Term Loan Agreement among FOH Holdings, Inc., Frederick’s of Hollywood, Inc., the Subsidiaries Listed Herein and Mellon HBV SPV LLC, as Agent and the Lending Institutions Listed Herein

 

WHEREAS, the Original Lenders sold to SPV and SPV purchased from the Original Lenders, the entire balance of the Loans, totaling $17,384,620.28 on March 3, 2005, pursuant to several Assignment and Assumption Agreements with the original Lenders.

 

WHEREAS, the Credit Parties and the Lenders agree that it would be mutually beneficial to combine the Tranche A Term Loan and the Tranche B Term Loan into a new 8% fixed interest rate term loan that will be hereafter referred to as the "Tranche A/B Term Loan."

 

WHEREAS, the Lenders have combined the Tranche A Note and the Tranche B Note into a new note, attached as Exhibit A hereto, to be issued to the Borrower upon the date hereof, such note will be hereafter referred to as the "Tranche A/B Note."

 

NOW THEREFORE, each of the Credit Parties, the Agent and the Lenders agree to amend and restate this Term Loan Agreement in its entirety as follows:

 

ARTICLE I

Definitions

 

1.1.           Definitions.  As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires:

 

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“Account Receivable” means any and all rights of the Credit Parties to payment for goods sold and services rendered, including accounts, general intangibles and any and all such rights evidenced by chattel paper, instruments or documents, whether due or to become due and whether or not earned by performance, and whether now or hereafter acquired or arising in the future and any proceeds arising therefrom or relating thereto.

 

“Adjusted Consolidated EBITDA” means, with respect to any Person for any period Consolidated EBITDA of such Person and its Subsidiaries for such period.

 

“Affiliate” means with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors, managers and executive officers of such first Person), controlled by, or under direct or indirect common control with, such first Person.  A Person shall be deemed to control a corporation or a limited liability company for the purposes of this definition if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the Capital Stock having ordinary voting power for the election of directors or managers of such corporation or limited liability company or (ii) to direct or cause the direction of the management and policies of such corporation or limited liability company, whether through the ownership of voting securities, by contract or otherwise.  The term 'Affiliate' does not include any ▇▇▇▇▇▇ Affiliate.

 

“Agent” has the meaning ascribed thereto in the preamble and shall include any successor thereto appointed in accordance herewith.

 

6.18.       Insurance.  Each Credit Party keeps its property adequately insured and maintains (i) insurance to such extent and against such risks, including fire, as is customary with companies in the same or similar businesses, (ii) workmen’s compensation insurance in the amount required by applicable law, (iii) public liability insurance, which shall include product liability insurance, in the amount customary with companies in the same or similar business against claims for personal injury or death on properties owned, occupied or controlled by it, and (iv) such other insurance as may be required by law or as may be reasonably required by the Agent (including, without limitation, against larceny, embezzlement or other criminal misappropriation).  Schedule 6.18 sets forth a list of all insurance maintained by each Credit Party on the Closing Date.

 

6.19.       Use of Proceeds.  As reflected by the recitals to this Term Loan Agreement, the parties have agreed to exchange the Indebtedness under the Tranche A/B Note for the amount of Indebtedness that had been outstanding under the Tranche A Note and Tranche B Note as of March 30, 2005.

 

6.20.       Sufficient Capital.  After giving effect to the transactions contemplated by this Agreement, and the Revolving Credit Debt Documents, (w) no Credit Party nor any of its Subsidiaries expects that final judgments against any Credit Party or any of its Subsidiaries in actions for money damages with respect to pending or, to its knowledge, threatened litigation will be rendered at a time when, or in an amount such that, such Credit Party will be unable to satisfy any such judgments promptly in accordance with their terms (taking into account the maximum reasonable amount of such judgments in any such actions and the earliest reasonable time at which such judgments might be rendered and the cash available to each Credit Party or any of its Subsidiaries, after taking into account all other anticipated uses of the cash of such Credit Party or any of its Subsidiaries (including the payments on or in respect of debts and insurance proceeds (including their Contingent Obligations)); (x) no Credit Party or any of its Subsidiaries will have incurred or intends to, or believes that it will, incur debts beyond its ability to pay such debts as such debts mature (taking into account the timing and amounts of cash to be received by such Credit Party or any of its Subsidiaries from any source, and of amounts to be payable on or in respect of debts of such Credit Party or any of its Subsidiaries and the amounts referred to in the preceding clause (w)); (y) each Credit Party and each of its respective Subsidiaries, after taking into account all other anticipated uses of the cash of such Credit Party or any of its Subsidiaries, anticipates being able to pay all amounts on or in respect of debts of such Credit Party or any of its Subsidiaries when such amounts are required to be paid; and (z) each Credit Party and each of its respective Subsidiaries will have sufficient capital with which to conduct its present and presently proposed business and the property of such Credit Party and each of its respective Subsidiaries does not constitute unreasonably small capital with which to conduct its present or proposed business.  For purposes of this Section 6.20, “debt” means any liability on a claim, and “claim” means a (i) right to payment whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, un matured, disputed, undisputed, secured or unsecured.

 

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6.21.       Intellectual Property.  Each Credit Party owns or licenses or otherwise has the right to use all licenses, permits, trademarks, trademark applications, patents, patent applications, service marks, tradenames, copyrights, copyright applications, franchises, authorizations and other intellectual property rights that are necessary for the operations of its businesses, without infringement upon or conflict with the rights of any other Person with respect thereto, except for such infringements and conflicts which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.  Set forth on Schedule 6.21 is a complete and accurate list as of the Closing Date of all trademarks, trademark applications, tradenames, material licenses, permits, patents, patent applications, service marks, copyrights, copyright applications, franchises, authorizations and other intellectual property rights of each Credit Party.  No slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Credit Party infringes upon or conflicts with any rights owned by any other Person, and no claim or litigation regarding any of the foregoing is pending or threatened, except for such infringements and conflicts which could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  To the best knowledge of each Credit Party, no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or proposed, which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

 

6.22.       Holding Company and Investment Company Acts.  None of the Credit Parties is (i) a ”holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of a ”holding company”, as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or (ii) an “investment company” or an “affiliated person” or “promoter” of, or ”principal underwriter” of or for, an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended.

 

6.23.       Employee and Labor Matters.  (i)  There is (A) no unfair labor practice complaint pending or, to the best knowledge of any Credit Party, threatened against any Credit Party before any Governmental Authority and no grievance or arbitration proceeding pending or threatened against any Credit Party which arises out of or under any collective bargaining agreement, (B) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or threatened against any Credit Party and (C) to the best knowledge of any Credit Party, no union representation question existing with respect to the employees of any Credit Party and no union organizing activity taking place with respect to any of the employees of any of them.

 

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6.24.       Name; Jurisdiction of Organization; Organizational ID Number; Chief Place of Business; Chief Executive Office; FEIN.  Schedule 6.24 sets forth a complete and accurate list as of the date hereof of (i) the exact legal name of each Credit Party, (ii) the jurisdiction of organization of each Credit Party, (iii) the organizational identification number of each Credit Party (or indicates that such Credit Party has no organizational identification number), (iv) each place of business of each Credit Party, (v) the chief executive office of each Credit Party and (vi) the federal employer identification number of each Credit Party.

 

6.25.       Intentionally Omitted.

 

6.26.       Security Interests.  The Security Documents create in favor of the Agent, for the benefit of the Tranche A/B Lenders and the Tranche C Lenders, legal, valid and enforceable security interests in the Collateral secured thereby.  Upon the filing of the UCC-1 financing statements described in Section 5.1(n) and the recording of the Collateral Assignments for Security referred to in the Security Documents in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, such security interests in and Liens on the Collateral granted thereby shall be (i) valid, perfected and enforceable second priority Liens upon and continuing second priority security interests in and to (and if the Revolving Credit Termination shall have occurred, a valid, perfected and enforceable first priority Lien upon and continuing first priority security interest in and to) all of the Collateral in favor of the Agent on behalf of the Tranche A/B Lenders and (ii) valid, perfected and enforceable third priority Liens upon and continuing third priority security interests in and to (and (A) if the Revolving Credit Termination shall have occurred, valid, perfected and enforceable second priority Liens upon and continuing second priority security interests in and to, (B) if (x) if the Tranche A/B Termination shall have occurred and (y) the Revolving Credit Termination shall not have occurred, valid, perfected and enforceable second priority Liens upon and continuing second priority security interests in and to, and (C) if each of the Tranche A/B Termination and the Revolving Credit Termination shall have occurred, valid, perfected and enforceable first priority Liens upon and continuing first priority security interests in and to) all of the Collateral in favor of the Agent on behalf of Tranche C Lenders, and no further recordings or filings are or will be required in connection with the creation, perfection or enforcement of such security interests and Liens, other than (i) the filing of continuation statements in accordance with applicable law, (ii) the recording of the Collateral Assignments for Security pursuant to the Security Documents in the United States Patent and Trademark Office and the United States Copyright Office, as applicable, with respect to after-acquired U.S. patent and trademark applications and registrations and U.S. copyrights and (iii) the recordation of appropriate evidence of the security interest in the appropriate foreign registry with respect to all foreign intellectual property.

 

6.27.       Revolving Credit Debt Documents, Etc.  The Credit Parties have the power and authority to incur the Indebtedness pursuant to the Revolving Credit Debt Documents and have duly authorized, executed and delivered the Revolving Credit Debt Documents.  The Revolving Credit Debt Documents constitute the legal, valid and binding obligations of the Credit Parties, enforceable against the Credit Parties in accordance with the terms thereof.

 

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6.28.       Representations and Warranties in Documents; No Default.  All representations and warranties set forth in this Agreement and the other Credit Documents are true and correct in all respects at the time as of which such representations were made and on the Closing Date.  No Event of Default has occurred and is continuing and no condition exists which constitutes a Default or an Event of Default.

 

6.29.       Schedules.  All of the information which is required to be scheduled to this Agreement is set forth on the Schedules attached hereto, is correct and accurate and does not omit to state any information material thereto.

 

ARTICLE VII

Affirmative Covenants

 

Each Credit Party hereby covenants and agrees that on the Effective Date and thereafter for so long as this Agreement is in effect and until the Tranche A/B Term Loan Commitments have terminated and the Loans together with interest and fees are paid in full and all other Obligations incurred hereunder, to the extent due and payable, are paid in full:

 

7.1.         Information Covenants.  The Borrower will

 

(a)           Provide Agent (and if so requested by Agent, with copies for each Lender) with the documents set forth on Schedule 7.1(a) in accordance with the delivery schedule set forth thereon.

 

(b)           Deliver to Agent, with copies to each Lender:

 

(i)           as soon as available, but in any event within 30 days after the end of each month during each of Holdings’ Fiscal Years:

 

(A)          a company prepared consolidated balance sheet, income statement, and statement of cash flow covering Holdings’ and its Consolidated Subsidiaries’ operations during the previous month;

 

(B)           a certificate signed by the chief financial officer of Holdings to the effect that:

 

(1)           the financial statements delivered hereunder have been prepared in accordance with GAAP (except for the lack of footnotes and being subject to year-end audit adjustments) and fairly present in all material respects the financial condition of Holdings and its Consolidated Subsidiaries, and

 

(2)           there does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action the Credit Parties have taken, are taking, or propose to take with respect thereto).

 

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(ii)           as soon as available, but in any event within 90 days after the end of each of Holdings’ fiscal years, financial statements of Holdings and its Consolidated Subsidiaries for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Agent and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants’ letter to management);

 

(iii)          as soon as available, but in any event within 30 days prior to the start of each of Holdings’ fiscal years, copies of the Borrower’s business plan, in form and substance (including as to scope and underlying assumptions), for the forthcoming two (2) years, year by year, and for the forthcoming fiscal year, month by month, certified by the chief financial officer of Holdings as being such officer’s good faith best estimate of the financial performance of Holdings and its Subsidiaries during the period covered thereby (it being understood that (A) such information will be prepared by Holdings in good faith based upon assumptions believed to be reasonable at the time and based upon the best information then reasonably available to Holdings, and (B) Agent may in its Permitted Discretion;

 

   (iv)           if and when filed by any Credit Party:

 

(A)          Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports,

 

    (B)          any other filings made by any Credit Party with the SEC,

 

(C)           if and when filed by the Borrower or Holdings, copies of each of the federal income tax returns of the Borrower and Holdings, and any amendments thereto, filed with the Internal Revenue Service, and

 

(D)          any other written information that is provided in writing by Holdings to the holders of its Capital Stock (as such) generally;

 

(v)           if and when filed by any Credit Party and as requested by Agent, evidence of payment satisfactory to the Agent (in its Permitted Discretion) of applicable excise taxes in each jurisdiction in (A) which any Credit Party conducts business or is required to pay any such excise tax, (B) where any Credit Party’s failure to pay any such applicable excise tax would result in a Lien on the properties or assets of any Credit Party, or (C) where any Credit Party’s failure to pay any such applicable excise tax, either individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;

 

(vi)          promptly after submission to any Government Authority unless prohibited by applicable law, all documents and information furnished to such Government Authority in connection with any investigation of any Credit Party other than routine inquiries by such Governmental Authority;

 

(vii)         as soon as possible, and in any event within three days after the occurrence of an Event of Default or Default or the occurrence of any event or development that could reasonably be expected to have a Material Adverse Effect, the written statement of an Authorized Officer setting forth the details of such Event of Default, Default, other event or Material Adverse Effect and the action which Holdings and its Consolidated Subsidiaries propose to take with respect thereto;

 

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(viii)        (A) as soon as possible and in any event (1) within 10 days after any Credit Party or any ERISA Affiliate thereof knows or has reason to know that any Termination Event described in clause (i) of the definition of Termination Event with respect to any Employee Plan has occurred, (2) within 10 days after any Borrower or any ERISA Affiliate thereof knows or has reason to know that any other Termination Event with respect to any Employee Plan has occurred, or (3) within 10 days after any Credit Party or any ERISA Affiliate thereof knows or has reason to know that an accumulated funding deficiency has been incurred or an application has been made to the Secretary of the Treasury for a waiver or modification of the minimum funding standard (including installment payments) or an extension of any amortization period under Section 412 of the Internal Revenue Code with respect to an Employee Plan, a statement of an Authorized Officer setting forth the details of such occurrence and the action, if any, which such Credit Party or such ERISA Affiliate proposes to take with respect thereto, (B) promptly and in any event within three days after receipt thereof by any Credit Party or any ERISA Affiliate thereof from the PBGC, copies of each notice received by any Credit Party or any ERISA Affiliate thereof of the PBGC’s intention to terminate any Plan or to have a trustee appointed to administer any Plan, (C) promptly and in any event within 10 days after the filing thereof with the Internal Revenue Service if requested by the Agent, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Employee Plan and Multiemployer Plan, (D) promptly and in any event within 10 days after any Credit Party or any ERISA Affiliate thereof knows or has reason to know that a required installment within the meaning of Section 412 of the Internal Revenue Code has not been made when due with respect to an Employee Plan, (E) promptly and in any event within three days after receipt thereof by any Credit Party or any ERISA Affiliate thereof from a sponsor of a Multiemployer Plan or from the PBGC, a copy of each notice received by any Credit Party or any ERISA Affiliate thereof concerning the imposition or amount of withdrawal liability under Section 4202 of ERISA or indicating that such Multiemployer Plan may enter reorganization status under Section 4241 of ERISA, and (F) promptly and in any event within 10 days after any Credit Party or any ERISA Affiliate thereof send notice of a plant closing or mass layoff (as defined in WARN) to employees, copies of each such notice sent by such Credit Party or such ERISA Affiliate thereof;

 

(ix)          promptly after the commencement thereof but in any event not later than five days after service of process with respect thereto on, or the obtaining of knowledge thereof by, any Credit Party, notice of each action, suit or proceeding before any court or other Governmental Authority or other regulatory body or any arbitrator which, if adversely determined, could reasonably be expected to have a Material Adverse Effect;

 

(x)           to the extent provided to the Revolving Agent, promptly after the sending or filing thereof, copies of all statements, reports and other information any Credit Party sends to any holders of its Indebtedness or its securities or files with the SEC or any national (domestic or foreign) securities exchange, provided that the Credit Party may redact confidential information contained in any such statement, report or other information if it provides a summary of the nature of the information redacted to the Agent;

 

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(xi)           promptly upon receipt thereof, copies of all financial reports including, without limitation, management letters), if any, submitted to any Credit Party by its auditors in connection with any annual or interim audit of the books thereof;

 

(xii)          promptly upon request, such other information concerning the condition or operations, financial or otherwise, of any Credit Party as the Agent may from time to time may reasonably request; and

 

(xiii)         In addition to the financial statements referred to in clauses (i) through (vi) above, Borrower agrees to deliver financial statements prepared on both a consolidated and consolidating basis.  Borrower agrees that, upon prior notice of no Default or Event of Default exists and without any notice if any Default or Event of Default exists, its independent certified public accountants is authorized to communicate with Agent and to release to Agent whatever financial information concerning Borrower that Agent reasonably may request.  Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Agent pursuant to or in accordance with this Agreement, and agree that Agent may contact directly any such accounting firm or service bureau in order to obtain such information.

 

7.2.         Additional Guaranties and Collateral Security.  Each Credit Party shall cause:

 

(a)           each Subsidiary of any Credit Party not in existence on the Effective Date, to execute and deliver to the Agent promptly and in any event within three days after the formation, acquisition or change in status thereof (A) a Guarantee guaranteeing the Obligations, (B) a General Security Agreement, (C) an Intellectual Property Security Agreement, (D) if such Subsidiary has any Subsidiaries, a Securities Pledge Agreement together with (x) certificates evidencing all of the Capital Stock of any Person owned by such Subsidiary, (y) undated stock powers executed in blank with signature guaranteed, and (z) such opinion of counsel and such approving certificate of such Subsidiary as the Agent may reasonably request (in its Permitted Discretion), (E) one or more Mortgages creating on the real property owned by such Subsidiary in fee simple (i) a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to (and if the Revolving Credit Termination shall have occurred, a valid, perfected and enforceable first priority Lien upon and continuing first priority security interest in and to) all of such real property in favor of the Agent on behalf of the Tranche A/B Lenders and (ii) a valid, perfected and enforceable third priority Lien upon and continuing third priority security interest in and to (and (A) if the Revolving Credit Termination shall have occurred, a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to, (B) if (x) if the Tranche A/B Termination shall have occurred and (y) the Revolving Credit Termination shall not have occurred, a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to, and (C) if each of the Tranche A Termination and Revolving Credit Termination shall have occurred, a valid, perfected and enforceable first priority Lien upon and continuing first priority security interest in and to) all of such real property in favor of the Agent on behalf of the Tranche A/B Lenders and the Tranche C Lenders, a Title Insurance Policy covering such real property, a current ALTA survey thereof and a surveyor’s certificate, each in form and substance satisfactory to the Agent, together with such other agreements, instruments and documents as the Agent may require, and (F) such other agreements, instruments, approvals, legal opinions or other documents reasonably requested by the Agent in order to create, perfect, establish the priorities set forth in this sentence above in favor of (i) the Tranche A/B Lenders and (ii) the Tranche C Lenders or otherwise protect any Lien purported to be covered by any such General Security Agreement, Intellectual Property Security Agreement, Pledge Agreement or Mortgage or otherwise to effect the intent that such Subsidiary shall become bound by all of the terms, covenants and agreements contained in the Credit Documents and that all property and assets of such Subsidiary shall become Collateral for the Obligations; and

 

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(b)          following the occurrence of the Revolving Credit Termination, each owner of the Capital Stock of any such Subsidiary to execute and deliver promptly and in any event within three days after the formation or acquisition of such Subsidiary a Securities Pledge Agreement, together with (A) certificates evidencing all of the Capital Stock of such Subsidiary, (B) undated stock powers or other appropriate instruments of assignment executed in blank with signature guaranteed, (C) such opinion of counsel and such approving certificate of such Subsidiary as the Agent may reasonably request in respect of complying with any legend on any such certificate or any other matter relating to such shares and (D) such other agreements, instruments, approvals, legal opinions or other documents requested by the Agent.

 

7.3.         Compliance with Laws, etc.  Each Credit Party will comply, and cause each of their Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations and orders (including, without limitation, all Environmental Laws), such compliance to include, without limitation, (i) paying before the same become delinquent all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any of its properties, and (ii) paying all lawful claims which if unpaid might become a Lien or charge upon any of its properties, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof.

 

7.4.         Preservation of Existence, etc.  Except to the extent permitted by Section 8.4(b) and except as disclosed in writing to the Agent prior to the Closing Date, each Credit Party will maintain and preserve, and cause each of their Subsidiaries to maintain and preserve, their existence, rights and privileges, and become or remain duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by them or in which the transaction of their business makes such qualification necessary.

 

7.5.         Keeping of Records and Books of Account.  Each Credit Party will keep, and cause each of their Subsidiaries to keep, adequate records and books of account, with complete entries made in accordance with GAAP.

 

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7.6.         Inspection Rights.  Each Credit Party will permit, and cause each of their Subsidiaries to permit, the Agent or representatives thereof at any time and from time to time during normal business hours and, in the absence of a continuing Event of Default, upon reasonable prior notice and if an Event of Default exists, without notice, and at the expense of the Borrower, to examine and make copies of and abstracts from their records and books of account, to visit and inspect their properties, to verify materials, leases, notes, accounts receivable, deposit accounts and other assets of the Credit Parties and their Subsidiaries, to conduct audits, physical counts, valuations, appraisals, environmental assessments or examinations and to discuss their affairs, finances and accounts with any of the directors, officers, managerial employees, independent accountants or other representatives thereof.  The Borrower agrees to pay the reasonable cost of such audits, counts, valuations, appraisals, assessments or examinations, provided that, in the absence of a continuing Event of Default, the Borrower shall not be obligated to pay for more than four audits and four appraisals in any calendar year.

 

7.7.         Maintenance of Properties, etc.  Each Credit Party will maintain and preserve, and cause each of their Subsidiaries to maintain and preserve, all of their properties which are necessary or useful in the proper conduct of their business in good working order and condition, ordinary wear and tear excepted, and comply, and cause each of their Subsidiaries to comply, at all times with the provisions of all leases to which each of them is a party as lessee or under which each of them occupies property, so as to prevent any loss or forfeiture thereof or thereunder, in each case, other than sales of property otherwise permitted by the terms of this Agreement.

 

7.8.         Maintenance of Insurance .  Each Credit Party will maintain, and cause each of their Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance) with respect to their properties (including all real properties leased or owned by them) and business, in such amounts and covering such risks as is required by any Governmental Authority having jurisdiction with respect thereto or as is carried generally in accordance with sound business practice by companies in similar businesses similarly situated and in any event in amount, adequacy and scope reasonably satisfactory to the Agent.  Immediately following the occurrence of the Revolving Credit Termination, all policies covering the Collateral are to be made payable to the Agent for the benefit of the Lenders, as its interests may appear, in case of loss, under a standard non-contributory “lender” or “secured party” clause and are to contain such other provisions as the Agent may require to fully protect the Lenders’ interest in the Collateral and to any payments to be made under such policies.  Immediately following the occurrence of the Revolving Credit Termination, all certificates of insurance are to be delivered to the Agent and the policies are to be premium prepaid, with the loss payable and additional insured endorsement in favor of Agent and such other Persons as the Agent may designate from time to time, and shall provide for not less than 30 days’ prior written notice to the Agent of the exercise of any right of cancellation.  If the Credit Parties or any of their Subsidiaries fail to maintain such insurance, the Agent may arrange for such insurance, but at the Borrower’s expense and without any responsibility on the Agent’s part for obtaining the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the collection of claims.  Subject to the terms set forth in the Revolving Intercreditor Agreement, upon the occurrence of an Event of Default, the Agent shall have the sole right, in the name of the Lenders, the Credit Parties and their Subsidiaries, to file claims under any insurance policies, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies.

 

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7.9.         Obtaining of Permits.  Each Credit Party will Obtain, maintain and preserve, and cause each of their Subsidiaries to obtain, maintain and preserve, all permits, licenses, authorizations, approvals, entitlements and accreditations which are necessary or useful in the proper conduct of its business and become or remain, and cause each of their Subsidiaries to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except where all such failures to comply with this Section 7.9 could not reasonably be expected to have a Material Adverse Effect.

 

7.10.       Environmental.  Each Credit Party will (i) keep any property either owned or operated by them or any of their Subsidiaries free of any Environmental Liens; (ii) comply, and cause their Subsidiaries to comply, in all material respects with Environmental Laws and provide to the Agent documentation of such compliance which the Agent reasonably requests; (iii) immediately notify the Agent of any Release of a Hazardous Material in excess of any reportable quantity from or onto property owned or operated by the Credit Parties or any of their Subsidiaries and take any Remedial Actions required to ▇▇▇▇▇ said Release; (iv) promptly provide the Agent with written notice within 10 days of the receipt of any of the following:  (A) notice that an Environmental Lien has been filed against any property of any Credit Party or any of its Subsidiaries; (B) commencement of any Environmental Action or notice that an Environmental Action will be filed against any Credit Party or any of its Subsidiaries; and (C) notice of a violation, citation or other administrative order which could not reasonably be expected to have a Material Adverse Effect and (v) defend, indemnify and hold harmless the Agent and the Lenders and their transferees, and their respective employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs or expenses (including, without limitation, attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses) arising out of (A) the presence, disposal, release or threatened release of any Hazardous Materials on any property at any time owned or operated by any Credit Party or any of its Subsidiaries (or its respective predecessors in interest or title), (B) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Materials, (C) any investigation, lawsuit brought or threatened, settlement reached or government order relating to such Hazardous Materials and/or (D) any violation of any Environmental Law at or relating to or arising in connection with any property owned or operated by any Credit Party or any of their Subsidiaries.

 

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7.11.       Further Assurances.  Each Credit Party will take such action and execute, acknowledge and deliver, and cause each of their Subsidiaries to take such action and execute, acknowledge and deliver, at their sole cost and expense, such agreements, instruments or other documents as the Agent may reasonably require from time to time in order (i) to carry out more effectively the purposes of this Agreement and the other Credit Documents, (ii) to subject to (x)  a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to (and if the Revolving Credit Termination shall have occurred, a valid, perfected and enforceable first priority Lien upon and continuing first priority security interest in and to) all any of the Collateral or any other property in favor of the Agent on behalf of the Tranche A/B Lenders and (y) a valid, perfected and enforceable third priority Lien upon and continuing third priority security interest in and to (and (A) if the Revolving Credit Termination shall have occurred, a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to, (B) if (1) if the Tranche A/B Termination shall have occurred and (2) the Revolving Credit Termination shall not have occurred, a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to, and (C) if each of the Tranche A/B Termination and the Revolving Credit Termination shall have occurred, a valid, perfected and enforceable first priority Lien upon and continuing first priority security interest in and to) all of the Collateral or any other property of the Credit Parties and their Subsidiaries, (iii) to establish and maintain the validity and effectiveness of any of the Credit Documents and the validity, perfection and priority of the Liens intended to be created thereby, (iv) to file financing statements or otherwise perfect its Lien under applicable nonbankruptcy law and (v) to better assure, convey, grant, assign, transfer and confirm unto the Agent the rights now or hereafter intended to be granted to the Agent and the Lenders under this Agreement or any other Credit Document.  In furtherance of the foregoing, to the maximum extent permitted by applicable law, each Credit Party (i) authorizes the Agent to execute any such agreements, instruments or other documents in such Credit Party’s name and to file such agreements, instruments or other documents in any appropriate filing office, (ii) authorizes the Agent to file any financing statement required hereunder or under any other Credit Document, and any continuation statement or amendment with respect thereto, in any appropriate filing office without the signature of such Credit Party, and (iii) ratifies the filing of any financing statement, and any continuation statement or amendment with respect thereto, filed without the signature of such Credit Party prior to the date hereof.

 

7.12.       Change in Collateral; Collateral Records.  Each Credit Party will provide to the Agent the notices and information provided to the Revolving Credit Agent pursuant to Section 7.01(m) of the Revolving Credit Agreement.

 

7.13.       Subordination.  Each Credit Party will cause all Indebtedness and other obligations now or hereafter owed by it to any of its Affiliates, to be subordinated in right of payment and security to the Indebtedness and other Obligations owing to the Agent and the Lenders in accordance with a subordination agreement in form and substance satisfactory to the Agent.

 

7.14.       Guarantor Reports.  The Borrower will cause each guarantor to deliver its annual financial statements at the time when Holdings provides its audited financial statements to Agent and copies of all federal income tax returns as soon as the same are available and in any event no later than 30 days after the same are required to be filed by law.

 

7.15.       Fiscal Year.  Holdings will cause its Fiscal Year to end on July 31 of each calendar year unless the Agent consents to a change in such Fiscal Year (and appropriate related changes to this Agreement), and cause the Fiscal Year of each  Subsidiary to be the same as that of Holdings.

 

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7.16.       Management of Holdings.  Holdings will employ a new chief financial officer within 90 days of the Closing Date, subject to the Agent’s review of qualifications, receipt of satisfactory reference checks and approval of any such Person by the Agent in its Permitted Discretion; provided that from the Closing Date until the employment of such new chief financial officer, an interim chief financial officer acceptable to the Agent (in its Permitted Discretion) shall at all times be retained.

 

7.17.       Immediate Notice to Agent.  The Borrower shall provide Agent with written notice promptly upon the occurrence of any of the following events, which written notice shall state with reasonable particularity the facts and circumstances of the event for which such notice is being given:

 

(i)            any change in any of the Executive Officers;

 

(ii)           to the extent notice thereof is provided to the Revolving Agent, the completion of any physical count of all or a material portion of the Borrowers’ Inventory (together with a copy of the results thereof certified by the Borrower);

 

(iii)          any cessation by the Borrower of its making payment to its creditors generally as Borrower’s debts become due;

 

(iv)          any failure by Borrower to pay rent at any of Borrower’s locations, which failure continues for more than 15 days following the last day on which such rent was payable without more than a minimal adverse effect on Borrower; or

 

(v)           any intention on the part of Borrower to discharge the Borrower’s present independent accountants or any withdrawal or resignation by such independent accountants from their acting in such capacity.

 

ARTICLE VIII

Negative Covenants

 

Each Credit Party hereby covenants and agrees that on the Effective Date and thereafter for so long as this Agreement is in effect and until the Tranche A/B Term Loan Commitments have terminated and the Loans together with interest and fees are paid in full and all other Obligations incurred hereunder, to the extent due and payable, are paid in full:

 

8.1.         Lien Priority; Payment of Claims.  No Credit Party will, nor will any Credit Party permit any of its Subsidiaries any time suffer to exist any Lien on the Collateral having a priority equal or superior to the Lien in favor of the Lenders in respect of the Collateral except for Liens in favor of the Revolving Credit Lenders.

 

8.2.         Liens, etc.  No Credit Party will, nor will any Credit Party permit any of its Subsidiaries to, create, incur, assume or suffer to exist, or any Lien upon or with respect to any of their properties, whether now owned or hereafter acquired, to file or suffer to exist under the UCC or any similar law or statute of any jurisdiction, a financing statement (or the equivalent thereof) that names any Credit Party or any of its Subsidiaries as debtor, to sign or suffer to exist any security agreement authorizing any secured party thereunder to file such financing statement (or the equivalent thereof), to sell any of its property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable) with recourse to any Credit Party or any of its Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries to assign or otherwise transfer, any account or other right to receive income, other than Permitted Liens.

 

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8.3.         Indebtedness.  No Credit Party will, nor will any Credit Party permit any of its Subsidiaries to, create, incur, assume, guarantee or suffer to exist or otherwise become or remain liable with respect to, any Indebtedness other than Permitted Indebtedness.

 

8.4.         Fundamental Changes.  No Credit Party will, nor will any Credit Party permit any of its Subsidiaries to, wind-up, liquidate or dissolve (or permit or suffer any thereof) or merge, consolidate or amalgamate with any Person, convey, sell, lease or sublease, transfer or otherwise dispose of, whether in one transaction or a series of related transactions, all or substantially all of their business, property or assets, whether now owned or hereafter acquired, or (agree to do any of the foregoing) or purchase or otherwise acquire, whether in one transaction or a series of related transactions, all or substantially all of the assets of any Person (or any division thereof) (or agree to do any of the foregoing); provided, however, that:

 

(a)          any Credit Party may be merged into or may consolidate with another Credit Party, Wholly-Owned Subsidiary of a Credit Party, or a ▇▇▇▇▇▇ Affiliate, so long as (x) no other provision of this Agreement would be violated thereby, (y) no Default or Event of Default shall have occurred and be continuing either before or after giving effect to such transaction and (z) the Lenders' rights in any Collateral, including, without limitation, the existence, perfection and priority of any Lien thereon, are not adversely affected by such merger or consolidation; and

 

(b)          any of the Credit Parties and their Subsidiaries may (A) sell Inventory in the ordinary course of business, (B) dispose of obsolete or worn-out equipment in the ordinary course of business, (C) dispose of Inventory in the ordinary course of business, (D) dispose of Inventory for cash in connection with store closings and lease expirations, provided that (w) not more than 25 stores of the Credit Parties are closed in any calendar year, (x) the cash proceeds of Inventory sold in connection with any such store closing or expiration of lease shall not be less than 80% of the aggregate book value of such Inventory, (y) the Borrower must hire a third party liquidator reasonably satisfactory to the Agent to dispose of Inventory in connection with any such store closing or lease expiration and (z) such cash shall immediately be applied in accordance with Section 3.3, and (E) sell or otherwise dispose of other property or assets for cash in an aggregate amount not less than the fair market value of such property or assets, provided that (x) the greater of the fair market value of all such property and assets and the cash received from all such sales and dispositions in any Fiscal Year shall in no event exceed $150,000 and (y) such cash shall immediately be applied in accordance with Section 3.3.

 

8.5.         Change in Nature of Business  No Credit Party will, nor permit any of their Subsidiaries to, make any change in the nature of its business as carried on at the date hereof.

 

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8.6.         Loans, Advances, Investments, etc.  No Credit Party will, nor will any Credit Party permit any of its Subsidiaries to, make or commit or agree to make any Investment, except for: (i) Investments existing on the date hereof, as set forth on Schedule 8.6 hereto, but not any increase in the amount thereof as set forth in such Schedule or any other modification of the terms thereof, (ii) temporary loans and advances by any Credit Party to another Credit Party, made in the ordinary course of business, (iii) Permitted Investments and (iv) other investments in an aggregate amount (valued at cost) not to exceed $150,000 at any time.

 

8.7.         Lease Obligations.  No Credit Party will, nor will any Credit Party permit any of its Subsidiaries to, create, incur or suffer to exist any obligations as lessee (i) for the payment of rent for any real or personal property in connection with any sale and leaseback transaction, or (ii) for the payment of rent for any real or personal property under leases or agreements to lease other than Capitalized Lease Obligations which would not cause the aggregate amount of all obligations under Capital Leases entered into after the Closing Date owing by the Credit Parties and their Subsidiaries in any Fiscal Year to exceed the amounts set forth in Section 8.8.

 

8.8.         Capital Expenditures.

 

(a)           No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, make or commit or agree to make, any Consolidated Capital Expenditure that would cause the aggregate amount of all such Consolidated Capital Expenditures arising from purchases made or Capitalized Leases entered into by the Credit Parties and their Subsidiaries to exceed (i) for Fiscal Year ending in 2005 the sum of (A) $8,000,000, plus (B) the portion of Loss Proceeds that may be used during such period to replace property or assets of the Credit Parties in accordance with Section 3.3(a)(iv) and (ii) for the Fiscal Year ending in 2006, the sum of (A) $4,000,000, plus (B) up to $4,000,000 of amounts set forth in Section 8.8(a)(i) which the Credit Parties do not utilize during the Fiscal Year ending in 2005, plus (C) the portion of Loss Proceeds that may be used during such period to replace property or assets of the Credit Parties in accordance with Section 3.3(a)(vi); provided, however, in connection with the relocation of the flagship retail store presently located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ (the "Flagship Store"), the Credit Parties shall be permitted to make an additional $1,000,000 of Capital Expenditures in connection with the Flagship Store during the fifteen consecutive month period commencing on March 2, 2005.

 

(b)          Subject to the provisions of the Revolving Credit Agreement, the amount of Consolidated Capital Expenditures permitted by this Section 8.8 for any Fiscal Year shall be increased by an amount equal to 50% of the excess of (x) the permitted Consolidated Capital Expenditures for the immediately preceding Fiscal Year (without giving effect to this sentence) over (y) the amount of Consolidated Capital Expenditures actually made in such immediately preceding Fiscal Year; provided, that any amount that is carried forward to any subsequent Fiscal Year and the amount of Consolidated Capital Expenditures made in any Fiscal Year shall first be applied against the permitted amount set forth on the schedule above and thereafter applied to the amount available from the prior year.

 

8.9.         Intentionally Omitted.

 

8.10.       Intentionally Omitted.

 

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8.11.       Restricted Payments .  No Credit Party will, nor will any Credit Party permit any of its Subsidiaries to, (i) declare or pay any dividend or other distribution, direct or indirect, on account of any Capital Stock of any Credit Party or any of its Subsidiaries, now or hereafter outstanding, (ii) make any repurchase, redemption, retirement, defeasance, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Capital Stock of any Credit Party or any direct or indirect parent of any Credit Party, now or hereafter outstanding (excluding the repurchase of any stock acquired by an employee pursuant to an option acquired under the Equity Incentive Plan), (iii) make any payment to retire, or to obtain the surrender of, any outstanding warrants, options or other rights for the purchase or acquisition of shares of any class of Capital Stock of any Credit Party, now or hereafter outstanding (excluding the repurchase of any warrant, option or other right acquired by an employee pursuant to the Equity Incentive Plan), (iv) return any capital to any shareholders or other equity holders of any Credit Party or any of its Subsidiaries, or make any other distribution of property, assets, shares of Capital Stock, warrants, rights, options, obligations or securities thereto as such (excluding the repurchase of any stock acquired by an employee pursuant to the Equity Incentive Plan) or (v) pay any management fees or any other fees or expenses (including the reimbursement thereof by any Credit Party or any of its Subsidiaries) pursuant to any management, consulting or other services agreement to any of the shareholders or other equity holders of any Credit Party or any of its Subsidiaries or other Affiliates, or to any other Subsidiaries or Affiliates of any Credit Party, provided that payments under (i), (ii), (iii) and (iv) hereof may be made so long as no Default or Event of Default shall have occurred and be continuing either before or after giving effect to such payment; and provided, further, that this Section 8.11 shall not prohibit payments to outside members of the Board of Directors of Holdings for each meeting of the Board of Directors of Holdings attended by such director so long as such payments are reasonable and consistent with industry practice, including grants of stock options, reimbursement of travel expenses, and reasonable compensation.

 

8.12.       Federal Reserve Regulations.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, permit any Loan or the proceeds of any Loan under this Agreement to be used for any purpose that would cause such Loans to be margin loans under the provisions of Regulation T, U or X.

 

8.13.       Transactions with Affiliates.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, enter into, renew, extend or be a party to any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) with any Affiliate, except (i) in the ordinary course of business in a manner and to an extent consistent with past practice and necessary or desirable for the prudent operation of its business, for fair consideration and on terms no less favorable to the Credit Parties or such Subsidiaries than would be obtainable in a comparable arm’s length transaction with a Person that is not an Affiliate thereof, (ii) transactions among the Credit Parties, (iii) the Credit Documents and transactions related thereto, and (iv) the purchase of Common Stock by the Permitted Holders, individually or collectively.

 

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8.14.       Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, create or otherwise cause, incur, assume, suffer or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of any Credit Party (i) to pay dividends or to make any other distribution on any shares of Capital Stock of such Subsidiary owned by any Credit Party or any of its Subsidiaries, (ii) to pay or prepay or to subordinate any Indebtedness owed to any Credit Party or any of its Subsidiaries, (iii) to make loans or advances to any Credit Party or any of its Subsidiaries or (iv) to transfer any of its property or assets to any Credit Party or any of its Subsidiaries, or permit any of its Subsidiaries to do any of the foregoing; provided, however, that nothing in any of clauses (i) through (iv) of this Section 8.14 shall prohibit or restrict compliance with:

 

(a)           this Agreement and the other Credit Documents;

 

(b)          any agreements in effect on the date of this Agreement and described on Schedule 8.14;

 

(c)          any applicable law, rule or regulation (including, without limitation, applicable currency control laws and applicable state corporate statutes restricting the payment of dividends in certain circumstances);

 

(d)          in the case of clause (iv) any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or assets;

 

(e)          in the case of clause (iv) any agreement, instrument or other document evidencing a Permitted Lien from restricting on customary terms the transfer of any property or assets subject thereto; or

 

(f)           the Revolving Credit Debt Documents and the transactions contemplated thereby.

 

8.15.       Limitation on Issuance of Capital Stock.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, issue or sell or enter into any agreement or arrangement for the issuance and sale of, any shares of its Capital Stock, any securities convertible into or exchangeable for its Capital Stock or any warrants, except that Holdings may issue (i) Common Stock and (ii) Capital Stock pursuant to the Equity Incentive Plan.

 

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8.16.       Modifications of Indebtedness, Organizational Documents and Certain Other Agreements; Etc.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, (i) amend, modify or otherwise change (or permit the amendment, modification or other change in any manner of) any of the provisions of any agreement, instrument or document evidencing or governing any of the other Indebtedness of Holdings or its Subsidiaries or any instrument or agreement (including, without limitation, any purchase agreement, indenture, loan agreement or security agreement) relating to any such Indebtedness if such amendment, modification or change would shorten the final maturity or average life to maturity of, or require any payment to be made earlier than the date originally scheduled on, such Indebtedness, would increase the interest rate applicable to such Indebtedness, would change the subordination provision, if any, of such Indebtedness, or would otherwise be adverse to the Lenders or the issuer of such Indebtedness in any material respect, (ii) except for the Obligations and except as otherwise expressly provided in Section 3.3, make any voluntary or optional payment, prepayment, redemption, defeasance, sinking fund payment or other acquisition for value of any of its or its Subsidiaries’ Indebtedness (including, without limitation, by way of depositing money or securities with the trustee therefor before the date required for the purpose of paying any portion of such Indebtedness when due), or refund, refinance, replace or exchange any other Indebtedness for any such Indebtedness (except to the extent such Indebtedness is otherwise expressly permitted by the definition of “Permitted Indebtedness”), or make any payment, prepayment, redemption, defeasance, sinking fund payment or repurchase of any outstanding Indebtedness as a result of any asset sale, change of control, issuance and sale of debt or equity securities or similar event, or give any notice with respect to any of the foregoing, (iii) except as otherwise permitted hereunder, amend, modify or otherwise change its name, jurisdiction of organization, organizational identification number or FEIN or (iv) amend, modify or otherwise change its certificate of incorporation or bylaws (or other similar organizational documents), including, without limitation, by the filing or modification of any certificate of designation, or any agreement or arrangement entered into by it, with respect to any of its Capital Stock (including any shareholders’ agreement), or enter into any new agreement with respect to any of its Capital Stock, except any such amendments, modifications or changes or any such new agreements or arrangements pursuant to this clause (iv) that either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, provided, that this Section 8.16 shall not prohibit the execution, amendment or restatement on or prior to the Effective Date of the Shareholders Agreement.

 

8.17.       Investment Company Act of 1940.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, engage in any business, enter into any transaction, use any securities or take any other action that would cause it or any of its Subsidiaries to become subject to the registration requirements of the Investment Company Act of 1940, as amended, by virtue of being an “investment company” or a company “controlled” by an “investment company” not entitled to an exemption within the meaning of such Act.

 

8.18.       ERISA.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, (i) engage, or permit any ERISA Affiliate to engage, in any transaction described in Section 4069 of ERISA; (ii) engage, or permit any ERISA Affiliate to engage, in any prohibited transaction described in Section 406 of ERISA or 4975 of the Internal Revenue Code for which a statutory or class exemption is not available or a private exemption has not previously been obtained from the U.S. Department of Labor; (iii) adopt or permit any ERISA Affiliate to adopt any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA or Section 4980B of the Internal Revenue Code; (iv) fail to make any contribution or payment to any Multiemployer Plan which it or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; or (v) fail, or permit any ERISA Affiliate to fail, to pay any required installment or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment.

 

8.19.       Environmental.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, permit the use, handling, generation, storage, treatment, release or disposal of Hazardous Materials at any property owned or operated by the Credit Parties or any of their Subsidiaries except in compliance with Environmental Laws and so long as such use, handling, generation, storage, treatment, release or disposal of Hazardous Materials does not result in a Material Adverse Effect.

 

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8.20.       Store Openings and Closings.  No Credit Party will, nor will any Credit Party permit any of their Subsidiaries to, commit to open, open or close any location at which any Credit Party maintains, offers for sale or stores any of the Collateral unless such Credit Party has provided Agent at least 30 days’ prior written notice of such commitment, opening or closing and (i) in the case of any such opening, such opening is consistent with the Financial Projections, as updated by the business plans delivered to the Agent pursuant to Section 7.1(b)(iii) or (ii) in the case of any such closing, Agent has consented in writing to the manner in which such Credit Party shall effect such closing, including, without limitation, any third party agent that such Credit Party proposes to employ in connection therein.

 

8.21.       Fixed Charge Coverage Ratio; EBITDA.  Holdings will not permit (i) the Fixed Charge Coverage Ratio of Holdings and its Consolidated Subsidiaries for each calendar month ending on the last day of a month set forth in Schedule 8.21 to be less than the applicable amount set forth opposite such month in Schedule 8.21, or (ii) Consolidated EBITDA of Holdings and its Consolidated Subsidiaries at the end of each calendar month ending on the last day of a month set forth in Schedule 8.21 to be less than the applicable amount set forth opposite such month in Schedule 8.21.  For each month after the last month set forth in Schedule 8.21 hereto, upon receipt of the final projections required to be delivered to the Agent pursuant to Section 7.1(b)(iii) hereof, the Agent shall establish in its Permitted Discretion a revised Schedule 8.21, setting forth for each month covered by such financial projections the required Fixed Charge Coverage Ratio and Consolidated EBITDA of Holdings and its Consolidated Subsidiaries;  The financial covenants in this Section 8.21 shall be tested in the event that the Borrowers fail to maintain Availability under the Revolving Credit Agreement, at all times beginning April 1, 2005, of at least $1,500,000.  Following April 1, 2005, the financial covenants in this Section 8.21 shall be tested in the event that the Borrowers fail to maintain Availability under the Revolving Credit Agreement, at all times beginning April 1, 2005.  Notwithstanding the foregoing, prior to the payment in full of the Senior Indebtedness (as such term is defined in the revolving Credit Agreement, as amended or otherwise modified from time to time), for each applicable period after the last month set forth in Schedule 8.21 hereto, Schedule 8.21 shall be revised to contain the same required Fixed Charge Coverage Ratio and Consolidated EBITDA of Holdings and its Consolidated Subsidiaries contained in Schedule 7.02(u) to the Revolving Credit Agreement, as amended or otherwise modified from time to time and Section 8.21 shall incorporate by reference as though expressly adopted by amendment to the Term Loan Agreement any further modifications to the testing procedure set forth in Section 7.02(u) to the revolving Credit Agreement, as amended or otherwise modified from time to time.

 

ARTICLE IX

Events of Default

 

Upon the occurrence and during the continuance of any of the following specified events (each an “Event of Default”):

 

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9.1.         Payments. The Borrower shall fail to pay any principal of or interest on any Loan or any fee, indemnity or other amount payable under this Agreement or any other Credit Document when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); provided, that with respect to the Tranche C Term Loans, only a default in the payment of interest under Section 2.10 shall constitute an Event of Default; provided further, that with respect to any such failure to pay interest on any Loan or any fee, indemnity or other amount payable under this Agreement (other than any principal payment), such failure shall have continued for five Business Days following the due date thereof ; or

 

9.2.         Representations, etc.  Any representation or warranty made or deemed made by or on behalf of any Credit Party or by any officer of the foregoing under or in connection with any Credit Document or under or in connection with any report, certificate, or other document delivered to the Agent or the Lenders pursuant to any Credit Document shall have been incorrect in any material respect when made or deemed made; or

 

9.3.         Covenants.  Any Credit Party or any of its Subsidiaries shall fail to perform or comply with any other term, covenant or agreement contained in this Agreement or any other Credit Document to be performed or observed by it and, except as set forth in Section 9.1 or 9.2, such failure, if capable of being remedied, shall remain unremedied for 30 days after the earlier of the date a senior officer of any Credit Party becomes aware of such failure and the date written notice of such default shall have been given by the Agent to such Credit Party; or

 

9.4.         Default Under Other Agreements.  Any Credit Party or any of its Subsidiaries shall fail to pay any principal of or interest on any of its Indebtedness (excluding Indebtedness evidenced by this Agreement) in excess of $150,000, or any interest or premium thereon, when due whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to any such Indebtedness, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate the maturity of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case, prior to the stated maturity thereof; or

 

9.5.         Bankruptcy.

 

(a)           Voluntary Bankruptcy Proceeding.  Any Credit Party or any Subsidiary thereof (i) shall institute any proceeding or voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for any such Person or for any substantial part of its property, (ii) shall be generally not paying its debts as such debts become due or shall admit in writing its inability to pay its debts generally, (iii) shall make a general assignment for the benefit of creditors, or (iv) shall take any action to authorize or effect any of the actions set forth above in this Section 9.5(a); or

 

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(b)          Involuntary Bankruptcy Proceeding.  Any proceeding shall be instituted against any Credit Party seeking to adjudicate it bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for any such Person or for any substantial part of its property, and either such proceeding shall remain undismissed or unstayed for a period of 45 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against any such Person or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; or

 

9.6.         Failure of Agreements.  Any material provision of any Credit Document shall at any time for any reason (other than pursuant to the express terms thereof) cease to be valid and binding on or enforceable against any Credit Party intended to be a party thereto, or the validity or enforceability thereof shall be contested by any party thereto, or a proceeding shall be commenced by any Credit Party or any Governmental Authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, any Credit Party shall deny in writing that it has any liability or obligation purported to be created under any Credit Document; or

 

9.7.         Security Document.  Any Security Document shall for any reason fail or cease to create (i) a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to (and if the Tranche A/B Termination shall have occurred, a valid, perfected and enforceable first priority Lien upon and continuing first priority security interest in and to) all of the Collateral in favor of the Agent on behalf of the Tranche A/B Lenders and (ii) a valid, perfected and enforceable third priority Lien upon and continuing third priority security interest in and to (and (A) if the Revolving Credit Termination shall have occurred, a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to, (B) if (1) if the Tranche A/B Termination shall have occurred and (2) the Revolving Credit Termination shall not have occurred, a valid, perfected and enforceable second priority Lien upon and continuing second priority security interest in and to, and (C) if each of the Tranche A/B Termination and the Revolving Credit Termination shall have occurred, a valid, perfected and enforceable first priority Lien upon and continuing first priority security interest in and to) all of the Collateral purported to be covered thereby in favor of the Agent on behalf of the Tranche C Lenders; or; or

 

9.8.         Guarantees.  Any provisions under Article IV hereof shall cease to be in full force or effect in all material respects, or the Guarantor thereunder or Person acting by or on behalf of such Guarantor shall deny or disaffirm such Guarantor’s obligations under Article IV or the Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to Article IV; or

 

9.9.         Judgments.  One or more judgments or orders for the payment of money exceeding $150,000 in the aggregate shall be rendered against any Credit Party and remain unsatisfied and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order, or (ii) there shall be a period of 30 consecutive days after entry thereof during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not give rise to an Event of Default under this Section 9.9 if and for so long as (A) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment or order; or

 

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9.10.       Operation of Business.

 

(a)           Any Credit Party is enjoined, restrained or in any way prevented by the order of any court or any Governmental Authority from conducting all or any material part of its business for more than 15 days; or

 

(b)           Any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than 15 consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of any Credit Party, if any such event or circumstance could reasonably be expected to have a Material Adverse Effect; or

 

(c)           Any cessation of a substantial part of the business of any Credit Party for a period which materially and adversely affects the ability of such Person to continue its business on a profitable basis; or

 

(d)           The loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by any Credit Party, if such loss, suspension, revocation or failure to renew could reasonably be expected to have a Material Adverse Effect; or

 

9.11.       Criminal or Civil Proceedings.  The indictment, or the threatened indictment of any Credit Party under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against any Credit Party, pursuant to which statute or proceedings the penalties or remedies sought or available include forfeiture to any Governmental Authority of any material portion of the property of such Person; or

 

9.12.       ERISA.

 

(a)           Any Credit Party or any of its ERISA Affiliates shall have made a complete or partial withdrawal from a Multiemployer Plan, and, as a result of such complete or partial withdrawal any Credit Party or such ERISA Affiliate incurs a withdrawal liability in an annual amount exceeding $750,000; or a Multiemployer Plan enters reorganization status under Section 4241 of ERISA, and, as a result thereof such Credit Party’s, or such ERISA Affiliate’s annual contribution requirement with respect to such Multiemployer Plan increases in an annual amount exceeding $750,000; or

 

(b)          any Termination Event with respect to any Employee Plan shall have occurred, and, 30 days after notice thereof shall have been given to any Credit Party by the Agent, (i) such Termination Event (if correctable) shall not have been corrected, and (ii) the then current value of such Employee Plan’s benefits liabilities exceeds the then current value of such Employee Plan’s assets determined in accordance with the assumptions used by the PBGC for plan terminations by more than $750,000 (or, in the case of a Termination Event involving liability under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the Internal Revenue Code, the liability is in excess of such amount); or

 

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9.13.          Environmental.  Any Credit Party shall be liable for any Environmental Liabilities and Costs, the payment of which could reasonably be expected to have a Material Adverse Effect; or

 

9.14.          Intentionally Omitted.

 

9.15.          Acceleration of Revolving Credit Indebtedness.  The Revolving Credit Collateral Agent or the Revolving Credit Lenders shall declare the Indebtedness under the Revolving Credit Debt Documents to be due and payable, or require such Indebtedness to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof;

 

then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Agent may, and upon the written request of the Required Lenders shall, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Agent or any Lender to enforce its claims against the Borrower, except as otherwise specifically provided for in this Agreement (provided, that if an Event of Default specified in Section 9.5 shall occur, with respect to any Credit Party or any of its Subsidiaries, the result which would occur upon the giving of written notice by the Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the principal of and accrued interest in respect of all Loans and all Obligations owing hereunder and thereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Credit Party; or (ii) enforce, as Collateral Agent (or direct the Collateral Agent to enforce), any or all of the remedies created pursuant to the Security Documents and applicable law, in order to satisfy all of the Borrower’s Obligations.

 

The enumeration of the rights and remedies of the Agent and the Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by the Agent and the Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under the Credit Documents or that may now or hereafter exist in law or in equity or by suit or otherwise.  No delay or failure to take action on the part of the Agent or any Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default.  No course of dealing between the Credit Parties, the Agent and the Lenders or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the other Credit Documents or to constitute a waiver of any Event of Default.

 

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ARTICLE X

The Agent

 

10.1.          Appointment.  Each Lender hereby irrevocably designates and appoints SPV as Agent (such term to include the Agent acting as Collateral Agent or in any other representative capacity under any other Credit Document) of such Lender to act as Agent as specified herein and in the other Credit Documents.  Each Lender hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement, the other Credit Documents.  The Agent agrees to act as such upon the express conditions contained in this Article X.  Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Credit Documents, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent.  The provisions of this Article X are solely for the benefit of the Agent and the Lenders, and no Credit Party shall have any rights as a third party beneficiary of any of the provisions hereof.  In performing its functions and duties under this Agreement or, the Agent shall act solely as agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for any Credit Party.  The Borrower hereby agrees to pay the Agent an annual agency fee as previously agreed with the Agent.

 

10.2.          Delegation of Duties.  The Agent may execute any of its duties under this Agreement, any other Credit Document or by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties.  The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care.

 

10.3.          Exculpatory Provisions.  Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement, the other Credit Documents (except for actions occasioned solely by its or such Person’s own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Credit Party or its Subsidiaries or any of their respective officers contained in this Agreement, any other Credit Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement, any other Credit Document or for any failure of any Credit Party or any of its Subsidiaries or any of their respective officers to perform its obligations hereunder or thereunder.  The Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of any Credit Party or any of its Subsidiaries.  The Agent shall not be responsible to any Lender for the effectiveness, genuineness, value, validity, enforceability, collectibility or sufficiency of this Agreement, any Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Agent to the Lenders or by or on behalf of the Borrower to the Agent or any Lender or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default.

 

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10.4.          Reliance by the Agent.  The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Credit Parties), independent accountants and other experts selected by the Agent.  The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with Section 11.4 hereof.  The Agent shall be fully justified in failing or refusing to take any action under this Agreement, any other Credit Document unless it shall first receive such advice or concurrence of the Required Lenders (or, when expressly required hereby or by the relevant other Credit Document, all the Lenders) as it deems appropriate, or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.  The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Obligations.

 

10.5.          Notice of Default.  The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless it has received notice from a Lender or the Borrower or any other Credit Party referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”.  In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders.  The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders, provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders, except to the extent that other provisions of this Agreement expressly require that any such action be taken or not be taken only with the consent and authorization or the request of the Lenders or Required Lenders, as applicable.

 

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10.6.          Non-Reliance on Agent and Other Lenders.  Each Lender expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates has made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of any Credit Party or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Agent to any Lender.  Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Credit Parties and their respective Subsidiaries and made its own decision to make its Loans hereunder and enter into this Agreement and the Credit Documents.  Each Lender also represents that it will, independently and without reliance upon the 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 credit analysis, appraisals and decisions in taking or not taking action under this Agreement, the other Credit Documents, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other conditions, prospects and creditworthiness of the Credit Parties and their respective Subsidiaries.  Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder or by the other Credit Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, assets, property, financial and other conditions, prospects or creditworthiness of any Credit Party or any of its Subsidiaries which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates.  Neither the Agent nor any Lender shall be deemed to be a fiduciary or have any fiduciary duty to any other Lender or Credit Party.

 

10.7.          Indemnification.  The Lenders agree to indemnify the Agent in its capacity as such or in any other representative capacity under any other Credit Document ratably according to their respective aggregate Loan Amounts, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses or disbursements of any kind whatsoever which may at any time (including at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Agent in its capacity as such in any way relating to or arising out of this Agreement, or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by the Agent under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by the Borrower or any of its Subsidiaries; provided, that no Lender shall be liable to the Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Agent’s gross negligence or willful misconduct.  If any indemnity furnished to the Agent for any purpose shall, in the opinion of the Agent, be insufficient or become impaired, the Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished.  The agreements in this Section 10.7 shall survive the payment of all Obligations and all other amounts payable hereunder and termination of this Agreement.

 

10.8.          The Agent in Its Individual Capacity.  The Agent and its Subsidiaries and Affiliates may make loans to, accept deposits from and generally engage in any kind of business with each Credit Party and each of its respective Subsidiaries and other Affiliates of any Credit Party as though the Agent were not the Agent hereunder.  With respect to the Loans made by it and all Obligations owing to it, the Agent shall have the same rights and powers under this Agreement, the other Credit Documents, and the terms “Lender” and “Lenders” shall include the Agent in its individual capacity.

 

10.9.          Successor Agent.  Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the resigning Agent.  The resigning Agent’s rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement.  After the retiring Agent’s resignation hereunder as Agent, the provisions of this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

 

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10.10.      Resignation by Agent.

 

(a)           The Agent may resign from the performance of all its functions and duties hereunder at any time by giving 15 Business Days’ prior written notice to the Borrower and the Lenders.  Such resignation shall take effect upon the acceptance by a successor Agent of appointment pursuant to Sections 10.10(b) and 10.10(c) below or as otherwise provided below.

 

(b)           Upon any such notice of resignation of the Agent, the Required Lenders shall appoint a successor Agent acceptable to the Borrower and which shall be an incorporated Lender, a limited liability Lender, trust company or other qualified financial institution with operations in the United States.

 

(c)           If a successor Agent shall not have been so appointed within said 15 Business Day period, the resigning Agent, on behalf of the Lenders and with the consent of the Borrower, shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Required Lenders appoint a successor Agent as provided above.

 

(d)           If no successor Agent has been appointed pursuant to Sections 10.10(b) and 10.10(c) by the 20th Business Day after the date such notice of resignation was given by the resigning Agent, such Agent’s resignation shall become effective and the Required Lenders shall thereafter perform all the duties of Agent hereunder until such time, if any, as the Required Lenders with the consent of the Borrower appoint a successor Agent as provided above.

 

(e)           Notwithstanding anything to the contrary contained in this Article X, SPV, as Agent, may transfer its rights and obligations to perform all of its functions and duties hereunder to its parent company or to any Affiliate of it or its parent company.

 

ARTICLE XI

Miscellaneous

 

11.1.        Notices.  Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (which may include telecopier communication) and couriered for delivery of the next Business Day, and shall be sent,

 

if to any Credit Party, to:

 

Frederick’s of Hollywood, Inc.

▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇

▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇

Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇ 

Attention: Chief Executive Officer

 

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with copies to:

 

Van Etten Suzumoto & Becket LLP

▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇

▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇

▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇

Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇

Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.

if to the Agent, to:

Mellon HBV Alternative Strategies LLC

▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇

▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇

Telecopy No.: 212-922-8953

Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇

with copies to:

▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP

▇ ▇▇▇▇▇ ▇▇▇▇▇▇

▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇

Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇

Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.

if to any Lender, at its address specified for such Lender on Annex V hereto; or, at such other address as shall be designated by any party in a written notice to the other parties hereto.  All such notices and communications shall, when telecopied or sent by overnight courier, be effective when sent by telecopier or delivered to the overnight courier, as the case may be, except that notices and communications to the Agent shall not be effective until received by the Agent.

 

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11.2.        Payment of Expenses, etc.  The Borrower agrees to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses (x) of the Agent in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including the fees and disbursements of ▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP and local counsel to the Lenders) with prior notice to the Borrower of the engagement of any counsel (y) of the Agent and each of the Lenders in connection with the enforcement of the Credit Documents (including in connection with any “work-out” or other restructuring of the Borrower’s Obligations or in connection with any bankruptcy, reorganization or similar proceeding with respect to any Credit Party or its Subsidiaries) and the documents and instruments referred to therein (including the fees and disbursements of counsel for each of the Lenders) with prior notice to the Borrower of the engagement of any counsel, and the reasonable fees and expenses of any appraisers, accountants, engineers, attorneys, consultants or other advisors engaged with prior notice to the Borrower of any such engagement with respect to environmental or other matters, and (z) of the Lenders and ▇▇▇▇▇▇ (including the fees and disbursements of outside counsel in connection with (A) the negotiation, preparation, execution and delivery of any amendment, waiver or consent relating to the Credit Documents, (B) the enforcement of the Credit Documents, (C) the negotiation, preparation, execution and delivery of all documents related to the refinancing of the Borrower in ▇▇▇▇▇, ▇▇▇▇, (▇) any fees in connection with Lender's appointment as Agent, and (E) any fees incurred by SPV in connection with the issuance of new notes and the amending and restating of this Agreement; (ii) pay all reasonable out-of-pocket costs and expenses (including attorneys’ fees) of the Agent or SPV or in connection with the assignment or attempted assignment to any other Person of all or any portion of SPV’s interest under this Agreement pursuant to Section 11.4 incurred prior to 120 days following the Effective Date; (iii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iv) indemnify each Lender, its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, penalties, fines, liabilities, claims, settlements, damages, costs or expenses (including any and all losses, penalties, fines, liabilities, claims, settlements, damages, costs or expenses arising under Environmental Laws) incurred by any of them as a result of, or arising out of, or in any way related to the entering into or performance of any Credit Document or the use of the proceeds of any Loans hereunder or the consummation of any other transactions contemplated in any Credit Document, including the documented reasonable fees and disbursements of counsel incurred by any of them (but excluding any such losses, penalties, fines, liabilities, claims, settlement, damages costs or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified).

 

11.3.        Management Fee.  Until the Indebtedness is repaid or otherwise discharged in full, ▇▇▇▇▇▇ and SPV shall be available to Borrower (and its subsidiaries) to provide financial advice and related management services.  In exchange for their services hereunder, the Company agrees to pay SPV and ▇▇▇▇▇▇ an annual management services fee in the amount of $200,000, which amount shall be apportioned between them as they shall mutually agree.  Such fee shall be payable quarterly in arrears on the last Business Day of each March, June, September and December, with the first of such payments due upon the date hereof.  The Board of Directors of the Company can determine to waive or defer any such quarterly payment if it is in their reasonable business judgment to do so.

 

11.4.        Right of Setoff.  In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon and after the occurrence and during the continuance of an Event of Default, each Lender and any assignee or participant of such Lender in accordance with Section 11.5 is hereby authorized by the Borrower at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special time or demand, including indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other Indebtedness at any time held or owing by such Lender (including by branches and agencies of such Lender wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of such Credit Party to such Lender under this Agreement or under any of the other Credit Documents, including all interests in Obligations of such Credit Party purchased by such Lender pursuant to Section 11.5(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of (a) whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured or (b) the Agent shall have declared any or all of the Obligations to be due and payable as permitted by Article IX.

 

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11.5.        Successors and Assigns; Participations.

 

(a)           Benefit of Agreement.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, all future holders of the Notes, and their respective successors and assigns; provided, that no Credit Party may assign or transfer any of its interests hereunder without the prior written consent of all of the Lenders in their sole discretion (and any attempted assignment or transfer by any Credit Party without such consent shall be null and void); provided, further, that the rights of each Lender to transfer, assign or grant participations in its rights or obligations hereunder shall be limited as set forth below in this Section 11.5; and provided, further, that nothing in this Section 11.5 shall prevent or prohibit any Lender from (i) pledging its Loans or Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and (ii) subject to Section 11.5(b)(ii), granting participations in or assignments of all or a portion of such Lender’s Loans or Notes hereunder (y) to its parent company or to any Affiliate of such Lender that is at least 50% owned by such Lender or its parent company or (z) to an entity managed by a Person referred to in Section 11.5(a)(ii)(y).

 

(b)           Each Lender shall have the right to transfer, assign or grant participations in all or any part of its remaining Loans or Notes hereunder on the basis set forth below in this Section 11.5(b).  Each Lender may furnish any information concerning the Borrower in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants).

 

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(i)           Assignments.  Each Lender, with the written consent of the Agent, which shall not be unreasonably withheld, which shall be evidenced on the notice in the form of Exhibit D-1 hereto, may assign pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit D-2 hereto all or a portion of its Loans or Notes hereunder pursuant to this clause (b)(i) to an Eligible Assignee; provided, that any such assignment shall be in an amount equal to at least $1,000,000 or such Lender’s remaining Loans or Notes if less than $1,000,000.  Any assignment pursuant to this clause (b)(i) will become effective no later than five Business Days after the Agent’s receipt of (1) a written notice in the form of Exhibit D-1 hereto from the assigning Lender and the assignee Lender and (2) a processing and recordation fee of $2,000 from the assigning Lender in connection with the Agent’s recording of such sale, assignment, transfer or negotiation; provided, that such fee shall only be payable if the assignment is between a Lender and a party that is not a Lender or its Subsidiary or Affiliate prior to the assignment.  The Borrower shall issue new Notes to the assignee in conformity with Section 2.6 and the assignor shall return the old Notes to the Borrower.  Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Notes, shall be dated the effective date of the Assignment and Assumption Agreement and shall otherwise be in substantially the form of the assigned Notes delivered to the assigning Lender; provided, that if such surrendered Notes shall be in respect of Tranche C Term Loans, the Borrower shall issue and deliver such new Tranche C Term Note in an aggregate principal amount as calculated by giving effect to the operation of Section 2.10(d).  Upon the effectiveness of any assignment in accordance with this clause (b)(i), the assignee thereunder will become a “Lender” for all purposes of this Agreement and the other Credit Documents and, to the extent of such assignment, the assigning Lender shall be relieved of its obligations hereunder with respect to the Loans or Notes being assigned.  The Agent shall maintain at its address specified in Annex V hereto a copy of each Assignment and Assumption Agreement delivered to and accepted by it and a register in which it shall record the names and addresses of the Lenders and the Loan Amount of, and principal amount of the Obligations owing to, each Lender from time to time (the “Register”) taking into account, with respect to Tranche C Term Loans, the operation of Section 2.10(d).  The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Credit Parties, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement and the other Credit Documents.  The Register shall be available for inspection by the Borrower, the Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice.

 

(ii)          Participations.  Each Lender may transfer, grant or assign participations in all or any portion of such Lender’s Loans or Notes hereunder pursuant to this clause (b)(ii) to any Person; provided, that (1) such Lender shall remain a “Lender” for all purposes of this Agreement and the transferee of such participation shall not constitute a Lender hereunder; (2) each such participation shall be in an amount not less than $1,000,000; (3) such Lender shall remain the holder of the Notes held by it for all purposes of this Agreement; and (4) no participant under any such participation shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (x) extend the scheduled final maturity date of any of the Loans or Notes in which such participant is participating or (y) reduce the principal amount, interest rate or fees applicable to any of the Loans or Notes in which such participant is participating or postpone the payment of any interest or fees or (z) release all or substantially all of the Collateral (except as expressly permitted by the Credit Documents).  In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant’s rights against the granting Lender in respect of such participation to be those set forth in the agreement with such Lender creating such participation) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation; provided, that such participant shall be considered to be a “Lender” for purposes of Sections 3.6 and 11.3.

 

11.6.        No Waiver; Remedies Cumulative.  No failure or delay on the part of the Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Credit Party and the Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder.  The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Agent or any Lender would otherwise have.  No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Lenders to any other or further action in any circumstances without notice or demand.

 

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11.7.        Calculations; Computations.

 

(a)           The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by Borrower to the Lenders); provided, that, except as otherwise specifically provided herein, all computations determining compliance with Article VIII and all definitions used herein for any purpose shall utilize accounting principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the historical financial statements delivered to the Lenders pursuant to Section 5.1(k).

 

(b)           All computations of interest and fees hereunder shall be made on the actual number of days elapsed over a year 365 days.

 

11.8.        Governing Law; Submission to Jurisdiction; Venue.