-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WZnlkAeIeMuzKly7dvtzCXt7Pk/EJeWQEazTPiVaPb/vgX7b8chiz9yrLAjFkGsm l8gRfQhWpzE+FPfXiM3VNg== 0000950116-01-500639.txt : 20010814 0000950116-01-500639.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950116-01-500639 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: A C MOORE ARTS & CRAFTS INC CENTRAL INDEX KEY: 0001042809 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOBBY, TOY & GAME SHOPS [5945] IRS NUMBER: 223527763 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23157 FILM NUMBER: 1706271 BUSINESS ADDRESS: STREET 1: 500 UNIVERSITY COURT CITY: BLACKWOOD STATE: NJ ZIP: 08012 BUSINESS PHONE: 6092286700 MAIL ADDRESS: STREET 1: 500 UNIVERSITY COURT CITY: BLACKWOOD STATE: NJ ZIP: 08012 10-Q 1 ten_q.txt 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ Commission File Number: 000-23157 --------- A.C. MOORE ARTS & CRAFTS, INC. ------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 22-3527763 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 University Court, Blackwood, NJ 08012 ----------------------------------------- (Address of principal executive offices) (Zip Code) (856) 228-6700 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at August 8, 2001 - ----- ----------------------------- Common Stock, no par value 7,434,264 A.C. MOORE ARTS & CRAFTS, INC. TABLE OF CONTENTS Page Number PART I: FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 3 Consolidated Statements of Income for the three and six month periods ended June 30, 2001 and 2000 4 Consolidated Statements of Cash Flows for the six month periods ended June 30, 2001 and 2000 5 Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 PART II: OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities and Use of Proceeds 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 EXHIBIT INDEX 13
A.C. MOORE ARTS & CRAFTS, INC. CONSOLIDATED BALANCE SHEETS (dollars in thousands) June 30, December 31, 2001 2000 ---------------- ------------------ (unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,016 $ 10,310 Inventories 82,921 72,786 Prepaid expenses and other current assets 2,316 2,052 --------- --------- 89,253 85,148 --------- --------- Property and equipment, net 24,000 21,517 Other assets 799 727 --------- --------- $ 114,052 $ 107,392 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt $ 17,500 $ Current portion of capital leases 1,260 389 Accounts payable to trade and others 18,135 26,237 Accrued payroll and payroll taxes 2,197 3,822 Accrued expenses 3,630 4,274 Income taxes payable 143 3,258 --------- --------- 42,865 37,980 --------- --------- Long-term liabilities: Capital leases 2,540 812 Deferred taxes 2,320 2,320 Other long-term liabilities 2,863 2,599 --------- --------- 7,723 5,731 --------- --------- 50,588 43,711 --------- --------- SHAREHOLDERS' EQUITY Preferred stock, no par value, 5,000,000 shares authorized, none issued Common stock, no par value, 20,000,000 shares authorized, 7,428,833 shares outstanding at June 30, 2001 and 7,415,333 outstanding at December 31, 2000 43,345 43,268 Retained earnings 20,119 20,413 --------- --------- 63,464 63,681 --------- --------- $ 114,052 $ 107,392 ========= ========= See accompanying notes to financial statements
3 A.C. MOORE ARTS & CRAFTS, INC. CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) (unaudited)
Three months ended Six months ended June 30, June 30, ------------------------------ ------------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- Net sales $ 67,132 $ 55,186 $ 133,555 $ 107,970 Cost of sales (including buying and distribution costs) 42,265 34,919 84,243 68,295 --------- --------- --------- --------- Gross margin 24,867 20,267 49,312 39,675 Selling, general and administrative expenses 24,718 19,920 48,157 38,516 Pre-opening expenses 374 311 1,449 956 --------- --------- --------- --------- Income (loss) from operations (225) 36 (294) 203 Net interest expense (income) 149 12 181 (54) --------- --------- --------- --------- Income (loss) before income taxes (374) 24 (475) 257 Income tax expense (benefit) (142) 9 (181) 98 --------- --------- --------- --------- Net income (loss) $ (232) $ 15 $ (294) $ 159 ========= ========= ========= ========= Basic net income (loss) per share $ (0.03) $ 0.00 $ (0.04) $ 0.02 ========= ========= ========= ========= Weighted average shares outstanding 7,428,833 7,405,000 7,424,619 7,405,000 ========= ========= ========= ========= Diluted net income (loss) per share $ (0.03) $ 0.00 $ (0.04) $ 0.02 ========= ========= ========= ========= Weighted average shares outstanding plus impact of stock options 7,428,833 7,435,000 7,424,619 7,419,000 ========= ========= ========= =========
See accompanying notes to financial statements 4 A.C. MOORE ARTS & CRAFTS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited)
Six Months Ended June 30, -------------------------- 2001 2000 ------- ------- Cash flows from operating activities: Net Income (loss) $ (294) $ 159 Adjustments to reconcile net income (loss) to net cash (used in) operating activities: Depreciation and amortization 2,357 1,768 Compensation expense related to stock options - 68 Changes in assets and liabilities: Inventories (10,135) (5,567) Prepaid expenses and other current assets (264) (307) Accounts payable, accrued payroll payroll taxes and accrued expenses (10,371) (6,832) Income taxes payable (3,115) (1,963) Other long-term liabilities 264 237 Other (72) (37) ------- ------- Net cash (used in) operating activities (21,630) (12,474) ------- ------- Cash flows (used in) investing activities: Capital expenditures (4,840) (4,896) ------- ------- Cash flows from financing activities: Proceeds from bank overdraft - 865 Proceeds from line of credit 17,500 3,000 Exercise of stock options 77 - Proceeds from capital leases 2,791 - Repayment of capital leases (192) (180) ------- ------- Net cash provided by financing activities 20,176 3,685 ------- ------- Net (decrease) in cash (6,294) (13,685) Cash and cash equivalents at beginning of period 10,310 14,553 ------- ------- Cash and cash equivalents at end of period $ 4,016 $ 868 ======= =======
5 See accompanying notes to financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The consolidated financial statements included herein include the accounts of A.C. Moore Arts & Crafts, Inc. and its wholly owned subsidiaries (collectively the "Company"). The Company is a chain of 55 retail stores selling arts and crafts merchandise. The stores are located throughout the Eastern United States. These financial statements have been prepared by management without audit and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Due to the seasonality of the Company's business, the results for the interim periods are not necessarily indicative of the results for the year. The accompanying consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. In the opinion of management, all such adjustments are of a normal and recurring nature. (2) Management Estimates The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reported period and related disclosures. Significant estimates made as of and for the three and six month periods ended June 30, 2001 and 2000 include provisions for shrinkage, capitalized buying, warehousing and distribution costs related to inventory and markdowns of merchandise inventories. Actual results could differ materially from those estimates. (3) Earnings Per Share The weighted average shares outstanding plus impact of stock options for the three and six month periods ended June 30, 2001 excludes potentially dilutive shares as the result would be antidilutive. (4) New Accounting Standard In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, which requires that all derivative financial instruments be recognized as either assets or liabilities in the balance sheet. SFAS No. 133, which was effective for the Company's first quarter of 2001, has not had a material impact on the Company's consolidated results of operation, financial position or cash flows. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis contains certain forward-looking statements. These forward-looking statements do not constitute historical facts and involve risks and uncertainties. Actual results could differ materially from those referred to in the forward-looking statements due to a number of factors, including, but not limited to, the following: customer demand, the effect of economic conditions, the impact of competitors' locations or pricing, the availability of acceptable real estate locations for new stores, difficulties with respect to new information system technologies, supply constraints or difficulties, the effectiveness of advertising strategies and the ability to meet capital needs. For additional information concerning factors that could cause actual results to differ materially from the information contained herein, reference is made to the information under the heading "Cautionary Statement Relating to Forward Looking Statements" in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Due to the importance of the fall selling season, the fourth quarter has historically contributed, and the Company expects it will continue to contribute, disproportionately to the Company's profitability for the entire year. As a result, the Company's quarterly results of operations may fluctuate. In addition, results of a period shorter than a full year may not be indicative of results expected for the entire year. Results of Operations The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of net sales and the number of stores open at the end of each such period:
Three months ended Six months ended June 30, June 30, ------------------------------------------------------- 2001 2000 2001 2000 ------ ------ ------ ------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 63.0% 63.3% 63.1% 63.3% ------- ------ ------- ------ Gross margin 37.0% 36.7% 36.9% 36.7% Selling, general and administrative expenses 36.8% 36.1% 36.0% 35.6% Store pre-opening expenses 0.5% 0.6% 1.1% 0.9% ------- ------ ------- ------ Income (loss) from operations (0.3)% 0.0% (0.2)% 0.2% Net interest expense (income) 0.2% 0.0% 0.2% 0.0% ------- ------ ------- ------ Income (loss) before income taxes (0.5)% 0.0% (0.4)% 0.2% Income tax expense (benefit) (0.2)% 0.0% (0.2)% 0.1% ------- ------ ------- ------ Net income (loss) (0.3)% 0.0% (0.2)% 0.1% ======= ====== ======= ====== Number of stores open at end of period 55 45
7 Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000 Net Sales. Net sales increased $11.9 million, or 21.6%, to $67.1 million in the three months ended June 30, 2001 from $55.2 million in the comparable 2000 period. This increase resulted from (i) net sales of $4.2 million from five new stores opened in 2001, (ii) net sales of $5.3 million from stores opened in 2000 not included in the comparable store base, and (iii) a comparable store sales increase of $2.4 million, or 4%. Stores are added to the comparable store base at the beginning of the fourteenth full month of operation. Gross Margin. Cost of sales includes the cost of merchandise, plus certain distribution and purchasing costs. Cost of sales increased $7.3 million, or 21%, to $42.3 million in the three months ended June 30, 2001 from $34.9 million in the three months ended June 30, 2000. The gross margin increased $4.6 million, or 22.7%, to $24.9 million in the three months ended June 30, 2001 from $20.3 million in the three months ended June 30, 2000. The gross margin increased to 37.0% of net sales in the three months ended June 30, 2001 from 36.7% in the three months ended June 30, 2000. The increase is due to cost reductions achieved from our vendors and leveraging of our buying and distribution expense, offset by higher freight costs. Selling, General and Administrative Expenses. Selling, general and administrative expenses include (a) direct store level expenses, including rent and related operating costs, payroll, advertising, depreciation and other direct costs, and (b) corporate level costs not directly associated with or allocable to cost of sales including executive salaries, accounting and finance, corporate information systems, office facilities and other corporate expenses. Selling, general and administrative expenses increased $4.8 million, or 24.1%, in the three months ended June 30, 2001 to $24.7 million from $19.9 million in the three months ended June 30, 2000. Of the increase, $3.7 million was attributable to the stores opened in 2001 which were not open during 2000 and the stores opened in 2000 not in the comparable store base. Of the remainder, $800,000 is due to increases in the comparable stores and $300,000 is attributable to the increase in corporate costs to support the growth of the Company. As a percentage of sales, selling, general and administrative costs increased to 36.8% of net sales in the three months ended June 30, 2001 from 36.1% of net sales in the three months ended June 30, 2000. This increase is primarily due to newer stores, which, on average, have higher operating costs as a percent of sales than older stores. Store Pre-Opening Expenses. The Company expenses store pre-opening expenses as incurred. Pre-opening expense for the two new stores opened in the second quarter of 2001, the new store which opened in July and one store which was relocated amounted to $374,000. In the second quarter of 2000, the Company incurred store pre-opening costs of $311,000 related to the three stores opened in that quarter. Net Interest Expense (Income). In the second quarter of 2001, the Company had net interest expense of $149,000 compared with interest expense of $12,000 in 2000. The change is due to the use of short-term borrowing to fund the new stores added in 2000 and 2001. Income Taxes. The Company's effective income tax rate was 38.0% for both the second quarters ended June 30, 2001 and June 30, 2000. Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000. Net Sales. Net sales increased $25.6 million, or 23.7%, to $133.6 million in the six months ended June 30, 2001 from $108.0 million in the comparable 2000 period. This increase resulted from (i) net sales of $6.5 million from five new stores opened in 2001, (ii) net sales of $14.9 million from stores opened in 2000 not included in the comparable store base, and (iii) a comparable store sales increase of $4.2 million, or 4%. Gross Margin. Cost of sales increased $15.9 million, or 23.4%, to $84.2 million in the six months ended June 30, 2001 from $68.3 million in the six months ended June 30, 2000. The gross margin increased $9.6 million, or 24.3%, to $49.3 million in the six months ended June 30, 2001 from $39.7 million in the six months ended June 30, 2000. The gross margin increased to 36.9% of net sales in the six months ended June 30, 2001 from 36.7% in the six months ended June 30, 2000. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $9.6 million, or 25.0% in the six months ended June 30, 2001 to $48.2 million from $38.5 million in the six months ended June 30, 2000. Of the increase, $7.6 million was attributable to the stores opened in 2001 which were not open during 2000 and the stores opened in 2000 not in the comparable store base. Of the remainder, $1.2 million is due to increases in the comparable stores and $800,000 is attributable to the increase in corporate costs to support the growth of the Company. As a percentage of sales, selling, general and administrative costs increased to 36.0% of net sales in the six months ended June 30, 2001 from 35.6% of net sales in the six months ended June 30, 2000. This increase is primarily due to the newer stores which, on average, have higher operating costs as a percent to sales than older stores. Store Pre-Opening Expenses. Pre-opening expense for the five new stores opened in the first half of 2001, the new store which opened in July and two stores which were relocated during the period amounted to $1.4 million. In the first six months of 2000 the Company opened five new stores and incurred pre-opening expenses of $956,000. Net Interest Expense (Income). In the first six months of 2001 the Company had net interest expense of $181,000 compared with interest income of $54,000 in 2000. The change is due to the use of short term borrowing to fund the new stores added in 2000 and 2001. Income Taxes. The Company's effective income tax rate was 38.0% for both the six month periods ended June 30, 2001 and June 30, 2000. Liquidity and Capital Resources The Company's cash needs are primarily for working capital to support its inventory requirements and capital expenditures, store pre-opening costs and beginning inventory for new stores. At June 30, 2001 and December 31, 2000 the Company's working capital was $46.4 million and $47.2 million, respectively. Cash used in operations was $21.6 million for the six months ended June 30, 2001 primarily as a result of the seasonal reduction of accounts payable and accrued liabilities in the amount of $10.4 million, payments for income taxes of $3.1 million and an increase in inventory of $10.1 million to support the new stores and as a result of accelerating the receipt of product for the fall and Christmas seasons. 9 Net cash used in investing activities during the six months ended June 30, 2001 was $4.8 million. This use of cash was for capital expenditures, primarily related to new stores. In 2001, the Company expects to spend approximately $11.0 million on capital expenditures, which includes approximately $9.0 million for new store openings, and the remainder for remodeling and systems in existing stores, warehouse equipment and systems development. There are no other material commitments for capital expenditures other than new store openings in the next 12 months. Net cash provided by financing activities includes $17.5 million in borrowings under the Company's $25 million revolving credit facility and $2.8 million of proceeds from capital leases. The proceeds were used to fund new store openings, including related capital expenditures. On August 3, 2001 the Company signed a new $50 million three year revolving credit agreement with KeyBank, agent, and First Union National Bank. Borrowings under the credit agreement will bear interest rates that will vary between LIBOR plus 150 basis points and LIBOR plus 200 basis points, depending on the fixed charge coverage ratio. The Company believes the cash generated from operations during the year and available borrowings under the new financing agreement will be sufficient to finance its working capital and capital expenditure requirements for at least the next 12 months. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not Applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Shareholders on May 17, 2001. At the meeting, shareholders elected two Class A directors to hold office for a term of three years until their successors are duly elected and qualified. The nominees for director received the following votes at the meeting. For Withhold Authority ------------- ---------------------- Richard J. Bauer 6,925,583 21,860 Richard J. Drake 6,920,668 26,775 The term of office for each of the following directors continued after the meeting: William Kaplan, John E. (Jack) Parker, Patricia A. Parker and Richard Lesser. 10 ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: + 10.8 Employment Agreement, dated June 4, 2001, between Rex A. Rambo and A.C. Moore, Inc. + 10.9 Employment Agreement, dated June 11, 2001, between Lawrence H. Fine and A.C. Moore, Inc. 10.10 Credit Agreement, dated as of August 3, 2001, among A.C. Moore Incorporated, The Lenders Party Thereto, and KeyBank National Association, as Administrative Agent and Lead Arranger. 10.11 Security Agreement, dated as of August 3, 2001, among A.C. Moore Incorporated, A.C. Moore Arts & Crafts, Inc., Moorestown Finance, Inc., Blackwood Assets, Inc., each of A.C. Moore Incorporated's subsidiaries, and KeyBank National Association. 10.12 Guarantee Agreement, dated as of August 3, 2001, among A.C. Moore Arts & Crafts, Inc., A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood Assets, Inc., each of the subsidiaries of A.C. Moore Incorporated listed in Schedule 1 to the Guarantee Agreement, and KeyBank National Association. (b) There were no reports on Form 8-K filed during the quarter ended June 30, 2001. - -------- + Management Contract or compensatory plan or arrangement. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A.C. MOORE ARTS & CRAFTS, INC. Date: August 10, 2001 By: /s/ Leslie H. Gordon ---------------------------------------- Executive Vice President and Chief Financial Officer(duly authorized officer and principal financial officer) 12 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- + 10.8 Employment Agreement, dated June 4, 2001, between Rex A. Rambo and A.C. Moore, Inc. + 10.9 Employment Agreement, dated June 11, 2001, between Lawrence H. Fine and A.C. Moore, Inc. 10.10 Credit Agreement, dated as of August 3, 2001, among A.C. Moore Incorporated, The Lenders Party Thereto, and KeyBank National Association, as Administrative Agent and Lead Arranger. 10.11 Security Agreement, dated as of August 3, 2001, among A.C. Moore Incorporated, A.C. Moore Arts & Crafts, Inc., Moorestown Finance, Inc., Blackwood Assets, Inc., each of A.C. Moore Incorporated's subsidiaries, and KeyBank National Association. 10.12 Guarantee Agreement, dated as of August 3, 2001, among A.C. Moore Arts & Crafts, Inc., A.C. Moore Incorporated, Moorestown Finance, Inc., Blackwood Assets, Inc., each of the subsidiaries of A.C. Moore Incorporated listed in Schedule 1 to the Guarantee Agreement, and KeyBank National Association. - -------- + Management Contract or compensatory plan or arrangement. 13 EX-10 3 ex10-8.txt EX10-8.TXT A.C. MOORE INC. AGREEMENT THIS AGREEMENT is made this 4th day of June, 2001 by and between --------------------- Rex A. Rambo and A.C. MOORE INC, a Delaware corporation. ------------ ------------------ 1. This agreement shall be based upon the active and continuous employment with A.C. Moore Inc. in the capacity of Chief Operations Officer. 2. This Agreement shall commence on June 4, 2001 and shall remain in force unless a resignation of employment is submitted or a termination for cause, in either of which case neither party shall have further obligation to the other. In the event of a termination, for reasons other than cause, a severance payment equal to one year's base salary will be payable. 3. The annual base salary shall be payable in twelve (12) equal monthly payments per year and may be reviewed each year. As a participant in the A.C. MOORE Inc. Incentive Bonus Plan, any bonus amounts will be payable in mid-March in accordance with the provisions of the Incentive Bonus Plan in place for each year. As a participant in the A.C. MOORE Inc. Incentive Stock Option Plan, stock options may be issued in accordance with the provisions of the Incentive Stock Option Plan in place for each year. 4. The Chief Operations Officer shall be entitled to all the customary and usual benefits offered by the company including medical and dental health benefits in accordance with the current plans and benefits in place. It is mutually understood and agreed upon that the employment relationship between Rex A. Rambo and A.C. Moore Inc. and/or any of its affiliates is an employment at will and other than the stated provisions of this agreement neither party shall have any further obligation to the other. In witness thereof, the parties have executed this Agreement as of this day and year first written above A.C. MOORE INC. By: /s/ John E. Parker ---------------------------------- Name: John E. Parker June 4, 2001 ---------------------------------- CEO Date Name: /s/ Rex A. Rambo June 4, 2001 ---------------------------------- Rex A. Rambo / COO Date EX-10 4 ex10-9.txt EX10-9.TXT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made this 11th day of June, 2001, by and between Lawrence H. Fine (the "Executive") and A.C. Moore, Inc., a Delaware corporation (the "Company"). WHEREAS, the Executive possesses skills and experience which the Company believes are of value to the success of the Company's business operations; and WHEREAS, the Company desires to receive the benefits of the skill and experience of the Executive, subject to the terms and conditions of this Agreement, and the Executive desires to provide the Company with such benefits subject to the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein set forth, the parties hereto agree as follows: 1. Position and Responsibilities. The Executive shall serve as President of the Company and, in such capacity, shall be responsible for the general management of the business, affairs and operations of the Company, shall perform such duties as are customarily performed by a president of a company of similar size and shall have such power and authority as shall reasonably be required to enable him to perform his duties hereunder. The Executive shall report to the Chief Executive Officer of the Company and shall at all times be subject to the authority and control of the Board of Directors of the Company. The Executive agrees to devote all of his business time, attention and services to the diligent, faithful and competent discharge of such duties for the successful operation of the Company's business. 2. Term. The term of the Executive's employment under this Agreement shall commence on June 11, 2001 and shall continue until three (3) years from this commencement date, unless earlier terminated as hereinafter provided. 3. Compensation and other Benefits. During the term of this Agreement, the Company shall pay the Executive the following compensation, including the following annual salary, bonuses, and other fringe benefits: (a) Salary. In consideration of the services to be rendered by the Executive to the Company, the Company shall pay to the Executive a base salary of $325,000 per annum for the first year of employment, $350,000 per annum for the second year of employment, and $375,000 per annum for the third year of employment (such salary being hereafter referred to as the "Base Salary"). Except as may otherwise be agreed, the Base Salary shall be payable in conformity with the Company's customary practices for executive compensation as such practices are established or modified from time to time but shall be payable not less frequently than monthly. Salary payments shall be subject to all applicable federal and state withholding, payroll and other taxes. 1 (b) Bonuses. In consideration for executing this Agreement, the Executive shall be entitled to a sign-on bonus in the amount of $50,000, payable on July 1, 2001. In addition, the Executive shall also be entitled to a minimum guaranteed bonus in the amount of $50,000 for each concluded calendar year within the term, each such bonus to be paid during the month of March in the calendar year following the year in which such bonus accrues, that is during March of 2002, 2003, and 2004. (c) Stock Options. Upon the commencement of his employment, the Executive shall be granted 50,000 stock options as a participant in the A.C. Moore Arts & Crafts, Inc. Incentive Stock Option Plan, with the option price to be set as of May 10, 2001. On or about July 31, 2002, and representing options granted in the second year of this Agreement, the Executive shall be granted no less than 50,000 additional stock options, 50,000 being the guaranteed minimum, with the option price to be set at the time of the granting of such options. In the third year of this Agreement, and in any subsequent year should the term of this Agreement be extended, the Executive shall be a participant in the A.C. Moore Arts & Crafts, Inc. Incentive Stock Option Plan, the details of which have been provided to the Executive, and further stock options grants shall be in accordance with the provisions of that Plan. The foregoing grants shall be subject to the three year vesting schedule consistent with the Company's practice. (d) 401(k) Plan. After ninety (90) consecutive days of employment, the Executive shall be entitled to participate in the Company's 401(k) Plan. (e) Vacation. The Executive shall be entitled to three (3) weeks of vacation, annually. In the years subsequent to the tenth anniversary of the Executive's employment, the Executive shall be entitled to four (4) weeks of vacation, annually. (f) Medical, Dental and Prescription Drug Benefits. The Executive shall be entitled to receive medical, dental, and prescription drug coverage for himself and his family in accordance with the terms of the A.C. Moore Group Health Plan. (g) Life, AD&D, and Long Term Disability Insurance Benefits. The Company shall provide Life, Accidental Death and Dismemberment ("AD&D"), and Long Term Disability Insurance for the Executive in accordance with Company's then current benefit plans. 4. Reimbursement of Job-Related Expenses and Allowances. The Company shall provide reimbursement of job-related expenses and allowances in accordance with the Company policy. 5. Relocation Expenses. (a) Interim Living Expenses. The Company acknowledges that the Executive will relocate his primary residence in order for the Executive to perform the duties and obligations of this Agreement. In order to assist in that relocation, the Company will provide the Executive with the use of a furnished two (2) bedroom corporate apartment for a maximum of twelve (12) months, including all utilities, maintenance, and cleaning services. 2 (b) Real Estate Fees. In lieu of payment by the Company of commissions and/or points related to the sale and purchase of his primary residence, if applicable, a payment of $20,000 will be made by the Company to the Executive at the time of the sale and purchase of his primary residence. (c) Moving Expenses. To assist the Executive in the relocation process, the Company will provide moving expenses as defined by and in accordance with Company policy. In addition, the Company will provide the Executive with a one time payment of $10,000 to defray other expenses generally associated with the sale and purchase of his primary residence but not covered under the Company policy, and will also pay for all expenses related to the permanent transport of two personal automobiles. 6. Termination. The Executive's term of employment under this Agreement may be earlier terminated as follows: (a) At the Executive's Option. The Executive may terminate his employment under this Agreement at any time upon at least two months' advance written notice to the Company. In such event, the Executive shall be entitled only to receive any accrued and unpaid prorated Base Salary through the date of such termination, as well as reimbursement of any expenses covered by section 4 above which were incurred by the Executive prior to the date of such termination. Should the Executive choose to terminate, the Company may in its sole discretion choose to accept the Executive's resignation immediately upon receipt, in which event the Executive shall only be entitled to receive any accrued and unpaid prorated Base Salary through that date, as well as reimbursement of any expenses covered by section 4 above which were incurred by the Executive prior to that date. (b) At the Company's Option, Without Cause. The Executive's employment under this Agreement may be terminated without Cause (as hereinafter defined): (i) at any time upon the mutual written agreement of the parties, (ii) immediately upon the Executive's death, (iii) immediately upon the Executive's total and permanent disability (as defined in Section 6(d) hereof), or (iv) by the Company unilaterally upon five business day's prior written notice to the Executive of the Company's intention to terminate the Agreement. In the event that the Executive's employment is terminated without Cause during the term of the Agreement, the Company shall continue to pay the Executive or his Estate his Base Salary for the entire remaining term of this Agreement, as severance compensation ("Severance"), except that in the case of subsection (b)(ii) Severance shall be limited to six months' Base Salary and except that in the case of subsection (b)(iii) Severance shall be limited to six months' Base Salary and shall be reduced by any payments received as Long Term Disability Insurance Benefits under Section 3(g). Severance payable hereunder shall be paid (x) in such manner as is consistent with the Company's then customary practices for executive compensation and (y) automatically terminated if and when the Executive becomes employed by any third party. (c) Termination For Cause. The Executive's employment under this Agreement may be terminated by the Company upon written notice ("Notice") to the Executive at any time for any of the following reasons, each of which shall constitute "Cause": (i) any material breach of this Agreement by the Executive or any material failure by the Executive to perform his duties under this Agreement; (ii) the Executive's willful or gross misconduct, or willful or gross negligence, in the performance of his duties under this Agreement; (iii) the Executive's commission of fraud, embezzlement or other unlawful acts in connection with the business of the Company or willful misrepresentation to the shareholders or directors of the Company which is materially injurious to the Company; (iv) the Executive's indictment for any felony; (v) the Executive's intentionally causing the Company to commit a violation of local, state, or federal law (vi) the Executive's willful refusal to comply with the policies, directives, or decisions of the Company, i.e., the Chief Executive Officer, or the Board of Directors; or (vii) any act by the Executive that involves a conflict of interest with the Company except as permitted by this Agreement, whether or not willful, and which has a substantial adverse effect on the Company. Notwithstanding the foregoing, in the event of a subsection (c)(i) or (c) (vii) occurrence, the Executive shall have five (5) days from receipt of such Notice to cure to the reasonable satisfaction of the Company before being deemed terminated for Cause. 3 (d) Definition of Disability. The term "Disability" shall mean the inability of the Executive to discharge properly his duties hereunder due to physical or mental illness or injury for 90 business days in any period of 180 consecutive business days. The Executive shall be deemed to have become disabled upon the expiration of such 90 days. (e) Effect of Termination. Upon any termination of employment pursuant to Section 6, this Agreement (other than sections 8 or 9 hereof) shall terminate and the Company shall have no obligation of any kind whatsoever to the Executive except to pay the Executive (i) the Base Salary and all accrued and unpaid bonuses due him under Section 3 of this Agreement through the Termination Date, the amount of such compensation due the Executive under Section 3(a) hereof being apportioned for the period the Executive was actually employed and (ii) in the event the Executive is terminated without Cause, Severance due to him in accordance with Section 6(b). "Termination Date" shall mean the Executive's last day of employment with the Company and shall constitute the end of the Term of this Agreement. 7. Change in Control. If the Executive's employment is terminated by the Company other than for Cause or his position and responsibilities under section 1 above materially reduced, at any time during the period beginning on the 180th day preceding the occurrence of a change in control (hereinafter defined) of the Company and ending on the second anniversary following the occurrence of a change in control of the Company, the Executive shall, subject to paragraph (b) below, be paid, as severance compensation, the entire unpaid Base Salary and Bonuses under Paragraphs 3(a) and 3(b) of this Agreement through its remaining term, if any, plus as additional severance eighteen (18) months of the Executive's then current Base Salary. All payments provided for hereunder are to be paid in conformity with Company's then current customary practices for executive compensation. For purposes of this Agreement, a "change in control" of the Company shall be deemed to have occurred on the first of any of the following dates: (a) (i) the stockholders of the Company approve a definitive agreement to merge or consolidate the Company or an affiliate with or into another corporation other than a present affiliate of the Company, or to sell or otherwise dispose of all or substantially all of the Company's assets, and (ii) the persons who were the members of the Board of Directors of the Company or a present affiliate prior to such approval will not represent a majority of the directors of the surviving, resulting or acquiring entity or the parent thereof; and (iii) such proposed transaction is consummated in accordance with the stockholders agreement ; (b) the stockholders or Board of Directors of the Company approve a plan of liquidation of the Company or an affiliate of the Company; or (c) within any period of 24 consecutive months, persons who were members of the Board of Directors of the Company or any present affiliate of the Company immediately prior to such 24-month period, together with any persons who were first elected as directors (other than as a result of any settlement of a proxy or consent solicitation contest or any action taken to avoid such a contest) during such 24-month period by or upon the recommendation of persons who were members of the Board of Directors of the Company or a present affiliate of the Company immediately prior to such 24-month period and who constituted a majority of the Board of Directors of the Company or such present affiliate of the Company at the time of such election, cease to constitute a majority of the Board. 4 Notwithstanding anything contained in section 7 above, in the event all compensation to be provided to Executive conditioned upon the occurrence of a change in control, whether under this Agreement or in connection with any other agreement or benefit plan of the Company to which Executive is a party or in which he participates, exceeds 2.99 times the Executive's "Base Amount", as that term is defined under Section 280G of the Internal Revenue Code and regulations of the Internal Revenue Service promulgated thereunder, the total compensation to be paid to the Executive shall be reduced to an amount that is $1.00 less than 2.99 times the Executive's Base Amount. Executive shall have the right to determine which benefits to which he would otherwise be entitled shall be reduced. 8. Confidentiality. (a) During the course of the Executive's employment by the Company, the Executive will have access to confidential and/or proprietary data or information ("Confidential Information") of the Company and its subsidiaries or affiliates (collectively referred to in this Section 8 as the "Company"). The Executive agrees that he will not at any time, during the Term of this Agreement and thereafter, divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing the Executive's duties hereunder) or use to the detriment of the Company or for the benefit of any other person or entity, any of such data or information. Notwithstanding the foregoing, if any such data or information becomes known to the general public other than by Executive's disclosure, then Executive's obligation hereunder shall terminate in respect of such data or information. The provisions of this Section shall survive the termination of the Executive's employment hereunder, whether by the normal expiration thereof or otherwise. "Confidential Information" shall include, without limitation, the business or products of the Company, personnel information, financial information, customer or supplier lists, customer or supplier information, product specifications, patents, trade secrets, software, product composition and formulae, drawings and schematics, manufacturing processes or methods, technical know-how, and pricing, marketing and advertising information. The Executive acknowledges and agrees that any Confidential Information that he heretofore acquired and hereafter will acquire was and will be received in confidence and as a fiduciary with respect to the Company. (b) Upon termination for any reason of the Executive's employment under this Agreement or upon request of the Company at any time, the Executive shall promptly deliver to the Company all documents and other materials containing all Confidential Information in physical form, including but not limited to all written materials, data compilations, records, software, and other documents made by the Executive or coming into his possession during his employment concerning any products, processes or equipment, manufactured, used, developed, investigated or considered by the Company or otherwise concerning the business or affairs of the Company. 5 (c) With respect to the covenants contained in Section 8, the Executive acknowledges that a violation thereof could cause irreparable injury to the Company which would be difficult or impossible to measure and agrees that money damages for any breach thereof will be an inadequate remedy and that, therefore, the Company shall be entitled, in addition, to specific performance, injunction, and/or any other mode of equitable relief to enforce its rights hereunder. 9. Noncompetition. (a) The Executive recognizes and acknowledges that the Company has spent substantial money, time and effort over the years in developing and solidifying its relationships with its suppliers, customers, and employees and in developing the Confidential Information. Accordingly, the Executive agrees that during the term of the Executive's employment with the Company and for a period of two (2) years following the termination of such employment for any reason, except in the case of a change in control under section 7 above, the Executive shall not engage directly or indirectly in competition with the Company or its subsidiaries or affiliates or by soliciting as executives or managers any individuals who were executives or managers of the Company or its subsidiaries or affiliates at the time of the Executive's termination of employment with the Company. Competition shall include, without limitation, any role as a sponsor, consultant, employee, partner or controlling- interest stockholder which aids or abets any business primarily operating in the field of arts and crafts supplies retailing in any state where the Company is operating to compete or prepare for competition with the Company or its subsidiaries or affiliates as hereinabove described. The Executive further agrees that he will not for a period of two (2) years following the termination of his employment, for his own account or for the account of any other person or entity, tortuously interfere with the Company's relationship with any of its suppliers, customers or employees. (b) The Executive recognizes and acknowledges that the restraints contained in subsection 9(a) are reasonable and enforceable in view of the legitimate interests of the Company in protecting its Confidential Information and customer goodwill, and that the geographic and temporal limitations contained therein are reasonable and binding upon the Executive. The Executive further agrees that any competitive activities in violation of this section could cause irreparable injury to the Company or its subsidiaries or affiliates and that such injury would be difficult or impossible to measure. Accordingly, the Company and its subsidiaries and affiliates shall be entitled to an injunction and other equitable remedies for any violation. (c) The Executive further represents that he is under no restrictive covenants or other obligations which prevent him from signing this Agreement and fulfilling his obligations thereunder. 6 10. Notices. (a) Except as expressly set forth herein to the contrary, the Executive shall be subject to the Company's rules, practices and policies applicable to executives generally. (b) Any notices required or permitted to be given hereunder by either party to the other shall be sufficient if in writing and if delivered personally, by overnight carrier, or by mail, registered or certified, postage prepaid and return receipt requested. Mailed notices shall be addressed to the parties at the following addresses: If to the Company: A.C. Moore, Inc. 500 University Court Blackwood, NJ 08012 Attn: Mr. Jack Parker with a copy to: Windels Marx Lane & Mittendorf, LLP 120 Albany Street Plaza New Brunswick, NJ 08901 Attn: William C. Cagney, Esq. If to the Executive: Lawrence H. Fine 5320 Branbenberg Court Dallas, TX 75287 subject to change by written notice in accordance with this paragraph. Notices delivered personally or by overnight carrier shall be deemed communicated as of actual receipt; mailed notices will be deemed communicated as of three (3) days after mailing. 11. Amendment. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey. 13. Severability. If any part of this Agreement shall be held or declared to be invalid or unenforceable for any reason by any court of competent jurisdiction, such provision shall be ineffective but shall not affect any other part of this Agreement. Moreover, if one of more of the provisions of this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law or in equity, such provision or provisions shall be construed and reformed by the appropriate judicial body by limiting and reducing such provision or provisions, so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear. The parties acknowledge that the resulting agreement, as reformed, represents the intentions of the parties and that they are to be bound by it. 7 14. Waivers. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Nor shall any waiver on the part of any party of any such right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. 15. Arbitration. Any disputes hereunder which cannot be resolved by negotiation between the parties hereto shall be submitted to, and determined by, arbitration in accordance with the Arbitration Rules of the American Arbitration Association, and the parties hereto agree to be bound by the final award of the arbitration panel (which shall be comprised of three members, one to be selected by each of the Company and the Executive, and the third to be mutually selected by the Company and the Executive) in any such proceeding. The arbitration panel shall apply the law of the State of New Jersey and may order injunctive relief against any party. Arbitration will be held in the State of New Jersey. or such other place as the parties hereto may mutually agree. Judgment upon the award by the arbitration panel may be entered and enforced in any court having jurisdiction thereof. 16. Counterparts. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 17. Certification. BY SIGNING THIS AGREEMENT, THE EXECUTIVE IS HEREBY CERTIFYING THAT THE EXECUTIVE (A) HAS RECEIVED A COPY OF THIS AGREEMENT FOR REVIEW AND STUDY BEFORE EXECUTING IT, (B) HAS READ THIS AGREEMENT CAREFULLY BEFORE SIGNING IT, (C) HAS HAD SUFFICIENT OPPORTUNITY BEFORE SIGNING THIS AGREEMENT TO ASK ANY QUESTIONS THE EXECUTIVE HAS ABOUT THE AGREEMENT AND HAS RECEIVED SATISFACTORY ANSWERS TO ALL SUCH QUESTIONS, (D) HAS BEEN ADVISED TO SEEK AND HAS SOUGHT ADVICE OF COUNSEL BEFORE SIGNING, AND (E) UNDERSTANDS THE EXECUTIVE'S RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. A.C. MOORE, INC. By: /s/ John E. Parker ----------------------------- Name: /s/ John E. Parker ----------------------------- Title: Chief Executive Officer ----------------------------- /s/ Lawrence H. Fine -------------------------------- Lawrence H. Fine 8 EX-10 5 ex10-10.txt EX10-10.TXT EXECUTION COPY CREDIT AGREEMENT dated as of August 3, 2001 among A.C. MOORE INCORPORATED, as Borrower The Lenders Party Hereto and KEYBANK NATIONAL ASSOCIATION, as Administrative Agent and Lead Arranger -------------------------------- A.C. MOORE INCORPORATED CREDIT AGREEMENT TABLE OF CONTENTS ----------------- ARTICLE 1. DEFINITIONS.........................................................1 SECTION 1.1 DEFINED TERMS.................................................... 1 SECTION 1.2 CLASSIFICATION OF LOANS AND BORROWINGS ......................... 18 SECTION 1.3 TERMS GENERALLY ................................................ 18 SECTION 1.4 ACCOUNTING TERMS; GAAP.......................................... 19 ARTICLE 2. THE CREDITS........................................................19 SECTION 2.1 COMMITMENTS..................................................... 19 SECTION 2.2 REVOLVING LOANS AND REVOLVING BORROWINGS........................ 19 SECTION 2.3 REQUESTS FOR REVOLVING BORROWINGS .............................. 20 SECTION 2.4 FUNDING OF REVOLVING BORROWINGS ................................ 21 SECTION 2.5 TERMINATION AND REDUCTION OF REVOLVING COMMITMENTS.............. 22 SECTION 2.6 REPAYMENT OF LOANS; EVIDENCE OF DEBT............................ 22 SECTION 2.7 PREPAYMENT OF LOANS............................................. 23 SECTION 2.8 SWINGLINE LOANS ................................................ 24 SECTION 2.9 LETTERS OF CREDIT .............................................. 26 SECTION 2.10 PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SETOFFS .... 30 ARTICLE 3. INTEREST, FEES, YIELD PROTECTION, ETC. ............................32 SECTION 3.1 INTEREST........................................................ 32 SECTION 3.2 INTEREST ELECTIONS RELATING TO REVOLVING BORROWINGS ............ 33 SECTION 3.3 FEES ........................................................... 34 SECTION 3.4 ALTERNATE RATE OF INTEREST ..................................... 35 SECTION 3.5 INCREASED COSTS; ILLEGALITY .................................... 35 SECTION 3.6 BREAK FUNDING PAYMENTS.......................................... 37 SECTION 3.7 TAXES .......................................................... 37 SECTION 3.8 MITIGATION OBLIGATIONS.......................................... 38 ARTICLE 4. REPRESENTATIONS AND WARRANTIES.....................................38 SECTION 4.1 ORGANIZATION; POWERS ........................................... 39 SECTION 4.2 AUTHORIZATION; ENFORCEABILITY .................................. 39 SECTION 4.3 GOVERNMENTAL APPROVALS; NO CONFLICTS............................ 39 SECTION 4.4 FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE................. 39 SECTION 4.5 PROPERTIES...................................................... 40 SECTION 4.6 LITIGATION AND ENVIRONMENTAL MATTERS ........................... 40 SECTION 4.7 COMPLIANCE WITH LAWS AND AGREEMENTS............................. 40 SECTION 4.8 INVESTMENT AND HOLDING COMPANY STATUS........................... 41 SECTION 4.9 TAXES .......................................................... 41 SECTION 4.10 ERISA ......................................................... 41 SECTION 4.11 DISCLOSURE..................................................... 41 SECTION 4.12 SUBSIDIARIES .................................................. 42 SECTION 4.13 INSURANCE ..................................................... 42 SECTION 4.14 LABOR MATTERS ................................................. 42 SECTION 4.15 SOLVENCY....................................................... 42 SECTION 4.16 FEDERAL RESERVE REGULATIONS.................................... 42 SECTION 4.17 EXISTING LETTERS OF CREDIT..................................... 43 ARTICLE 5. CONDITIONS.........................................................43 SECTION 5.1 EFFECTIVE DATE ................................................. 43 SECTION 5.2 EACH CREDIT EVENT .............................................. 46 ARTICLE 6. AFFIRMATIVE COVENANTS..............................................46 SECTION 6.1 FINANCIAL STATEMENTS AND OTHER INFORMATION ..................... 46 SECTION 6.2 NOTICES OF MATERIAL EVENTS ..................................... 48 SECTION 6.3 EXISTENCE; CONDUCT OF BUSINESS ................................. 49 SECTION 6.4 PAYMENT AND PERFORMANCE OF OBLIGATIONS.......................... 49 SECTION 6.5 MAINTENANCE OF PROPERTIES ...................................... 49 SECTION 6.6 BOOKS AND RECORDS; INSPECTION RIGHTS............................ 49 SECTION 6.7 COMPLIANCE WITH LAWS............................................ 50 SECTION 6.8 USE OF PROCEEDS................................................. 50 SECTION 6.9 INFORMATION REGARDING COLLATERAL ............................... 50 SECTION 6.10 INSURANCE ..................................................... 50 SECTION 6.11 CASUALTY AND CONDEMNATION...................................... 50 SECTION 6.12 ADDITIONAL SUBSIDIARIES........................................ 51 SECTION 6.13 FURTHER ASSURANCES ............................................ 51 SECTION 6.14 ENVIRONMENTAL COMPLIANCE ...................................... 52 SECTION 6.15 LANDLORD CONSENT AGREEMENTS.................................... 53 ARTICLE 7. NEGATIVE COVENANTS.................................................53 SECTION 7.1 INDEBTEDNESS; PREFERRED EQUITY INTERESTS........................ 53 SECTION 7.2 LIENS .......................................................... 54 SECTION 7.3 FUNDAMENTAL CHANGES ............................................ 55 SECTION 7.4 INVESTMENTS, LOANS, ADVANCES, GUARANTEES AND ACQUISITIONS ...... 56 SECTION 7.5 ASSET SALES..................................................... 57 SECTION 7.6 SALE AND LEASE-BACK TRANSACTIONS ............................... 57 SECTION 7.7 HEDGING AGREEMENTS ............................................. 57 SECTION 7.8 RESTRICTED PAYMENTS............................................. 57 SECTION 7.9 TRANSACTIONS WITH AFFILIATES.................................... 58 SECTION 7.10 RESTRICTIVE AGREEMENTS......................................... 58 SECTION 7.11 ORGANIZATIONAL DOCUMENTS ...................................... 58 SECTION 7.12 FIXED CHARGE COVERAGE RATIO.................................... 59 SECTION 7.13 LEVERAGE RATIO................................................. 59 SECTION 7.14 CAPITALIZATION RATIO........................................... 59 SECTION 7.15 CAPITAL EXPENDITURES........................................... 59 ARTICLE 8. EVENTS OF DEFAULT..................................................59 ARTICLE 9. THE ADMINISTRATIVE AGENT...........................................62 ARTICLE 10. MISCELLANEOUS ....................................................64 SECTION 10.1 NOTICES........................................................ 64 SECTION 10.2 WAIVERS; AMENDMENTS............................................ 64 SECTION 10.3 EXPENSES; INDEMNITY; DAMAGE WAIVER............................. 65 SECTION 10.4 SUCCESSORS AND ASSIGNS ........................................ 67 SECTION 10.5 SURVIVAL....................................................... 69 SECTION 10.6 COUNTERPARTS; INTEGRATION; EFFECTIVENESS ...................... 69 SECTION 10.7 SEVERABILITY................................................... 70 SECTION 10.8 RIGHT OF SETOFF................................................ 70 SECTION 10.9 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS .... 70 SECTION 10.10 WAIVER OF JURY TRIAL ......................................... 71 SECTION 10.11 HEADINGS ..................................................... 71 SECTION 10.12 INTEREST RATE LIMITATION...................................... 71 ii SCHEDULES: =========================================================== Schedule 2.1 List of Commitments - ----------------------------------------------------------- Schedule 4.5 List of Real Property - ----------------------------------------------------------- Schedule 4.6 Disclosed Matters - ----------------------------------------------------------- Schedule 4.12 List of Subsidiaries - ----------------------------------------------------------- Schedule 4.13 List of Insurance - ----------------------------------------------------------- Schedule 4.17 List of Existing Letters of Credit - ----------------------------------------------------------- Schedule 7.1 List of Existing Indebtedness - ----------------------------------------------------------- Schedule 7.2 List of Existing Liens - ----------------------------------------------------------- Schedule 7.4 List of Existing Investments - ----------------------------------------------------------- Schedule 7.10 Existing Restrictions =========================================================== EXHIBITS: - --------- ====================================================================== Exhibit A Form of Assignment and Acceptance - ---------------------------------------------------------------------- Exhibit B Form of Opinion of Counsel to the Loan Parties - ---------------------------------------------------------------------- Exhibit C Form of Note - ---------------------------------------------------------------------- Exhibit D Form of Guarantee Agreement - ---------------------------------------------------------------------- Exhibit E Form of Security Agreement - ---------------------------------------------------------------------- Exhibit F Form of Borrowing Base Certificate - ---------------------------------------------------------------------- Exhibit G Form of Compliance Certificate - ---------------------------------------------------------------------- Exhibit H Form of Landlord Consent Agreement ====================================================================== iii A.C. MOORE INCORPORATED CREDIT AGREEMENT CREDIT AGREEMENT, dated as of August 3, 2001, among A.C. MOORE INCORPORATED, the LENDERS party hereto and KEYBANK NATIONAL ASSOCIATION, as Administrative Agent. The parties hereto agree as follows: ARTICLE 1. DEFINITIONS Section 1.1 Defined Terms As used in this Credit Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Additional Letter of Credit" has the meaning assigned to such term in Section 2.9(a). "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means KeyBank National Association, in its capacity as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Agreement Date" means the first date appearing herein. "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Margin" means, with respect to Eurodollar Borrowings, Swingline Loans and fees payable under Section 3.3(b), at all times from and after the Agreement Date and during the applicable periods set forth below, the percentage set forth below under the heading "Applicable Margin": =============================================================================== When the Fixed Charge Coverage Ratio is Applicable Margin greater than or equal to and less than - ------------------------------------------------------------------------------- 1.625:1.00 1.500% - ------------------------------------------------------------------------------- 1.400:1.00 1.625:1.00 1.750% - ------------------------------------------------------------------------------- 1.400:1.00 2.000% =============================================================================== Changes in the Applicable Margin resulting from a change in the Fixed Charge Coverage Ratio shall be based upon the Compliance Certificate most recently delivered under Section 6.1(c) and shall become effective five Business Days after the later to occur of (a) the date such Compliance Certificate is delivered to the Administrative Agent, and (b) 90 days after the fiscal year end, or 45 days after the fiscal quarter end, in either case in respect of which such Compliance Certificate shall have been delivered. Notwithstanding anything to the contrary in this definition, (i) if the Borrower shall fail to deliver to the Administrative Agent a Compliance Certificate on or prior to any date required hereby, the Fixed Charge Coverage Ratio for purposes of this defined term only shall be deemed to be less than 1.400:1.00 from and including such date to the fifth Business Day following the date of delivery to the Administrative Agent of such Compliance Certificate and (ii) during the period commencing on the Agreement Date and ending on the fifth Business Day after the later to occur of (A) the date the first such Compliance Certificate is delivered to the Administrative Agent, and (B) the 45th day after the fiscal quarter end in respect of which such first Compliance Certificate shall have been delivered, the Fixed Charge Coverage Ratio for purposes of this defined term only shall be deemed to be greater than or equal to 1.400:1.00 and less than 1.625:1.00. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Revolving Commitments represented by such Lender's Revolving Commitment. If the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Revolving Commitments most recently in effect, giving effect to any assignments. "Approved Fund" means, with respect to any Lender that is a fund that invests in commercial loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.4), and accepted by the Administrative Agent, substantially in the form of Exhibit A or any other form approved by the Administrative Agent. "Availability Period" means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Revolving Commitments. 2 "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means A.C. Moore Incorporated, a Delaware corporation. "Borrowing" means (i) Revolving Loans, of the same Type made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect or (ii) a Swingline Loan. "Borrowing Base Amount" means, on any date of determination, an amount equal to the 50% of Eligible Inventory. "Borrowing Base Certificate" means a certificate substantially in the form of Exhibit F. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.3. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in Cleveland, Ohio or White Plains, New York are authorized or required by law to remain closed, provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Expenditures" of any Person means expenditures (whether paid in cash or other consideration or accrued as a liability) for fixed or capital assets (excluding any capitalized interest and any such asset acquired in connection with normal replacement and maintenance programs properly charged to current operations and excluding any replacement assets acquired with the proceeds of insurance or of condemnation or eminent domain awards) made by such Person. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Capitalization Ratio" means, as of the last day of any fiscal quarter, the ratio of a (i) Consolidated Funded Debt to (ii) Consolidated Total Capitalization, in each case on such date. "Change in Control" means (i) the ownership, directly or indirectly, beneficially or of record, by any Person or "group" (within the meaning of the Securities Exchange Act of 1934), other than the Principals, of shares representing 20% or more of the aggregate ordinary voting power or economic interests represented by the issued and outstanding Equity Interests of the Parent on a fully diluted basis, (ii) the occupation of a majority of the seats (other than vacant seats) on the board of directors of the Parent by Persons who were neither (a) nominated by the board of directors of the Parent nor (b) appointed by directors so nominated, or (iii) the failure of the Parent to own 3 directly, beneficially and of record, 100% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of the Borrower on a fully diluted basis. For purposes of this defined term, "Principals" means (i) William Kaplan, (i) John E. Parker, (iii) the respective spouses and issue of William Kaplan and John E. Parker, (iv) any trust, for the benefit only of any Person referred to in clauses (i), (ii) or (iii) and/or any charity exempt from federal income tax, that is controlled by either William Kaplan or John E. Parker, and/or (v) the Kaplan Family Foundation. "Change in Law" means (i) the adoption of any law, rule or regulation after the Agreement Date, (ii) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the Agreement Date or (iii) compliance by any Credit Party (or, for purposes of Section 3.5(b), by any lending office of such Credit Party or by such Credit Party's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the Agreement Date. "Class", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans. "Closing Date" has the meaning set forth in Section 10.6. "Code" means the Internal Revenue Code of 1986. "Collateral" means any and all "Collateral" as defined in any applicable Security Document. "Compliance Certificate" means a certificate, substantially in the form of Exhibit G. "Consolidated EBITDA" means, for any period, net income for such period of the Parent and its subsidiaries, determined on a consolidated basis in accordance with GAAP, plus, without duplication and to the extent deducted in determining such net income, the sum of (i) Consolidated Interest Expense for such period, (ii) provision for income taxes for such period, and (iii) the aggregate amount attributable to depreciation and amortization for such period, minus, without duplication and to the extent added in determining such net income for such period, the aggregate amount of extraordinary, non-cash and non-recurring additions to income during such period. "Consolidated Fixed Charges" means, for any period, the sum of each of the following with respect to the Parent and its subsidiaries, determined on a consolidated basis in accordance with GAAP: (i) Consolidated Interest Expense for such period, (ii) the aggregate of all scheduled principal amounts that become payable during such period in respect of Consolidated Funded Debt (excluding any prepayment under Section 2.7(b) resulting from a reduction of the Revolving Commitments pursuant to Section 2.5(c)), (iii) the aggregate amount of all cash income taxes paid during such period, (iv) Consolidated Rent Expense 4 (v) the aggregate amount of all dividends paid during such period and (vi) the aggregate amount of all Restricted Payments made pursuant to Section 11.8(iii) of the Guarantee Agreement. "Consolidated Funded Debt" means, as of any date, the aggregate principal amount of all funded Indebtedness of the Parent and its subsidiaries that would be reflected as liabilities on a consolidated balance sheet of the Parent and its subsidiaries as of such date prepared in accordance with GAAP, including the undrawn amount under all Letters of Credit and each other letter of credit for the account of the Parent or any subsidiary thereof. "Consolidated Interest Expense" means, for any period, the interest expense, both expensed and capitalized (including the interest component in respect of Capital Lease Obligations), accrued or paid by the Parent and its subsidiaries during such period, determined on a consolidated basis in accordance with GAAP. "Consolidated Net Worth" means, as of any date, all amounts which would, in conformity with GAAP, be included under "shareholders' equity" (or any like caption) on a consolidated balance sheet of the Parent and its subsidiaries as at such date. "Consolidated Rent Expense" means, for any period, the aggregate rental expense (excluding any contingent or percentage rental expense) of the Parent and its subsidiaries on a consolidated basis paid or accrued during such period in respect of all rent obligations under all operating leases for real or personal property. "Consolidated Total Capitalization" means, as of the last day of any fiscal quarter, the sum of (i) Consolidated Net Worth plus (ii) Consolidated Funded Debt. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms "Controlling" and "Controlled" have meanings correlative thereto. "Credit Parties" means the Administrative Agent, the Issuing Bank and the Lenders. "Default" means any event or condition which constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 4.6. "dollars" or "$" refers to lawful money of the United States of America. "Effective Date" means the date on which the conditions specified in Section 5.1 are satisfied (or waived in accordance with Section 10.2). 5 "Eligible Inventory" means, as of any date, all inventory of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, that would be reflected as such on a consolidated balance sheet of the Borrower prepared as at such date. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means, as to any Person, any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of such Person directly or indirectly resulting from or based upon (i) violation of any Environmental Law, (ii) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (iii) exposure to any Hazardous Materials, (iv) the release or threatened release of any Hazardous Materials into the environment or (v) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "Equity Interest" means (i) shares of corporate stock, partnership interests, membership interests, and any other interest that confers on a Person the right to receive a share of the profits and losses of, or distribution of assets of, the issuing Person, and (ii) all warrants, options or other rights to acquire any Equity Interest set forth in clause (i) of this defined term (but excluding any debt security that is convertible into, or exchangeable for, any such Equity Interest). "ERISA" means the Employee Retirement Income Security Act of 1974. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Parent, the Borrower or any Subsidiary, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (i) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (ii) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (iii) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (iv) the incurrence by the Parent, the Borrower, any Subsidiary or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan; (v) the receipt by the Parent, the Borrower, any Subsidiary or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (vi) the incurrence by the Parent, the Borrower, any Subsidiary or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (vii) the receipt by the Parent, the Borrower, any Subsidiary or any ERISA Affiliate 6 of any notice, or the receipt by any Multiemployer Plan from the Parent, the Borrower, any Subsidiary or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Revolving Loan or Revolving Borrowing, refers to whether such Revolving Loan, or the Revolving Loans comprising such Revolving Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article 8. "Excluded Taxes" means, with respect to any Credit Party or any other recipient of any payment to be made by or on account of any obligation of any Loan Party under any Loan Document, (i) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Credit Party, in which its applicable lending office is located, (ii) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which such Loan Party is located and (iii) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 3.7(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from such Loan Party with respect to such withholding tax pursuant to Section 3.7(a). "Existing Bank Debt" means the Indebtedness of the Borrower under the Existing KeyBank Loan Documents. "Existing KeyBank Loan Documents" means, collectively, (i) the Loan Agreement, dated as of March 11, 1998, by and between the Borrower and KeyBank, (ii) the Security Agreement, dated as of March 11, 1998, by and between KeyBank and the Borrower and (iii) each other Loan Document as defined in such Loan Agreement. "Existing Letters of Credit" means, collectively, the Letters of Credit listed on Schedule 4.17, each of which was issued by KeyBank. "Federal Funds Effective Rate" means, for any day, a rate per annum (expressed as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Effective Rate for such day shall be the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal Funds brokers of recognized standing selected by it. 7 "Financial Officer" means the chief financial officer, vice-president of finance, principal accounting officer, treasurer or controller of the Borrower and the Parent. "Fixed Charge Coverage Ratio" means, as of the end of any fiscal quarter, the ratio of (i) the sum of (a) Consolidated EBITDA plus (b) Consolidated Rent Expense to (ii) Consolidated Fixed Charges, in each case for the period of the four consecutive fiscal quarters ending thereon. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the applicable Loan Party is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in effect from time to time in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor as to enable the primary obligor to pay such Indebtedness or other obligation or (iv) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation, provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guaranteed" has a meaning correlative thereto. "Guarantee Agreement" means the Guarantee Agreement, substantially in the form of Exhibit D, among the Parent, the Borrower, the Subsidiary Guarantors and the Administrative Agent, for the benefit of the Secured Parties. 8 "Guarantee Documents" means the Guarantee Agreement and each other guarantee agreement, instrument or other document executed or delivered pursuant to Section 6.12 or 6.13 to guarantee any of the Obligations. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price swap, cap, collar, hedging or other like arrangement. "Indebtedness" of any Person means, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by or otherwise in respect of bonds, debentures, notes or similar instruments, including seller paper, (iii) all obligations of such Person upon which interest charges are customarily paid, (iv) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (v) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (vi) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (vii) all Guarantees by such Person of Indebtedness of others, (viii) all Capital Lease Obligations of such Person, (ix) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (x) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted (e.g., take-or-pay obligations) or similar obligations, and (xi) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Taxes" means Taxes other than Excluded Taxes. "Indemnitee" has the meaning assigned to such term in Section 10.3(b). "Interest Election Request" means a request by the Borrower to convert or continue a Borrowing in accordance with Section 3.2. "Interest Payment Date" means (i) with respect to any ABR Loan, the last day of each March, June, September and December, (ii) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Eurodollar Loan is a part and, in the case of a Eurodollar Loan with an Interest Period of more than three months' duration, each day prior to 9 the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period, (iii) as to all Revolving Loans, the Maturity Date, and (iv) with respect to any Swingline Loan, the day that such Swingline Loan is required to be repaid. "Interest Period" means the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrower may elect, provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Inventory" means inventory of the Borrower or any Subsidiary Guarantor consisting of first quality finished products held for sale to customers in the ordinary course of business, valued at the lower of average cost or market value which approximates a first-in-first-out basis. "Issuing Bank" means KeyBank, in its capacity as issuer of Letters of Credit. "KeyBank" means KeyBank National Association and its successors. "Landlord Consent Agreement" means a Landlord Consent Agreement, substantially in the form of Exhibit H, among the applicable Loan Party, the landlord party thereto and the Administrative Agent for the benefit of the Secured Parties. "LC Disbursement" means a payment made by the Issuing Bank pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum, without duplication, of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (ii) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time. "Lenders" means the Persons listed on Schedule 2.1 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. Unless the context otherwise requires, the term "Lenders" includes the Swingline Lender. "Letter of Credit" means, collectively, the Existing Letters of Credit and the Additional Letters of Credit, and, individually, any thereof, in each case together with any successive renewals thereof. 10 "Leverage Ratio" means, as of any date, the ratio of (i) the sum of (a) Consolidated Funded Debt at such date plus (b) an amount equal to Consolidated Rent Expense for the period of four consecutive fiscal quarters ending on, or most recently before, such date multiplied by six to (ii) the sum of (a) Consolidated EBITDA for such period plus (b) an amount equal to Consolidated Rent Expense for such period. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate of interest per annum as determined by the Administrative Agent, equal to the rate, as reported by KeyBank to the Administrative Agent, quoted by KeyBank to leading banks in the London interbank market as the rate at which KeyBank is offering dollar deposits in an amount approximately equal to its ratable share of such Eurodollar Borrowing for dollar deposits with a maturity comparable to such Interest Period at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (i) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (ii) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (iii) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan Documents" means this Credit Agreement, the Notes, the Guarantee Documents, the documentation in respect of each Letter of Credit and the Security Documents. "Loan Parties" means the Parent, the Borrower, the Subsidiary Guarantors and each other Person that executes and delivers the Security Documents and the Guarantee Agreement, in each case in accordance with the terms of the Loan Documents. "Loans" means the loans made by the Lenders to the Borrower pursuant hereto. "Margin Stock" has the meaning assigned to such term in Regulation U. "Material Adverse Effect" means a material adverse effect on (i) the business, assets, operations, prospects or condition, financial or otherwise, of (x) the Borrower and the Subsidiaries, taken as a whole, or (y) the Parent and its subsidiaries, taken as a whole, (ii) the ability of any Loan Party to perform any of its obligations under any Loan Document or (iii) the rights of or benefits available to any Credit Party under any Loan Document. "Material Obligations" means Indebtedness (other than Indebtedness under the Loan Documents) or other obligations of any one or more of the Parent or any of its subsidiaries in an aggregate principal amount exceeding $1,000,000. For purposes of determining Material Obligations, the "principal amount" of the obligations of the Parent or any of its subsidiaries in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Parent or any of its subsidiaries, as applicable, would be required to pay if such Hedging Agreement were terminated at such time. "Maturity Date" means July 30, 2004. 11 "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Proceeds" means, with respect to any event, (i) the cash proceeds received in respect of such event, including (A) any cash received in respect of any non-cash proceeds, but only as and when received, (B) in the case of a casualty, insurance proceeds, (C) in the case of a condemnation or similar event, condemnation awards and similar payments, (D) in the case of the issuance of Equity Interests, any cash subscription payment or other cash consideration paid in connection therewith, (E) in the case of the incurrence of any Indebtedness (other than Indebtedness under the Loan Documents, the principal amount thereof, and (F) in the case of a litigation, arbitration or comparable proceeding or any other material recovery event, the amount received by way of judgment, settlement or otherwise, (ii) net of the sum of (A) all reasonable fees and out-of-pocket expenses paid by the Parent or any of its subsidiaries to third parties in connection with such event, (B) in the case of a sale, transfer, lease or other disposition of an asset (including pursuant to a sale and leaseback transaction), or the issuance of Equity Interests, the amount of all payments required to be made by the Parent or any of its subsidiaries as a result of such event to repay Indebtedness (other than Indebtedness under the Loan Documents) secured by such asset or otherwise subject to mandatory payment as a result of such event and (C) the amount of all taxes paid (or reasonably estimated to be payable) by the Parent or any of its subsidiaries and the amount of any reserves established by the Parent or any of its subsidiaries to fund contingent liabilities reasonably estimated to be payable, in each case during the year that such event occurred or the next succeeding year and that are directly attributable to such event (as determined reasonably and in good faith by the chief financial officer of the Borrower); provided, however, that, with respect to any sale, transfer, lease or other disposition of an asset (including pursuant to a sale and leaseback transaction or, subject to Section 6.11, a casualty or other insured damage or condemnation or similar proceeding), if the Borrower shall deliver a certificate of a Financial Officer to the Administrative Agent at the time of such sale, transfer, lease or other disposition setting forth the Parent's or such subsidiary's intent to use the proceeds of such sale, transfer, lease or other disposition to replace or repair the assets that are the subject thereof with, or otherwise purchase other assets to be used in the same line of business within 180 days of receipt of such proceeds and no Default shall have occurred and shall be continuing at the time of such certificate or at the proposed time of the application of such proceeds, such proceeds shall not constitute Net Proceeds except to the extent not so used at the end of such 180-day period, at which time such proceeds shall be deemed Net Proceeds, provided, however, that if within such 180-day period, the Parent or such subsidiary enters into a legally binding agreement to replace or repair such assets, such 180-day period shall be extended for an additional 90 days. "Note" means, with respect to each Lender, a promissory note evidencing such Lender's Loans payable to the order of such Lender (or, if required by such Lender, to such Lender and its registered assigns) substantially in the form of Exhibit C. "Obligations" has the meaning assigned to such term in the Security Agreement. "Other Taxes" means any and all current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, the Loan Documents. 12 "Parent" means A.C. Moore Arts & Crafts, Inc., a Pennsylvania corporation. "Participant" has the meaning assigned to such term in Section 10.4(e). "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 6.4; (b) landlords', vendors', carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 6.4; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article 8; (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower and the Subsidiaries; (g) Liens on the assets of any Subsidiary Guarantor in favor of the Borrower or any other Subsidiary Guarantor, and Liens on assets of the Borrower in favor of any Subsidiary Guarantor; and (h) Liens on Margin Stock to the extent that a prohibition on such Liens would violate Regulation U. 13 "Permitted Investments" means: (a) debt obligations maturing within one year from the date of acquisition thereof to the extent the principal thereof and interest thereon is backed by the full faith and credit of the United States of America; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, or any successor thereto, or from Moody's Investors Service, Inc. or any successor thereto; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $500,000,000 or, to the extent not otherwise included, any Lender; (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) of this definition and entered into with a financial institution satisfying the criteria described in clause (c) of this definition; (e) (i) corporate securities, including commercial paper, which securities are rated and have a credit rating of at least "P-l" by Moody's and "A-l+" by S&P, and (ii) corporate debt instruments, including medium term notes and floating rate notes issued by any foreign or domestic corporation that are payable in U.S. dollars, which instruments are rated and have a credit rating of at least "A" by Moody's and "A" by S&P, provided, that: (1) no single issuer shall account for more than 10% of all investments made under this clause (e), (2) in no event shall this clause (e) include any synthetic securities, any derivatives, any securities with ratings containing an "r" subscript, or any IOs or POs, and (3) no investment under this clause (e) shall mature later than two years from the date of purchase thereof by the Borrower or any Subsidiary. (f) money market mutual funds, 90% of the investments of which are in cash or investments contemplated by clauses (a), (b), (c) and (e) of this defined term. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Parent, any of its subsidiaries or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. 14 "Prime Rate" means the rate of interest per annum publicly announced from time to time by KeyBank as its prime commercial lending rate at its principal office in Cleveland, Ohio; each change in the Prime Rate being effective from and including the date such change is publicly announced as being effective. The Prime Rate is not intended to be lowest rate of interest charged by KeyBank in connection with extensions of credit to borrowers. "Reduction Event" means, without duplication: (a) any sale, transfer, lease or other disposition (including pursuant to a sale and leaseback transaction) of any property or asset of the Parent or any of its subsidiaries, other than (i) dispositions described in clauses (a) and (b) of Section 7.5 and clauses (a) and (b) of Section 11.5 of the Guarantee Agreement, (ii) other dispositions resulting in aggregate Net Proceeds not exceeding $1,000,000 during any fiscal year; (b) any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Parent or any of its subsidiaries, other than casualties, insured damage or takings resulting in aggregate Net Proceeds not exceeding $1,000,000 during any fiscal year; (c) the receipt by the Parent or any of its subsidiaries of any recovery in respect of any litigation, arbitration or comparable proceeding, by reason of a judgment, settlement or otherwise, or any other material recovery event; (d) the issuance by the Borrower of any Equity Interest, or the receipt by the Borrower or any Subsidiary Guarantor of any capital contribution, other than (i) any such issuance to the Borrower or any Subsidiary Guarantor, (ii) the receipt of any such capital contribution from the Borrower or any Subsidiary Guarantor, (iii) the receipt of any such capital contribution from the Parent, provided that the proceeds thereof had been received by the Parent in the form of a capital contribution, or (iv) the issuance of restricted Equity Interests for executive compensation, or in connection with any other employee stock ownership plan, in either case the ordinary course of business; and (e) the incurrence by the Parent or any of its subsidiaries of any Indebtedness, other than Indebtedness permitted by Section 7.1(a) or Section 11.1(a) of the Guarantee Agreement, as applicable. "Register" has the meaning assigned to such term in Section 10.4(c). "Regulation D" means Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation T" means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Regulation U" means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. 15 "Regulation X" means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Total Credit Exposures representing at least 66-2/3% of the sum of the aggregate Total Credit Exposures of all Lenders. "Restricted Payment" means, as to any Person, (i) any dividend or other distribution by such Person (whether in cash, securities or other property) with respect to any Equity Interests of such Person, (ii) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interest, (iii) any payment of principal or interest or any purchase, redemption, retirement, acquisition or defeasance with respect to any Indebtedness of such Person which is subordinated to the payment of the Obligations, and (iv) the acquisition for value by such Person of any Equity Interests issued by such Person or any other Person that Controls such Person. "Revolving Commitment" means the commitment of each Lender to make Revolving Loans and to acquire participations in Letters of Credit and Swingline Loans hereunder in an aggregate outstanding amount not exceeding the amount of such Lender's Revolving Commitment as set forth on Schedule 2.1, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable, as such commitment may be reduced or increased from time to time pursuant to Section 2.5 or pursuant to assignments by or to such Lender pursuant to Section 10.4. The initial aggregate amount of the Revolving Commitments on the Agreement Date is $50,000,000. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the aggregate outstanding principal amount of such Lender's Revolving Loans, LC Exposure and its Swingline Exposure at such time. "Revolving Loan" means a Loan referred to in Section 2.1(a) and made pursuant to Section 2.4. "Secured Parties" means the "Secured Parties" as defined in the Security Agreement. "Security Agreement" means the Security Agreement, substantially in the form of Exhibit E, among the Parent, the Borrower, the Subsidiary Guarantors and the Administrative Agent, for the benefit of the Secured Parties. "Security Documents" means the Security Agreement and each other security agreement, instrument or other document executed or delivered pursuant to Sections 6.12 or 6.13 or Articles 4 or 11 of the Security Agreement to secure any of the Obligations. 16 "Standby Letter of Credit" means an Additional Letter of Credit issued by the Issuing Bank hereunder or an Existing Letter of Credit, in each case other than a Trade Letter of Credit, including direct-pay Letters of Credit. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D). Such reserve percentages shall include those imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power is or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held by the parent or one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of the Borrower. "Subsidiary Guarantor" means any Subsidiary that executes and delivers the Security Documents and the Guarantee Agreement, in each case in accordance with Sections 5.1(g), 5.1(h), 6.12 and 6.13. "Swingline Commitment" means, with respect to the Swingline Lender, the commitment of the Swingline Lender to make Swingline Loans hereunder. The initial amount of the Swingline Lender's Swingline Commitment is $2,000,000. "Swingline Exposure" means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be its Applicable Percentage of the Swingline Exposure at such time. "Swingline Lender" means KeyBank in its capacity as lender of Swingline Loans hereunder. "Swingline Loan" means a Loan made pursuant to Section 2.8. 17 "Swingline Rate" means, with respect to a Swingline Loan, a rate per annum equal to KeyBank's cost of funds for such Swingline Loan (as determined by KeyBank in accordance with its customary procedures) plus the Applicable Margin. "Taxes" means any and all current or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Total Credit Exposure" means, with respect to any Lender at any time, (i) prior to the earlier to occur of the first Borrowing and the issuance of the first Letter of Credit, the sum of such Lender's Revolving Commitment, and (ii) at all other times, the sum of such Lender's Revolving Credit Exposure and unused Revolving Commitment. "Trade Letter of Credit" means an Additional Letter of Credit issued by the Issuing Bank hereunder or an Existing Letter of Credit, in each case in support of trade obligations of the Borrower or any Subsidiary incurred in the ordinary course of business and that requires, as a condition to drawing thereunder, the presentation to the Issuing Bank of negotiable bills of lading, invoices or other documents as may be specified therein. "Transactions" means (i) the execution, delivery and performance by each Loan Party of each Loan Document to which it is a party, (ii) the borrowing of the Loans and the issuance of the Letters of Credit, (iii) the use of the proceeds of the Loans and the Letters of Credit. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to (i) in the case of a Revolving Borrowing, the Adjusted LIBO Rate or the Alternate Base Rate, or (ii) in the case of a Swingline Loan, the Swingline Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. Section 1.2 Classification of Loans and Borrowings For purposes of this Credit Agreement, Loans may be classified and referred to by Class (e.g., a "Revolving Loan") or by Type (e.g., a "Eurodollar Loan"). Borrowings may also be classified and referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a "Eurodollar Borrowing"). Section 1.3 Terms Generally The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or 18 other document as from time to time amended, supplemented or otherwise modified, (ii) any definition of or reference to any law shall be construed as referring to such law as from time to time amended and any successor thereto and the rules and regulations promulgated from time to time thereunder, (iii) any reference herein to any Person shall be construed to include such Person's successors and assigns, (iv) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Credit Agreement in its entirety and not to any particular provision hereof, (v) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Credit Agreement, and (vi) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. Section 1.4 Accounting Terms; GAAP Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time, provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Agreement Date in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Unless the context otherwise requires, any reference to a fiscal period shall refer to the relevant fiscal period of the Parent. ARTICLE 2. THE CREDITS Section 2.1 Commitments Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower in dollars from time to time during the Availability Period in an aggregate principal amount that will not result in such Lender's Revolving Credit Exposure exceeding the lesser of (i) such Lender's Revolving Commitment or (ii) such Lender's Applicable Percentage of the Borrowing Base Amount. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans. Section 2.2 Revolving Loans and Revolving Borrowings (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Revolving Commitments. The failure of any Lender to make any Revolving Loan required to be made by it shall not relieve any other Lender of its obligations hereunder, provided that the Revolving 19 Commitments of the Lenders are several, and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 3.4, each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans, as applicable, in each case as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan, provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms hereof. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $2,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $2,000,000, provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments or in an aggregate amount than is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.9(e). Borrowings of more than one Type may be outstanding at the same time, provided that there shall not at any time be more than a total of twelve Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision hereof, the Borrower shall not be entitled to request, or to elect to convert or continue, any Eurodollar Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. Section 2.3 Requests for Revolving Borrowings (a) To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (i) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, two Business Days before the date of the proposed Borrowing or (ii) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the Business Day of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.2: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; 20 (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.4; and (vi) a reasonably detailed calculation of the Leverage Ratio on a pro forma basis immediately after giving effect to such Borrowing. (b) If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. Section 2.4 Funding of Revolving Borrowings (a) Each Lender shall make each Revolving Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. Subject to Section 5.2, the Administrative Agent will make such Revolving Loans available to the Borrower by promptly crediting or otherwise transferring the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent and designated by the Borrower in the applicable Borrowing Request, provided that ABR Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.9(e) shall be remitted by the Administrative Agent to the Issuing Bank, provided further that ABR Loans made to finance the repayment of a Swingline Loan as provided in Section 2.8(c) shall be remitted by the Administrative Agent to the Swingline Lender. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Revolving Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section, paragraph (c) of Section 2.8 or paragraph (e) of Section 2.9 and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Revolving Borrowing available to the Administrative Agent, then the Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate that would be otherwise applicable to such Revolving Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Revolving Loan included in such Revolving Borrowing. 21 Section 2.5 Termination and Reduction of Revolving Commitments (a) Unless previously terminated, the Revolving Commitments shall terminate on the Maturity Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Revolving Commitments, provided that (i) the Borrower shall not terminate or reduce the Revolving Commitments if, after giving effect to any concurrent prepayment of the Revolving Loans in accordance with Section 2.7, the sum of the Revolving Credit Exposures would exceed the total Revolving Commitments, and (ii) each such reduction shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000. (c) In the event and on each occasion that any Net Proceeds are received by or on behalf of the Parent or any of its subsidiaries in respect of any Reduction Event, then, immediately after such Net Proceeds are received, the Revolving Commitments shall be automatically reduced by the aggregate amount of such Net Proceeds. (d) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Revolving Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable, provided that a notice of termination of the Revolving Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Each reduction, and any termination, of the Revolving Commitments shall be permanent and each reduction of the Revolving Commitments shall be made ratably among the Lenders in accordance with their respective Revolving Commitments. Section 2.6 Repayment of Loans; Evidence of Debt (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date, and (ii) to the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of (x) the maturity date selected by the Borrower for such Swingline Loan and (y) the Maturity Date. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the debt of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or 22 interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) or (c) of this Section shall, to the extent not inconsistent with any entries made in the Notes, be prima facie evidence of the existence and amounts of the obligations recorded therein, provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms hereof. (e) Any Lender may request that the Loans made by it be evidenced by a Note. In such event, the Borrower shall prepare, execute and deliver to such Lender, a Note payable to the order of such Lender, substantially in the form of Exhibit C. In addition, if requested by a Lender, its Note may be made payable to such Lender and its registered assigns in which case all Loans evidenced by such Note and interest thereon shall at all times (including after assignment pursuant to Section 10.4) be represented by one or more Notes in like form payable to the order of the payee named therein and its registered assigns. Section 2.7 Prepayment of Loans (a) The Borrower shall have the right at any time and from time to time to prepay any Revolving Borrowing in whole or in part without premium or penalty (but subject to Section 3.6), subject to the requirements of this Section. (b) In the event of any partial reduction or termination of the Revolving Commitments, then (i) at or prior to the date of such reduction or termination, the Administrative Agent shall notify the Borrower and the Lenders of the sum of the Revolving Credit Exposures after giving effect thereto and (ii) if such sum would exceed the lesser of (x) the total Revolving Commitments after giving effect to such reduction or termination and (y) the Borrowing Base Amount, then the Borrower shall, on the date of such reduction or termination, prepay Revolving Borrowings in an amount sufficient to eliminate such excess. (c) If on any day the total Revolving Credit Exposures exceeds the Borrowing Base Amount, the Borrower shall, within one Business Day of such day, prepay the Revolving Loans in an amount equal to the lesser of (i) such excess and (ii) the total Revolving Credit Exposures. Until such excess has been prepaid, the Borrower shall not be entitled to borrow additional Revolving Loans or Swingline Loans or request the issuance, extension, renewal or amendment of any Letter of Credit. (d) The Borrower shall notify the Administrative Agent by telephone (confirmed by facsimile) of any prepayment hereunder (i) in the case of a prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, two Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or 23 portion thereof to be prepaid, provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Revolving Commitments as contemplated by Section 2.5, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.5. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing under Section 2.7(a) shall, when added to the amount of each concurrent reduction of the Revolving Commitments and prepayment of Borrowings under such Sections, be in an integral multiple of $500,000 and not less than $2,000,000. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 3.1. Section 2.8 Swingline Loans (a) Subject to the terms and conditions set forth herein, the Swingline Lender agrees to make Swingline Loans to the Borrower in dollars from time to time on any Business Day during the period from the Effective Date to the tenth Business Day preceding the Maturity Date in an aggregate principal amount at any time outstanding that will not result in (i) the Swingline Exposure exceeding the lesser of (A) the Swingline Commitment and (B) the Borrowing Base Amount or (ii) the sum of the total Revolving Credit Exposures exceeding the lesser of (A) the total Revolving Commitments and (B) the Borrowing Base Amount, provided that the Swingline Lender shall not be obligated to make a Swingline Loan to refinance an outstanding Swingline Loan. Notwithstanding the foregoing, the Swingline Lender shall not be required to make a Swingline Loan if (i) prior thereto or simultaneously therewith the Borrower shall not have borrowed Revolving Loans, (ii) any Lender shall be in default of its obligations hereunder or (iii) any Credit Party shall have notified the Swingline Lender and the Borrower in writing at least one Business Day prior to the date of Borrowing with respect to such Swingline Loan, that the conditions set forth in Section 5.2 have not been satisfied and such conditions remain unsatisfied as of the requested time of the making of such Swingline Loan. Each Swingline Loan shall be due and payable on the maturity thereof, provided that in no event shall such maturity be later than the tenth Business Day preceding the Maturity Date. (b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent and the Swingline Lender by telephone (confirmed by facsimile) no later than 12.00 p.m., New York City time, on the day of the relevant Swingline Loan. Each such notice shall be irrevocable and shall specify (i) the aggregate principal amount to be borrowed, (ii) the requested date (which shall be a Business Day) and (iii) the maturity date of the requested Swingline Loan which shall be not earlier than seven days and not later than thirty days after the making of such Swingline Loan. The Swingline Lender will make the requested amount available promptly on that same day, to the Administrative Agent (for the account of the Borrower as set forth in Section 2.4) who, thereupon, will promptly make such amount available to the Borrower in like funds as provided therein or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.8(d) by remittance to the Issuing Bank. Each Swingline Loan shall be in an aggregate amount that is an integral multiple of $500,000. The Borrower shall have the right at any time and from time to time to prepay any Swingline Borrowing in whole or in part without premium or penalty (but subject to Section 3.6), provided that the Borrower shall notify the Administrative Agent and the Swingline Lender by telephone (confirmed by facsimile) no later than 11:00 a.m., 24 New York City time, on the day of the proposed prepayment. Each such notice shall be irrevocable and shall specify (i) the principal amount to be prepaid, which shall be in an amount that is an integral multiple of $500,000, or the remaining outstanding principal amount of the Swingline Loan being prepaid, and (ii) the date of prepayment (which shall be a Business Day). Prepayments shall be accompanied by accrued interest to the extent required by Section 3.1. (c) The Swingline Lender may by written notice given to the Administrative Agent not later than 10:00 a.m., New York City time, on any Business Day notify the Administrative Agent that the Swingline Lender is requesting that the Lenders make an ABR Borrowing in an amount equal to the outstanding principal balance and accrued interest on the Swingline Loans, in which case (i) the Administrative Agent shall notify each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of such ABR Borrowing, and (ii) each Lender shall, whether or not any Default shall have occurred and be continuing, any representation or warranty shall be accurate, any condition to the making of any loan hereunder shall have been fulfilled, or any other matter whatsoever, make the Loan to be made by it under this paragraph by wire transfer of immediately available funds to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders, (A) on such date, in the event that such Lender shall have received notice of such ABR Borrowing prior to 12:00 noon, New York City time, or (B) if such notice has not been received by such Lender prior to such time on such date, then not later than 1:00 p.m., New York City time, on (X) the Business Day that such Lender receives such notice, if such notice is received prior to 12:00 noon, New York City time, on the day of receipt or (Y) the Business Day immediately following the day that such Lender receives such notice, if such notice is not received prior to such time on the day of receipt. Such Loans shall, for all purposes hereof, be deemed to be an ABR Borrowing referred to in Section 2.1(a) and made pursuant to Section 2.3, and the Lenders obligations to make such Loans shall be absolute and unconditional. The Administrative Agent will make such Loans available to the Swingline Lender by promptly crediting or otherwise transferring the amounts so received, in like funds, to the Swingline Lender for the purpose of repaying in full the Swingline Loans and all accrued interest thereon. (d) If the Borrower fails to make any payment with respect to a Swingline Loan, or if any such sum paid by the Borrower is required to be refunded to the Borrower for any reason, the Administrative Agent shall notify each Lender of the applicable Swingline Loan, the payment then due from the Borrower in respect thereof and such Lender's Applicable Percentage thereof. Each Lender shall purchase a participation in such Swingline Loan by paying to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.4 with respect to Loans made by such Lender (and Section 2.4 shall apply, mutatis mutandis, to the payment obligations of the Lenders), by wire transfer of immediately available funds to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders, (A) on such date, in the event that such Lender shall have received notice thereof prior to 12:00 noon, New York City time, or (B) if such notice has not been received by such Lender prior to such time on such date, then not later than 1:00 p.m., New York City time, on (X) the Business Day that such Lender receives such notice, if such notice is received prior to 12:00 noon, New York City time, on the day of receipt or (Y) the Business Day immediately following the day that such Lender receives such 25 notice, if such notice is not received prior to such time on the day of receipt. The Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment in respect of such Swingline Loan from the Borrower, the Administrative Agent shall distribute such payment to the Swingline Lender or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Swingline Lender, then to such Lenders and the Swingline Lender as their interests may appear. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Swingline Loans is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Revolving Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Section 2.9 Letters of Credit (a) General. KeyBank issued the Existing Letters of Credit. As of the Effective Date, each Lender (other than KeyBank) severally assumes a portion of the risk associated with the Existing Letters of Credit in accordance with its Applicable Percentage. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Standby Letters of Credit and Trade Letters of Credit (each, an "Additional Letter of Credit" and collectively, the "Additional Letters of Credit") denominated in dollars for its own account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the period from the Effective Date to the fifteenth Business Day prior to the Maturity Date. In the event of any inconsistency between the terms and conditions of this Credit Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Credit Agreement shall control. Standby Letters of Credit shall be issued for the account of the Borrower to support the Borrower's and the Subsidiaries' obligations in respect of workers' compensation, utility deposits and similar needs. Trade Letters of Credit and related acceptances shall be issued for the account of the Borrower to support the Borrower's and the Subsidiaries' imports of inventory. (b) Notice of Issuance; Amendment; Renewal; Extension; Certain Conditions. To request the issuance of an Additional Letter of Credit (or the amendment, renewal or extension of an outstanding Standby Letter of Credit), the Borrower shall hand deliver or facsimile (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (not later than three Business Days before the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of an Additional Letter of Credit (specifying whether the requested Additional Letter of Credit is to be a Standby Letter of Credit or a Trade Letter of Credit), or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof, the documentation to be delivered to the Issuing Bank in connection with any payment thereunder, and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing 26 Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and, upon issuance, amendment, renewal or extension of each Letter of Credit, the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, (i) the LC Exposure shall not exceed $7,500,000 and (ii) the total Revolving Credit Exposures shall not exceed the lesser of the total Revolving Commitments and the Borrowing Base Amount. (c) Expiration Date. Each Standby Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date that is one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is fifteen Business Days prior to the Maturity Date, provided that any Standby Letter of Credit may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date that is fifteen Business Days prior to the Maturity Date). Each Trade Letter of Credit and each related acceptance shall expire at or prior to the close of business on the earlier of (i) the date that is six months after the date of the issuance of such Letter of Credit and (ii) the date that is fifteen Business Days prior to the Maturity Date. (d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each such Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each such Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each such Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Revolving Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever; provided, however, that no Lender shall be obligated to make any payment to the Administrative Agent for any wrongful LC Disbursement made by the Issuing Bank as a result of acts or omissions constituting willful misconduct or gross negligence on the part of the Issuing Bank. (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, then the Issuing Bank shall either (i) notify the Borrower to reimburse the Issuing Bank therefor, in which case the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement and any accrued interest thereon on (A) the Business Day that the Borrower receives such notice, if such notice is received prior to 12:00 noon, New York City time, on the day of receipt or (B) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt, provided that, if the LC Disbursement is equal to or greater than $1,000,000, 27 the Borrower may, subject to the conditions of borrowing set forth herein, request in accordance with Section 2.3 or Section 2.8 that such payment be financed with an ABR Borrowing in an equivalent amount and, to the extent so financed, the Borrower's obligation to make such payment shall be discharged and replaced by the resulting ABR Borrowing, or (ii) notify the Administrative Agent that the Issuing Bank is requesting that the Lenders make an ABR Borrowing in an amount equal to such LC Disbursement and any accrued interest thereon, in which case (1) the Administrative Agent shall notify each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of such ABR Borrowing, and (2) each Lender shall, whether or not any Default shall have occurred and be continuing, any representation or warranty shall be accurate, any condition to the making of any loan hereunder shall have been fulfilled, or any other matter whatsoever, make the Loan to be made by it under this paragraph by wire transfer of immediately available funds to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders on (x) the Business Day that such Lender receives such notice, if such notice is received prior to 12:00 noon, New York City time, on the day of receipt or (y) the Business Day immediately following the day that such Lender receives such notice, if such notice is not received prior to such time on the day of receipt. Such Loans shall, for all purposes hereof, be deemed to be an ABR Borrowing referred to in Section 2.1(a) and made pursuant to Section 2.3, and the Lenders obligations to make such Loans shall be absolute and unconditional. The Administrative Agent will make such Loans available to the Issuing Bank by promptly crediting or otherwise transferring the amounts so received, in like funds, to the Issuing Bank for the purpose of repaying in full the LC Disbursement and all accrued interest thereon. (f) Obligations Absolute. The Borrower's obligations to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms hereof under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Credit Agreement, or any term or provision therein or herein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder. Neither any Credit Party nor any of their respective Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower 28 that are caused by the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by facsimile) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 3.1(b) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Cash Collateral. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Lenders with LC Exposure representing at least 66- 2/3% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article 8. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower hereunder. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposit shall not bear interest, nor shall the Administrative Agent be under any obligation whatsoever to invest the same, 29 provided, however, that, at the request of the Borrower, such deposit shall be invested by the Administrative Agent in direct short-term obligations of, or short-term obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, in each case maturing no later than the expiry date of the Letter of Credit giving rise to the relevant LC Exposure. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing at least 66-2/3% of the total LC Exposure), be applied to satisfy other obligations of the Borrower hereunder. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. Section 2.10 Payments Generally; Pro Rata Treatment; Sharing of Setoffs (a) Each Loan Party shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal of Loans, LC Disbursements, interest or fees, or of amounts payable under Sections 3.5, 3.6, 3.7 or 10.3, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its office at 127 Public Square, Cleveland, Ohio, 44114, or such other office as to which the Administrative Agent may notify the other parties hereto, except payments to be made to the Issuing Bank or Swingline Lender as expressly provided herein] and except that payments pursuant to Sections 3.5, 3.6, 3.7 and 10.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal of Loans, unreimbursed LC Disbursements, interest, fees and commissions then due hereunder, such funds shall be applied (i) first, towards payment of interest, fees and commissions then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest, fees and commissions then due to such parties and (ii) second, towards payment of principal of Loans and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal of Loans and unreimbursed LC Disbursements then due to such parties. (c) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of, or interest on, any of its Loans or participations in LC Disbursements or Swingline 30 Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements or Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements or Swingline Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of, and accrued interest on, their respective Loans and participations in LC Disbursements or Swingline Loans, provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms hereof or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements or Swingline Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from a Loan Party prior to the date on which any payment is due to the Administrative Agent for the account of the applicable Credit Parties hereunder that such Loan Party will not make such payment, the Administrative Agent may assume that such Loan Party has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to such Credit Parties the amount due. In such event, if such Loan Party has not in fact made such payment, then each such Credit Party severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Credit Party with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. (e) If any Credit Party shall fail to make any payment required to be made by it pursuant to Section 2.4(b), 2.8(c) or 2.9(e), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Credit Party to satisfy such Credit Party's obligations under such Sections until all such unsatisfied obligations are fully paid. 31 ARTICLE 3. INTEREST, FEES, YIELD PROTECTION, ETC. Section 3.1 Interest (a) The Revolving Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate. The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin. Each Swingline Loan shall bear interest at the Swingline Rate, unless a participation is required to be made pursuant to Section 2.8(c), in which case such Loan shall bear interest at the Alternate Base Rate. (b) Notwithstanding the foregoing, if any principal of or interest on any Loan, any reimbursement obligation in respect of any LC Disbursement or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraph of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Borrowings as provided in the preceding paragraph of this Section. In addition, notwithstanding the foregoing, if an Event of Default has occurred and is continuing, then, so long as such Event of Default is continuing, all outstanding principal of each Loan and all unreimbursed reimbursement obligations in respect of all LC Disbursements shall, without duplication of amounts payable under the preceding sentence, bear interest, after as well as before judgment, at a rate per annum equal to 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraph of this Section. (c) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan, provided that (i) interest accrued pursuant to paragraph (b) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than the prepayment of an ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. (d) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate, LIBO Rate or Swingline Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent clearly demonstrable error. 32 Section 3.2 Interest Elections Relating to Revolving Borrowings (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Revolving Borrowing to a different Type or to continue such Revolving Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Revolving Borrowing, in which case each such portion shall be allocated ratably among the Lenders. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.3 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information: (i) the Revolving Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Revolving Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Revolving Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Revolving Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Revolving Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. 33 (e) If the Borrower fails to deliver a timely Interest Election Request prior to the end of the Interest Period applicable thereto, then, unless such Revolving Borrowing is repaid as provided herein, at the end of such Interest Period, such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing, (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. Section 3.3 Fees (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender, a commitment fee, which shall accrue at a rate per annum equal to 0.375% on the daily amount of the unused Revolving Commitment plus the Swingline Exposure of such Lender during the period from and including the Agreement Date to but excluding the date on which such Revolving Commitment terminates. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year, each date on which the Revolving Commitments are permanently reduced and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the Agreement Date. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at rate per annum equal to the Applicable Margin on the average daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Revolving Commitment terminates and the date on which such Lender ceases to have any LC Exposure and (ii) to the Issuing Bank for its own account a fronting fee, which shall accrue at the rate or rates per annum separately agreed upon between the Borrower and the Issuing Bank on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any such LC Exposure, as well as the Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Accrued participation fees and fronting fees shall be payable in arrears on the last day of March, June, September and December of each year, commencing on the first such date to occur after the Agreement Date; provided that all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within ten days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). 34 (c) The Borrower agrees to pay to each Credit Party, for its own account, fees and other amounts payable in the amounts and at the times separately agreed upon between the Borrower and such Credit Party. (d) All fees and other amounts payable hereunder shall be paid on the dates due, in immediately available funds. Fees and other amounts paid shall not be refundable under any circumstances. Section 3.4 Alternate Rate of Interest If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Administrative Agent is advised by any Lender that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lender of making or maintaining its Loan included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. Section 3.5 Increased Costs; Illegality (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Credit Party (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Credit Party or the London interbank market any other condition affecting this Credit Agreement, any Eurodollar Loans made by such Credit Party or any participation therein or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Credit Party of making or maintaining any Eurodollar Loan or the cost to such Credit Party of issuing, participating in or maintaining any Letter of Credit hereunder or to increase the cost to such Credit Party or to reduce the amount of any sum received or receivable by such Credit Party hereunder (whether of 35 principal, interest or otherwise), then the Borrower will pay to such Credit Party such additional amount or amounts as will compensate such Credit Party for such additional costs incurred or reduction suffered. (b) If any Credit Party determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Credit Party's capital or on the capital of such Credit Party's holding company, if any, as a consequence of this Credit Agreement or the Loans made, the Letters of Credit issued or the participations therein held, by such Credit Party to a level below that which such Credit Party or such Credit Party's holding company could have achieved but for such Change in Law (taking into consideration such Credit Party's policies and the policies of such Credit Party's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Credit Party such additional amount or amounts as will compensate such Credit Party or such Credit Party's holding company for any such reduction suffered. (c) A certificate of a Credit Party setting forth the amount or amounts necessary to compensate such Credit Party or its holding company, as applicable, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be presumptively correct absent manifest error. The Borrower shall pay such Credit Party the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Credit Party to demand compensation pursuant to this Section shall not constitute a waiver of such Credit Party's right to demand such compensation. (e) Notwithstanding any other provision hereof, if any Change in Law shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent: (i) such Lender may declare that Eurodollar Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods) and ABR Loans will not thereafter (for such duration) be converted into Eurodollar Loans, whereupon any request for a Eurodollar Borrowing or to convert an ABR Borrowing to a Eurodollar Borrowing or to continue a Eurodollar Borrowing, as applicable, for an additional Interest Period shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such for an additional Interest Period or to convert a Eurodollar Loan into an ABR Loan, as applicable), unless such declaration shall be subsequently withdrawn; and (ii) such Lender may require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans, as of the effective date of such notice as provided in the last sentence of this paragraph. 36 In the event any Lender shall exercise its rights under clause (i) or (ii) of this paragraph, all payments and prepayments of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans, as applicable. For purposes of this paragraph, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower. Section 3.6 Break Funding Payments In the event of (a) the payment or prepayment (voluntary or otherwise) of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto or any Swingline Loan other than on the maturity thereof, (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan or Swingline Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.7(d) and is revoked in accordance therewith), then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be presumptively correct absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. Section 3.7 Taxes (a) Any and all payments by or on account of any obligation of any Loan Party hereunder and under any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes, provided that, if such Loan Party shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section), the applicable Credit Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. 37 (b) In addition, the Loan Parties shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) Each Loan Party shall indemnify each Credit Party, within ten days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by such Credit Party on or with respect to any payment by or on account of any obligation of such Loan Party under the Loan Documents (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Credit Party, or by the Administrative Agent on its own behalf or on behalf of a Credit Party, shall be presumptively correct absent manifest error. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the relevant Loan Party is located, or any treaty to which such jurisdiction is a party, with respect to payments under the Loan Documents shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. Section 3.8 Mitigation Obligations If any Lender requests compensation under Section 3.5, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.7, then such Lender shall, only if duly requested by the Borrower, use reasonable efforts to designate a different lending office for funding or booking its Loans or Letters of Credit (or any participation therein) hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.5 or 3.7, as applicable, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. ARTICLE 4. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Credit Parties that: 38 Section 4.1 Organization; Powers Each of the Borrower and the Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. Section 4.2 Authorization; Enforceability The Transactions are within the corporate, partnership or other analogous powers of each of the Borrower and the Subsidiaries to the extent it is a party thereto and have been duly authorized by all necessary corporate, partnership or other analogous and, if required, equity holder action. Each Loan Document has been duly executed and delivered by each of the Borrower and the Subsidiaries to the extent it is a party thereto and constitutes a legal, valid and binding obligation thereof, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally. Section 4.3 Governmental Approvals; No Conflicts The Transactions (i) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of the Subsidiaries or any order of any Governmental Authority, (iii) will not violate or result in a default under any material indenture, agreement or other instrument binding upon the Borrower or any of the Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of the Subsidiaries, and (iv) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of the Subsidiaries (other than Liens permitted by Section 7.2). Section 4.4 Financial Condition; No Material Adverse Change (a) The Borrower has heretofore furnished or caused to be furnished to the Credit Parties: (i) a copy of the Parent's Annual Report on Form 10-K for the fiscal year ended on or about December 31, 2000, together with the financial statements required to be filed therewith and (ii) a copy of the Parent's Quarterly Report on Form 10-Q for the fiscal quarter ended on or about March 31, 2001, together with the financial statements required to be filed therewith. The consolidated financial statements referred to in clauses (i) and (ii) above present fairly, in all material respects, the financial position and results of operations and cash flows of the Parent and its consolidated subsidiaries as at such dates, and for the indicated periods, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above, and have been prepared in accordance with GAAP on a consistent basis throughout the indicated periods. 39 (b) Since December 31, 2000, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and the Subsidiaries, taken as a whole or the Parent and its subsidiaries, taken as a whole. Section 4.5 Properties (a) Each of the Borrower and the Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. (b) Each of the Borrower and the Subsidiaries owns, or is entitled to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower and the Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (c) Schedule 4.5 sets forth the address of each item of real property that is owned or leased by the Borrower or any of the Subsidiaries on the Agreement Date. Section 4.6 Litigation and Environmental Matters (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of the Subsidiaries (i) that, if adversely determined (and there exists a reasonable possibility of such adverse determination), could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve any Loan Document or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, neither the Borrower nor any of the Subsidiaries (i) have failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) have become subject to any Environmental Liability, (iii) have received notice of any claim with respect to any Environmental Liability or (iv) know of any basis for any Environmental Liability. (c) Since the Agreement Date, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. Section 4.7 Compliance with Laws and Agreements Each of the Borrower and the Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the 40 aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 4.8 Investment and Holding Company Status Neither the Borrower nor any of the Subsidiaries are (i) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (ii) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 4.9 Taxes Each of the Borrower and the Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (i) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (ii) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 4.10 ERISA No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $2,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $2,000,000 the fair market value of the assets of all such underfunded Plans. Section 4.11 Disclosure The Borrower has disclosed to the Credit Parties all agreements, instruments and corporate or other restrictions to which it or any of the Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower or any Subsidiary to any Credit Party in connection with the negotiation of the Loan Documents or delivered thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. 41 Section 4.12 Subsidiaries Schedule 4.12 sets forth the name of, and the ownership interest of the Borrower in, each Subsidiary and identifies each Subsidiary that is a Subsidiary Guarantor, in each case on the Agreement Date. Section 4.13 Insurance Schedule 4.13 sets forth a description of all insurance maintained by or on behalf of the Borrower and the Subsidiaries on the Agreement Date. As of the Agreement Date, all premiums in respect of such insurance that are due and payable have been paid. Section 4.14 Labor Matters Except for the Disclosed Matters, (i) there are no strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending or, to the knowledge of the Borrower, threatened, (ii) the hours worked by and payments made to employees of the Borrower and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters, except where any such violations, individually and in the aggregate, would not be reasonably likely to result in a Material Adverse Effect, (iii) all material payments due from the Borrower or any Subsidiary, or for which any claim may be made against the Borrower or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Borrower or such Subsidiary and (iv) the consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which the Borrower or any Subsidiary is bound. Section 4.15 Solvency Immediately after the consummation of each Transaction, (i) the fair value of the assets of the Borrower and the Subsidiaries, taken as a whole, at a fair valuation, will exceed their debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of the Borrower and the Subsidiaries, taken as a whole, will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) each of the Borrower and the Subsidiary Guarantors will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) each of the Borrower and the Subsidiary Guarantors will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following such date. Section 4.16 Federal Reserve Regulations (a) Neither the Borrower nor any of the Subsidiaries are engaged principally, or as one of their important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. 42 (b) No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase, acquire or carry any Margin Stock or for any purpose that entails a violation of, or that is inconsistent with, the provisions of the regulations of the Board, including Regulation T, U or X. Section 4.17 Existing Letters of Credit The Existing Letters of Credit set forth on Schedule 4.17 constitute all of the letters of credit issued for the account of the Borrower or any Subsidiary which are outstanding on the Agreement Date. ARTICLE 5. CONDITIONS Section 5.1 Effective Date The obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.2): (a) Credit Agreement. The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart hereof signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include facsimile transmission of a signed signature page of this Credit Agreement) that such party has signed a counterpart hereof. (b) Notes. The Administrative Agent shall have received a Note for each Lender that shall have requested one, signed on behalf of the Borrower. (c) Legal Opinion. The Administrative Agent shall have received a favorable written opinion (addressed to the Credit Parties and dated the Effective Date) from Drake, Sommers, Loeb, Tarshis & Catania on behalf of the Loan Parties, substantially in the form of Exhibit B, and covering such other matters relating to the Loan Parties, the Loan Documents and the Transactions as the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (d) Organizational Documents, etc. The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Loan Party, the authorization of the Transactions, the incumbency of its officer or officers who may sign the Loan Documents, including therein a signature specimen of such officer or officers and any other legal matters relating to the Loan Parties, the Loan Documents or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (e) Officer's Certificate. The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the chief executive 43 officer or the chief financial officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 5.2. (f) Fees and Expenses. The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, (i) an upfront fee for each Lender in an amount equal to 0.375% of such Lender's final allocated Revolving Commitment, and (ii) to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. (g) Guarantee Agreement. The Administrative Agent shall have received counterparts of the Guarantee Agreement signed on behalf of the Parent, the Borrower and each other subsidiary of the Parent. (h) Security Agreement. The Administrative Agent shall have received counterparts of the Security Agreement signed on behalf of the Parent, the Borrower and each other subsidiary of the Parent, together with the following: (i) any certificated securities representing shares of capital stock or other similar interests owned by or on behalf of any Loan Party constituting Collateral as of the Effective Date after giving effect to the Transactions; (ii) any promissory notes and other instruments evidencing all loans, advances and other debt owed or owing to any Loan Party constituting Collateral as of the Effective Date after giving effect to the Transactions; (iii) stock powers and instruments of transfer, endorsed in blank, with respect to such certificated securities, promissory notes and other instruments; (iv) all instruments and other documents, including Uniform Commercial Code financing statements, required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create or perfect the Liens intended to be created under the Security Agreement; and (v) results of a search of the Uniform Commercial Code (or equivalent) filings made with respect to the Loan Parties in the jurisdictions contemplated by the Security Agreement and copies of the financing statements (or similar documents) disclosed by such search and evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by such financing statements (or similar documents) are permitted by Section 7.2 or have been released. (i) Insurance. The Administrative Agent shall have received evidence satisfactory to it that the insurance required by Section 6.10 hereof and Section 10.8 of the Guarantee Agreement is in effect. (j) Officer's Certificate. The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the chief executive 44 officer or the chief financial officer of the Borrower, in form and substance satisfactory to the Administrative Agent, as follows: (i) confirming that (A) the performance by each Loan Party of its obligations under each Loan Document shall not (1) violate any applicable law, statute, rule or regulation or (2) conflict with, or result in a default or event of default under, any material agreement of any Loan Party or any other Subsidiary and (B) after giving effect to the Transactions occurring on or prior to the Effective Date, none of the Borrower or any of the Subsidiaries shall have outstanding any preferred Equity Interests or any Indebtedness, other than (1) Indebtedness incurred under the Loan Documents and (2) Indebtedness set forth on Schedule 7.1, and (ii) setting forth reasonably detailed calculations demonstrating compliance with Sections 7.12, 7.13, 7.14 and 7.15 on a pro forma basis immediately after giving effect to the Transactions occurring on the Effective Date. (k) Borrowing Base Certificate. The Administrative Agent shall have received a Borrowing Base Certificate, signed by a Financial Officer, in form and substance satisfactory to the Administrative Agent. (l) Existing Bank Debt. The Existing Bank Debt shall have been repaid in full, each KeyBank Line Document shall have been terminated and the Administrative Agent shall have received evidence thereof, in form and substance satisfactory to the Administrative Agent. (m) Environmental Matters; No Litigation. Each Lender shall be reasonably satisfied (i) with the amount and nature of any environmental and employee health and safety exposures to which the Parent or any of its subsidiaries may be subject, or with the plans of the Parent or the Borrower with respect thereto, (ii) that there shall be no litigation or administrative proceeding, or regulatory development, that would reasonably be expected to have a material adverse effect on (A) the business, assets, operations, prospects, condition (financial or otherwise) or material agreements of the Parent and its subsidiaries, taken as a whole, (B) the ability of any Loan Party to perform any of its obligations under any Loan Document or (C) the rights of or benefits available to any Credit Party under any Loan Document, (iii) with the current status of, and the terms of any settlement or other resolution of, any litigation or other proceedings brought against the Parent or any of its subsidiaries by or on behalf of its subscribers or by any Governmental Authority relating to its business, or (iv) with the tax position and the contingent tax and other liabilities of, and with any tax sharing agreements among, the Parent or any of its subsidiaries, and with the plans of the Parent and the Borrower with respect thereto (n) No Material Adverse Change. The Administrative Agent shall not have received written notice from any Loan Party or any Credit Party that a material adverse change or material adverse condition in the business, assets, operations, properties, condition (financial or otherwise), liabilities (including contingent liabilities), or prospects of the Borrower and the Subsidiaries, taken as a whole, has occurred since December 31, 2000. 45 The Administrative Agent shall notify the Borrower and the Credit Parties of each of the Closing Date and the Effective Date, and each such notice shall be conclusive and binding. The Administrative Agent shall be entitled to assume that each of the conditions set forth in Sections 5.1(m) and 5.1(n) have been satisfied unless it shall have received notice expressly to the contrary from a Credit Party or a Loan Party. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 10.2) at or prior to 3:00 p.m., New York City time, on September 1, 2001 (and, in the event such conditions are not so satisfied or waived, the Revolving Commitments shall terminate at such time). Section 5.2 Each Credit Event The obligation of each Lender to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue, amend, renew or extend a Letter of Credit, is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Loan Parties set forth in the Loan Documents shall be true and correct on and as of the date of such Borrowing or the date of such issuance, amendment, renewal or extension, as applicable. (b) At the time of and immediately after giving effect to such Borrowing or such issuance, amendment, renewal or extension, as applicable, no Default shall have occurred and be continuing. (c) The Administrative Agent shall have received such other documentation and assurances as shall be reasonably required by it in connection therewith. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE 6. AFFIRMATIVE COVENANTS Until the Revolving Commitments have expired or been terminated and the principal of and interest on each Loan and all fees and other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit have expired and all LC Disbursements have been reimbursed, the Borrower covenants and agrees with the Credit Parties that: Section 6.1 Financial Statements and Other Information The Borrower will furnish, or cause to be furnished, to the Administrative Agent and each Lender: (a) within 90 days after the end of each fiscal year, the Parent's Form 10-K containing the Parent's audited consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and 46 for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Parent and its consolidated subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year, (i) the Parent's Form 10-Q containing the Parent's consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year and (ii) unaudited financial information for each of the business lines of the Parent and its subsidiaries, all certified by a Financial Officer as presenting fairly in all material respects the financial condition and results of operations of the Parent and its consolidated subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a Compliance Certificate signed by a Financial Officer (i) attaching reasonably detailed calculations demonstrating compliance with Sections 7.12, 7.13, 7.14 and 7.15, (ii) listing the Subsidiary Guarantors as of the date of such Compliance Certificate, (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 4.4 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such Compliance Certificate, (iv) certifying that (A) neither the Parent nor any subsidiary thereof is in material default under any lease listed on Schedule 4.5 or entered into by the Parent or any subsidiary thereof after the Agreement Date, (B) no payment or rent under any such lease is more than 30 days past due, and (C) that no Default has occurred and is continuing, and (v) in the case of the Compliance Certificate delivered concurrently with the delivery of financial statements under clause (a) above, (x) either a certification that there has been no change to information disclosed in the schedules to the Security Agreement as most recently supplemented or, if so, attaching supplements to such schedules and (y) certifying that all Uniform Commercial Code financing statements or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, containing a description of the Collateral have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to Schedule 3.1(a)(v) to the Security Agreement as so supplemented, and all other actions have been taken, to the extent necessary to protect and perfect the Security Interest (as defined in the Security Agreement) for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period); (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their 47 examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Parent or any subsidiary thereof with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Parent to its shareholders generally, as the case may be; and (f) within 30 days after the beginning of each fiscal year, annual consolidated projections for the Parent and its subsidiaries for such fiscal year and the following two fiscal years, including projected consolidated statements of income of the Parent and its subsidiaries, all in reasonable detail acceptable to the Administrative Agent; (ii) promptly upon preparation thereof, such other projections that the Parent or any subsidiary thereof may prepare and any revisions that may be made to any projections previously delivered to the Administrative Agent and the Lenders; and (iii) no later than 30 days after the end of each fiscal quarter in which there has been a material deviation from any projections provided to the Administrative Agent and the Lenders, a certificate of a Financial Officer explaining the deviation and the action, if any, that has been taken or is proposed to be taken with respect thereto; in each case the foregoing projections shall state all underlying assumptions; (g) no later than 15 Business Days after the last Business Day of each month and at such other times as the Administrative Agent may request, a Borrowing Base Certificate signed by a Financial Officer, calculated as of the last day of the preceding month; and (h) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Parent and its subsidiaries (or any thereof), or compliance with the terms of the Loan Documents, as any Credit Party may reasonably request. Section 6.2 Notices of Material Events The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Parent or any Affiliate thereof that, if adversely determined, could in the good faith opinion of the Borrower reasonably be expected to result in a Material Adverse Effect; (c) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. 48 Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Parent or the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 6.3 Existence; Conduct of Business The Borrower will, and will cause each of the Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business, provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 7.3. Section 6.4 Payment and Performance of Obligations The Borrower will, and will cause each of the Subsidiaries to, pay or perform its obligations, including Tax liabilities, that, if not paid or performed, could reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (i) the validity or amount thereof is being contested in good faith by appropriate proceedings, (ii) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (iii) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Section 6.5 Maintenance of Properties The Borrower will, and will cause each of the Subsidiaries to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted. Section 6.6 Books and Records; Inspection Rights (a) The Borrower will, and will cause each of the Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of the Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested and all at the expense of the Borrower. (b) The Borrower will, and will cause each of the Subsidiaries to, permit any representatives designated by the Administrative Agent or the Required Lenders to audit the Collateral on an annual basis, or on a more frequent basis as the Administrative Agent or Required Lenders may determine in a commercially reasonable manner, all at the expense of the Borrower. 49 Section 6.7 Compliance with Laws The Borrower will, and will cause each of the Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 6.8 Use of Proceeds The proceeds of the Loans and the Letters of Credit will be used only as follows: (i) to refinance the Existing Bank Debt and (ii) for general corporate purposes not inconsistent with the terms hereof. No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase, acquire or carry any Margin Stock or for any purpose that entails a violation of any of the regulations of the Board, including Regulations T, U and X. Section 6.9 Information Regarding Collateral The Borrower will furnish to the Administrative Agent prompt written notice of any change in (i) the legal name or jurisdiction of incorporation or formation of any Loan Party or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (ii) the location of the chief executive office of any Loan Party, its principal place of business, any office in which it maintains books or records relating to Collateral owned or held by it or on its behalf or, except as provided in the applicable Security Documents, any office or facility at which Collateral owned or held by it or on its behalf with an aggregate book value in excess of $10,000 is located (including the establishment of any such new office or facility), (iii) the identity or organizational structure of any Loan Party such that a filed financing statement becomes misleading or (iv) the Federal Taxpayer Identification Number of any Loan Party. The Borrower agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Administrative Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral. The Borrower also agrees promptly to notify the Administrative Agent if any material portion of the Collateral is damaged or destroyed. Section 6.10 Insurance The Borrower will, and will cause each of the Subsidiaries to, maintain, with financially sound and reputable insurance companies, (i) adequate insurance for its insurable properties, all to such extent and against such risks, including fire, casualty, business interruption and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations and (ii) such other insurance as is required pursuant to the terms of any Security Document. Section 6.11 Casualty and Condemnation (a) The Borrower will furnish to the Credit Parties prompt written notice of any casualty or other insured damage to any portion of any property owned or held by or on behalf of itself or any Subsidiary or the commencement of 50 any action or proceeding for the taking of any such property or any part thereof or interest therein under power of eminent domain or by condemnation or similar proceeding. (b) If any Reduction Event results in Net Proceeds (whether in the form of insurance proceeds, condemnation award or otherwise), the Administrative Agent is authorized to collect such Net Proceeds and, if received by the Parent or any of its subsidiaries, the Borrower shall cause such Net Proceeds to be paid over to the Administrative Agent, provided that (i) to the extent that the Parent or any of its subsidiaries intends to use any such Net Proceeds to repair, restore, reinvest or replace assets of the Borrower or any of the other Loan Parties as provided in the proviso of the definition of the term "Net Proceeds", the Administrative Agent shall, subject to the provision of such proviso, deliver such Net Proceeds to the Borrower, (ii) otherwise, the Administrative Agent shall, and the Borrower hereby authorizes the Administrative Agent to, apply such Net Proceeds, to the extent that they are Net Proceeds, to prepay the Loans in accordance with Section 2.7 and (iii) all proceeds of business interruption insurance shall be paid over to the Borrower unless a Default has occurred and is continuing. (c) All proceeds received by or paid to the Administrative Agent that do not constitute Net Proceeds shall be paid over to the Borrower, on behalf of the relevant Loan Parties, unless an Event of Default has occurred and is continuing. Section 6.12 Additional Subsidiaries If any Subsidiary (other than a Subsidiary that is a party to the Guarantee Agreement and the Security Agreement) is formed or acquired after the Agreement Date, the Borrower will notify the Credit Parties in writing thereof not later than the tenth Business Day after the date on which such Subsidiary is formed or acquired and (i) the Borrower will cause such Subsidiary to (a) execute and deliver each applicable Guarantee Document (or otherwise become a party thereto in the manner provided therein) and become a party to each applicable Security Document in the manner provided therein, in each case not later than the tenth Business Day after the date on which such Subsidiary is formed or acquired and (b) promptly take such actions to create and perfect Liens on such Subsidiary's assets to secure the Obligations as the Administrative Agent or the Required Lenders shall reasonably request and (ii) if any Equity Interests issued by any such Subsidiary are owned or held by or on behalf of the Borrower or any Subsidiary Guarantor or any loans, advances or other debt is owed or owing by any such Subsidiary to the Borrower or any Subsidiary Guarantor, the Borrower will cause such Equity Interests and promissory notes and other instruments evidencing such loans, advances and other debt to be pledged pursuant to the Security Documents not later than the tenth Business Day after the date on which such Subsidiary is formed or acquired. Section 6.13 Further Assurances (a) The Borrower will, and will cause each Subsidiary Guarantor to, execute any and all further documents, financing statements, agreements (including guarantee agreements and security agreements) and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings and other documents), that may be required under any 51 applicable law, or which the Administrative Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect (including as a result of any change in applicable law) the Liens created or intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Borrower. The Borrower also agrees to provide to the Administrative Agent, from time to time upon request, evidence reasonably satisfactory to the Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents. (b) The Borrower hereby covenants and agrees that, if at any time on or after the date hereof any asset or property acquired, owned or held by or on behalf of the Borrower or any Subsidiary Guarantor that constitutes or would constitute Collateral is not subject to a perfected Lien of the Administrative Agent hereunder with the priority required hereby (except as a result of the Administrative Agent's failure to maintain possession of any instrument, stock certificate or other similar document delivered to it hereunder or as a result of such asset or property being used or disposed of in a manner expressly permitted by any Loan Document), then the Borrower shall, at its own cost and expense, promptly (i) notify the Administrative Agent thereof and (ii) execute and deliver or cause the applicable Subsidiary Guarantor to execute and deliver, any and all agreements, instruments and other documents, and take all further action (including the filing and recording of financing statements and other documents), that may be necessary or reasonably requested by the Administrative Agent to cause such asset or property to become subject to a perfected Lien of the Administrative Agent hereunder (including, where applicable, perfection by establishing "sole dominion and control" within the meaning of the common law and "control" within the meaning of the UCC), with the priority required hereby. In addition, the Borrower hereby covenants and agrees that each Compliance Certificate delivered pursuant to Section 6.1(c) of the Credit Agreement after the date hereof shall contain a certification that the representations and warranties contained in Section 3.1(a)(v) of the Security Agreement made by it and each other Loan Party are true and correct as of the date of such certificate. (c) If any material assets are acquired by the Borrower or any Subsidiary Guarantor after the Agreement Date (other than assets constituting Collateral under the Security Documents that become subject to the Lien of the Security Documents upon acquisition thereof, and other than assets upon which the Administrative Agent has a first perfected Lien), the Borrower will notify the Credit Parties thereof, and, if requested by the Administrative Agent or the Required Lenders, the Borrower will cause such assets to be subjected to a Lien securing the Obligations and will take, and cause the Subsidiaries Guarantors to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section, all at the expense of the Borrower and the Subsidiary Guarantors. Section 6.14 Environmental Compliance The Borrower will, and will cause each Subsidiary to, use and operate all of its facilities and property in compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in 52 compliance therewith, and handle all Hazardous Materials in compliance with all applicable Environmental Laws, except where noncompliance with any of the foregoing could not reasonably be expected to have a Material Adverse Effect. Section 6.15 Landlord Consent Agreements (a) The Borrower shall use its best efforts to obtain, within 90 days of the date hereof, counterparts of a Landlord Consent Agreement in the form of Exhibit H or such other form reasonably acceptable to the Administrative Agent, signed on behalf of each applicable Loan Party and the applicable landlord of the leased properties disclosed on Schedule 4.5. (b) If the Borrower or any Subsidiary Guarantor leases any real property after the Agreement Date (other than leases with respect to which the applicable Loan Party and lessor thereunder has executed and delivered a Landlord Consent Agreement), the Borrower will notify the Credit Parties thereof, and the Borrower will use its reasonable efforts to deliver or cause to be delivered to the Administrative Agent a Landlord Consent Agreement in the form of Exhibit H or such other form reasonably acceptable to the Administrative Agent, signed on behalf of such Loan Party and such lessor. ARTICLE 7. NEGATIVE COVENANTS Until the Revolving Commitments have expired or been terminated and the principal of and interest on each Loan and all fees and other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit have expired and all LC Disbursements have been reimbursed, the Borrower covenants and agrees with the Credit Parties that: Section 7.1 Indebtedness; Preferred Equity Interests (a) The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except: (i) Indebtedness under the Loan Documents; (ii) Indebtedness existing on the Agreement Date and set forth in Schedule 7.1, but not any extensions, renewals or replacements of any such Indebtedness; (iii) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof, provided that (A) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (B) the aggregate principal amount of Indebtedness permitted by this clause (iii) shall not, without duplication, together with the 53 Indebtedness permitted under clauses (iv) and (vii) of this Section and any Indebtedness permitted under clauses (iii), (iv) and (vii) of Section 11.1(a) of the Guarantee Agreement exceed $5,000,000 in the aggregate at any time outstanding; (iv) Indebtedness of any Person that becomes a Subsidiary after the Agreement Date, provided that (A) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (B) the aggregate principal amount of Indebtedness permitted by this clause (iv) shall not, without duplication, together with the Indebtedness permitted under clauses (iii) and (vii) of this Section and any Indebtedness permitted under clauses (iii), (iv) and (vii) of Section 11.1(a) of the Guarantee Agreement exceed $5,000,000 in the aggregate at any time outstanding; (v) Indebtedness of the Borrower to any other Loan Party and of any Subsidiary Guarantor to the Borrower or any other Loan Party; (vi) Guarantees by the Borrower of Indebtedness of any other Loan Party and by any Subsidiary Guarantor of Indebtedness of the Borrower or any other Loan Party; and (vii) other unsecured Indebtedness of the Borrower and its Subsidiaries, provided that the aggregate principal amount of Indebtedness permitted by this clause (vii) shall not, without duplication, together with the Indebtedness permitted under clauses (iii) and (iv) of this Section and any Indebtedness permitted under clauses (iii), (iv) and (vii) of Section 11.1(a) of the Guarantee Agreement exceed $5,000,000 in the aggregate at any time outstanding. (b) The Borrower will not, and it will not permit any Subsidiary to, issue any preferred Equity Interest, other than preferred Equity Interests issued by any Subsidiary to the Borrower or any Subsidiary Guarantor. Section 7.2 Liens The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Liens created under the Loan Documents; (b) Permitted Encumbrances; (c) any Lien on any property or asset of the Borrower or any Subsidiary existing on the Agreement Date and set forth in Schedule 7.2, provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the Agreement Date and any extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; 54 (d) security interests on fixed or capital assets acquired, constructed or improved by the Borrower or any Subsidiary, provided that (i) such security interests secure Indebtedness permitted by clause (iii) of Section 7.1, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary; and (e) security interests existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the Agreement Date prior to the time such Person becomes a Subsidiary, provided that (i) such security interests secure Indebtedness permitted by clause (iv) of Section 7.1, (ii) such security interests are not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as applicable, (iii) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary and (iv) such security interests shall secure only the Indebtedness that they secure on the date of such acquisition or the date such Person becomes a Subsidiary, as applicable, and any extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof. Section 7.3 Fundamental Changes (a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the Equity Interests (or all or substantially all of the Equity Interests within the meaning of clause (a) of such defined term) issued by any of the Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto, no Default shall or would have occurred and be continuing: (i) any Subsidiary may merge into the Borrower in a transaction in which the Borrower is the surviving entity, and any Subsidiary may merge into any Subsidiary Guarantor in a transaction in which such Subsidiary Guarantor is the surviving entity; (ii) any Subsidiary may merge with any Person in a transaction that is not permitted by clause (i) of this Section 7.3(a), provided that such merger is permitted by Sections 7.4 or 7.5, as applicable; (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to the Borrower or to any Subsidiary Guarantor; (iv) the Borrower or any Subsidiary may sell, transfer, lease or otherwise dispose of its assets in a transaction that is not permitted by clause (iii) of this Section 55 7.3(a), provided that such sale, transfer, lease or other disposition is also permitted by Section 7.5; and (v) any Subsidiary (other than a Subsidiary Guarantor) may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and is not materially disadvantageous to the Lenders. (b) The Borrower will not, and will not permit any of the Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and the Subsidiaries on the Agreement Date and businesses which are now directly related thereto. Section 7.4 Investments, Loans, Advances, Guarantees and Acquisitions The Borrower will not, and will not permit any of the Subsidiaries to, purchase, hold or acquire (including pursuant to any merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, make or permit to exist any Guarantees of any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions (including pursuant to any merger)) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments existing on the Agreement Date and set forth in Schedules 4.12 and 7.4; (c) investments made by the Borrower in the Equity Interests of any Subsidiary Guarantor and made by any Subsidiary Guarantor in the Equity Interests of any other Subsidiary Guarantor; (d) loans or advances made by the Borrower to any other Loan Party and made by any Subsidiary to the Borrower or any other Loan Party, provided that any such loans and advances made by a Loan Party shall be evidenced by a promissory note which shall be pledged pursuant to the Security Agreement; (e) acquisitions made by the Borrower from any Subsidiary Guarantor and made by any Subsidiary Guarantor from the Borrower or any other Subsidiary Guarantor; and (f) Guarantees permitted by Section 7.1; and (g) if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing other investments, loans, advances, Guarantees and acquisitions, provided that the sum of (i) the aggregate consideration paid by the Borrower or any Subsidiary in connection with all such acquisitions, (ii) the aggregate amount of all such investments, loans and advances outstanding and (iii) the amount of obligations and liabilities outstanding in the aggregate that is Guaranteed pursuant to all such Guarantees, shall not, together with all amounts utilized under Section 11.4(g) of the Guarantee Agreement, exceed $2,500,000 at any time. 56 Section 7.5 Asset Sales The Borrower will not, and will not permit any of the Subsidiaries to, sell, transfer, lease or otherwise dispose (including pursuant to a merger) of any asset, including any Equity Interest, nor will the Borrower permit any of the Subsidiaries to issue any additional Equity Interests except: (a) sales, transfers, leases and other dispositions of inventory, used or surplus equipment and Permitted Investments, in each case in the ordinary course of business; (b) sales, transfers, leases and other dispositions made by the Borrower to any other Loan Party and made by any Subsidiary Guarantor to the Borrower or any other Loan Party; (c) other sales, transfers, leases and dispositions of assets provided that the aggregate amount of sales, transfers, leases and dispositions permitted by this clause (c) and Section 11.5(c) of the Guarantee Agreement shall not exceed $2,500,000 in the aggregate at any time outstanding; and (d) issuances of Equity Interests by any Subsidiary Guarantor to the Borrower or any other Loan Party. Section 7.6 Sale and Lease-Back Transactions The Borrower will not, and will not permit any of the Subsidiaries to, enter into any arrangement, directly or indirectly, with any Person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred. Section 7.7 Hedging Agreements The Borrower will not, and will not permit any of the Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. Section 7.8 Restricted Payments The Borrower will not, and will not permit any of the Subsidiaries to, declare or make, or agree to pay for or make, directly or indirectly, any Restricted Payment, except that (i) the Borrower may declare and pay dividends with respect to its Equity Interests payable solely in perpetual common Equity Interests, and (ii) the Borrower or any Subsidiary may declare and pay dividends with respect to its Equity Interests to the Borrower or any other Loan Party. 57 Section 7.9 Transactions with Affiliates The Borrower will not, and will not permit any of the Subsidiaries to, sell, transfer, lease or otherwise dispose (including pursuant to a merger) any property or assets to, or purchase, lease or otherwise acquire (including pursuant to a merger) any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arms-length basis from unrelated third parties, provided that this Section shall not apply to any transaction that is permitted under Section 7.1, 7.3, 7.4, 7.5 or 7.8, or Section 11.1, 11.3, 11.4, 11.5 or 11.8 of the Guarantee Agreement, between or among the Loan Parties and not involving any other Affiliate. Section 7.10 Restrictive Agreements The Borrower will not, and will not permit any of the Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement binding on the Borrower or any Subsidiary that prohibits, restricts or imposes any condition upon (i) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets (unless such agreement or arrangement does not prohibit, restrict or impose any condition upon the ability of any Loan Party to create, incur or permit to exist any Lien in favor of the Secured Parties created under the Loan Documents) or (ii) the ability of any Subsidiary to pay dividends or other distributions with respect to any of its Equity Interests or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary, provided that (a) the foregoing shall not apply to restrictions and conditions imposed by law or by the Loan Documents, (b) the foregoing shall not apply to restrictions and conditions existing on the Agreement Date identified on Schedule 7.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (c) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided that such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (d) clause (i) of this Section shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted hereby if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (e) clause (i) of this Section shall not apply to customary provisions in leases restricting the assignment thereof. Section 7.11 Organizational Documents The Borrower will not, and will not permit any Subsidiary to, amend, modify or waive any of its rights under its certificate of incorporation, by-laws or other organizational documents, other than immaterial amendments, modifications or waivers that would not reasonably be expected to adversely affect the Credit Parties, provided that the Borrower shall deliver or cause to be delivered to the Administrative Agent and each Lender a copy of each such amendment, modification or waiver promptly after the execution and delivery thereof). 58 Section 7.12 Fixed Charge Coverage Ratio The Borrower will not permit the Fixed Charge Coverage Ratio as of the end of any fiscal quarter to be less than 1.35:1.00. Section 7.13 Leverage Ratio The Borrower will not permit the Leverage Ratio at any time to be greater than 4.00:1.00. Section 7.14 Capitalization Ratio The Borrower will not permit the Capitalization Ratio as of the end of any fiscal quarter to be greater than 55%. Section 7.15 Capital Expenditures The Borrower will not permit Capital Expenditures made or obligated to be made by the Parent and its subsidiaries on a consolidated basis in respect of fiscal year set forth below to be greater than the amount set forth below with respect to each such fiscal year: =============================== Fiscal Year Amount ------------------------------- 2001 $15,000,000 ------------------------------- 2002 $15,000,000 ------------------------------- 2003 $16,500,000 ------------------------------- 2004 $17,500,000 =============================== ARTICLE 8. EVENTS OF DEFAULT If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or on any reimbursement obligation in respect of any LC Disbursement or any fee, commission or any other amount (other than an amount referred to in clause (a) of this Article) payable under any Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days; (c) any representation or warranty made or deemed made by or on behalf of any Loan Party in or in connection with any Loan Document or any amendment or 59 modification hereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification hereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 6.2, 6.3, 6.8, 6.10, 6.12, 6.13, 6.15 or in Article 7, or any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in the Guarantee Documents, Security Documents or the Affiliate Subordination Agreement, in each case to the extent it or he is a party thereto; (e) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document to which it is a party (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after such Loan Party shall have obtained knowledge thereof; (f) any Loan Party shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Obligations, when and as the same shall become due and payable (after giving effect to any applicable grace period); (g) any event or condition occurs that results in any Material Obligations becoming due prior to their scheduled maturity or payment date, or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Obligations or any trustee or agent on its or their behalf to cause any Material Obligations to become due prior to their scheduled maturity or payment date or to require the prepayment, repurchase, redemption or defeasance thereof, prior to their scheduled maturity or payment date (in each case after giving effect to any applicable cure period), provided that this clause (g) shall not apply to secured Indebtedness that becomes due solely as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Parent or any of its subsidiaries, or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Parent or any of its subsidiaries or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 45 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Parent or any of its subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Parent or any of its subsidiaries or for a substantial part of its assets, (iv) file an answer admitting the material 60 allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Parent or any of its subsidiaries shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $1,000,000 shall be rendered against the Borrower or any Subsidiary or any combination thereof (which shall not be fully covered by insurance without taking into account any applicable deductibles) and the same shall remain undischarged or unbonded for a period of 45 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; (l) any Loan Document shall cease, for any reason, to be in full force and effect, or any Loan Party shall so assert in writing or shall disavow any of its obligations thereunder; (m) any Lien purported to be created under any Security Document shall cease to be, or shall be asserted by any Loan Party not to be, a valid and perfected Lien on any Collateral, with the priority required by the applicable Security Document, except (i) as a result of the sale or other disposition of the applicable Collateral in a transaction permitted under the Loan Documents or (ii) as a result of the Administrative Agent's failure to maintain possession of any stock certificates, promissory notes or other instruments delivered to it under the Security Agreement or any foreclosure, distraint, sale or similar proceedings have been commenced with respect to any Collateral; (n) a Change in Control shall occur; or (o) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and the Subsidiaries in an aggregate amount exceeding (i) $2,000,000 in any year or (ii) $2,000,000 for all periods; then, and in every such event (other than an event described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions (whether before or after the Effective Date), at the same or different times: (i) terminate the Revolving Commitments and thereupon the Revolving Commitments shall terminate immediately and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of each Loan Party accrued under the Loan Documents, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the 61 Borrower; and in case of any event described in clause (h) or (i) of this Article, the Revolving Commitments shall automatically terminate (whether before or after the Effective Date) and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of each Loan Party accrued under the Loan Documents, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. ARTICLE 9. THE ADMINISTRATIVE AGENT Each Credit Party hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (i) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (ii) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Credit Parties as shall be necessary under the circumstances as provided in Section 10.2), and (iii) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, any of the Subsidiaries or any other Loan Party that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Credit Parties as shall be necessary under the circumstances as provided in Section 10.2) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Credit Party (and, promptly after its receipt of any such notice, it shall give each Credit Party and the Borrower notice thereof), and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (a) any statement, warranty or representation made in or in connection with any Loan Document, (b) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (c) the performance or observance of any of the covenants, agreements or other terms or conditions set forth therein, (d) the validity, enforceability, effectiveness or genuineness thereof or any other agreement, 62 instrument or other document or (e) the satisfaction of any condition set forth in Article 5 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Loan Parties), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent, provided that no such delegation shall serve as a release of the Administrative Agent or waiver by the Borrower of any rights hereunder. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Credit Parties and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Credit Parties, appoint a successor Administrative Agent which shall be a bank or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 10.3 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Each Credit Party acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Credit Party or any of their Affiliates and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. Each Credit Party also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Credit Party or any 63 of their Affiliates and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon any Loan Document, any related agreement or any document furnished thereunder. ARTICLE 10. MISCELLANEOUS Section 10.1 Notices Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows: (a) if to the Borrower, to it at 500 University Court, Blackwood, New Jersey 08012, Attention: Leslie Gordon, Chief Financial Officer (Telephone No. (856) 228-6700 ext. 109), Facsimile No. (856) 228-0080); (b) if to the Administrative Agent or KeyBank as Issuing Bank, to it at 711 Westchester Avenue, White Plains, New York 10604, Attention of: Brendan Sachtjen (Telephone No. (914) 681-8301 Facsimile No. (914) 681-8350); and (c) if to any other Credit Party, to it at its address (or facsimile number) set forth in its Administrative Questionnaire. Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions hereof shall be deemed to have been given on the date of receipt. Section 10.2 Waivers; Amendments (a) No failure or delay by any Credit Party in exercising any right or power under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Credit Parties under the Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or the issuance, amendment, extension or renewal of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default at the time. 64 (b) Neither any Loan Document nor any provision thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders, provided that no such agreement shall (i) increase any Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or any reimbursement obligation with respect to a LC Disbursement, or reduce the rate of any interest (other than under Section 3.1(b)), or reduce any fees, payable under the Loan Documents, without the written consent of each Credit Party affected thereby, (iii) postpone the date of payment at stated maturity of any Loan or the date of payment of any reimbursement obligation with respect to an LC Disbursement, any interest or any fees payable under the Loan Documents, or reduce the amount of, waive or excuse any such payment, or postpone the stated termination or expiration of the Revolving Commitments or the LC Commitments without the written consent of each Credit Party affected thereby, (iv) change any provision hereof in a manner that would alter the pro rata sharing of payments required by Section 2.10(b) or the pro rata reduction of Revolving Commitments required by Section 2.5(d), without the written consent of each Credit Party affected thereby, (v) change any of the provisions of this Section or the definition of the term "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender, (vi) release the Parent or any Subsidiary Guarantor from its Guarantee under the Guarantee Documents (except as expressly provided in the Security Documents), or limit its liability in respect of such Guarantee, without the written consent of each Lender, or (vii) release all or substantially all of the Collateral from the Liens of the Loan Documents (except as expressly provided in the Security Agreement or in connection with a transaction permitted by Section 7.3), without the consent of each Lender, and provided, further, that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, the Issuing Bank or the Swingline Lender hereunder without the prior written consent of the Administrative Agent, the Issuing Bank or the Swingline Lender, as applicable. Section 10.3 Expenses; Indemnity; Damage Waiver (a) The Borrower shall pay (i) all reasonable out-of-pocket costs and expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of any Loan Document or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated thereby shall be consummated), (ii) all reasonable out-of-pocket costs and expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) all reasonable expenses of any collateral audit and (iv) all reasonable out-of-pocket costs and expenses incurred by any Credit Party, including the reasonable fees, charges and disbursements of any counsel for any Credit Party and any expert witness fees, in connection with the enforcement or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such reasonable out-of-pocket costs and expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. 65 (b) The Borrower shall indemnify each Credit Party and each Related Party thereof (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of any Loan Document or any agreement or instrument contemplated thereby, the performance by the parties to the Loan Documents of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated thereby, (ii) any Loan or Letter of Credit or the use of the proceeds thereof including any refusal of the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of the Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of the Subsidiaries or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent or the Issuing Bank under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent or the Issuing Bank, as applicable, an amount equal to the product of such unpaid amount multiplied by a fraction, the numerator of which is such Lender's Total Credit Exposure and the denominator of which is the aggregate Total Credit Exposure of all Lenders (in each case determined as of the time that the applicable unreimbursed expense or indemnity payment is sought or, in the event that no Lender shall have any Total Credit Exposure at such time, as of the last time at which any Lender had a Total Credit Exposure), provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as applicable, was incurred by or asserted against the Administrative Agent or the Issuing Bank in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct and actual damages) arising out of, in connection with, or as a result of, any Loan Document or any agreement, instrument or other document contemplated thereby, the Transactions or any Loan or any Letter of Credit or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable promptly but in no event later than ten days after written demand therefor. 66 Section 10.4 Successors and Assigns (a) The provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Credit Party (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing herein, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each Credit Party) any legal or equitable right, remedy or claim under or by reason of any Loan Document. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations hereunder (including all or a portion of its Revolving Commitment or obligations in respect of its LC Exposure or Swingline Exposure, and the Loans at the time owing to it), provided that (i) except in the case of an assignment to a Lender or an Affiliate or an Approved Fund of a Lender, each of the Borrower and the Administrative Agent (and, in the case of an assignment of all or any portion of a Revolving Commitment or obligations in respect of its LC Exposure or Swingline Exposure, the Issuing Bank and/or the Swingline Lender, as the case may be) must give its prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate or an Approved Fund of a Lender or an assignment of the entire remaining amount of the assigning Lender's Revolving Commitment, the amount of the Revolving Commitment, of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless the Borrower and the Administrative Agent otherwise consent, (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance together with, unless otherwise agreed by the Administrative Agent, a processing and recordation fee of $3,500, and (iv) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire, and provided further, that any consent of the Borrower otherwise required under this paragraph shall not be required if a Default has occurred and is continuing. Subject to acceptance and recording thereof pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under the Loan Documents, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under the Loan Documents (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.5, 3.6, 3.7 and 10.3). Any assignment or transfer by a Lender of rights or obligations under the Loan Documents that does not comply with this paragraph shall be treated for purposes of the Loan Documents as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. 67 (c) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices in Cleveland, Ohio, a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be presumptively correct absent clearly demonstrable error, and the Borrower and each Credit Party may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes hereof, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Credit Party, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes hereof unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Borrower or any Credit Party, sell participations to one or more banks or other entities (each such bank or other entity being called a "Participant") in all or a portion of such Lender's rights and obligations under the Loan Documents (including all or a portion of its Revolving Commitment LC Exposure, Swingline Exposure and outstanding Revolving Loans, owing to it), provided that (i) such Lender's obligations under the Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Loan Parties and the Credit Parties shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of any Loan Documents, provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 10.2(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.5 and 3.6 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.8 as though it were a Lender, provided that such Participant agrees to be subject to Section 2.10(c) as though it were a Lender. (f) A Participant shall not be entitled to receive any greater payment under Section 3.5 or 3.7 than the Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.7 unless the Borrower is notified 68 of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.7(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under the Loan Documents to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest, provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations under the Loan Documents or substitute any such pledgee or assignee for such Lender as a party hereto. Section 10.5 Survival All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments prepared or delivered in connection with or pursuant hereto or to any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of any Loan Document and the making of any Loans and the issuance of any Letter of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any Credit Party may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any LC Disbursement or any fee or any other amount payable under the Loan Documents is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 3.5, 3.6, 3.7 and 10.3, 10.9, 10.10 and Article 9 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans and the LC Disbursements, the expiration or termination of the Letters of Credit and the termination of the Commitments or the termination hereof or any provision hereof, provided that the provisions of such Sections shall be of no further force or effect after the 6th anniversary of the later to occur of (i) the date of the termination of the obligations of the Lenders hereunder, and (ii) the indefeasible payment of all of the Obligations. Section 10.6 Counterparts; Integration; Effectiveness This Credit Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which, when taken together, shall constitute but one contract. This Credit Agreement and any separate letter agreements with respect to fees payable to any Credit Party or the syndication of the credit facilities established hereunder constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 5.1, this Credit Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto (the "Closing Date"), and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart hereof by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. 69 Section 10.7 Severability In the event any one or more of the provisions contained herein should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. Section 10.8 Right of Setoff If an Event of Default shall have occurred and be continuing, each of the Lenders and their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by it to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing hereunder held by it, irrespective of whether or not it shall have made any demand hereunder and although such obligations may be unmatured. The rights of each the Lenders and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that it may have. Section 10.9 Governing Law; Jurisdiction; Consent to Service of Process (a) This Credit Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Credit Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing herein shall affect any right that the Administrative Agent or any other Credit Party may otherwise have to bring any action or proceeding relating hereto or to the other Loan Documents against the Borrower, or any of its property, in the courts of any jurisdiction. (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Credit Agreement or the other Loan Documents in any court referred to in paragraph (b) of this Section. 70 Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 10.1. Nothing herein will affect the right of any party hereto to serve process in any other manner permitted by law. Section 10.10 WAIVER OF JURY TRIAL EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS CREDIT AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS CREDIT AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. Section 10.11 Headings Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part hereof and shall not affect the construction of, or be taken into consideration in interpreting, this Credit Agreement. Section 10.12 Interest Rate Limitation Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts that are treated as interest on such Loan under applicable law (collectively the "charges"), shall exceed the maximum lawful rate (the "maximum rate") that may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all of the charges payable in respect thereof, shall be limited to the maximum rate and, to the extent lawful, the interest and the charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated, and the interest and the charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the maximum rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. 71 A.C. MOORE INCORPORATED CREDIT AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be duly executed by their respective authorized officers as of the day and year first above written. A.C. MOORE INCORPORATED By: /s/ Leslie H. Gordon -------------------------- Name: Leslie H. Gordon Title: Chief Financial Officer A.C. MOORE INCORPORATED CREDIT AGREEMENT KEYBANK NATIONAL ASSOCIATION, individually, as Issuing Bank, as Swingline Lender and as Administrative Agent By: /s/ Brendan Sachtjen -------------------------- Name: Brendan Sachtjen Title: Senior Vice President ii A.C. MOORE INCORPORATED CREDIT AGREEMENT FIRST UNION NATIONAL BANK By: /s/ Dante Bucci -------------------------- Name: Dante Bucci Title: Senior Vice President iii EX-10 6 ex10-11.txt EX10-11.TXT EXECUTION COPY SECURITY AGREEMENT by and among A.C. MOORE INCORPORATED, as Borrower A.C. MOORE ARTS & CRAFTS, INC., MOORESTOWN FINANCE, INC., BLACKWOOD ASSETS, INC., EACH OF THE OTHER GRANTORS PARTY HERETO and KEYBANK NATIONAL ASSOCIATION, As Administrative Agent ------------------------------ Dated as of August 3, 2001 TABLE OF CONTENTS ----------------- Page ARTICLE 1. DEFINITIONS; GRANT OF SECURITY; CONTINUING PERFECTION AND PRIORITY .................................................................. 1 Section 1.1 General Definitions ......................................... 1 Section 1.2 Other Definitions; Interpretation ........................... 7 Section 1.3 Grant of Security ........................................... 7 ARTICLE 2. SECURITY FOR OBLIGATIONS; NO ASSUMPTION OF LIABILITY .......... 8 Section 2.1 Security for Obligations .................................... 8 Section 2.2 No Assumption of Liability .................................. 8 ARTICLE 3. REPRESENTATIONS AND WARRANTIES AND COVENANTS .................. 8 Section 3.1 Generally ................................................... 8 Section 3.2 Equipment and Inventory ..................................... 12 Section 3.3 Receivables ................................................. 12 Section 3.4 Investment Related Property ................................. 13 Section 3.5 Letter of Credit Rights ..................................... 15 Section 3.6 Intellectual Property Collateral ............................ 16 Section 3.7 Commercial Tort Claims ...................................... 17 ARTICLE 4. FURTHER ASSURANCES ............................................. 18 ARTICLE 5. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT ................ 18 ARTICLE 6. REMEDIES UPON DEFAULT .......................................... 19 Section 6.1 Remedies Generally .......................................... 19 Section 6.2 Application of Proceeds of Sale ............................. 21 Section 6.3 Investment Related Property ................................. 22 Section 6.4 Grant of License to Use Intellectual Property ............... 22 Section 6.5 Registration, etc. .......................................... 23 ARTICLE 7. REIMBURSEMENT OF ADMINISTRATIVE AGENT .......................... 23 ARTICLE 8. WAIVERS; AMENDMENT ............................................. 24 ARTICLE 9. SECURITY INTEREST ABSOLUTE ..................................... 24 ARTICLE 10. TERMINATION; RELEASE .......................................... 25 ARTICLE 11. ADDITIONAL GRANTORS ........................................... 25 ARTICLE 12. NOTICES ....................................................... 25 ARTICLE 13. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS ................ 25 ARTICLE 14. SURVIVAL OF AGREEMENT; SEVERABILITY ........................... 26 ARTICLE 15. GOVERNING LAW ................................................. 26 ARTICLE 16. COUNTERPARTS .................................................. 26 ARTICLE 17. HEADINGS ...................................................... 27 ARTICLE 18. JURISDICTION; VENUE; CONSENT TO SERVICE OF PROCESS ............ 27 ARTICLE 19. WAIVER OF JURY TRIAL .......................................... 27 SCHEDULES: - --------- ====================|=========================================================== Schedule I | List of Subsidiaries and Addresses for Notices - --------------------|----------------------------------------------------------- Schedule 3.1(a)(i) | List of Chief Executive Offices, Jurisdictions of | Organization and Federal Employer Identification Numbers - --------------------|----------------------------------------------------------- Schedule 3.1(a)(ii) | List of Legal and Other Names - --------------------|----------------------------------------------------------- Schedule 3.1(a)(v) | List of Filing Offices - --------------------|----------------------------------------------------------- Schedule 3.2 | List of Locations of Equipment and Inventory - --------------------|----------------------------------------------------------- Schedule 3.4 | List of Investment Related Property - --------------------|----------------------------------------------------------- Schedule 3.5 | List of Letters of Credit - --------------------|----------------------------------------------------------- Schedule 3.6 | List of Intellectual Property - --------------------|----------------------------------------------------------- Schedule 3.7 | List of Commercial Tort Claims ====================|=========================================================== EXHIBITS: - -------- ====================|=========================================================== Exhibit A | Form of Supplement ====================|=========================================================== SECURITY AGREEMENT, dated as of August 3, 2001, among A.C. MOORE INCORPORATED, a Delaware corporation (the "Borrower"), A.C. MOORE ARTS & CRAFTS, INC., a Pennsylvania corporation (the "Parent"), MOORESTOWN FINANCE, INC., a Delaware corporation, BLACKWOOD ASSETS, INC., a Delaware corporation, each of the subsidiaries of the Borrower listed on Schedule I (each such subsidiary, individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors"; the Subsidiary Guarantors, the Parent, Moorestown Finance, Inc., Blackwoood Assets, Inc., and the Borrower are referred to collectively herein as the "Grantors"), and KEYBANK NATIONAL ASSOCIATION, as administrative agent under the Credit Agreement referred to in the next paragraph. Reference is made to the Credit Agreement, dated as of August 3, 2001, among the Borrower, the lenders from time to time party thereto and KeyBank National Association, as Administrative Agent (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). The Lenders have agreed to make Loans to, and the Issuing Bank has agreed to issue Letters of Credit for the account of, the Borrower pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. Each of the Subsidiary Guarantors, Moorestown Finance, Inc., Blackwood Assets, Inc., and the Parent has agreed to guarantee, among other things, all the obligations of each Loan Party under the Loan Documents. The obligations of the Lenders to make Loans and the Issuing Bank to issue Letters of Credit are conditioned upon, among other things, the execution and delivery by the Grantors of an agreement in the form hereof to secure the Obligations. Accordingly, the Grantors and the Administrative Agent, on behalf of itself and each other Secured Party (and each of their respective successors or assigns), hereby agree as follows: ARTICLE 1. DEFINITIONS; GRANT OF SECURITY; CONTINUING PERFECTION AND PRIORITY Section 1.1 General Definitions As used in this Security Agreement, the following terms shall have the meanings specified below: "Account Debtor" means each Person who is obligated in respect of any Receivable or any Supporting Obligation or Collateral Support related thereto. "Accounts" means (i) all "accounts" as defined in Article 9 of the UCC and (ii) all "health-care-insurance receivables", each as defined in Article 9 of the UCC. "Additional Grantor" has the meaning assigned to such term in Article 11. "Credit Agreement" has the meaning assigned to such term in the preliminary statement of this Security Agreement. "Applicable Date" means (i) in the case of any Grantor (other than an Additional Grantor), the date hereof, and (ii) in the case of any Additional Grantor, the date of the Supplement executed and delivered by such Additional Grantor. "Borrower" has the meaning assigned to such term in the preliminary statement of this Security Agreement. "Chattel Paper" means all "chattel paper" as defined in Article 9 of the UCC. "Claim Proceeds" means, with respect to any Commercial Tort Claim or any Collateral Support or Supporting Obligation relating thereto, all Proceeds thereof, including all insurance proceeds and other amounts and recoveries resulting or arising from the settlement or other resolution thereof, in each case regardless of whether characterized as a "commercial tort claim" or "proceeds" under the UCC. "Collateral" has the meaning assigned to such term in Section 1.3(b). "Collateral Records" means all books, instruments, certificates, Records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals and other documents, and all computer software, computer printouts, tapes, disks and related data processing software and similar items, in each case that at any time represent, cover or otherwise evidence, or contain information relating to, any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon. "Collateral Support" means all property (real or personal) assigned, hypothecated or otherwise securing any of the Collateral, and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property. "Commercial Tort Claims" means all "commercial tort claims" as defined in Article 9 of the UCC and (ii) all Claim Proceeds with respect to any of the foregoing; including all claims described in Schedule 3.7 hereto or to the applicable Supplement. "Copyright License" means any written agreement, now or hereafter in effect, granting any right to any third party under any Copyright now or hereafter owned or held by or behalf of any Grantor or which any Grantor otherwise has the right to license, or granting any right to any Grantor under any Copyright now or hereafter owned by any third party, and all rights of any Grantor under any such agreement, including each agreement described in Schedule 3.6 hereto or to the applicable Supplement. "Copyrights" means all of the following: (i) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise, and (ii) all registrations and applications for registration of any such copyright in the United States or any other country, including registrations, recordings, supplemental registrations and pending applications for registration in the United States Copyright Office or any similar offices in the United States or any other country, including those described in Schedule 3.6 hereto or to the applicable Supplement. "Documents" means all "documents" as defined in Article 9 of the UCC. "Equipment" means (i) all "equipment" as defined in Article 9 of the UCC, (ii) all machinery, manufacturing equipment, data processing equipment, computers, office equipment, furnishings, furniture, appliances, fixtures and tools, in each case, regardless of whether characterized as "equipment" under the UCC, and (iii) all accessions or - 2 - additions to any of the foregoing, all parts thereof, whether or not at any time of determination incorporated or installed therein or attached thereto, and all replacements therefor, wherever located, now or hereafter existing. "General Intangibles" means (i) all "general intangibles" as defined in Article 9 of the UCC and (ii) all choses in action and causes of action, all indemnification claims, all goodwill, all Hedging Agreements, all tax refunds, all licenses, permits, concessions, franchises and authorizations, all Intellectual Property, all Payment Intangibles and all Software, in each case, regardless of whether characterized as a "general intangible" under the UCC. "Goods" means (i) all "goods" as defined in Article 9 of the UCC and (ii) all Equipment and Inventory and any computer program embedded in goods and any supporting information provided in connection with such program, to the extent (a) such program is associated with such goods in such a manner that it is customarily considered part of such goods or (b) by becoming the owner of such goods, a Person acquires a right to use the program in connection with such goods, in each case, regardless of whether characterized as a "good" under the UCC. "Grantor" and "Grantors" have the meanings assigned to such terms in the preliminary statement of this Security Agreement. "Instruments" means all "instruments" as defined in Article 9 of the UCC. "Insurance" means all insurance policies covering any or all of the Collateral (regardless of whether the Administrative Agent or any other Secured Party is the loss payee thereof) and all business interruption insurance policies. "Intellectual Property" means all intellectual and similar property of any Grantor of every kind and nature, including inventions, designs, Patents, Copyrights, Trademarks, Licenses, domain names, Trade Secrets, confidential or proprietary technical and business information, know-how, show-how or other data or information, software and databases and all embodiments or fixations thereof and related documentation, registrations and franchises, and all additions, improvements and accessions to, and books and records describing or used in connection with, any of the foregoing. "Inventory" means (i) all "inventory" as defined in Article 9 of the UCC and (ii) all goods held for sale or lease or to be furnished under contracts of service or so leased or furnished, all raw materials, work in process, finished goods and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in any Grantor's business, all goods which are returned to or repossessed by or on behalf of any Grantor, and all computer programs embedded in any goods, and all accessions thereto and products thereof, in each case, regardless of whether characterized as "inventory" under the UCC. "Investment Related Property" means Pledged Debt and Pledged Equity Interests. "Letter of Credit Rights" means all "letter-of-credit rights" as defined in Article 9 of the UCC and (ii) all rights, title and interests of each Grantor to any letter of credit, in each case regardless of whether characterized as a "letter-of-credit right" under the UCC. - 3 - "License" means any Copyright License, Patent License, Trademark License, Trade Secret License or other license or sublicense to which any Grantor is a party. "Obligations" means (i) the due and punctual payment of (a) principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, and (b) all other monetary obligations, including Letters of Credit, fees, commissions, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of the Loan Parties to the Secured Parties, or that are otherwise payable to any Credit Party, in each case under the Loan Documents, (ii) the due and punctual performance of all covenants, agreements, obligations and liabilities of the Loan Parties or any other party (other than a Credit Party) under or pursuant to the Loan Documents and (iii) unless otherwise agreed upon in writing by the applicable Lender party thereto, all obligations of the Borrower, monetary or otherwise, under each Secured Hedging Agreement. "Patent License" means any written agreement, now or hereafter in effect, granting to any third party any right to make, use or sell any invention on which a Patent, now or hereafter owned or held by or on behalf of any Grantor or which any Grantor otherwise has the right to license, is in existence, or granting to any Grantor any right to make, use or sell any invention on which a Patent, now or hereafter owned by any third party, is in existence, and all rights of any Grantor under any such agreement, including each agreement described in Schedule 3.6 hereto or to the applicable Supplement. "Patents" means all of the following: (i) all letters patent of the United States or any other country, all registrations and recordings thereof and all applications for letters patent of the United States or any other country, including registrations, recordings and pending applications in the United States Patent and Trademark Office or any similar offices in the United States or any other country, including those described in Schedule 3.6 hereto or to the applicable Supplement, and (ii) all reissues, continuations, divisions, continuations-in-part, renewals or extensions thereof, and the inventions disclosed or claimed therein, including the right to make, use and/or sell the inventions disclosed or claimed therein. "Payment Intangibles" means all "payment intangibles" as defined in Article 9 of the UCC. "Pledged Debt" means all debt owed or owing to any Grantor by the Parent or any of its subsidiaries, including all debt described in Schedule 3.4 hereto or to the applicable Supplement, all Instruments, Chattel Paper or other documents, if any, representing or evidencing such debt, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such debt. "Pledged Equity Interests" means all Equity Interests owned or held by or on behalf of any Grantor in the Parent or any of its subsidiaries, including all such Equity Interests described in Schedule 3.4 hereto or to the applicable Supplement, and all certificates, instruments and other documents, if any, representing or evidencing such Equity Interests and all interests of such Grantor on the books and records of the issuers of such - 4 - Equity Interests, and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Equity Interests. "Proceeds" means (i) all "proceeds" as defined in Article 9 of the UCC, (ii) payments or distributions made with respect to any Investment Related Property, (iii) any payment received from any insurer or other Person or entity as a result of the destruction, loss, theft, damage or other involuntary conversion of whatever nature of any asset or property that constitutes the Collateral, and (iv) whatever is receivable or received when any of the Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary, including any claim of any Grantor against any third party for (and the right to sue and recover for and the rights to damages or profits due or accrued arising out of or in connection with) (a) past, present or future infringement of any Patent now or hereafter owned or held by or on behalf of any Grantor, or licensed under a Patent License, (b) past, present or future infringement or dilution of any Trademark now or hereafter owned or held by or on behalf of any Grantor, or licensed under a Trademark License, or injury to the goodwill associated with or symbolized by any Trademark now or hereafter owned or held by or on behalf of any Grantor, (c) past, present or future infringement of any Copyright now or hereafter owned or held by or on behalf of any Grantor, or licensed under a Copyright License, (d) past, present or future infringement of any Trade Secret now or hereafter owned or held by or on behalf of any Grantor, or licensed under a Trade Secret License, and (e) past, present or future breach of any License, in each case, regardless of whether characterized as "proceeds" under the UCC. "Receivables" means all rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, including all such rights constituting or evidenced by any Account, Chattel Paper, Instrument or other document, General Intangible or Investment Related Property, together with all of the applicable Grantor's rights, if any, in any goods or other property giving rise to such right to payment, and all Collateral Support and Supporting Obligations related thereto and all Receivables Records. "Receivables Records" means (i) all originals of all documents, instruments or other writings or electronic records or other Records evidencing any Receivable, (ii) all books, correspondence, credit or other files, Records, ledger sheets or cards, invoices, and other papers relating to any Receivable, including all tapes, cards, computer tapes, computer discs, computer runs, record keeping systems and other papers and documents relating to any Receivable, whether in the possession or under the control of the applicable Grantor or any computer bureau or agent from time to time acting for such Grantor or otherwise, (iii) all evidences of the filing of financing statements and the registration of other instruments in connection therewith, and amendments, supplements or other modifications thereto, notices to other creditors or secured parties, and certificates, acknowledgments, or other writings, including lien search reports, from filing or other registration officers, (iv) all credit information, reports and memoranda relating thereto, and (v) all other written forms of information related in any way to the foregoing or any Receivable. "Record" means a "record" as defined in Article 9 of the UCC. "Revised Article 9" means, with respect to any jurisdiction, (i) until such time as a version of the 1999 Official Text of Article 9 of the UCC (with conforming amendments to - 5 - Articles 1, 2, 2a, 4, 5, 6, 7 and 8) is and has become effective in such jurisdiction, such Official Text, and (ii) at all other times, the version of such Official Text as so adopted. "Secured Hedging Agreement" means each Hedging Agreement entered into by the Borrower with a Person that, at the time of the entry thereof, was a Lender (or an Affiliate thereof). "Secured Parties" means (i) the Credit Parties, (ii) unless otherwise agreed upon in writing by it, each counterparty to a Secured Hedging Agreement, (iii) the beneficiaries of each indemnification obligation undertaken by or on behalf of any Grantor under any Loan Document, and (iv) the successors and assigns of each of the foregoing. "Security Interest" has the meaning assigned to such term in Section 1.3. "Software" means all "software" as defined in Article 9 of the UCC. "Supplement" means a supplement hereto, substantially in the form of Exhibit A. "Supporting Obligation" means (i) all "supporting obligations" as defined in Article 9 of the UCC and (ii) all Guarantees and other secondary obligations supporting any of the Collateral, in each case regardless of whether characterized as a "supporting obligation" under the UCC. "Trade Secret Licenses" means any written agreement, now or hereafter in effect, granting to any third party any right to use any Trade Secrets now or hereafter owned or held by or on behalf of any Grantor or which such Grantor otherwise has the right to license, or granting to any Grantor any right to use any Trade Secrets now or hereafter owned by any third party, and all rights of any Grantor under any such agreement, including each agreement described in Schedule 3.6 hereto or to the applicable Supplement. "Trade Secrets" means all trade secrets and all other confidential or proprietary information and know-how now or hereafter owned or used in, or contemplated at any time for use in, the business of any Grantor (all of the foregoing being collectively called a "Trade Secret"), whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret. "Trademark License" means any written agreement, now or hereafter in effect, granting to any third party any right to use any Trademark now or hereafter owned or held by or on behalf of any Grantor or which such Grantor otherwise has the right to license, or granting to any Grantor any right to use any Trademark now or hereafter owned by any third party, and all rights of any Grantor under any such agreement, including each agreement described in Schedule 3.6 hereto or to the applicable Supplement. "Trademarks" means all of the following: (i) all trademarks, service marks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, other source or business identifiers, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings - 6 - thereof, and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office or any similar offices in the United States or any other country, and all extensions or renewals thereof, including those described in Schedule 3.6 hereto or to the applicable Supplement, (ii) all goodwill associated therewith or symbolized by any of the foregoing and (iii) all other assets, rights and interests that uniquely reflect or embody such goodwill. "UCC" means the Uniform Commercial Code as in effect from time to time in the State of New York or, when the context implies, the Uniform Commercial Code as in effect from time to time in any other applicable jurisdiction. Section 1.2 Other Definitions; Interpretation --------------------------------- (a) Other Definitions. Capitalized terms used herein and not otherwise defined herein, and the term "subsidiary" shall have the meanings assigned to such terms in the Credit Agreement. (b) Rules of Interpretation. The rules of interpretation specified in Sections 1.2, 1.3 and 1.4 of the Credit Agreement shall be applicable to this Security Agreement. All references herein to provisions of the UCC shall include all successor provisions under any subsequent version or amendment to any Article of the UCC. Section 1.3 Grant of Security ----------------- (a) As security for the payment or performance, as applicable, in full of the Obligations, each Grantor hereby bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates and transfers to the Administrative Agent (and its successors and assigns), for the ratable benefit of the Secured Parties, and hereby grants to the Administrative Agent (and its successors and assigns), for the ratable benefit of the Secured Parties, a security interest (the "Security Interest") in, all personal property and fixtures of such Grantor, including all of such Grantor's right, title and interest in, to and under the following, in each case whether now owned or existing or hereafter acquired or arising and wherever located (all of which being hereinafter collectively referred to as the "Collateral"): (i) Accounts, (ii) Chattel Paper, (iii) Commercial Tort Claims, (iv) Documents, (v) Equipment, (vi) General Intangibles, (vii) Goods, (viii) Instruments, (ix) Insurance, (x) Intellectual Property, (xi) Inventory, (xii) Investment Related Property, (xiii) Letter of Credit Rights, (xiv) Receivables and Receivables Records, (xv) to the extent not otherwise included in clauses (i) through (xiv) of this Section, all Collateral Records, Collateral Support and Supporting Obligations in respect of any of the foregoing, (xvi) to the extent not otherwise included in clauses (i) through (xv) of this Section, all other property in which a security interest may be granted under the UCC or which may be delivered to and held by the Administrative Agent pursuant to the terms hereof (including the account referred to in Section 3.4(c)(ii) and all funds and other property from time to time therein or credited thereto), and (xvii) to the extent not otherwise included in clauses (i) through (xvi) of this Section, all Proceeds, products, substitutions, accessions, rents and profits of or in respect of any of the foregoing. (b) Revisions to UCC. For the avoidance of doubt, it is expressly understood and agreed that, to the extent the UCC is revised after the date hereof such that the definition of any of the foregoing terms included in the description or definition of the Collateral is changed, the parties hereto desire that any property which is included in such changed definitions, but - 7 - which would not otherwise be included in the Security Interest on the date hereof, nevertheless be included in the Security Interest upon the effective date of such revision. Notwithstanding the immediately preceding sentence, the Security Interest is intended to apply immediately on the Effective Date to all of the Collateral to the fullest extent permitted by applicable law, regardless of whether any particular item of the Collateral was then subject to the UCC. (c) Certain Limited Exclusions. Notwithstanding anything in this Section 1.3 to the contrary, in no event shall the Collateral include, and no Grantor shall be deemed to have granted a Security Interest in, (a) any right under any lease, license or other contract or agreement constituting a General Intangible, if the granting of a security interest therein or an assignment thereof would violate any enforceable provision of such lease, license or other contract or agreement, as applicable, provided that (A) each of the Grantors, jointly with the other Grantors and severally, hereby represents and warrants to the Administrative Agent and the other Secured Parties that such leases, licenses and other contracts and agreements, taken as a whole, are not material and (B) immediately upon such provision no longer being enforceable, the Collateral shall include, and the Grantors shall be deemed to have granted a Security Interest in, such right as if such provision had never been enforceable, or (b) any of the outstanding capital stock of a "controlled foreign corporation" as defined in the Code in excess of 65% of the voting power of all classes of capital stock of such corporation entitled to vote. ARTICLE 2. SECURITY FOR OBLIGATIONS; NO ASSUMPTION OF LIABILITY Section 2.1 Security for Obligations ------------------------ This Security Agreement secures, and the Collateral is collateral security for, the prompt and complete payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 262(a) of Title 11 of the United States Code, or any similar provision of any other bankruptcy, insolvency, receivership or other similar law), of all Obligations with respect to each Grantor. Section 2.2 No Assumption of Liability -------------------------- Notwithstanding anything to the contrary herein, the Security Interest is granted as security only and shall not subject the Administrative Agent or any other Secured party to, or in any way alter or modify, any obligation or liability of any Grantor with respect to or arising out of the Collateral. ARTICLE 3. REPRESENTATIONS AND WARRANTIES AND COVENANTS Section 3.1 Generally --------- (a) Representations and Warranties. Each of the Grantors, jointly with the other Grantors and severally, represents and warrants to the Administrative Agent and the other Secured Parties that: (i) As of the Applicable Date, (A) such Grantor's chief executive office or its principal place of business is, and for the preceding four months has been, located at the office indicated on Schedule 3.1(a)(i) hereto or to the applicable Supplement, (B) such Grantor's jurisdiction of - 8 - organization is the jurisdiction indicated on Schedule 3.1(a)(i) hereto or to the applicable Supplement, and (C) such Grantor's Federal Employer Identification Number is as set forth on Schedule 3.1(a)(i) hereto or to the applicable Supplement. (ii) As of the Applicable Date, (A) such Grantor's full legal name is as set forth on Schedule 3.1(a)(ii) hereto or to the applicable Supplement and (B) such Grantor has not done in the preceding five years, and does not do, business under any other name (including any trade-name or fictitious business name), except for those names set forth on Schedule 3.1(a)(ii) hereto or to the applicable Supplement. (iii) Such Grantor has not within the five years preceding the Applicable Date become bound (whether as a result of merger or otherwise) as debtor under a security agreement entered into by another Person, which has not theretofore been terminated. (iv) Such Grantor has good and valid rights in, and title to, the Collateral with respect to which it has purported to grant the Security Interest, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such Collateral for its intended purposes, and except for Liens expressly permitted pursuant to the Loan Documents. (v) All actions and consents, including all filings, notices, registrations and recordings, necessary or desirable to create, perfect or ensure the first priority (subject only to Liens expressly permitted by the Loan Documents) of the Security Interest in the Collateral owned or held by it or on its behalf or for the exercise by the Administrative Agent or any other Secured Party of any voting or other rights provided for in this Security Agreement or the exercise of any remedies in respect of any such Collateral have been made or obtained, (A) except for (1) the filing of UCC financing statements naming such Grantor as "debtor" and the Administrative Agent as "secured party", or the making of other appropriate filings, registrations or recordings, containing a description of such Collateral in each applicable governmental, municipal or other office specified on Schedule 3.1(a)(v) hereto or to the applicable Supplement and (2) the filing, registration or recordation of fully executed security agreements in the form hereof (or in such other form as shall be in all respects satisfactory to the Administrative Agent) and containing a description of all such Collateral consisting of Patents, Trademarks and Copyrights, together with all other necessary documents, in each applicable governmental registry or office, (B) except for any such Collateral as to which the representations and warranties in this Section 3.1(a)(v) would not be true solely by virtue of such Collateral having been used or disposed of in a manner expressly permitted hereunder or under any other Loan Document, and (C) except to the extent that such Security Interest may not be perfected by filing, registering, recording or taking any other action in the United States. (vi) All Collateral owned or held by it or on its behalf is owned or held by it or on its behalf free and clear of any Lien, except for Permitted Encumbrances and other Liens expressly permitted by the Loan Documents. It has not filed or consented to the filing of (A) any financing statement or analogous document under the UCC or any other applicable laws covering any such Collateral, (B) any assignment in which it assigns any such Collateral or any security agreement or similar instrument covering any such Collateral with the United States Patent and Trademark Office or the United States Copyright Office, or (C) any assignment in which it assigns any such - 9 - Collateral or any security agreement or similar instrument covering any such Collateral with any foreign governmental, municipal or other office, in each case, which financing statement, analogous document, assignment or other instrument, as applicable, is still in effect, except for Liens expressly permitted by the Loan Documents. (vii) The Security Interest in the Collateral owned or held by it or on its behalf (A) is effective to vest in the Administrative Agent, on behalf of the Secured Parties, the rights of the Administrative Agent in such Collateral as set forth herein and (B) does not violate Regulation T, U or X as of the Applicable Date. (b) Covenants and Agreements. Each Grantor hereby covenants and agrees as follows: (i) It will promptly notify the Administrative Agent in writing of any change (A) in its legal name or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (B) in the location of its chief executive office, principal place of business, any office in which it maintains books or records relating to any of the Collateral owned or held by it or on its behalf or, except to the extent permitted by Section 3.1(b)(vii) or Section 3.2, any office or facility at which any such Collateral is located (including the establishment of any such new office or facility), (C) in its identity or legal or organizational structure or its jurisdiction of formation, or (D) in its Federal Taxpayer Identification Number. It agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Administrative Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral with the priority required hereby. (ii) It shall maintain, at its own cost and expense, such complete and accurate Records with respect to the Collateral owned or held by it or on its behalf as is consistent with its current practices and in accordance with such prudent and standard practices used in industries that are the same as or similar to those in which it is engaged, but in any event to include complete accounting Records indicating all payments and proceeds received with respect to any part of such Collateral, and, at such time or times as the Administrative Agent may reasonably request, promptly to prepare and deliver to the Administrative Agent a duly certified schedule or schedules in form and detail satisfactory to the Administrative Agent showing the identity and amount of any and all such Collateral. (iii) It shall, at its own cost and expense, take any and all actions necessary to defend title to the Collateral owned or held by it or on its behalf against all Persons and to defend the Security Interest in such Collateral and the priority thereof against any Lien or other interest not expressly permitted by the Loan Documents, and in furtherance thereof, it shall not take, or permit to be taken, any action not otherwise expressly permitted by the Loan Documents that could impair the Security Interest or the priority thereof or any Secured Party's rights in or to such Collateral. (iv) The Administrative Agent and such Persons as the Administrative Agent may designate shall have the right, at the cost and expense of such Grantor, to inspect all of its Records (and to make extracts and copies from such Records), to discuss its affairs with its officers and independent - 10 - accountants and to verify under reasonable procedures the validity, amount, quality, quantity, value, condition and status of, or any other matter relating to, the Collateral owned or held by or on behalf of such Grantor, including, in the case of Receivables, Pledged Debt, General Intangibles, Commercial Tort Claims or Collateral in the possession of any third person, by contacting Account Debtors, contract parties or other obligors thereon or any third person possessing such Collateral for the purpose of making such a verification. The Administrative Agent shall have the absolute right to share on a confidential basis any information it gains from such inspection or verification with any Secured Party. (v) At its option, the Administrative Agent may discharge past due taxes, assessments, charges, fees, Liens, security interests or other encumbrances at any time levied or placed on the Collateral owned or held by or on behalf of such Grantor, and not permitted by the Loan Documents, and may pay for the maintenance and preservation of such Collateral to the extent such Grantor fails to do so as required by the Loan Documents, and such Grantor agrees, jointly with the other Grantors and severally, to reimburse the Administrative Agent on demand for any payment made or any expense incurred by the Administrative Agent pursuant to the foregoing authorization; provided, however, that nothing in this paragraph shall be interpreted as excusing any Grantor from the performance of, or imposing any obligation on the Administrative Agent or any other Secured Party to cure or perform, any covenants or other promises of any Grantor with respect to taxes, assessments, charges, fees, Liens, security interests or other encumbrances and maintenance as set forth herein or in the other Loan Documents. (vi) It shall remain liable to observe and perform all the conditions and obligations to be observed and performed by it under each contract, agreement or instrument relating to the Collateral owned or held by it or on its behalf, all in accordance with the terms and conditions thereof, and it agrees, jointly with the other Grantors and severally, to indemnify and hold harmless the Administrative Agent and the other Secured Parties from and against any and all liability for such performance. (vii) It shall not make, or permit to be made, an assignment, pledge or hypothecation of the Collateral owned or held by it or on its behalf, or grant any other Lien in respect of such Collateral, except as expressly permitted by the Loan Documents. Except for Liens expressly permitted by the Loan Documents, it shall not make or permit to be made any transfer of such Collateral, and it shall remain at all times in possession of such Collateral and the direct owner, beneficially and of record, of the Pledged Equity Interests included in such Collateral, except that (A) Inventory may be sold in the ordinary course of business and (B) unless and until the Administrative Agent shall notify it that an Event of Default shall have occurred and be continuing and that, during the continuance thereof, it shall not sell, convey, lease, assign, transfer or otherwise dispose of any such Collateral (which notice may be given by telephone if promptly confirmed in writing), it may use and dispose of such Collateral in any lawful manner not inconsistent with the provisions of this Security Agreement or any other Loan Document. (viii) It shall, at its own cost and expense, maintain or cause to be maintained insurance covering (A) physical loss or damage to the Collateral owned or held by it or on its behalf against all risks and (B) liability arising from the use or intended use, or otherwise attributable or relating to, such Collateral, in each case in accordance with Section 6.10 of the Credit Agreement. The policies covering such insurance (1) shall, in the - 11 - case of each policy under clause (A) of the immediately preceding sentence, contain a standard loss payable clause and shall name the Administrative Agent or its agent as sole loss payee in respect of each claim relating to such Collateral and resulting in a payment thereunder, (2) shall, in the case of each policy under clause (B) of the immediately preceding sentence, be indorsed to provide, in respect of the interests of the Administrative Agent and the other Secured Parties, that the Administrative Agent shall be an additional insured, and (3) shall, in the case of each policy under such clauses (A) and (B), provide that 30 days' prior written notice of any cancellation or modification thereof or any reduction of amounts payable thereunder shall be given to the Administrative Agent, and in the event that such Grantor at any time or times shall fail to pay any premium in whole or part relating thereto, the Administrative Agent may, in its sole discretion, pay such premium. Such Grantor irrevocably makes, constitutes and appoints the Administrative Agent (and all officers, employees or agents designated by the Administrative Agent) as such Grantor's true and lawful agent (and attorney-in-fact) for the purpose, during the continuance of an Event of Default, of making, settling and adjusting claims in respect of such Collateral under policies of insurance, endorsing the name of such Grantor on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect thereto. In the event that such Grantor at any time or times shall fail to obtain or maintain any of the policies of insurance required hereby or to pay any premium in whole or part relating thereto, the Administrative Agent may, without waiving or releasing any obligation or liability of the Grantors hereunder or any Event of Default, in its sole discretion, obtain and maintain such policies of insurance and pay such premium and take any other actions with respect thereto as the Administrative Agent deems advisable. All sums disbursed by the Administrative Agent in connection with this subsection, including reasonable attorneys' fees and expenses, court costs, expenses and other charges relating thereto, shall be payable, upon demand, by such Grantor to the Administrative Agent and shall be additional Obligations secured hereby. Section 3.2 Equipment and Inventory ----------------------- Each of the Grantors, jointly with the other Grantors and severally, represents and warrants to the Administrative Agent and the other Secured Parties that, as of the Applicable Date, all of the Equipment and Inventory included in the Collateral owned or held by it or on its behalf is kept only at the locations specified on Schedule 3.2 hereto or to the applicable Supplement. In addition, each Grantor covenants and agrees that it shall not permit any Equipment or Inventory owned or held by it or on its behalf to be in the possession or control of any warehouseman, bailee, agent or processor for a period of greater than thirty (30) consecutive days, unless such warehouseman, bailee, agent or processor shall have been notified of the Security Interest and shall have agreed in writing to hold such Equipment or Inventory subject to the Security Interest and the instructions of the Administrative Agent and to waive and release any Lien held by it with respect to such Equipment or Inventory, whether arising by operation of law or otherwise. Section 3.3 Receivables ----------------------- Each Grantor hereby covenants and agrees that: (a) It shall mark conspicuously, in form and manner reasonably satisfactory to the Administrative Agent, all Chattel Paper, Instruments and other evidence of any Receivables owned or held by it or on its behalf (other than any delivered to the Administrative Agent as provided herein), as well as - 12 - the related Receivables Records, with an appropriate reference to the fact that the Administrative Agent has a security interest therein. (b) It will not, without the Administrative Agent's prior written consent (which consent shall not be unreasonably withheld), grant any extension of the time of payment of any such Receivable, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any Supporting Obligation or Collateral Support relating thereto, or allow any credit or discount whatsoever thereon, other than extensions, credits, discounts, releases, compromises or settlements granted or made in the ordinary course of business and consistent with its current practices and in accordance with such practices reasonably believed by such Grantor to be prudent. (c) Except as otherwise provided in this Section, it shall continue to collect all amounts due or to become due to it under all such Receivables and any Supporting Obligations or Collateral Support relating thereto, and diligently exercise each material right it may have thereunder, in each case at its own cost and expense, and in connection with such collections and exercise, it shall, upon the occurrence and during the continuance of an Event of Default, take such action as it or the Administrative Agent may reasonably deem necessary. Notwithstanding the foregoing, the Administrative Agent shall have the right at any time after the occurrence and during the continuance of an Event of Default to notify, or require such Grantor to notify, any Account Debtor with respect to any such Receivable, Supporting Obligation or Collateral Support of the Administrative Agent's security interest therein, and in addition, at any time during the continuation of an Event of Default, the Administrative Agent may: (i) direct such Account Debtor to make payment of all amounts due or to become due to such Grantor thereunder directly to the Administrative Agent and (ii) enforce, at the cost and expense of such Grantor, collection thereof and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor would be able to have done. If the Administrative Agent notifies such Grantor that it has elected to collect any such Receivable, Supporting Obligation or Collateral Support in accordance with the preceding sentence, any payments thereof received by such Grantor shall not be commingled with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Administrative Agent hereunder and shall be forthwith delivered to the Administrative Agent in the same form as so received (with any necessary indorsement), and such Grantor shall not grant any extension of the time of payment thereof, compromise, compound or settle the same for less than the full amount thereof, release the same, wholly or partly, or allow any credit or discount whatsoever thereon. Section 3.4 Investment Related Property --------------------------- (a) Representations and Warranties. Each of the Grantors, jointly with the other Grantors and severally, represents and warrants to the Administrative Agent and the other Secured Parties that Schedule 3.4 hereto or to the applicable Supplement sets forth, as of the Applicable Date, all of the Pledged Debt and Pledged Equity Interests included in the Collateral owned or held by or on behalf of such Grantor, and that all such Pledged Equity Interests have been duly authorized and validly issued and are fully paid and nonassessable and such Grantor is the direct owner, beneficially and of record, thereof. (b) Registration in Nominee Name; Denominations. Each Grantor hereby agrees that (i) without limiting Article 5, the Administrative Agent, on behalf of the Secured Parties, shall have the right (in its sole and absolute discretion) to hold any Investment Related Property in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of the applicable - 13 - Grantor, endorsed or assigned, where applicable, in blank or in favor of the Administrative Agent, (ii) at the Administrative Agent's request, such Grantor will promptly give to the Administrative Agent copies of any material notices or other communications received by it with respect to any Investment Related Property registered in its name, and (iii) the Administrative Agent shall at all times have the right to exchange any certificates, instruments or other documents representing or evidencing any Investment Related Property owned or held by or on behalf of such Grantor for certificates, instruments or other documents of smaller or larger denominations for any purpose consistent with this Security Agreement. (c) Voting and Distributions. (i) Unless and until an Event of Default shall have occurred and be continuing: (A) Each Grantor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of the Investment Related Property, or any part thereof, for any purpose consistent with the terms of this Security Agreement and the other Loan Documents; provided, however, that such Grantor will not be entitled to exercise any such right if the result thereof could materially and adversely affect the rights inuring to a holder of the Investment Related Property or the rights and remedies of any of the Secured Parties under this Security Agreement or any other Loan Document or the ability of any of the Secured Parties to exercise the same. (B) The Administrative Agent shall execute and deliver to each Grantor, or cause to be executed and delivered to each Grantor, all such proxies, powers of attorney and other instruments as such Grantor may reasonably request for the purpose of enabling it to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subsection (c)(i)(A) and to receive the cash payments it is entitled to receive pursuant to subsection (c)(i)(C). (C) Each Grantor shall be entitled to receive, retain and use any and all cash dividends, interest and principal paid on the Investment Related Property owned or held by it or on its behalf to the extent and only to the extent that such cash dividends, interest and principal are not prohibited by, and otherwise paid in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable laws. All non-cash dividends, interest and principal, and all dividends, interest and principal paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution, return of capital, capital surplus or paid-in surplus, and all other distributions (other than distributions referred to in the preceding sentence) made on or in respect of the Investment Related Property, whether paid or payable in cash or otherwise, whether resulting from a subdivision, combination or reclassification of the outstanding Pledged Equity Interests in any issuer of any Investment Related Property or received in exchange for any Investment Related Property, or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Collateral, and, if received by such Grantor, shall not be commingled with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Administrative Agent hereunder and shall be forthwith delivered to the Administrative Agent in the same form as so received (with any necessary endorsement). - 14 - (ii) Without limiting the generality of the foregoing, upon the occurrence and during the continuance of an Event of Default: (A) All rights of each Grantor to dividends, interest or principal that it is authorized to receive pursuant to subsection (c)(i)(C) shall cease, and all such rights shall thereupon become vested in the Administrative Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends, interest or principal, as applicable. All dividends, interest and principal received by or on behalf of any Grantor contrary to the provisions of this Section shall be held in trust for the benefit of the Administrative Agent, shall be segregated from other property or funds of such Grantor and shall be forthwith delivered to the Administrative Agent upon demand in the same form as so received (with any necessary endorsement). Any and all money and other property paid over to or received by the Administrative Agent pursuant to the provisions of this subsection (c)(ii)(A) shall be retained by the Administrative Agent in an account to be established in the name of the Administrative Agent, for the ratable benefit of the Secured Parties, upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 6.2. Subject to the provisions of this subsection (c)(ii)(A), such account shall at all times be under the sole dominion and control of the Administrative Agent, and the Administrative Agent shall at all times have the sole right to make withdrawals therefrom and to exercise all rights with respect to the funds and other property from time to time therein or credited thereto as set forth in the Loan Documents. After all Events of Default have been cured or waived, the Administrative Agent shall, within five Business Days after all such Events of Default have been cured or waived, repay to the applicable Grantor all cash dividends, interest and principal (without interest) that such Grantor would otherwise be permitted to retain pursuant to the terms of subsection (c)(i)(C) and which remain in such account. (B) All rights of each Grantor to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to subsection (c)(i)(A), and the obligations of the Administrative Agent under subsection (c)(i)(B), shall cease, and all such rights shall thereupon become vested in the Administrative Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers, provided that, unless otherwise directed by the Required Lenders, the Administrative Agent shall have the right from time to time following and during the continuance of an Event of Default to permit such Grantor to exercise such rights. After all Events of Default have been cured or waived, the applicable Grantor will have the right to exercise the voting and consensual rights and powers that it would otherwise be entitled to exercise pursuant to the terms of subsection (c)(i)(A). Section 3.5 Letter of Credit Rights ----------------------- Each of the Grantors, jointly with the other Grantors and severally, represents and warrants to the Administrative Agent and the other Secured Parties that Schedule 3.5 hereto or to the applicable Supplement sets forth, as of the Applicable Date, each letter of credit giving rise to a Letter of Credit Right included in the Collateral owned or held by or on behalf of such Grantor. - 15 - Section 3.6 Intellectual Property Collateral -------------------------------- (a) Representations and Warranties. Each of the Grantors, jointly with the other Grantors and severally, represents and warrants to the Administrative Agent and the other Secured Parties that Schedule 3.6 hereto or to the applicable Supplement sets forth, as of the Applicable Date, all of the Patents, Patent Licenses, Trademarks, Trademark Licenses, Copyrights, Copyright Licenses, Trade Secret Licenses and Domain Names included in the Collateral owned or held by or on behalf of such Grantor. (b) Covenants and Agreements. Each Grantor hereby covenants and agrees as follows: (i) It will not, nor will it permit any of its licensees (or sublicensees) to, do any act, or omit to do any act, whereby any Patent that is related to the conduct of its business may become invalidated or dedicated to the public, and it shall continue to mark any products covered by a Patent with the relevant patent number as necessary and sufficient to establish and preserve its maximum rights under applicable patent laws. (ii) It will (either directly or through its licensees or its sublicensees), for each Trademark that is related to the conduct of its business, (A) maintain such Trademark in full force free from any claim of abandonment or invalidity for non-use, (B) maintain the quality of products and services offered under such Trademark, (C) display such Trademark with notice of Federal or other analogous registration to the extent necessary and sufficient to establish and preserve its rights under applicable law, and (D) not knowingly use or knowingly permit the use of such Trademark in violation of any third party's valid and legal rights. (iii) It will (either directly or through its licensees or its sublicensees), for each work covered by a Copyright that is related to the conduct of its business, continue to publish, reproduce, display, adopt and distribute the work with appropriate copyright notice as necessary and sufficient to establish and preserve its maximum rights under applicable copyright laws. (iv) It will promptly notify the Administrative Agent in writing if it knows or has reason to know that any Intellectual Property material to the conduct of its business may become abandoned, lost or dedicated to the public, or of any adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or the United States Copyright Office, or any similar offices or tribunals in the United States or any other country) regarding such Grantor's ownership of any such Intellectual Property, its right to register the same, or to keep and maintain the same. (v) In no event shall it, either directly or through any agent, employee, licensee or designee, file an application for any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar offices in the United States or any other country, unless it promptly notifies the Administrative Agent in writing thereof and, upon request of the Administrative Agent, executes and delivers any and all agreements, instruments, documents and papers as the Administrative Agent may request to evidence the Administrative Agent's security interest in - 16 - such Intellectual Property, and such Grantor hereby appoints the Administrative Agent as its attorney-in-fact to execute and file such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power, being coupled with an interest, is irrevocable. (vi) It will take all necessary steps that are consistent with the practice in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar offices or tribunals in the United States or any other country, to maintain and pursue each material application relating to the Intellectual Property owned or held by it or on its behalf (and to obtain the relevant grant or registration) and to maintain each issued Patent and each registered Trademark and Copyright that is material to the conduct of its business, including timely filings of applications for renewal, affidavits of use, affidavits of incontestability and payment of maintenance fees, and, if consistent, in good faith, with good business judgment, to initiate opposition, interference and cancellation proceedings against third parties. In the event that it has reason to believe that any Intellectual Property material to the conduct of its business has been or is about to be infringed, misappropriated or diluted by a third party, it promptly shall notify the Administrative Agent in writing and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and take such other actions as are appropriate under the circumstances to protect such Intellectual Property. (vii) During the continuance of an Event of Default, it shall use its best efforts to obtain all requisite consents or approvals by the licenser of each License to effect the assignment (as collateral security) of all of its right, title and interest thereunder to the Administrative Agent or its designee. (viii) It shall take all steps reasonably necessary to protect the secrecy of all Trade Secrets relating to the products and services sold or delivered under or in connection with the Intellectual Property owned or held by or on its behalf, including entering into confidentiality agreements with employees and labeling and restricting access to secret information and documents. (ix) It shall continue to collect all amounts due or to become due to such Grantor under all Intellectual Property, and diligently exercise each material right it may have thereunder, in each case at its own cost and expense, and in connection with such collections and exercise, it shall, upon the occurrence and during the continuance of an Event of Default, take such action as it or the Administrative Agent may reasonably deem necessary. Notwithstanding the foregoing, the Administrative Agent shall have the right at any time after the occurrence and during the continuance of an Event of Default to notify, or require such Grantor to notify, any relevant obligors with respect to such amounts of the Administrative Agent's security interest therein. Section 3.7 Commercial Tort Claims ---------------------- (a) Representations and Warranties. Each of the Grantors, jointly with the other Grantors and severally, represents and warrants to the Administrative Agent and the other Secured Parties that Schedule 3.7 hereto or to the applicable Supplement sets forth, as of the Applicable Date, all Commercial Tort Claims made by it or on its behalf or to which it otherwise has any right, title or interest. - 17 - (b) Covenants and Agreements. Each Grantor hereby covenants and agrees that promptly after the same shall have been commenced, written notice of any Commercial Tort Claim and any judgment, settlement or other disposition thereof. ARTICLE 4. FURTHER ASSURANCES Each Grantor hereby covenants and agrees, at its own cost and expense, to execute, acknowledge, deliver and/or cause to be duly filed all such further agreements, instruments and other documents (including favorable legal opinions in connection with any Transaction), and take all such further actions, that the Administrative Agent may from time to time reasonably request to preserve, protect and perfect (including as a result of the effectiveness of Revised Article 9 in any jurisdiction or any other change in applicable law) the Security Interest granted by it and the rights and remedies created hereby, including the payment of any fees and taxes required in connection with its execution and delivery of this Security Agreement, the granting by it of the Security Interest and the filing of any financing statements or other documents in connection herewith or therewith. In addition, to the extent permitted by applicable law, each Grantor hereby irrevocably authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral owned or held by it or on its behalf without the signature of such Grantor and agrees that a photographic or other reproduction of this Security Agreement or of a financing statement signed by such Grantor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. Each Grantor hereby further irrevocably authorizes the Administrative Agent to file a Record or Records, including financing statements, in all jurisdictions and with all filing offices that the Administrative Agent may determine, in its sole and absolute discretion, are necessary, advisable or prudent to perfect the Security Interest granted by it and agrees that such financing statements may describe the Collateral owned or held by it or on its behalf in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner that the Administrative Agent may determine, in its sole and absolute discretion, is necessary, advisable or prudent to perfect the Security Interest granted by such Grantor, including describing such property as "all assets" or "all personal property." ARTICLE 5. ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT Each Grantor hereby appoints the Administrative Agent as its true and lawful agent and attorney-in-fact for the purpose of carrying out the provisions of this Security Agreement and taking any action and executing any instrument that the Administrative Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest, and without limiting the generality of the foregoing, the Administrative Agent shall have the right, with power of substitution for such Grantor and in such Grantor's name or otherwise, for the use and benefit of the Administrative Agent and the other Secured Parties, upon the occurrence and during the continuance of an Event of Default and at such other time or times permitted by the Loan Documents, (i) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Collateral owned or held by it or on its behalf or any part thereof; (ii) to demand, collect, receive payment of, give receipt for, and give discharges and releases of, any of such Collateral; (iii) to sign the name of such Grantor on any invoice or bill of lading relating to any of such Collateral; (iv) to send verifications of Receivables owned or held by it or on its behalf to any Account Debtor; (v) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on any of the Collateral owned or - 18 - held by it or on its behalf or to enforce any rights in respect of any of such Collateral; (vi) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to any of such Collateral; (vii) to notify, or to require such Grantor to notify, Account Debtors and other obligors to make payment directly to the Administrative Agent, and (viii) to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with any of such Collateral, and to do all other acts and things necessary to carry out the purposes of this Security Agreement, as fully and completely as though the Administrative Agent were the absolute owner of such Collateral for all purposes; provided, however, that nothing herein contained shall be construed as requiring or obligating the Administrative Agent or any other Secured Party to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Administrative Agent or any other Secured Party, or to present or file any claim or notice, or to take any action with respect to any of the Collateral or the moneys due or to become due in respect thereof or any property covered thereby, and no action taken or omitted to be taken by the Administrative Agent or any other Secured Party with respect to any of the Collateral shall give rise to any defense, counterclaim or offset in favor of such Grantor or to any claim or action against the Administrative Agent or any other Secured Party. The provisions of this Article shall in no event relieve any Grantor of any of its obligations hereunder or under the other Loan Documents with respect to any of the Collateral or impose any obligation on the Administrative Agent or any other Secured Party to proceed in any particular manner with respect to any of the Collateral, or in any way limit the exercise by the Administrative Agent or any other Secured Party of any other or further right that it may have on the date of this Security Agreement or hereafter, whether hereunder, under any other Loan Document, by law or otherwise. Any sale pursuant to the provisions of this paragraph shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the UCC as in effect in the State of New York or its equivalent in other jurisdictions (or any successor provision). ARTICLE 6. REMEDIES UPON DEFAULT Section 6.1 Remedies Generally ------------------ (a) General Rights. Upon the occurrence and during the continuance of an Event of Default, each Grantor agrees to deliver each item of Collateral owned or held by it or on its behalf to the Administrative Agent on demand, and it is agreed that the Administrative Agent shall have the right to take any of or all the following actions at the same or different times: (i) with respect to any Collateral consisting of Intellectual Property or Commercial Tort Claims, on demand, to cause the Security Interest to become an assignment, transfer and conveyance of any such Collateral by the applicable Grantors to the Administrative Agent, or, in the case of Intellectual Property, to license or sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any such Collateral throughout the world on such terms and conditions and in such manner as the Administrative Agent shall determine (other than in violation of any then-existing licensing arrangements to the extent that waivers cannot be obtained), and (ii) with or without legal process and with or without prior notice or demand for performance, to take possession of the Collateral owned or held by it or on its behalf and without liability for trespass to enter any premises where such Collateral may be located for the purpose of taking possession of or removing such Collateral and, generally, to exercise any and all rights afforded to a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, each Grantor agrees that the Administrative Agent shall have the right, subject to the mandatory requirements of applicable law, to sell or otherwise dispose of any of the Collateral owned or held by or on behalf of such Grantor, at public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery as the Administrative Agent shall deem - 19 - appropriate. The Administrative Agent shall be irrevocably authorized at any such sale of such Collateral constituting securities (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing such Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale, the Administrative Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold. Each such purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of the applicable Grantor, and such Grantor hereby waives (to the extent permitted by law) all rights of redemption, stay, valuation and appraisal which such Grantor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. (b) Sale of Collateral. The Administrative Agent shall give each Grantor ten days' written notice (which such Grantor agrees is reasonable notice within the meaning of Sections 9-611 and 9-612 of the UCC as in effect in the State of New York or its equivalent in other jurisdictions (or any successor provisions)), of the Administrative Agent's intention to make any sale of any of the Collateral owned or held by or on behalf of such Grantor. Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker's board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which such Collateral will first be offered for sale at such board or exchange. Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Administrative Agent may fix and state in the notice (if any) of such sale. At any such sale, the Collateral to be sold may be sold in one lot as an entirety or in separate parcels, as the Administrative Agent may (in its sole and absolute discretion) determine. The Administrative Agent shall not be obligated to make any sale of any Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Collateral shall have been given. The Administrative Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned. In case any sale of any of the Collateral is made on credit or for future delivery, the Collateral so sold may be retained by the Administrative Agent until the sale price is paid by the purchaser or purchasers thereof, but the Administrative Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Collateral so sold and, in case of any such failure, such Collateral may be sold again upon like notice. At any public (or, to the extent permitted by applicable law, private) sale made pursuant to this Section, any Secured Party may bid for or purchase, free (to the extent permitted by applicable law) from any right of redemption, stay, valuation or appraisal on the part of such Grantor (all said rights being also hereby waived and released to the extent permitted by law), any of the Collateral offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from such Grantor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to such Grantor therefor. For purposes hereof, (i) a written agreement to purchase any of the Collateral shall be treated as a sale thereof, (ii) the Administrative Agent shall be free to carry out such sale pursuant to such agreement, and (iii) no Grantor shall be entitled to the return of any of the Collateral subject thereto, notwithstanding the fact that after the Administrative Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full. As an alternative to exercising the power of sale herein conferred upon it, the Administrative Agent may proceed by a suit or suits at law or in equity to foreclose upon any of the Collateral and to sell any of the Collateral pursuant to a judgment or decree of a court or courts having competent jurisdiction or - 20 - pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the provisions of this Article shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the UCC as in effect in the State of New York or its equivalent in other jurisdictions (or any successor provisions). Without limiting the generality of the foregoing, each Grantor agrees as follows: (A) if the proceeds of any sale of the Collateral owned or held by it or on its behalf pursuant to this Article are insufficient to pay all the Obligations, it shall be liable for the resulting deficiency and the fees, charges and disbursements of any counsel employed by the Administrative Agent or any other Secured Party to collect such deficiency, (B) it hereby waives any claims against the Administrative Agent arising by reason of the fact that the price at which any such Collateral may have been sold at any private sale pursuant to this Article was less than the price that might have been obtained at a public sale, even if the Administrative Agent accepts the first offer received and does not offer such Collateral to more than one offeree, (C) there is no adequate remedy at law for failure by it to comply with the provisions of this Section and that such failure would not be adequately compensible in damages, and therefore agrees that its agreements in this Section may be specifically enforced, (D) the Administrative Agent may sell any such Collateral without giving any warranties as to such Collateral, and the Administrative Agent may specifically disclaim any warranties of title or the like, and (E) the Administrative Agent shall have no obligation to marshall any such Collateral. Section 6.2 Application of Proceeds of Sale ------------------------------- The Administrative Agent shall apply the proceeds of any collection or sale of the Collateral, as well as any Collateral consisting of cash (except as otherwise provided in Section 6.11 of the Credit Agreement, Section 3.7(b)(v)), as follows: FIRST, to the payment of all reasonable costs and expenses incurred by the Administrative Agent (in its capacity as such hereunder or under any other Loan Document) in connection with such collection or sale or otherwise in connection with this Security Agreement, any other Loan Document or any of the Obligations, including all out-of-pocket court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Administrative Agent hereunder or under any other Loan Document on behalf of any Grantor and any other reasonable out-of-pocket costs or expenses incurred in connection with the exercise of any right or remedy hereunder or under any other Loan Document; SECOND, to the payment in full of the Obligations (the amounts so applied to be distributed among the Secured Parties pro rata in accordance with the amounts of the Obligations owed to them on the date of any such distribution); and THIRD, to the applicable Grantor, its successors or assigns, or as a court of competent jurisdiction may otherwise direct. The Administrative Agent shall have sole and absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Security Agreement. Upon any sale of the Collateral by the Administrative Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the purchase money by the Administrative Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Administrative Agent or such officer or be answerable in any way for the misapplication thereof. - 21 - Section 6.3 Investment Related Property --------------------------- In view of the position of each Grantor in relation to the Investment Related Property, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the "Federal securities laws") with respect to any disposition of the Investment Related Property permitted hereunder. Each Grantor understands that compliance with the Federal securities laws might very strictly limit the course of conduct of the Administrative Agent if the Administrative Agent were to attempt to dispose of all or any part of the Investment Related Property, and might also limit the extent to which or the manner in which any subsequent transferee of any Investment Related Property could dispose of the same. Similarly, there may be other legal restrictions or limitations affecting the Administrative Agent in any attempt to dispose of all or part of the Investment Related Property under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect. Each Grantor recognizes that in light of such restrictions and limitations the Administrative Agent may, with respect to any sale of the Investment Related Property, limit the purchasers to those who will agree, among other things, to acquire such Investment Related Property for their own account, for investment, and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that in light of such restrictions and limitations, the Administrative Agent, in its sole and absolute discretion, (i) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Investment Related Property, or any part thereof, shall have been filed under the Federal securities laws and (ii) may approach and negotiate with a single potential purchaser to effect such sale. Each Grantor acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions. In the event of any such sale, the Administrative Agent shall incur no responsibility or liability for selling all or any part of the Investment Related Property at a price that the Administrative Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached. The provisions of this Section will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Administrative Agent sells any such Investment Related Property. Section 6.4 Grant of License to Use Intellectual Property --------------------------------------------- For the purpose of enabling the Administrative Agent to exercise rights and remedies under this Article, at such time as the Administrative Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Administrative Agent an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sub-license any of the Collateral consisting of Intellectual Property now owned or held or hereafter acquired or held by or on behalf of such Grantor, and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof. The use of such license by the Administrative Agent shall be exercised, at the option of the Administrative Agent, upon the occurrence and during the continuation of an Event of Default; provided that any license, sub-license or other transaction entered into by the Administrative Agent in accordance herewith shall be binding upon such Grantor notwithstanding any subsequent cure of an Event of Default. Any royalties and other payments received by the Administrative Agent shall be applied in accordance with Section 6.2. - 22 - Section 6.5 Registration, etc. ------------------ Each Grantor agrees that, upon the occurrence and during the continuance of an Event of Default, if for any reason the Administrative Agent desires to sell any of the Investment Related Property owned or held by or on behalf of such Grantor at a public sale, it will, at any time and from time to time, upon the written request of the Administrative Agent, use its best efforts to take or to cause, where applicable, the issuer of such Investment Related Property to take such action and prepare, distribute and/or file such documents, as are required or advisable in the reasonable opinion of counsel for the Administrative Agent to permit the public sale of such Investment Related Property. Each Grantor further agrees to indemnify, defend and hold harmless the Administrative Agent, each other Secured Party, any underwriter and their respective officers, directors, affiliates and controlling Persons from and against all loss, liability, expenses, costs of counsel (including reasonable fees and expenses of legal counsel), and claims (including the costs of investigation) that they may incur, insofar as such loss, liability, expense or claim, as applicable, relates to such Grantor or any of its property, and arises out of or is based upon any alleged untrue statement of a material fact contained in any prospectus (or any amendment or supplement thereto) or in any notification or offering circular, or arises out of or is based upon any alleged omission to state a material fact required to be stated therein or necessary to make the statements in any thereof not misleading, except insofar as the same may have been caused by any untrue statement or omission based upon information furnished in writing to such Grantor or the issuer of such Investment Related Property, as applicable, by the Administrative Agent or any other Secured Party expressly for use therein. Each Grantor further agrees, upon such written request referred to above, to use its best efforts to qualify, file or register, or cause, where applicable, the issuer of such Investment Related Property to qualify, file or register, any of the Investment Related Property owned or held by or on behalf of such Grantor under the Blue Sky or other securities laws of such states as may be requested by the Administrative Agent and keep effective, or cause to be kept effective, all such qualifications, filings or registrations. Each Grantor will bear all costs and expenses of carrying out its obligations under this Section. Each Grantor acknowledges that there is no adequate remedy at law for failure by it to comply with the provisions of this Section and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this Section may be specifically enforced. ARTICLE 7. REIMBURSEMENT OF ADMINISTRATIVE AGENT Each Grantor agrees, jointly with the other Grantors and severally, to pay to the Administrative Agent the amount of any and all reasonable out-of-pocket expenses, including the fees, other charges and disbursements of counsel and of any experts or agents, that the Administrative Agent may incur in connection with (i) the administration of this Security Agreement relating to such Grantor or any of its property, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral owned or held by or on behalf of such Grantor, (iii) the exercise, enforcement or protection of any of the rights of the Administrative Agent hereunder relating to such Grantor or any of its property, or (iv) the failure by such Grantor to perform or observe any of the provisions hereof. Without limitation of its indemnification obligations under the other Loan Documents, each of the Grantors agrees, jointly with the other Grantors and severally, to indemnify the Administrative Agent and the other Indemnitees against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related out-of-pocket expenses, including reasonable counsel fees, other charges and disbursements, incurred by or asserted against any Indemnitee arising out of, in any way connected with, or as a result of (a) the execution or delivery by such Grantor of this Security Agreement or any other Loan Document or any agreement or instrument contemplated hereby or thereby, or the performance by such Grantor of its obligations under the Loan - 23 - Documents and the other transactions contemplated thereby or (b) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. Any amounts payable as provided hereunder shall be additional Obligations secured hereby and by the other Security Documents. The provisions of this Section shall remain operative and in full force and effect regardless of the termination of this Security Agreement or any other Loan Document, the consummation of the transactions contemplated hereby or thereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Security Agreement or any other Loan Document or any investigation made by or on behalf of the Administrative Agent or any other Secured Party. All amounts due under this Section shall be payable within ten days of written demand therefor and shall bear interest at the rate specified in Section 3.1 of the Credit Agreement. ARTICLE 8. WAIVERS; AMENDMENT No failure or delay of the Administrative Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the other Secured Parties hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Security Agreement or any other Loan Document or consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be permitted by this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Grantor in any case shall entitle such Grantor to any other or further notice or demand in similar or other circumstances. Neither this Security Agreement nor any provision hereof may be waived, amended, supplemented or otherwise modified, or any departure therefrom consented to, except pursuant to an agreement or agreements in writing entered into by, between or among the Administrative Agent and the Grantor or Grantors with respect to which such waiver, amendment, other modification or consent is to apply, subject to any consent required in accordance with Section 10.2 of the Credit Agreement. ARTICLE 9. SECURITY INTEREST ABSOLUTE All rights of the Administrative Agent hereunder, the Security Interest and all obligations of each Grantor hereunder shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Obligations, or any other agreement or instrument relating to any of the foregoing, (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other waiver, amendment, supplement or other modification of, or any consent to any departure from, the Credit Agreement, any other Loan Document or any other agreement or instrument relating to any of the foregoing, (iii) any exchange, release or non-perfection of any Lien on any other collateral, or any release or waiver, amendment, supplement or other modification of, or consent under, or departure from, any guaranty, securing or guaranteeing all or any of the Obligations, or (iv) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor in respect of the Obligations or in respect of this Security Agreement or any other Loan Document. - 24 - ARTICLE 10. TERMINATION; RELEASE This Security Agreement and the Security Interest shall terminate when all the Obligations have been finally and indefeasibly paid in full in cash, the Credit Parties have no further commitment to lend or otherwise extend credit under the Credit Agreement, and all Secured Hedging Agreements have been terminated. Upon (i) any sale, transfer or other disposition permitted by the Loan Documents (other than any sale, transfer or other disposition of any Collateral that would, immediately after giving effect thereto, continue to be Collateral but for the release of the security interest therein pursuant to this clause) or (ii) the effectiveness of any written consent to the release of the Security Interest in any Collateral pursuant to Section 10.2 of the Credit Agreement, the Security Interest in such Collateral shall be automatically released. In addition, if any of the Pledged Equity Interests in any Subsidiary are sold, transferred or otherwise disposed of pursuant to a transaction permitted by the Loan Documents and, immediately after giving effect thereto, such Subsidiary or subsidiary, as applicable, would no longer be a Subsidiary or a subsidiary, as applicable, then the obligations of such Subsidiary or subsidiary, as applicable, under this Security Agreement and the Security Interest in the Collateral owned or held by or on behalf of such Subsidiary or such subsidiary, as applicable, shall be automatically released. In connection with any termination or release pursuant to this Section, the Administrative Agent shall execute and deliver to the applicable Grantor, at its own cost and expense, all Uniform Commercial Code termination statements and similar documents that such Grantor may reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Article shall be without recourse to or warranty by the Administrative Agent or any other Secured Party. ARTICLE 11. ADDITIONAL GRANTORS Upon execution and delivery after the date hereof by the Administrative Agent and a Subsidiary of a Supplement, such Subsidiary or subsidiary, as applicable, shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein (each an "Additional Grantor"). The execution and delivery of any Supplement shall not require the consent of any other Grantor hereunder. The rights and obligations of each Grantor hereunder and each other Loan Party and other party (other than a Credit Party) under the Loan Documents shall remain in full force and effect notwithstanding the addition of any Additional Grantor as a party to this Security Agreement. ARTICLE 12. NOTICES All communications and notices hereunder shall be in writing and given as provided in Section 10.1 of the Credit Agreement. All communications and notices hereunder to the Administrative Agent or the Borrower shall be given to it at its address for notices set forth in such Section, and all communications and notices hereunder to any other Grantor shall be given to it at its address for notices set forth on Schedule I hereto or to the applicable Supplement, with, in the case of any Grantor other than the Borrower, a copy to the Borrower. ARTICLE 13. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS Whenever in this Security Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party, and all covenants, promises and agreements by or on behalf of any Grantor that are contained in this Security Agreement shall bind - 25 - and inure to the benefit of each party hereto and its successors and assigns. This Security Agreement shall become effective as to any Grantor when a counterpart hereof executed on behalf of such Grantor shall have been delivered to the Administrative Agent and a counterpart hereof shall have been executed on behalf of the Administrative Agent, and thereafter shall be binding upon such Grantor and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of such Grantor, the Administrative Agent and the other Secured Parties, and their respective successors and assigns, except that no Grantor shall have the right to assign its rights or obligations hereunder or any interest herein or in any of the Collateral (and any such attempted assignment shall be void), except as expressly contemplated by this Security Agreement or the other Loan Documents. This Security Agreement shall be construed as a separate agreement with respect to each of the Grantors and may be amended, supplemented, waived or otherwise modified or released with respect to any Grantor without the approval of any other Grantor and without affecting the obligations of any other Grantor hereunder. ARTICLE 14. SURVIVAL OF AGREEMENT; SEVERABILITY All covenants, agreements, representations and warranties made by the Grantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Security Agreement or any other Loan Document shall be considered to have been relied upon by the Administrative Agent and the other Secured Parties and shall survive the execution and delivery of any Loan Document and the making of any Loan, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect until this Security Agreement shall terminate. In the event any one or more of the provisions contained in this Security Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. ARTICLE 15. GOVERNING LAW THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. ARTICLE 16. COUNTERPARTS This Security Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which, when taken together, shall constitute but one contract (subject to Article 13), and shall become effective as provided in Article 13. Delivery of an executed counterpart of this Security Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Security Agreement. - 26 - ARTICLE 17. HEADINGS Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Security Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Security Agreement. ARTICLE 18. JURISDICTION; VENUE; CONSENT TO SERVICE OF PROCESS Each Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Security Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Security Agreement shall affect any right that the Administrative Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Security Agreement or the other Loan Documents against such Grantor or any of its property in the courts of any jurisdiction. Each Grantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Security Agreement or the other Loan Documents in any foregoing court referred to in this Article. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. Each party hereto irrevocably consents to service of process in the manner provided for notices in Article 12. Nothing in this Security Agreement will affect the right of any party hereto to serve process in any other manner permitted by law. ARTICLE 19. WAIVER OF JURY TRIAL EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURITY AGREEMENT. EACH PARTY HERETO (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS SECURITY AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS ARTICLE. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] - 27 - A.C. MOORE INCORPORATED SECURITY AGREEMENT ------------------ IN WITNESS WHEREOF, the parties hereto have duly executed this Security Agreement as of the day and year first above written. A.C. MOORE INCORPORATED By: /s/ Leslie H. Gordon --------------------------- Name: Leslie H. Gordon Title: Chief Financial Officer A.C MOORE ARTS & CRAFTS, INC. By: /s/ Leslie H. Gordon --------------------------- Name: Leslie H. Gordon Title: Chief Financial Officer MOORESTOWN FINANCE, INC. BLACKWOOD ASSETS, INC. AS TO EACH OF THE FOREGOING By: /s/ Leslie H. Gordon --------------------------- Name: Leslie H. Gordon Title: Chief Financial Officer EACH OF THE SUBSIDIARIES LISTED ON SCHEDULE I HERETO AS TO EACH OF THE FOREGOING By: _______________________________ Name: _____________________________ Title: ____________________________ A.C. MOORE INCORPORATED SECURITY AGREEMENT ------------------ KEYBANK NATIONAL ASSOCIATION, as Administrative Agent By: /s/ Brendan Sachtjen ------------------------- Name: Brendan Sachtjen Title: Senior Vice President EX-10 7 ex10-12.txt EX10=12.TXT EXECUTION COPY GUARANTEE AGREEMENT by and among A.C. MOORE INCORPORATED, as Borrower A.C. MOORE ARTS & CRAFTS, INC., MOORESTOWN FINANCE, INC., BLACKWOOD ASSETS, INC., THE SUBSIDIARY GUARANTORS PARTY HERETO and KEYBANK NATIONAL ASSOCIATION, As Administrative Agent ------------------------------ Dated as of August 3, 2001 TABLE OF CONTENTS Page ARTICLE 1. DEFINITIONS ...................................................... 1 Section 1.1 Definitions...................................................... 1 Section 1.2 Rules of Interpretation ......................................... 2 ARTICLE 2. GUARANTEE; FRAUDULENT TRANSFER, ETC.; CONTRIBUTION ............... 2 Section 2.1 Guarantee ....................................................... 2 Section 2.2 Guarantee of Payment ............................................ 2 Section 2.3 Fraudulent Transfer ............................................. 2 Section 2.4 Contributions ................................................... 3 ARTICLE 3. OBLIGATIONS NOT WAIVED .......................................... 4 ARTICLE 4. SECURITY ......................................................... 4 ARTICLE 5. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE ........................ 4 ARTICLE 6. DEFENSES OF BORROWER WAIVED ..................................... 4 ARTICLE 7. AGREEMENT TO PAY; SUBORDINATION ................................. 5 ARTICLE 8. INFORMATION ...................................................... 5 ARTICLE 9. REPRESENTATIONS AND WARRANTIES ................................ 6 Section 9.1 Organization; Powers ........................................ 6 Section 9.2 Authorization; Enforceability ................................... 6 Section 9.3 Governmental Approvals; No Conflicts ........................... 6 Section 9.4 Properties ...................................................... 6 Section 9.5 Litigation and Environmental Matters ........................... 7 Section 9.6 Compliance with Laws and Agreements ............................. 7 Section 9.7 Investment and Holding Company Status ..................... 7 Section 9.8 Taxes ..................................................... 7 Section 9.9 ERISA ..................................................... 8 Section 9.10 Disclosure ..................................................... 8 Section 9.11 Subsidiaries ............................................... 8 Section 9.12 Insurance ..................................................... 8 Section 9.13 Labor Matters ................................................ 8 Section 9.14 Solvency ...................................................... 9 Section 9.15 Federal Reserve Regulations .................................... 9 Section 9.16 Financial Statements ......................................... 9 ARTICLE 10. AFFIRMATIVE COVENANTS ........................................ 10 Section 10.1 Financial Statements and Other Information ..................... 10 Section 10.2 Notices of Material Events ..................................... 11 Section 10.3 Existence; Conduct of Business ............................. 11 Section 10.4 Payment and Performance of Obligations ......................... 11 Section 10.5 Maintenance of Properties ...................................... 12 Section 10.6 Books and Records; Inspection Rights ........................... 12 Section 10.7 Compliance with Laws ........................................... 12 Section 10.8 Information Regarding Collateral ................................12 Section 10.9 Insurance ...................................................... 13 Section 10.10 Casualty and Condemnation ..................................... 13 Section 10.11 Additional Subsidiaries ....................................... 13 Section 10.12 Further Assurances ............................................ 14 Section 10.13 Environmental Compliance ...................................... 15 Section 10.14 Net Proceeds .................................................. 15 Section 10.15 Landlord Consent Agreements ................................... 15 ARTICLE 11. NEGATIVE COVENANTS .............................................. 16 Section 11.1 Indebtedness ................................................... 16 Section 11.2 Liens 17 Section 11.3 Fundamental Changes ............................................ 18 Section 11.4 Investments, Loans, Advances, Guarantees and Acquisitions ...... 18 Section 11.5 Asset Sales .................................................... 19 Section 11.6 Sale and Lease-Back Transactions ............................... 20 Section 11.7 Hedging Agreements ............................................. 20 Section 11.8 Restricted Payments ............................................ 20 Section 11.9 Restrictive Agreements ......................................... 20 Section 11.10 Organizational Documents ...................................... 21 ARTICLE 12. TERMINATION ..................................................... 21 ARTICLE 13. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS .................. 21 ARTICLE 14. WAIVERS; AMENDMENT .............................................. 22 Section 14.1 No Waiver ...................................................... 22 Section 14.2 Amendments, etc ................................................ 22 ARTICLE 15. NOTICES ......................................................... 22 ARTICLE 16. SURVIVAL OF AGREEMENT; SEVERABILITY ............................. 22 Section 16.1 Survival of Agreement .......................................... 22 Section 16.2 Severability ................................................... 23 ARTICLE 17. ADDITIONAL GUARANTORS ........................................... 23 ARTICLE 18. RIGHT OF SETOFF ................................................. 23 ARTICLE 19. GOVERNING LAW; JURISDICTION; VENUE; WAIVER OF JURY TRIAL ........ 23 Section 19.1 GOVERNING LAW .................................................. 23 Section 19.2 Consent to Jurisdiction ........................................ 24 Section 19.3 Waiver of Objection to Venue ................................... 24 Section 19.4 Consent to Service of Process .................................. 24 Section 19.5 WAIVER OF JURY TRIAL ........................................... 24 ARTICLE 20. MISCELLANEOUS ................................................... 25 Section 20.1 Headings ....................................................... 25 Section 20.2 Counterparts ................................................... 25 SCHEDULES: ======================================================================== Schedule I | List of Subsidiary Guarantors - -----------------|------------------------------------------------------- Schedule 9.4 | List of Real Property - -----------------|------------------------------------------------------- Schedule 9.11 | List of Parent Group Members - -----------------|------------------------------------------------------- Schedule 9.12 | List of Insurance - -----------------|------------------------------------------------------- Schedule 11.1 | List of Existing Indebtedness - -----------------|------------------------------------------------------- Schedule 11.2 | List of Existing Liens - -----------------|------------------------------------------------------- Schedule 11.4 | List of Existing Investments - -----------------|------------------------------------------------------- Schedule 11.10 | List of Existing Restrictions ========================================================================= Annex 1 Form of Supplement GUARANTEE AGREEMENT, dated as of August 3, 2001 among A.C. MOORE ARTS & CRAFTS INC., a Pennsylvania corporation (the "Parent"), A.C. MOORE INCORPORATED, a Delaware corporation (the "Borrower"), MOORESTOWN FINANCE, INC., a Delaware corporation, BLACKWOOD ASSETS, INC., a Delaware corporation, each of the subsidiaries of the Borrower listed on Schedule I hereto (each such subsidiary, individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors"; the Parent, Moorestown Finance, Inc., Blackwood Assets, Inc., and the Subsidiary Guarantors are sometimes referred to collectively herein as the "Guarantors"), and KEYBANK NATIONAL ASSOCIATION, as administrative agent under the Credit Agreement referred to in the next paragraph acting on behalf of the Secured Parties (as defined in such Credit Agreement). Reference is made to the Credit Agreement, dated as of August 3, 2001, among the Borrower, the Lenders from time to time party thereto and KeyBank National Association, as Administrative Agent (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"). The Lenders have agreed to make Loans to, and the Issuing Bank has agreed to issue Letters of Credit for the account of, the Borrower pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement. The Borrower is a wholly-owned subsidiary of the Parent, and each of the Guarantors is a direct or indirect subsidiary wholly-owned of the Parent. Each Guarantor acknowledges that (i) it will derive substantial benefit from the making of the Loans and the issuance of the Letters of Credit and (ii) the execution and delivery by the Guarantors and the Borrower of this Guarantee Agreement is a condition precedent to the effectiveness of the Credit Agreement, and the Credit Parties would not have entered into the Credit Agreement if the Guarantors and the Borrower had not executed and delivered this Guarantee Agreement. Accordingly, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS Section 1.1 Definitions (a) Terms Used in the Credit Agreement. Capitalized terms used herein and not defined herein, and the term "subsidiary", shall have the meanings assigned to such terms in the Credit Agreement. (b) Other Defined Terms. When used in this Guarantee Agreement, the following capitalized terms shall have the respective meanings ascribed thereto as follows: "Parent Group" means the Parent and any subsidiary of the Parent. "Parent Group Member" means each member of the Parent Group. Section 1.2 Rules of Interpretation The rules of interpretation specified in Sections 1.2, 1.3 and 1.4 of the Credit Agreement shall be applicable to this Guarantee Agreement. ARTICLE 2. GUARANTEE; FRAUDULENT TRANSFER, ETC.; CONTRIBUTION Section 2.1 Guarantee Each Guarantor unconditionally guarantees, jointly with the other Guarantors and severally, as a primary loan party and not merely as a surety, the Obligations. Each Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Obligation. Section 2.2 Guarantee of Payment Each Guarantor further agrees that its guarantee hereunder constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Administrative Agent or any other Secured Party to any of the security held for payment of the Obligations or to any balance of any deposit account or credit on the books of the Administrative Agent or any other Secured Party in favor of the Borrower or any other person. Section 2.3 Fraudulent Transfer Anything in this Guarantee Agreement to the contrary notwithstanding, (i) the obligations of each Subsidiary Guarantor hereunder shall be limited to a maximum aggregate amount equal to the greatest amount that would not render such Subsidiary Guarantor's obligations hereunder subject to avoidance as a fraudulent transfer, obligation or conveyance under Section 548 of Title 11 of the United States Code or any provisions of applicable state law (collectively, the "Fraudulent Transfer Laws"), in each case after giving effect to all other liabilities of such Subsidiary Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Subsidiary Guarantor (A) in respect of intercompany debt owed or owing to the Parent or Affiliates of the Parent to the extent that such debt would be discharged in an amount equal to the amount paid by such Subsidiary Guarantor hereunder and (B) under any Guarantee of senior unsecured debt or Indebtedness subordinated in right of payment to the Obligations, which Guarantee contains a limitation as to maximum amount similar to that set forth in this clause (i), pursuant to which the liability of such Subsidiary Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, contribution, reimbursement, indemnity or similar rights of such Subsidiary Guarantor pursuant to (I) applicable law or (II) any agreement providing for an equitable allocation among such Subsidiary Guarantor and other Affiliates of the Borrower of obligations arising under guarantees by such parties (including the agreements described in Section 2.4) and (ii) each Parent Group Member expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution or any other claim that it may now or hereafter have against the Borrower, any other Loan Party, any other guarantor or any other Person directly or contingently liable for the Obligations, or against or with respect to the property of the Borrower, such other Loan Party, such other guarantor or such other Person, arising from the existence or performance hereof, and, in furtherance, and not in limitation, of the preceding waiver, each Parent Group Member agrees that, in the event that any money or property shall be transferred to any Credit Party by such Parent Group Member pursuant to this Guarantee Agreement in reduction of the Obligations, such transfer shall be deemed to be a contribution to the capital of the applicable Loan Party, other guarantor or other Person (in the case of the transfer of property, in an amount equal to the fair market value of the property so transferred) as of the date of such transfer, and any such transfer shall not cause such Parent Group Member to be a creditor of such Loan Party. 2 Section 2.4 Contributions In addition to all rights of indemnity and subrogation the Subsidiary Guarantors may have under applicable law (but subject to this paragraph), the Borrower agrees that (i) in the event a payment shall be made by any Subsidiary Guarantor hereunder, the Borrower shall indemnify such Subsidiary Guarantor for the full amount of such payment, and such Subsidiary Guarantor shall be subrogated to the rights of the Person to whom such payments shall have been made to the extent of such payment, and (ii) in the event that any assets of any Subsidiary Guarantor shall be sold pursuant to any Loan Document to satisfy any claim of any Secured Party, the Borrower shall indemnify such Subsidiary Guarantor in an amount equal to the greater of the book value or the fair market value of the assets so sold. Each Subsidiary Guarantor (a "Contributing Subsidiary Guarantor") agrees (subject to this paragraph) that, in the event a payment shall be made by any other Subsidiary Guarantor hereunder or assets of any other Subsidiary Guarantor shall be sold pursuant to any Loan Document to satisfy a claim of any Secured Party and such other Subsidiary Guarantor (the "Claiming Subsidiary Guarantor") shall not have been fully indemnified by the Borrower as provided in this paragraph, the Contributing Subsidiary Guarantor shall indemnify the Claiming Subsidiary Guarantor in an amount equal to the amount of such payment or the greater of the book value or the fair market value of such assets, as applicable, in each case multiplied by a fraction of which the numerator shall be the net worth of the Contributing Subsidiary Guarantor on the date hereof and the denominator shall be the aggregate net worth of all the Subsidiary Guarantors on the date hereof (or, in the case of any Subsidiary Guarantor becoming a party hereto pursuant to Article 17, the date of the Supplement hereto executed and delivered by such Subsidiary Guarantor). Any Contributing Subsidiary Guarantor making any payment to a Claiming Subsidiary Guarantor pursuant to this paragraph shall be subrogated to the rights of such Claiming Subsidiary Guarantor under this paragraph to the extent of such payment. Notwithstanding any provision of this paragraph to the contrary, all rights of the Subsidiary Guarantors under this paragraph and all other rights of indemnity, contribution or subrogation under applicable law or otherwise shall be fully subordinated to the final and indefeasible payment in full in cash of the Obligations. No failure on the part of the Borrower or any Subsidiary Guarantor to make the payments required by this paragraph (or any other payments required under applicable law or otherwise) shall in any respect limit the obligations and liabilities of any Subsidiary Guarantor with respect to its obligations under this paragraph, and each Subsidiary Guarantor shall remain liable for the full amount of the obligations of such Subsidiary Guarantor under this paragraph. ARTICLE 3. OBLIGATIONS NOT WAIVED To the fullest extent permitted by applicable law, each Guarantor waives presentment to, demand of payment from, and protest to any Loan Party of any of the Obligations, and also waives notice of acceptance of its guarantee and notice of protest for nonpayment. To the fullest extent permitted by applicable law, the obligations of each Guarantor hereunder shall not be affected by (i) the failure of the Administrative Agent or any other Secured Party to assert any claim or demand or to enforce or exercise any right or remedy against the Borrower or any other Guarantor under the provisions of the Credit Agreement or any other Loan Document, or otherwise, (ii) any rescission, waiver, amendment or modification of, or any release from, any of the terms or provisions of this Guarantee Agreement, any other Loan Document, any Guarantee or any other agreement, including with respect to any other Guarantor under this Guarantee Agreement or (iii) the failure to perfect any security interest in, or the release of, any of the security held by or on behalf of the Administrative Agent or any other Secured Party. 3 ARTICLE 4. SECURITY Each Guarantor authorizes the Administrative Agent and each other Secured Party to (i) take and hold security for the payment of the obligations under this Guarantee Agreement pursuant to the Security Documents and the Obligations and exchange, enforce, waive and release any such security, (ii) apply such security and direct the order or manner of sale thereof in accordance with the Loan Documents and (iii) release or substitute any one or more endorsees, other Guarantors or other loan parties. ARTICLE 5. NO DISCHARGE OR DIMINISHMENT OF GUARANTEE The obligations of each Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the final and indefeasible payment in full in cash of the Obligations), including any claim of waiver, release, surrender, alteration or compromise of any of the Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of the Administrative Agent or any other Secured Party to assert any claim or demand or to enforce any remedy under the Credit Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Guarantor or that would otherwise operate as a discharge of any Guarantor as a matter of law or equity (other than the final and indefeasible payment in full in cash of all the Obligations). ARTICLE 6. DEFENSES OF BORROWER WAIVED To the fullest extent permitted by applicable law, each of the Guarantors waives any defense based on or arising out of any defense of the Borrower or any other Loan Party or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower or any other Loan Party, other than the final and indefeasible payment in full in cash of the Obligations. The Administrative Agent and the other Secured Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or nonjudicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Obligations, make any other accommodation with any Loan Party or exercise any other right or remedy available to them against any Loan Party, without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Obligations have been fully, finally and indefeasibly paid in cash. Pursuant to applicable law, each Guarantor waives any defense arising out of any such election even though such election operates, pursuant to applicable law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Guarantor against the Borrower or any other Guarantor, as applicable, or any security. 4 ARTICLE 7. AGREEMENT TO PAY; SUBORDINATION In furtherance of the foregoing and not in limitation of any other right that the Administrative Agent or any other Secured Party has at law or in equity against any Guarantor by virtue hereof, upon the failure of any Loan Party to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each Guarantor hereby promises to and will forthwith pay, or cause to be paid, to the Administrative Agent or such other Secured Party as designated thereby in cash the amount of such unpaid Obligations. Upon payment by any Guarantor of any sums to the Administrative Agent or any Secured Party as provided above, all rights of such Guarantor against the applicable Loan Party arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior final and indefeasible payment in full in cash of the Obligations. In addition, any debt of any Loan Party now or hereafter held by any Guarantor is hereby subordinated in right of payment to the prior final and indefeasible payment in full in cash of the Obligations. If any amount shall erroneously be paid to any Guarantor on account of (i) such subrogation, contribution, reimbursement, indemnity or similar right or (ii) any such debt of such Loan Party, such amount shall be held in trust for the benefit of the Secured Parties and shall forthwith be paid to the Administrative Agent to be credited against the payment of the Obligations, whether matured or unmatured, in accordance with the terms of the Loan Documents. ARTICLE 8. INFORMATION Each Guarantor assumes all responsibility for being and keeping itself informed of each Loan Party's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that none of the Administrative Agent or the other Secured Parties will have any duty to advise any of the Guarantors of information known to it or any of them regarding such circumstances or risks. ARTICLE 9. REPRESENTATIONS AND WARRANTIES Each of the Subsidiary Guarantors represents and warrants as to itself that all representations and warranties relating to it contained in the Credit Agreement are true and correct. Each Parent Group Member represents and warrants as follows: Section 9.1 Organization; Powers Each Parent Group Member is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. 5 Section 9.2 Authorization; Enforceability The Transactions are within the corporate, partnership or other analogous powers of each Parent Group Member to the extent it is a party thereto and have been duly authorized by all necessary corporate, partnership or other similar analogous and, if required, equity holder action. Each Loan Document has been duly executed and delivered by each Parent Group Member to the extent it is a party thereto and constitutes a legal, valid and binding obligation thereof, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally. Section 9.3 Governmental Approvals; No Conflicts The Transactions (i) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of any Parent Group Member or any order of any Governmental Authority, (iii) will not violate or result in a default under any material indenture, agreement or other instrument binding upon any Parent Group Member or its assets, or give rise to a right thereunder to require any payment to be made by any Parent Group Member, and (iv) will not result in the creation or imposition of any Lien on any asset of any Parent Group Member (other than Liens permitted by Section 11.2). Section 9.4 Properties (a) Each Parent Group Member has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. (b) Each Parent Group Member owns, or is entitled to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by any Parent Group Member does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (b) Schedule 9.4 sets forth the address of each item of real property that is owned or leased by any Parent Group Member on the date hereof. Section 9.5 Litigation and Environmental Matters (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Parent Group Member, threatened against or affecting the Parent or any of its subsidiaries (i) that, if adversely determined (and there exists a reasonable possibility of such adverse determination), could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve any Loan Document or the Transactions. 6 (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, no Parent Group Member (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the Agreement Date, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. Section 9.6 Compliance with Laws and Agreements Each Parent Group Member is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. Section 9.7 Investment and Holding Company Status No Parent Group Member is (i) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (ii) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Section 9.8 Taxes Each Parent Group Member has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (i) Taxes that are being contested in good faith by appropriate proceedings and for which the applicable Parent Group Member, has set aside on its books adequate reserves or (ii) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. Section 9.9 ERISA No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $2,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $2,000,000 the fair market value of the assets of all such underfunded Plans. 7 Section 9.10 Disclosure Each Parent Group Member has disclosed to the Credit Parties all agreements, instruments and corporate or other restrictions to which it or any of its subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of each Parent Group Member to any Credit Party in connection with the negotiation of the Loan Documents or delivered thereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, provided that, with respect to projected financial information, the Parent represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. Section 9.11 Subsidiaries Schedule 9.11 sets forth the name of, and the ownership interest of each Parent Group Member in, each of its subsidiaries and identifies each such subsidiary that is a Guarantor, in each case on the Agreement Date. Section 9.12 Insurance Schedule 9.12 sets forth a description of all insurance maintained by or on behalf of each Parent Group Member on the Agreement Date. As of the Agreement Date, all premiums in respect of such insurance that are due and payable have been paid. Section 9.13 Labor Matters Except for the Disclosed Matters, (i) there are no strikes, lockouts or slowdowns against any Parent Group Member pending or, to the knowledge of the any Parent Group Member, threatened, (ii) the hours worked by and payments made to employees of any Parent Group Member have not been in violation of the Fair Labor Standards Act or any other applicable Federal, state, local or foreign law dealing with such matters, except where any such violations, individually and in the aggregate, would not be reasonably likely to result in a Material Adverse Effect, (iii) all material payments due from any Parent Group Member, or for which any claim may be made against any Parent Group Member, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of any Parent Group Member and (iv) the consummation of the Transactions will not give rise to any right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Parent Group Member is bound. 8 Section 9.14 Solvency Immediately after the consummation of each Transaction, (i) the fair value of the assets of each Parent Group Member, at a fair valuation, will exceed its debts and liabilities, subordinated, contingent or otherwise, (ii) the present fair saleable value of the property of each Parent Group Member, will be greater than the amount that will be required to pay the probable liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured, (iii) each Parent Group Member will be able to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured and (iv) each Parent Group Member will not have unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted following such date. Section 9.15 Federal Reserve Regulations (a) No Parent Group Member is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. (b) No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase, acquire or carry any Margin Stock or for any purpose that entails a violation of, or that is inconsistent with, the provisions of the regulations of the Board, including Regulation T, U or X. Section 9.16 Financial Statements (a) The Parent has furnished or caused to be furnished to each Credit Party a copy of its (A) Annual Report on Form 10-K in respect of its fiscal year ended December 31, 2000, together with the financial statements required to be attached thereto and (B) Form 10-Q for the fiscal quarter ended March 31, 2001 together with the financial statements required to be attached thereto. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Parent and its consolidated subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the quarterly statements referred to above. Except as fully reflected in such financial statements, there are no material liabilities or obligations with respect to the Parent or any of its consolidated subsidiaries of any nature whatsoever (whether absolute, contingent or otherwise and whether or not due). (b) Since December 31, 2000, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of the Parent Group Members, taken as a whole. 9 ARTICLE 10. AFFIRMATIVE COVENANTS Until the Revolving Commitments have expired or been terminated and the principal of and interest on each Loan and all fees and other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit have expired and all LC Disbursements have been reimbursed, each Parent Group Member covenants and agrees with the Credit Parties that: Section 10.1 Financial Statements and Other Information The Parent will furnish or cause to be furnished to the Administrative Agent: (a) within 90 days after the end of each fiscal year of the Parent, a copy of the Parent's Annual Report on Form 10-K in respect of such fiscal year, together with the financial statements required to be attached thereto, provided that if the Parent shall not be required to file an Annual Report on Form 10-K for any fiscal year, in lieu thereof, the Parent shall deliver a copy of its consolidated balance sheet as at the end of such fiscal year, together with the related consolidated statements of operations, stockholders' equity and cash flows as of and through the end of such fiscal year. The consolidated financial statements referred to herein shall be reported on by PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Parent and its consolidated subsidiaries, on a consolidated basis in accordance with GAAP consistently applied. (b) As soon as available, but in any event not later than 45 days after the end of each of the first three quarterly accounting periods in each fiscal year of the Parent a copy of the Parent's Quarterly Report on Form 10-Q in respect of such fiscal quarter, together with the financial statements required to be attached, provided that if the Parent shall not be required to file a Quarterly Report on Form 10-K for any fiscal quarter, in lieu thereof, the Parent shall deliver a copy of its consolidated balance sheet as at the end of such fiscal quarter, together with the related consolidated statements of operations and cash flows as of and through the end of such fiscal quarter and for the elapsed portion of the fiscal year through such date. The statements referred to in this subsection (b) shall be certified by the chief financial officer of the Parent as being complete and correct in all material respects and as presenting fairly the consolidated financial condition and the consolidated results of operations of the Parent and its consolidated subsidiaries. (c) Concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any 10 Default (which certificate may be limited to the extent required by accounting rules or guidelines). (d) Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by any Parent Group Member with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by any Parent Group Member to its shareholders generally, as the case may be. (e) Promptly following any request therefor, such other information regarding the operations, business, affairs and financial condition of the Parent or any Parent Group Member, including information regarding the issuance of any equity securities, or compliance with the terms of the Loan Documents, as any Credit Party may reasonably request. Section 10.2 Notices of Material Events The Parent will furnish or cause to be furnished to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Parent or any Affiliate thereof that, if adversely determined, could in the good faith opinion of the Parent reasonably be expected to result in a Material Adverse Effect; (c) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of the chief financial officer or other executive officer of the Parent setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 10.3 Existence; Conduct of Business The Parent will, and will cause each other Parent Group Member to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business, provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 11.3. Section 10.4 Payment and Performance of Obligations The Parent will, and will cause each other Parent Group Member to, pay or perform its obligations, including Tax liabilities, that, if not paid or performed, could reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (i) the validity or amount thereof is being contested in good faith by appropriate proceedings, (ii) such Parent Group Member has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (iii) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. 11 Section 10.5 Maintenance of Properties The Parent will, and will cause each other Parent Group Member to, keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted. Section 10.6 Books and Records; Inspection Rights The Parent will, and will cause each other Parent Group Member to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Parent will, and will cause each other Parent Group Member to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested and all at the expense of the Parent. Section 10.7 Compliance with Laws The Parent will, and will cause each other Parent Group Member to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Section 10.8 Information Regarding Collateral The Parent will furnish to the Administrative Agent prompt written notice of any change in (i) the legal name or jurisdiction of incorporation or formation of any Parent Group Member or in any trade name used to identify it in the conduct of its business or in the ownership of its properties, (ii) the location of the chief executive office of any Parent Group Member, its principal place of business, any office in which it maintains books or records relating to Collateral owned or held by it or on its behalf or, except as provided in the applicable Security Documents, any office or facility at which Collateral owned or held by it or on its behalf with an aggregate book value in excess of $10,000 is located (including the establishment of any such new office or facility), (iii) the identity or organizational structure of any Parent Group Member such that a filed financing statement becomes misleading or (iv) the Federal Taxpayer Identification Number of any Parent Group Member. Each Parent Group Member agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Administrative Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral. Each Parent Group Member also agrees promptly to notify the Administrative Agent if any material portion of the Collateral is damaged or destroyed. 12 Section 10.9 Insurance The Parent will, and will cause each other Parent Group Member to, maintain, with financially sound and reputable insurance companies, (i) adequate insurance for its insurable properties, all to such extent and against such risks, including fire, casualty and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses operating in the same or similar locations and (ii) such other insurance as is required pursuant to the terms of any Security Document. Section 10.10 Casualty and Condemnation (a) The Parent will furnish to the Credit Parties prompt written notice of any casualty or other insured damage to any portion of any property owned or held by or on behalf of any Parent Group Member or the commencement of any action or proceeding for the taking of any such property or any part thereof or interest therein under power of eminent domain or by condemnation or similar proceeding. (b) If any Reduction Event results in Net Proceeds (whether in the form of insurance proceeds, condemnation award or otherwise), the Administrative Agent is authorized to collect such Net Proceeds and, if received by the Parent or any or any of its subsidiaries, such Net Proceeds shall be paid over to the Administrative Agent, provided that (i) to the extent that the Parent or any of its subsidiaries intends to use any such Net Proceeds to repair, restore, reinvest or replace assets of the Borrower or any of the Guarantors as provided in the proviso of the definition of the term "Net Proceeds", the Administrative Agent shall, subject to the provision of such proviso, deliver such Net Proceeds to the Parent or the Borrower, as applicable, (ii) otherwise, the Administrative Agent shall, and the Parent hereby authorizes the Administrative Agent to, apply such Net Proceeds, to the extent that they are Net Proceeds, to prepay the Loans in accordance with Section 2.7 of the Credit Agreement and (iii) all proceeds of business interruption insurance shall be paid over to the Parent or the Borrower, as applicable, unless a Default has occurred and is continuing. (c) All proceeds received by or paid to the Administrative Agent that do not constitute Net Proceeds shall be paid over to the Parent or the Borrower, as applicable, on behalf of the relevant Loan Parties, unless an Event of Default has occurred and is continuing. Section 10.11 Additional Subsidiaries If any Parent Group Member (other than a Parent Group Member that is a party to the Guarantee Agreement and the Security Agreement) is formed or acquired after the Agreement Date, the Parent will notify the Credit Parties in writing thereof not later than the tenth Business Day after the date on which such Parent Group Member is formed or acquired and (i) the Parent will cause such Parent Group Member to (a) execute and deliver each applicable Guarantee Document (or otherwise become a party thereto in the manner provided therein) and become a party to each applicable Security Document in the manner provided therein, in each case not later than the tenth Business Day after the date on which such Parent Group Member is formed or acquired and (b) promptly take such actions to create and perfect Liens on such Parent Group Member's assets to secure the Obligations as the Administrative Agent or the Required Lenders shall reasonably request and (ii) if any Equity Interests issued by any such Parent Group Member are owned or held by or on behalf of the Parent or any other Guarantor or any loans, advances or other debt is owed or owing by any such Parent Group Member to the Parent or any other Guarantor, the Parent will cause such Equity Interests and promissory notes and other instruments evidencing such loans, advances and other debt to be pledged pursuant to the Security Documents not later than the tenth Business Day after the date on which such subsidiary is formed or acquired. 13 Section 10.12 Further Assurances (a) The Parent will, and will cause each other Parent Group Member to, execute any and all further documents, financing statements, agreements (including guarantee agreements and security agreements) and instruments, and take all such further actions (including the filing and recording of financing statements, fixture filings and other documents), that may be required under any applicable law, or which the Administrative Agent or Required Lenders may reasonably request, to effectuate the transactions contemplated by the Secured Documents or to grant, preserve, protect or perfect (including as a result of any change in applicable law) the Liens created or intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Parent. The Parent also agrees to provide to the Administrative Agent, from time to time upon request, evidence reasonably satisfactory to the Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents. (b) The Parent hereby covenants and agrees that, if at any time on or after the date hereof any asset or property acquired, owned or held by or on behalf of any Parent Group Member that constitutes or would constitute Collateral is not subject to a perfected Lien of the Administrative Agent hereunder with the priority required hereby (except as a result of the Administrative Agent's failure to maintain possession of any instrument, stock certificate or other similar document delivered to it hereunder or as a result of such asset or property being used or disposed of in a manner expressly permitted by any Loan Document), then the Parent shall, at its own cost and expense, promptly (i) notify the Administrative Agent thereof and (ii) execute and deliver or cause the applicable Guarantor to execute and deliver, any and all agreements, instruments and other documents, and take all further action (including the filing and recording of financing statements and other documents), that may be necessary or reasonably requested by the Administrative Agent to cause such asset or property to become subject to a perfected Lien of the Administrative Agent hereunder (including, where applicable, perfection by establishing "sole dominion and control" within the meaning of the common law and "control" within the meaning of the UCC), with the priority required hereby. (c) If any material assets are acquired by any Parent Group Member after the Agreement Date (other than assets constituting Collateral under the Security Documents that become subject to the Lien of the Security Documents upon acquisition thereof, and other than assets upon which the Administrative Agent has a first perfected Lien), the Parent will notify the Credit Parties thereof, and, if requested by the Administrative Agent or the Required Lenders, the Parent will cause such assets to be subjected to a Lien securing the Obligations and will take, and cause each other Parent Group Member to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section, all at the expense of the Parent. (d) If the Administrative Agent or the Required Lenders shall notify the Parent that they require any Parent Group Member to deposit and maintain with the Administrative Agent as Collateral all cash and cash equivalents of any Parent Group Member, the Parent will cause such cash and cash equivalents to be deposited and maintained with the Administrative Agent and subjected to a Lien securing the Obligations and will take, and cause each such other Parent Group Member to take, such actions as shall be necessary or reasonably requested by the Administrative Agent to grant and perfect such Liens, including actions described in paragraph (a) of this Section, all at the expense of the Parent, provided that, so long as no Default or Event of Default shall have occurred and be continuing, each Parent Group Member shall have access to such cash and cash equivalents on deposit and maintained with the Administrative Agent. 14 Section 10.13 Environmental Compliance The Parent will, and will cause each other Parent Group Member to, use and operate all of its facilities and property in compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in compliance therewith, and handle all Hazardous Materials in compliance with all applicable Environmental Laws, except where noncompliance with any of the foregoing could not reasonably be expected to have a Material Adverse Effect. Section 10.14 Net Proceeds In the event that any Parent Group Member receives Net Proceeds in respect of a Reduction Event, such Parent Group Member shall, directly or indirectly, make a capital contribution thereof to the Borrower to enable the Borrower to prepay the Loans pursuant to the provisions of the Credit Agreement. Section 10.15 Landlord Consent Agreements (a) The Parent shall, and shall cause each Parent Group Member to, use its best efforts to obtain, within 90 days of the date hereof, counterparts of a Landlord Consent Agreement in the form of Exhibit H to the Credit Agreement or such other form reasonably acceptable to the Administrative Agent, signed on behalf of each applicable Parent Group Member and the applicable landlord of the leased properties disclosed on Schedule 9.4. (b) If any Parent Group Member leases any real property after the Agreement Date (other than leases with respect to which the applicable Parent Group Member and lessor thereunder has executed and delivered a Landlord Consent Agreement), such Parent Group Member will notify the Credit Parties thereof, and the applicable Parent Group Member will use its reasonable efforts to deliver or cause to be delivered to the Administrative Agent a Landlord Consent Agreement in the form of Exhibit H to the Credit Agreement or such other form reasonably acceptable to the Administrative Agent, signed on behalf of such Parent Group Member and such lessor. ARTICLE 11. NEGATIVE COVENANTS Until the Revolving Commitments have expired or been terminated and the principal of and interest on each Loan and all fees and other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit have expired and all LC Disbursements have been reimbursed, each Parent Group Member covenants and agrees with the Credit Parties that: Section 11.1 Indebtedness (a) The Parent will not, and will not permit any other Parent Group Member to, create, incur, assume or permit to exist any Indebtedness, except: (i) Indebtedness under the Loan Documents; 15 (ii) Indebtedness existing on the date hereof and set forth in Schedule 11.1, but not any extensions, renewals or replacements of any such Indebtedness; (iii) Indebtedness of any Parent Group Member incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof, provided that (A) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (B) the aggregate principal amount of Indebtedness permitted by this clause (iii) shall not, without duplication, together with the Indebtedness permitted under clauses (iv) and (vii) of this Section and clauses (iii), (iv) and (vii) of Section 7.1 of the Credit Agreement exceed $5,000,000 in the aggregate at any time outstanding; (iv) Indebtedness of any Person that becomes a Parent Group Member after the Agreement Date, provided that (A) such Indebtedness exists at the time such Person becomes a Parent Group Member and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (B) the aggregate principal amount of Indebtedness permitted by this clause (iv) shall not, without duplication, together with the Indebtedness permitted under clauses (iii) and (vii) of this Section and clauses (iii), (iv) and (vii) of Section 7.1 of the Credit Agreement exceed $5,000,000 in the aggregate at any time outstanding; (v) Indebtedness of any Parent Group Member to any other Parent Group Member; (vi) Guarantees by any Parent Group Member of Indebtedness of any other Parent Group Member; and (vii) other unsecured Indebtedness of the Parent Group Members, provided that the aggregate principal amount of Indebtedness permitted by this clause (vii) shall not, without duplication, together with the Indebtedness permitted under clauses (iii) and (iv) of this Section and clauses (iii), (iv) and (vii) of Section 7.1 of the Credit Agreement exceed $5,000,000 in the aggregate at any time outstanding. (b) The Parent will not, and it will not permit any Parent Group Member to, issue any preferred Equity Interest, other than preferred Equity Interests issued by any Parent Group Member to the Parent. Section 11.2 Liens The Parent will not, and will not permit any other Parent Group Member to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Liens created under the Loan Documents; 16 (b) Permitted Encumbrances; (c) any Lien on any property or asset of any Parent Group Member existing on the Agreement Date and set forth in Schedule 11.2, provided that (i) such Lien shall not apply to any other property or asset of any Parent Group Member and (ii) such Lien shall secure only those obligations which it secures on the Agreement Date and any extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (d) security interests on fixed or capital assets acquired, constructed or improved by any Parent Group Member, provided that (i) such security interests secure Indebtedness permitted by clause (iii) of Section 11.1, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of any Parent Group Member; and (e) security interests existing on any property or asset prior to the acquisition thereof by any Parent Group Member or existing on any property or asset of any Person that becomes a Parent Group Member after the Agreement Date prior to the time such Person becomes a Parent Group Member, provided that (i) such security interests secure Indebtedness permitted by clause (iv) of Section 11.1, (ii) such security interests are not created in contemplation of or in connection with such acquisition or such Person becoming a Parent Group Member, as applicable, (iii) such security interests shall not apply to any other property or assets of any Parent Group Member and (iv) such security interests shall secure only the Indebtedness that they secure on the date of such acquisition or the date such Person becomes any Parent Group Member, as applicable, and any extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof. Section 11.3 Fundamental Changes (a) The Parent will not, and will not permit any Parent Group Member to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the Equity Interests (or all or substantially all of the Equity Interests within the meaning of clause (a) of such defined term) issued by any Parent Group Member(in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto, no Default shall or would have occurred and be continuing: (i) any Parent Group Member may merge into any other Parent Group Member, provided that in case of a merger involving the Parent, the Parent is the surviving entity; 17 (ii) any Parent Group Member (other than the Parent) may merge with any Person in a transaction that is not permitted by clause (i) of this Section 11.3(a), provided that such merger is permitted by Sections 11.4 or 11.5, as applicable; (iii) any Parent Group Member may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to any other Parent Group Member; (iv) any Parent Group Member may sell, transfer, lease or otherwise dispose of its assets in a transaction that is not permitted by clause (iii) of this Section 11.3(a), provided that such sale, transfer, lease or other disposition is also permitted by Section 11.5; and (v) any Parent Group Member (other than the Parent) may liquidate or dissolve if the Parent determines in good faith that such liquidation or dissolution is in the best interests of the Parent and is not materially disadvantageous to the Lenders. (b) The Parent will not, and will not permit any other Parent Group Member to, engage to any material extent in any business other than businesses of the type conducted by it on the Agreement Date and businesses which are now directly related thereto. Section 11.4 Investments, Loans, Advances, Guarantees and Acquisitions The Parent will not, and will not permit any other Parent Group Member to, purchase, hold or acquire (including pursuant to any merger) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, make or permit to exist any Guarantees of any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions (including pursuant to any merger)) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; (b) investments existing on the Agreement Date and set forth in Schedule 11.4; (c) investments made by the Parent in the Equity Interests of the Borrower and any other Parent Group Member and made by any other Parent Group Member in the Equity Interests of any other Parent Group Member; (d) loans or advances made by any Parent Group Member to any other Parent Group Member, provided that any such loans and advances made by a Parent Group Member shall be evidenced by a promissory note which shall be pledged pursuant to the Security Agreement; 18 (e) acquisitions made by any Parent Group Member from any other Parent Group Member; (f) Guarantees permitted by Section 11.1; and (g) if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing other investments, loans, advances, Guarantees and acquisitions, provided that the sum of (i) the aggregate consideration paid by any Parent Group Member in connection with all such acquisitions, (ii) the aggregate amount of all such investments, loans and advances outstanding and (iii) the amount of obligations and liabilities outstanding in the aggregate that is Guaranteed pursuant to all such Guarantees, shall not, together with all amounts expended under Section 7.4(g) of the Credit Agreement, exceed $2,500,000 at any time. Section 11.5 Asset Sales The Parent will not, and will not permit any other Parent Group Member to, sell, transfer, lease or otherwise dispose (including pursuant to a merger) of any asset, including any Equity Interest, nor will the Parent permit any other Parent Group Member to issue any additional Equity Interests, except: (a) sales, transfers, leases and other dispositions of inventory, used or surplus equipment and Permitted Investments, in each case in the ordinary course of business; (b) sales, transfers, leases and other dispositions made by any Parent Group Member to any other Parent Group Member; (c) other sales, transfers, leases and dispositions of assets provided that the aggregate amount of sales, transfers, leases and dispositions permitted by this clause (c) and Section 7.5(c) of the Credit Agreement shall not exceed $2,500,000 in the aggregate at any time outstanding; and (d) issuances of Equity Interests by any Parent Group Member to the Parent. Section 11.6 Sale and Lease-Back Transactions The Parent will not, and will not permit any other Parent Group Member to, enter into any arrangement, directly or indirectly, with any Person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred. Section 11.7 Hedging Agreements The Parent will not, and will not permit any other Parent Group Member to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which any Parent Group Member is exposed in the conduct of its business or the management of its liabilities. 19 Section 11.8 Restricted Payments The Parent will not, and will not permit any other Parent Group Member to, declare or make, or agree to pay for or make, directly or indirectly, any Restricted Payment, except that (i) the Parent may declare and pay dividends with respect to its Equity Interests payable solely in perpetual common Equity Interests, (ii) any Parent Group Member may declare and pay dividends with respect to its Equity Interests to the Parent or any other Parent Group Member, and (iii) provided that both immediately before and after giving effect thereto no Default shall or would exist, the Parent may declare and make one or more Restricted Payments. Section 11.9 Restrictive Agreements The Parent will not, and will not permit any other Parent Group Member to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement binding on any Parent Group Member that prohibits, restricts or imposes any condition upon (i) the ability of any Parent Group Member to create, incur or permit to exist any Lien upon any of its property or assets (unless such agreement or arrangement does not prohibit, restrict or impose any condition upon the ability of any Loan Party to create, incur or permit to exist any Lien in favor of the Secured Parties created under the Loan Documents) or (ii) the ability of any Parent Group Member (other than the Parent) to pay dividends or other distributions with respect to any of its Equity Interests or to make or repay loans or advances to any Loan Party or to Guarantee Indebtedness of the Parent or any of its subsidiaries, provided that (a) the foregoing shall not apply to restrictions and conditions imposed by law or by the Loan Documents, (b) the foregoing shall not apply to restrictions and conditions existing on the Agreement Date identified on Schedule 11.10 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (c) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Parent Group Member (other than the Parent) pending such sale, provided that such restrictions and conditions apply only to the Parent Group Member that is to be sold and such sale is permitted hereunder, (d) clause (i) of this Section shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted hereby if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (e) clause (i) of this Section shall not apply to customary provisions in leases restricting the assignment thereof. Section 11.10 Organizational Documents The Parent will not, and will not permit any other Parent Group Member to, amend, modify or waive any of its rights under its certificate of incorporation, by-laws or other organizational documents, other than immaterial amendments, modifications or waivers that would not reasonably be expected to adversely affect the Credit Parties, provided that the Parent shall deliver or cause to be delivered to the Administrative Agent and each Lender a copy of each such amendment, modification or waiver promptly after the execution and delivery thereof). 20 ARTICLE 12. TERMINATION The guarantees made hereunder (i) shall terminate when all the Obligations have been finally and indefeasibly paid in full in cash, the Issuing Bank and the Lenders have no further commitment to lend or otherwise extend credit under the Credit Agreement and all outstanding Letters of Credit shall have been canceled and returned to the Issuing Bank and (ii) shall continue to be effective or be reinstated, as applicable, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy or reorganization of any Loan Party or otherwise. ARTICLE 13. BINDING EFFECT; SEVERAL AGREEMENT; ASSIGNMENTS Whenever in this Guarantee Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any Guarantor that are contained in this Guarantee Agreement shall bind and inure to the benefit of each party hereto and its successors and assigns. This Guarantee Agreement shall become effective as to any Guarantor when a counterpart hereof executed on behalf of such Guarantor shall have been delivered to the Administrative Agent and a counterpart hereof shall have been executed on behalf of the Administrative Agent, and thereafter shall be binding upon such Guarantor and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of such Guarantor, the Administrative Agent and the other Secured Parties, and their respective successors and assigns, except that no Guarantor shall have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void), except as expressly contemplated by this Guarantee Agreement or the other Loan Documents. If any of the equity interests in any Guarantor (other than the Parent) is sold, transferred or otherwise disposed of pursuant to a transaction permitted by the Loan Documents and, immediately after giving effect thereto, such Guarantor shall no longer be a subsidiary of the Parent, then the obligations of such Guarantor under this Guarantee Agreement shall be automatically released. This Guarantee Agreement shall be construed as a separate agreement with respect to each Guarantor and may be amended, modified, supplemented, waived or released with respect to any Guarantor without the approval of any other Guarantor and without affecting the obligations of any other Guarantor hereunder. ARTICLE 14. WAIVERS; AMENDMENT Section 14.1 No Waiver No failure or delay of the Administrative Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent hereunder and of the other Secured Parties under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Guarantee Agreement or any other Loan Document or consent to any departure by any Guarantor therefrom shall in any event be effective unless the same shall be permitted by Section 14.2, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Guarantor in any case shall entitle such Guarantor to any other or further notice or demand in similar or other circumstances. Section 14.2 Amendments, etc. Neither this Guarantee Agreement nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into by, between or among the Administrative Agent and the Guarantor or Guarantors with respect to which such waiver, amendment or modification is to apply, subject to any consent required in accordance with Section 10.2 of the Credit Agreement. 21 ARTICLE 15. NOTICES All communications and notices hereunder shall be in writing and given as provided in Section 10.1 of the Credit Agreement. All communications and notices hereunder to each Subsidiary Guarantor shall be given to it at its address set forth on Schedule I hereto, with a copy to the Borrower. All communications and notices hereunder to each Parent Group Member shall be given to it c/o the Parent at 500 University Court, Blackwood, New Jersey 08012, Attention: Leslie Gordon, Chief Financial Officer (Telephone No. (856) 228-6700 ext. 109); Facsimile No. (856) 228-0080), with a copy to the Borrower. ARTICLE 16. SURVIVAL OF AGREEMENT; SEVERABILITY Section 16.1 Survival of Agreement All covenants, agreements, representations and warranties made by the Guarantors herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Guarantee Agreement or any other Loan Document shall be considered to have been relied upon by the Administrative Agent and the other Secured Parties and shall survive the execution and delivery of any Loan Document, the making of any Loan and the issuance of any Letter of Credit, regardless of any investigation made by the Secured Parties or on their behalf, and shall continue in full force and effect until this Guarantee Agreement shall terminate. Section 16.2 Severability In the event any one or more of the provisions contained in this Guarantee Agreement or in any other Loan Document should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. ARTICLE 17. ADDITIONAL GUARANTORS Upon execution and delivery after the date hereof by the Administrative Agent and a subsidiary of the Parent of an instrument in the form of Annex 1, such subsidiary shall become a Guarantor hereunder with the same force and effect as if originally named as a Guarantor herein. The execution and delivery of any such instrument shall not require the consent of any other Guarantor hereunder. The rights and obligations of each Guarantor hereunder shall remain in full force and effect notwithstanding the addition of any new Subsidiary Guarantor as a party to this Guarantee Agreement. 22 ARTICLE 18. RIGHT OF SETOFF If an Event of Default shall have occurred and be continuing, each Secured Party is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Secured Party to or for the credit or the account of any Guarantor against any or all the obligations of such Guarantor now or hereafter existing under this Guarantee Agreement and the other Loan Documents held by such Secured Party, irrespective of whether or not such Secured Party shall have made any demand under this Guarantee Agreement or any other Loan Document and although such obligations may be unmatured. The rights of each Secured Party under this Article are in addition to other rights and remedies (including other rights of setoff) which such Secured Party may have. ARTICLE 19. GOVERNING LAW; JURISDICTION; VENUE; WAIVER OF JURY TRIAL Section 19.1 GOVERNING LAW THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Section 19.2 Consent to Jurisdiction Each Guarantor hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guarantee Agreement or the other Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guarantee Agreement shall affect any right that the Administrative Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Guarantee Agreement or the other Loan Documents against any Guarantor, or any of its property, or in the courts of any jurisdiction. Section 19.3 Waiver of Objection to Venue Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Guarantee Agreement or the other Loan Documents in any court referred to in Section 19.2. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 23 Section 19.4 Consent to Service of Process Each party to this Guarantee Agreement irrevocably consents to service of process in the manner provided for notices in Article 15. Nothing in this Guarantee Agreement will affect the right of any party to this Guarantee Agreement to serve process in any other manner permitted by law. Section 19.5 WAIVER OF JURY TRIAL EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTEE AGREEMENT. EACH PARTY HERETO (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS GUARANTEE AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. ARTICLE 20. MISCELLANEOUS Section 20.1 Headings Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 20.2 Counterparts This Guarantee Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which, when taken together, shall constitute but one contract (subject to Article 13), and shall become effective as provided in Article 13. Delivery of an executed counterpart of this Guarantee Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Guarantee Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] A.C. MOORE INCORPORATED GUARANTEE AGREEMENT IN WITNESS WHEREOF, the parties hereto have duly executed this Guarantee Agreement as of the day and year first above written. A.C. MOORE INCORPORATED By: /s/ Leslie H. Gordon --------------------------------- Name: Leslie H. Gordon --------------------------------- Title: Chief Financial Officer --------------------------------- A.C. MOORE ARTS & CRAFTS, INC. By: /s/ Leslie H. Gordon --------------------------------- Name: Leslie H. Gordon --------------------------------- Title: Chief Financial Officer --------------------------------- MOORESTOWN FINANCE, INC. BLACKWOOD ASSETS, INC. By: /s/ Leslie H. Gordon --------------------------------- Name: Leslie H. Gordon --------------------------------- Title: Chief Financial Officer --------------------------------- EACH OF THE SUBSIDIARIES OF THE BORROWER LISTED ON THE SCHEDULE I HERETO By: --------------------------------- Name: --------------------------------- Title: --------------------------------- A.C. MOORE INCORPORATED GUARANTEE AGREEMENT KEYBANK NATIONAL ASSOCIATION, as Administrative Agent By: /s/ Brendan Sachtjen --------------------------------- Name: Brendan Sachtjen --------------------------------- Title: Senior Vice President --------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----