereby sells, transfers and assigns to Assignee, and Assignee hereby purchases,
assumes and undertakes from Assignor, without recourse and without
representation or warranty (except as provided in this Assignment and
Acceptance) an interest in (i) the Commitment and each of the Committed Loans
of Assignor and (ii) all related rights, benefits, obligations, liabilities and
indemnities of the Assignor under and in connection with the Loan Agreement and
the other Financing Agreements, so that after giving effect thereto, the
Commitment of Assignee shall be as set forth below and the Pro Rata Share of
Assignee shall be            
(     %) percent.

 

(b)  With effect on and after the Effective Date
(as defined in Section 5 hereof), Assignee shall be a party to the Loan
Agreement and succeed to all of the rights and be obligated to perform all of
the obligations of a Lender under the Loan Agreement, including the
requirements concerning confidentiality and the payment of indemnification,
with a Commitment in an amount equal to the Assigned Commitment Amount.  Assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Agreement are required to be performed by it as a Lender.  It is the intent of the parties hereto that
the Commitment of Assignor shall, as of the Effective Date, be reduced by an
amount equal to the Assigned Commitment Amount and Assignor shall relinquish
its rights and be released from its obligations under the Loan Agreement to the
extent such obligations have been assumed by Assignee; provided, that,
Assignor shall not relinquish its rights under Sections 2.1, 6.4, 6.8  and 6.9 of the Loan Agreement to the extent
such rights relate to the time prior to the Effective Date.

 

(c)  After giving effect to the assignment and
assumption set forth herein, on the Effective Date Assignee’s Commitment will
be $                      .

 

(d)  After giving effect to the assignment and
assumption set forth herein, on the Effective Date Assignor’s Commitment will
be $                          
(as such amount may be further reduced by any other assignments by Assignor on
or after the date hereof).

 

2.  Payments.

 

(a)  As consideration for the sale, assignment and
transfer contemplated in Section 1 hereof, Assignee shall pay to Assignor on
the Effective Date in immediately available funds an amount equal to $                      ,
representing Assignee’s Pro Rata Share of the principal amount of all Committed
Loans.

 

(b)  Assignee shall pay to Agent the processing
fee in the amount specified in Section 14.7(a) of the Loan Agreement.

 

3.  Reallocation of Payments.  Any interest, fees and other payments accrued
to the Effective Date with respect to the Commitment, Committed Loans and
outstanding Letter of Credit Accommodations shall be for the account of
Assignor.  Any interest, fees and other

 

A-2

 

payments
accrued on and after the Effective Date with respect to the Assigned Commitment
Amount shall be for the account of Assignee. 
Each of Assignor and Assignee agrees that it will hold in trust for the
other party any interest, fees and other amounts which it may receive to which
the other party is entitled pursuant to the preceding sentence and pay to the
other party any such amounts which it may receive promptly upon receipt.

 

4.  Independent Credit Decision.  Assignee acknowledges that it has received a
copy of the Loan Agreement and the Schedules and Exhibits thereto, together
with copies of the most recent financial statements of                           
and its Subsidiaries, and such other documents and information as it has deemed
appropriate to make its own credit and legal analysis and decision to enter
into this Assignment and Acceptance and agrees that it will, independently and
without reliance upon Assignor, Agent or any Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit and legal decisions in taking or not taking action under the Loan
Agreement.

 

5.  Effective Date; Notices.

 

(a)  As between Assignor and Assignee, the
effective date for this Assignment and Acceptance shall be                                ,
200    (the “Effective Date”); provided, that, the
following conditions precedent have been satisfied on or before the Effective
Date:

 

(i)  this Assignment and Acceptance shall be
executed and delivered by Assignor and Assignee;

 

(ii)  the consent of Agent as required for an
effective assignment of the Assigned Commitment Amount by Assignor to Assignee
shall have been duly obtained and shall be in full force and effect as of the
Effective Date;

 

(iii)  written notice of such assignment, together
with payment instructions, addresses and related information with respect to
Assignee, shall have been given to Borrower Agent and Agent;

 

(iv)  Assignee shall pay to Assignor all amounts
due to Assignor under this Assignment and Acceptance; and

 

(v)  the processing fee referred to in Section
2(b) hereof shall have been paid to Agent.

 

(b)  Promptly following the execution of this
Assignment and Acceptance, Assignor shall deliver to Borrower Agent and Agent
for acknowledgment by Agent, a Notice of Assignment in the form attached hereto
as Schedule 1.

 

[6.   Agent.  [INCLUDE ONLY IF ASSIGNOR IS AN AGENT]

 

(a)  Assignee hereby appoints and authorizes
Assignor in its capacity as Agent to take such action as agent on its behalf to
exercise such powers under the Loan Agreement as are delegated to Agent by
Lenders pursuant to the terms of the Loan Agreement.

 

A-3

 

(b)  Assignee shall assume no duties or
obligations held by Assignor in its capacity as Agent under the Loan
Agreement.]

 

7.  Withholding Tax.  Assignee (a) represents and warrants to
Assignor, Agent and Borrowers that under applicable law and treaties no tax
will be required to be withheld by Assignee, Agent or Borrowers with respect to
any payments to be made to Assignee hereunder or under any of the Financing
Agreements,  (b) agrees to furnish (if it
is not a “United States Person” as such term is defined in
Section 7701(a)(30) of the Code) to Agent and Borrowers prior to the time
that Agent or Borrowers are required to make any payment of principal, interest
or fees hereunder, duplicate executed originals of either U.S. Internal Revenue
Service Form W-8 ECI or U.S. Internal Revenue Service Form W-8 BEN
(wherein Assignee claims entitlement to the benefits of a tax treaty that
provides for a complete exemption from U.S. federal income withholding tax on
all payments hereunder) and agrees to provide new Forms W-8 ECI or
W-8 BEN upon the expiration of any previously delivered form or comparable
statements in accordance with applicable U.S. law and regulations and
amendments thereto, duly executed and completed by Assignee, and (c) agrees to
comply with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.

 

8.  Representations and Warranties.

 

(a)  Assignor represents and warrants that (i) it
is the legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any security interest,
lien, encumbrance or other adverse claim, (ii) it is duly organized and
existing and it has the full power and authority to take, and has taken, all
action necessary to execute and deliver this Assignment and Acceptance and any
other documents required or permitted to be executed or delivered by it in
connection with this Assignment and Acceptance and to fulfill its obligations
hereunder, (iii) no notices to, or consents, authorizations or approvals of,
any Person are required (other than any already given or obtained) for its due
execution, delivery and performance of this Assignment and Acceptance, and
apart from any agreements or undertakings or filings required by the Loan
Agreement, no further action by, or notice to, or filing with, any Person is
required of it for such execution, delivery or performance, and (iv) this
Assignment and Acceptance has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of Assignor, enforceable
against Assignor in accordance with the terms hereof, subject, as to
enforcement, to bankruptcy, insolvency, moratorium, reorganization and other
laws of general application relating to or affecting creditors’ rights and to
general equitable principles.

 

(b)  Assignor makes no representation or warranty
and assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Agreement or any of the
other Financing Agreements or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Agreement or any
other instrument or document furnished pursuant thereto.  Assignor makes no representation or warranty
in connection with, and assumes no responsibility with respect to, the
solvency, financial condition or statements of Borrowers, Guarantors or any of
their respective Affiliates, or the performance or observance by Borrowers,
Guarantors or any other Person, of any of its respective obligations under the
Loan Agreement or any other instrument or document furnished in connection
therewith.

 

A-4

 

(c)  Assignee represents and warrants that (i) it
is duly organized and existing and it has full power and authority to take, and
has taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance, and to
fulfill its obligations hereunder, (ii) no notices to, or consents, authorizations
or approvals of, any Person are required (other than any already given or
obtained) for its due execution, delivery and performance of this Assignment
and Acceptance, and apart from any agreements or undertakings or filings
required by the Loan Agreement, no further action by, or notice to, or filing
with, any Person is required of it for such execution, delivery or performance;
and (iii) this Assignment and Acceptance has been duly executed and delivered
by it and constitutes the legal, valid and binding obligation of Assignee,
enforceable against Assignee in accordance with the terms hereof, subject, as
to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other
laws of general application relating to or affecting creditors’ rights to
general equitable principles.

 

9.  Further Assurances.  Assignor and Assignee each hereby agree to
execute and deliver such other instruments, and take such other action, as
either party may reasonably request in connection with the transactions contemplated
by this Assignment and Acceptance, including the delivery of any notices or
other documents or instruments to Borrowers or Agent, which may be required in
connection with the assignment and assumption contemplated hereby.

 

10.  Miscellaneous

 

(a)  Any amendment or waiver of any provision of
this Assignment and Acceptance shall be in writing and signed by the parties
hereto.  No failure or delay by either
party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof and any waiver of any breach of the provisions of
this Assignment and Acceptance shall be without prejudice to any rights with
respect to any other for further breach thereof.

 

(b)  All payments made hereunder shall be made
without any set-off or counterclaim.

 

(c)  Assignor and Assignee shall each pay its own
costs and expenses incurred in connection with the negotiation, preparation,
execution and performance of this Assignment and Acceptance.

 

(d)  This Assignment and Acceptance may be
executed in any number of counterparts and all of such counterparts taken
together shall be deemed to constitute one and the same instrument.

 

(e)  THIS ASSIGNMENT AND ACCEPTANCE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF                            .  Assignor and Assignee each irrevocably
submits to the non-exclusive jurisdiction of any State or Federal court sitting
in                            
County,                 
over any suit, action or proceeding arising out of or relating to this
Assignment and Acceptance and irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such                       
State or Federal court.  Each party to
this Assignment and

 

A-5

 

Acceptance
hereby irrevocably waives, to the fullest extent it may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding.

 

(f)  ASSIGNOR AND ASSIGNEE EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE, THE LOAN AGREEMENT, ANY OF THE
OTHER FINANCING AGREEMENTS OR ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN).

 

IN WITNESS
WHEREOF, Assignor and Assignee have caused this Assignment and Acceptance to be
executed and delivered by their duly authorized officers as of the date first
above written.

 

 

	
   

  	
  [ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

A-6

 

SCHEDULE 1

 

NOTICE OF
ASSIGNMENT AND ACCEPTANCE

 

            ,
20    

 

Attn.:

 

 

Re: 

 

 

Ladies and Gentlemen:

 

Congress
Financial Corporation, in its capacity as agent pursuant to the Loan Agreement
(as hereinafter defined) acting for and on behalf of the parties thereto as
lenders (in such capacity, “Agent”), Wachovia Bank, National Association, in
its capacity as arranger pursuant to the Loan Agreement (in such capacity, “Arranger”)
and the financial institutions which are parties to the Loan Agreement as
lenders (individually, each a “Lender” and collectively, “Lenders”) have
entered or are about to enter into financing arrangements pursuant to which
Agent and Lenders may make loans and advances and provide other financial
accommodations to                      ,
                     ,
                     ,
and                      
(collectively, “Borrowers”) as set forth in the Loan and Security Agreement,
dated                      ,
2002, by and among Borrowers, certain of their affiliates, Agent and Lenders
(as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, the “Loan Agreement”), and the other
agreements, documents and instruments referred to therein or at any time
executed and/or delivered in connection therewith or related thereto (all of
the foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, being collectively referred to herein as the “Financing Agreements”).  Capitalized terms not otherwise defined
herein shall have the respective meanings ascribed thereto in the Loan
Agreement.

 

 

1.  We hereby give you notice of, and request
your consent to, the assignment by                                                 
(the “Assignor”) to                                                 
(the “Assignee”) such that after giving effect to the assignment Assignee shall
have an interest equal to             
(    %) percent of the total Commitments pursuant to the
Assignment and Acceptance Agreement attached hereto (the “Assignment and
Acceptance”).  We understand that

 

A-7

 

the Assignor’s Commitment shall be reduced by
$                       ,
as the same may be further reduced by other assignments on or after the date
hereof.

 

2.  Assignee agrees that, upon receiving the
consent of Agent to such assignment, Assignee will be bound by the terms of the
Loan Agreement as fully and to the same extent as if the Assignee were the
Lender originally holding such interest under the Loan Agreement.

 

3.  The following administrative details apply to
Assignee:

 

(A)                              Notice
address:

 

	
  Assignee name:

  
	
  Address:

  
	
  Attention:

  
	
  Telephone:

  
	
  Telecopier:

  

 

(B)                                Payment instructions:

 

Account No.:

At:

 

Reference:

Attention:

 

4.  You are entitled to rely upon the
representations, warranties and covenants of each of Assignor and Assignee
contained in the Assignment and Acceptance.

 

A-8

 

IN WITNESS
WHEREOF, Assignor and Assignee have caused this Notice of Assignment and
Acceptance to be executed by their respective duly authorized officials,
officers or agents as of the date first above mentioned.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					

 

 

ACKNOWLEDGED AND ASSIGNMENT

CONSENTED TO:

 

CONGRESS FINANCIAL CORPORATION,

as Agent

 

 

	
  By:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  
				

 

A-9

 

EXHIBIT C

TO

LOAN AND SECURITY AGREEMENT

 

 

Compliance
Certificate

 

 

	
  To:

  	
  Congress
  Financial Corporation, as Agent

  
	
   

  	
  1133 Avenue
  of the Americas

  
	
   

  	
  New York,
  New York 10036

  

 

Ladies and Gentlemen:

 

I hereby
certify to you in my capacity as [Chief Financial Officer] [Controller]
pursuant to Section 9.6 of the Loan Agreement (as defined below) as follows:

 

1.  I am the duly elected [Chief Financial
Officer] [Controller] of J. Crew Operating Corp., J. Crew Inc., a New
Jersey corporation, Grace Holmes, Inc. and HFD No. 55, Inc. (collectively, “Borrowers”).  Capitalized terms used herein without
definition shall have the meanings given to such terms in the Loan and Security
Agreement, dated         , 2002, by and
among Congress Financial Corporation as agent for the financial institutions
party thereto as lenders (in such capacity, “Agent”), Wachovia Bank, National
Association, as arranger (in such capacity “Arranger”) and the parties thereto
as lenders (collectively, “Lenders”), Borrowers and certain of their affiliates
(as such Loan and Security Agreement is amended, modified or supplemented, from
time to time, the “Loan Agreement”).

 

2.  I have reviewed the terms of the Loan
Agreement, and have made, or have caused to be made under my supervision, a
review in reasonable detail of the transactions and the financial condition of
Borrowers and Guarantors, during the immediately preceding fiscal month.

 

3.  The review described in Section 2 above did
not disclose the existence during or at the end of such fiscal month, and I
have no knowledge of the existence and continuance on the date hereof, of any
condition or event which constitutes a Default or an Event of Default, except
as set forth on Schedule I attached hereto. 
Described on Schedule I attached hereto are the exceptions, if any, to
this Section 3 listing, in detail, the nature of the condition or event, the
period during which it has existed and the action which any Borrower or
Guarantor has taken, is taking, or proposes to take with respect to such
condition or event.

 

4.  I further certify that, based on the review
described in Section 2 above, no Borrower or Guarantor has not at any time
during or at the end of such fiscal month, except as specifically

 

C-1

 

described on
Schedule II attached hereto or as permitted by the Loan Agreement, done any of
the following:

 

(a)                                  Changed
its respective corporate name, or transacted business under any trade name,
style, or fictitious name, other than those previously described to you and set
forth in the Financing Agreements.

 

(b)                                 Changed
the location of its chief executive office, changed its jurisdiction of
incorporation, changed its type of organization or changed the location of or
disposed of any of its properties or assets (other than pursuant to the sale of
Inventory in the ordinary course of its business or as otherwise permitted by
Section 9.7 of the Loan Agreement), or established any new asset locations.

 

(c)                                  Materially
changed the terms upon which it sells goods (including sales on consignment) or
provides services, nor has any vendor or trade supplier to any Borrower or
Guarantor during or at the end of such period materially adversely changed the
terms upon which it supplies goods to any Borrower or Guarantor.

 

(d)                                 Permitted
or suffered to exist any security interest in or liens on any of its
properties, whether real or personal, other than as specifically permitted in
the Financing Agreements.

 

(e)                                  Received
any notice of, or obtained knowledge of any of the following not previously
disclosed to Agent:  (i) the occurrence
of any event involving the release, spill or discharge of any Hazardous
Material in violation of applicable Environmental Law in a material respect or
(ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of
any applicable Environmental Law by any Borrower or Guarantor in any material
respect or (B) the release, spill or discharge of any Hazardous Material in
violation of applicable Environmental Law in a material respect or (C) the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials in violation of applicable
Environmental Laws in a material respect or (D) any other environmental, health
or safety matter, which has a material adverse effect on any Borrower or
Guarantor or its business, operations or assets or any properties at which such
Borrower or Guarantor transported, stored or disposed of any Hazardous
Materials.

 

(f)                                    Become
aware of, obtained knowledge of, or received notification of, any breach or
violation of any material covenant contained in any instrument or agreement in
respect of Indebtedness for money borrowed by any Borrower or Guarantor.

 

5.                                       Attached
hereto as Schedule III are the calculations used in determining, as of the end
of such fiscal month whether Borrowers and Guarantors are in compliance with
the covenants set forth in Sections 9.18 and 9.19 of the Loan Agreement
for such fiscal month.

 

The foregoing
certifications are made and delivered this day of                ,
200    .

 

C-2

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

C-3Exhibit
10.1

 

FIFTH AMENDMENT TO
FIFTH AMENDED

AND RESTATED LOAN
AGREEMENT

 

This Fifth Amendment to Fifth Amended and Restated
Loan Agreement, dated as of December 27, 2004, by and among The J. Jill Group,
Inc., a Delaware corporation (“BORROWER”) on the one hand, and Citizens Bank of
Massachusetts, HSBC Bank USA, National Association, and Banknorth, N.A.
(collectively, “LENDERS”) and Citizens Bank of Massachusetts as agent (“AGENT”)
for the LENDERS, on the other hand.

 

WITNESSETH:

 

WHEREAS, BORROWER, LENDERS and AGENT are parties to
that certain Fifth Amended and Restated Loan Agreement dated as of June 29,
2001, as amended by First Amendment thereto dated as of August 28, 2001; by
Second Amendment thereto dated as of July 25, 2002; by Third Amendment thereto
dated as of June 26, 2003; and by Fourth Amendment thereto dated as of
September 30, 2004 (collectively, the “LOAN AGREEMENT”); and

 

WHEREAS, BORROWER, LENDERS and AGENT wish to amend the
LOAN AGREEMENT as more particularly hereafter set forth.  Capitalized terms used herein without
definition shall have the meanings ascribed to them in the LOAN AGREEMENT.

 

NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, the parties hereby agree that the LOAN AGREEMENT
is hereby amended as follows:

 

1.                                       Section
1.01 of the LOAN AGREEMENT is hereby amended by deleting the respective
definitions of “QT SERVICES” and “BIRCH POND,” appearing therein and
substituting therefor the following:

 

“QT SERVICES” means that certain former Massachusetts
corporation known as QT SERVICES GROUP, INC. which corporation has merged into
and with BORROWER, the latter entity being the survivor of such merger.

 

“BIRCH POND” means that certain former Massachusetts
corporation known as THE BIRCH POND GROUP, INC. which corporation has converted
into J. JILL, LLC, a limited liability company organized under the laws of the
State of New Hampshire, and all of whose membership interests are owned by J.
JILL, GP.

 

2.                                       Section
1.01 of the LOAN AGREEMENT is hereby amended by adding the following new
definitions:

 

“J.J. COMPANY” shall mean J.J. COMPANY, Inc., a
Massachusetts corporation, one hundred percent (100%) of whose capital stock is
owned by BORROWER.

 

“J. JILL, GP” shall mean J. JILL, GP, a Massachusetts
general partnership whose sole partners are J.J. COMPANY (holding a 1% interest
therein) and BORROWER (holding a 99% interest therein).

 

 

“J. JILL, LLC” shall mean J. JILL, LLC, a New
Hampshire limited liability company.

 

3.                                       Section
1.01 of the LOAN AGREEMENT is hereby amended by deleting the definition of “SPECIAL
SUBSIDIARIES” appearing therein and substituting therefor the following:

 

“SPECIAL SUBSIDIARIES”
shall mean individually and collectively each of J.J. COMPANY, J. JILL, LLC and
J. JILL, GP.

 

4.                                       Section
1.01 of the LOAN AGREEMENT is hereby amended by deleting the definition of “SECURITY
AGREEMENTS” appearing therein and substituting therefor the following:

 

“SECURITY AGREEMENTS”
shall mean (i) a Security Agreement dated June 29, 2001 duly executed and
delivered by the BORROWER to the AGENT on behalf of the LENDERS granting a
security interest in all of the assets of the BORROWER, including, without
limitation, the COLLATERAL and securing the payment and performance of the
OBLIGATIONS as provided in Article VI hereof, as the same has been amended and
may hereafter be amended, from time to time, and (ii) those certain Security
Agreements dated June 29, 2001 and of even date hereof, as the case may be,
duly executed and delivered by each of the SPECIAL SUBSIDIARIES to the AGENT
granting a security interest in all of the assets of each SPECIAL SUBSIDIARY,
including, without limitation, the COLLATERAL and securing the payment and
performance of the OBLIGATIONS as provided in Article VI hereof, as each of
such Security Agreements has been amended and may hereafter be amended from
time to time.

 

5.                                       Section
6.05 of the LOAN AGREEMENT is hereby amended by deleting said section in its
entirety and substituting therefor the following:

 

“6.05  The OBLIGATIONS shall be secured at all times
by (i) a pledge by BORROWER of all of the issued and outstanding stock of J.J.
COMPANY, subject to no LIEN, pursuant to a pledge agreement in form and
substance satisfactory to the AGENT (this pledge agreement and any other stock
pledge agreement that may be granted to the AGENT at any time in the future
shall be collectively known as the “STOCK PLEDGE AGREEMENTS”), together with
the delivery of stock powers each executed in blank; and (ii) a First Pledge
and Security Agreement (Collateral Assignment of Membership Interests) by J.
JILL, GP, relating to J. JILL, GP’s 100% ownership interest in J. JILL, LLC, in
form and substance satisfactory to AGENT, subject to no lien.”

 

6.                                       Section
7.02 of the LOAN AGREEMENT is hereby amended by deleting said section in its
entirety and substituting therefor the following:

 

2

 

“The BORROWER and each of
the SPECIAL SUBSIDIARIES is a duly organized and existing entity under the laws
of its state of organization and is in good standing under the laws thereof.”

 

7.                                       Section
7.03 of the LOAN AGREEMENT is hereby amended by deleting said section in its
entirety and substituting therefor the following:

 

“The BORROWER and each of
the SPECIAL SUBSIDIARIES is duly qualified to do business and is in good
standing as a foreign entity in each state or other jurisdiction where the
failure to so qualify would have a material adverse effect on the BORROWER and
each of the SPECIAL SUBSIDIARIES as a group of entities.  All such jurisdiction, if any, are listed on
Exhibit 7.03 to this instrument.”

 

8.                                       Section
7.07 of the LOAN AGREEMENT is hereby amended by deleting said section in its
entirety and substituting therefor the following:

 

The SPECIAL SUBSIDIARIES’
business consists principally of the sale of personal property through
CATALOGS, internet sales and retail stores. 
BORROWER’S business consists principally of providing executive
management with respect to the activities of the SPECIAL SUBSIDIARIES and
related business activities.

 

9.                                       Section
7.19 of the LOAN AGREEMENT is hereby amended by adding the following words at
the end thereof: “as of June 29, 2001”.

 

10.                                 Section
7.20 of the LOAN AGREEMENT is hereby amended by adding the following words at
the end thereof: “as of June 29, 2001”.

 

11.                                 The
first sentence of Section 8.05 of the LOAN AGREEMENT is hereby amended by
deleting said sentence in its entirety and substituting therefor the following:

 

“The BORROWER shall, and
shall cause its SPECIAL SUBSIDIDARIES to, maintain its legal existence in good
standing.”

 

12.                                 Simultaneously
with the execution of this Fifth Amendment to LOAN AGREEMENT, in accordance
with Section 6.02 of the LOAN AGREEMENT, each of J. JILL, GP, J. JILL, LLC and
J.J. COMPANY shall execute separate GUARANTIES of the OBLIGATIONS to the AGENT
in the form of Exhibit 6.02.

 

13.                                 Simultaneously
with the execution of this Fifth Amendment to LOAN AGREEMENT, each of J. JILL,
GP, J. JILL, LLC and J.J. COMPANY shall execute separate SECURITY AGREEMENTS to
the AGENT in form and substance satisfactory to the AGENT, together with such
other FINANCING

 

3

 

AGREEMENTS as shall be
required by the AGENT in connection with this Fifth Amendment to LOAN
AGREEMENT.

 

14.                                 The
LENDERS hereby confirm their consent to all of the actions necessary,
appropriate or related to completion of the Critical Steps listed on the
attached outline entitled “Critical Steps to Resulting Structure”.

 

Except as hereby amended, the LOAN AGREEMENT is hereby ratified,
confirmed and republished.

 

 

[Remainder of page
intentionally left blank.]

 

4

 

IN WITNESS WHEREOF, the parties hereto have set their
hands and seals as of the date first above written.

 

	
  CITIZENS BANK OF MASSACHUSETTS

  	
   

  	
  THE J. JILL GROUP, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Lori B. Leeth

  	
   

  	
  By:

  	
  /s/ Olga L.
  Conley

  	
   

  
	
   

  	
  Lori B. Leeth, Senior
  Vice President

  	
   

  	
  Name: Olga L. Conley

  
	
   

  	
   

  	
  Title: EVP/Chief
  Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  HSBC BANK USA, NATIONAL
  ASSOCIATION

  	
   

  	
  BANKNORTH, N.A.

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  George Ahlmeyer

  	
   

  	
   

  	
  By:

  	
  /s/ Jon R.
  Sundstrom

  	
   

  
	
   

  	
  George Ahlmeyer, Senior
  Vice President

  	
   

  	
   

  	
  Jon R. Sundstrom

  
	
   

  	
   

  	
   

  	
  Senior Vice President

  
										

 

5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00076-of-00352.parquet"}]]