-----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, TyFXuv/yNRkP7d3f8K987kjoDDVAwt0zbmTJhRUgZmcq0pqu/j/CciMXF2LLtOMX +bzwTn32qHerkFpeGOhhyQ== 0000019353-04-000150.txt : 20041201 0000019353-04-000150.hdr.sgml : 20041201 20041130185317 ACCESSION NUMBER: 0000019353-04-000150 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20041030 FILED AS OF DATE: 20041201 DATE AS OF CHANGE: 20041130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHARMING SHOPPES INC CENTRAL INDEX KEY: 0000019353 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 231721355 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07258 FILM NUMBER: 041175588 BUSINESS ADDRESS: STREET 1: 450 WINKS LANE CITY: BENSALEM STATE: PA ZIP: 19020 BUSINESS PHONE: 2152459100 MAIL ADDRESS: STREET 1: 450 WINKS LANE CITY: BENSALEM STATE: PA ZIP: 19020 10-Q 1 form10q.txt THIRD QUARTER FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 30, 2004 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 No. 000-07258 CHARMING SHOPPES, INC. ---------------------- (Exact name of registrant as specified in its charter) PENNSYLVANIA 23-1721355 ------------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 450 WINKS LANE, BENSALEM, PA 19020 ---------------------------------- (Address of principal executive offices) (Zip Code) (215) 245-9100 -------------- (Registrant's telephone number, including Area Code) NOT APPLICABLE -------------- (Former name, former address, and former fiscal year, if changed since last report) 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] The number of shares outstanding of the issuer's Common Stock (par value $.10 per share), as of November 23, 2004, was 118,909,938 shares. ================================================================================ CHARMING SHOPPES, INC. AND SUBSIDIARIES TABLE OF CONTENTS
Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited).................................. 2 Condensed Consolidated Balance Sheets October 30, 2004 and January 31, 2004............................. 2 Condensed Consolidated Statements of Operations and Comprehensive Income Thirteen weeks ended October 30, 2004 and November 1, 2003........ 3 Thirty-nine weeks ended October 30, 2004 and November 1, 2003..... 4 Condensed Consolidated Statements of Cash Flows Thirty-nine weeks ended October 30, 2004 and November 1, 2003..... 5 Notes to Condensed Consolidated Financial Statements........................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 14 Forward-looking Statements.................................................. 14 Critical Accounting Policies................................................ 16 Results of Operations....................................................... 16 Liquidity and Capital Resources............................................. 22 Financing 26 Market Risk................................................................. 27 Impact of Recent Accounting Pronouncements.................................. 28 Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 28 Item 4. Controls and Procedures........................................... 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................. 29 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....... 29 Item 5. Other Information................................................. 30 Item 6. Exhibits.......................................................... 30 SIGNATURES.................................................................. 32
1 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
October 30, January 31, (Dollars in thousands, except share amounts) 2004 2004 ---- ---- (Unaudited) ASSETS Current assets Cash and cash equivalents .......................................... $ 202,878 $ 123,781 Available-for-sale securities ...................................... 53,468 55,688 Merchandise inventories ............................................ 378,955 309,995 Deferred taxes ..................................................... 19,693 19,902 Prepayments and other .............................................. 77,143 57,494 ----------- ----------- Total current assets ............................................... 732,137 566,860 ----------- ----------- Property, equipment, and leasehold improvements - at cost .......... 737,839 705,257 Less accumulated depreciation and amortization ..................... 426,666 386,633 ----------- ----------- Net property, equipment, and leasehold improvements ................ 311,173 318,624 ----------- ----------- Trademarks and other intangible assets ............................. 169,983 170,478 Goodwill ........................................................... 66,956 66,956 Available-for-sale securities ...................................... 2,249 14,521 Other assets ....................................................... 31,709 27,440 ----------- ----------- Total assets ....................................................... $ 1,314,207 $ 1,164,879 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable ................................................... $ 167,244 $ 135,777 Accrued expenses ................................................... 150,693 138,166 Income taxes payable ............................................... 1,956 1,128 Current portion - long-term debt ................................... 22,558 17,278 Accrued expenses related to cost reduction plan .................... 2,984 2,596 ----------- ----------- Total current liabilities .......................................... 345,435 294,945 ----------- ----------- Deferred taxes and other non-current liabilities ................... 68,837 62,030 Long-term debt ..................................................... 203,223 202,819 Stockholders' equity Common Stock $.10 par value: Authorized - 300,000,000 shares Issued - 130,417,498 shares and 125,526,573 shares, respectively ... 13,042 12,553 Additional paid-in capital ......................................... 235,785 201,798 Treasury stock at cost - 12,265,993 shares ......................... (84,136) (84,136) Deferred employee compensation ..................................... (7,444) (2,539) Accumulated other comprehensive loss ............................... (7) (365) Retained earnings .................................................. 539,472 477,774 ----------- ----------- Total stockholders' equity ......................................... 696,712 605,085 ----------- ----------- Total liabilities and stockholders' equity ......................... $ 1,314,207 $ 1,164,879 =========== =========== See Notes to Condensed Consolidated Financial Statements
2 CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
Thirteen Weeks Ended -------------------- October 30, November 1, (In thousands, except per share amounts) 2004 2003 ---- ---- Net sales ............................................................. $ 541,759 $ 530,291 --------- --------- Cost of goods sold, buying, and occupancy expenses .................... 377,457 382,273 Selling, general, and administrative expenses ......................... 149,769 140,600 Expenses related to cost reduction plan ............................... 605 148 --------- --------- Total operating expenses .............................................. 527,831 523,021 --------- --------- Income from operations ................................................ 13,928 7,270 Other income, principally interest .................................... 783 344 Interest expense ...................................................... (3,876) (4,123) --------- --------- Income before income taxes and minority interest ...................... 10,835 3,491 Income tax provision .................................................. 3,803 1,341 --------- --------- Income before minority interest ....................................... 7,032 2,150 Minority interest in net loss of consolidated subsidiary .............. 0 9 --------- --------- Net income ............................................................ 7,032 2,159 --------- --------- Other comprehensive income (loss), net of tax Unrealized gains (losses) on available-for-sale securities, net of of income tax (provision) benefit of $(49) and $66, respectively .... 77 (102) Reclassification of amortization of deferred loss on termination of derivative, net of income tax benefit of $(6) and $(46), respectively 11 85 --------- --------- Total other comprehensive income (loss), net of tax ................... 88 (17) --------- --------- Comprehensive income .................................................. $ 7,120 $ 2,142 ========= ========= Basic net income per share ............................................ $ .06 $ .02 ========= ========= Diluted net income per share .......................................... $ .06 $ .02 ========= ========= Certain prior-year amounts have been reclassified to conform to the current-year presentation. See Notes to Condensed Consolidated Financial Statements
3 CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
Thirty-nine Weeks Ended ----------------------- October 30, November 1, (In thousands, except per share amounts) 2004 2003 ---- ---- Net sales ............................................................... $ 1,746,234 $ 1,700,033 ----------- ----------- Cost of goods sold, buying, and occupancy expenses ...................... 1,208,592 1,206,186 Selling, general, and administrative expenses ........................... 431,260 422,764 Expenses related to cost reduction plan ................................. 605 10,968 ----------- ----------- Total operating expenses ................................................ 1,640,457 1,639,918 ----------- ----------- Income from operations .................................................. 105,777 60,115 Other income, principally interest ...................................... 1,592 1,308 Interest expense ........................................................ (11,639) (11,777) ----------- ----------- Income before income taxes and minority interest ........................ 95,730 49,646 Income tax provision .................................................... 34,032 19,295 ----------- ----------- Income before minority interest ......................................... 61,698 30,351 Minority interest in net loss of consolidated subsidiary ................ 0 142 ----------- ----------- Net income .............................................................. 61,698 30,493 ----------- ----------- Other comprehensive income, net of tax Unrealized gains (losses) on available-for-sale securities, net of income tax (provision) benefit of $(147) and $77, respectively ........ 230 (120) Reclassification of amortization of deferred loss on termination of derivative, net of income tax benefit of $(69) and $(138), respectively 128 256 ----------- ----------- Total other comprehensive income, net of tax ............................ 358 136 ----------- ----------- Comprehensive income .................................................... $ 62,056 $ 30,629 =========== =========== Basic net income per share .............................................. $ .53 $ .27 =========== =========== Diluted net income per share ............................................ $ .49 $ .26 =========== =========== Certain prior-year amounts have been reclassified to conform to the current-year presentation. See Notes to Condensed Consolidated Financial Statements
4 CHARMING SHOPPES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Thirty-nine Weeks Ended ----------------------- October 30, November 1, (In thousands) 2004 2003 ---- ---- Operating activities Net income .............................................. $ 61,698 $ 30,493 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......................... 51,426 56,714 Tax benefit related to stock plans .................... 4,187 0 Deferred income taxes ................................. 4,914 11,015 Loss from disposition of capital assets ............... 646 1,363 Other, net ............................................ 185 (142) Changes in operating assets and liabilities: Merchandise inventories ............................. (68,960) (121,698) Accounts payable .................................... 31,467 47,601 Prepayments and other ............................... (19,649) 13,382 Accrued expenses and other .......................... 14,412 (8,007) Income taxes payable ................................ 828 (6,343) Accrued expenses related to cost reduction plan ..... 388 2,877 --------- --------- Net cash provided by operating activities ............... 81,542 27,255 --------- --------- Investing activities Investment in capital assets ............................ (35,176) (39,376) Proceeds from sales of available-for-sale securities .... 45,571 24,971 Gross purchases of available-for-sale securities ........ (30,887) (30,075) Increase in other assets ................................ (5,610) (3,632) --------- --------- Net cash used by investing activities ................... (26,102) (48,112) --------- --------- Financing activities Proceeds from short-term borrowings ..................... 150,298 173,213 Repayments of short-term borrowings ..................... (150,298) (173,213) Proceeds from long-term borrowings ...................... 13,098 1,053 Repayments of long-term borrowings ...................... (12,813) (10,792) Proceeds from issuance of common stock .................. 23,722 857 Payments of deferred financing costs .................... (350) 0 --------- --------- Net cash provided/(used) by financing activities ........ 23,657 (8,882) --------- --------- Increase (decrease) in cash and cash equivalents ........ 79,097 (29,739) Cash and cash equivalents, beginning of period .......... 123,781 102,026 --------- --------- Cash and cash equivalents, end of period ................ $ 202,878 $ 72,287 ========= ========= Non-cash financing and investing activities Equipment acquired through capital leases ............... $ 5,399 $ 9,210 ========= ========= Certain prior-year amounts have been reclassified to conform to the current-year presentation. See Notes to Condensed Consolidated Financial Statements
5 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Condensed Consolidated Financial Statements We have prepared our condensed consolidated balance sheet as of October 30, 2004, and our condensed consolidated statements of operations and comprehensive income and cash flows for the thirteen weeks and thirty-nine weeks ended October 30, 2004 and November 1, 2003, without audit. In our opinion, we have made all adjustments (which include only normal recurring adjustments) necessary to present fairly our financial position, results of operations, and cash flows. We have condensed or omitted certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States. These financial statements and related notes should be read in conjunction with our financial statements and related notes included in our January 31, 2004 Annual Report on Form 10-K. The results of operations for the thirteen weeks and thirty-nine weeks ended October 30, 2004 and November 1, 2003 are not necessarily indicative of operating results for the full fiscal year. As used in these notes, the terms "Fiscal 2005" and "Fiscal 2004" refer to our fiscal year ending January 29, 2005 and our fiscal year ended January 31, 2004, respectively. The terms "Fiscal 2005 Third Quarter" and "Fiscal 2004 Third Quarter" refer to the thirteen weeks ended October 30, 2004 and November 1, 2003, respectively. The terms "Fiscal 2004 First Quarter" and "Fiscal 2004 Second Quarter" refer to the thirteen weeks ended May 3, 2003 and August 2, 2003, respectively. The terms "the Company," "we," "us," and "our" refer to Charming Shoppes, Inc. and, where applicable, its consolidated subsidiaries. We account for cash consideration received from vendors in accordance with the provisions of Financial Accounting Standards Board ("FASB") Emerging Issues Task Force ("EITF") Issue 02-16, "Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor." For interim reporting, we generally defer markdown allowances and recognize them in the period in which markdown expenses are recognized. Inasmuch as the markdown allowances at the date of purchase are intended to compensate us for future markdowns taken at the time of sale, we defer the recognition of markdown allowances during the interim periods in order to better match the recognition of markdown allowances to the period that the related markdown expenses are recorded. We account for stock-based compensation using the intrinsic value method, in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. We amortize deferred compensation expense attributable to stock awards and stock options having an exercise price less than the market price on the date of grant on a straight-line basis over the vesting period of the award or option. We do not recognize compensation expense for options having an exercise price equal to the market price on the date of grant or for shares purchased under our Employee Stock Purchase Plan. 6 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 1. Condensed Consolidated Financial Statements (Continued) The following table reconciles net income and net income per share as reported, using the intrinsic value method under APB No. 25, to pro forma net income and net income per share using the fair value method under FASB Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based Compensation":
Thirteen Weeks Ended Thirty-nine Weeks Ended -------------------- ----------------------- (In thousands, except per October 30, November 1, October 30, November 1, share amounts) 2004 2003 2004 2003 ---- ---- ---- ---- Net income as reported ......................... $ 7,032 $ 2,159 $ 61,698 $ 30,493 Add stock-based employee compensation using intrinsic value method, net of income taxes .............................. 317 245 1,081 745 Less stock-based employee compensation using fair value method, net of income taxes ................................. (982) (810) (2,780) (2,494) -------- -------- -------- -------- Pro forma net income ........................... $ 6,367 $ 1,594 $ 59,999 $ 28,744 ======== ======== ======== ======== Basic net income per share: As reported .................................. $ .06 $ .02 $ .53 $ .27 Pro forma .................................... .05 .01 .52 .26 Diluted net income per share: As reported .................................. .06 .02 .49 .26 Pro forma .................................... .05 .01 .48 .25
Note 2. Trademarks and Other Intangible Assets
October 30, January 31, (In thousands) 2004 2004 ---- ---- Trademarks, tradenames, and internet domain names .... $ 168,800 $ 168,800 Customer lists and covenant not to compete ........... 3,300 3,300 ---------- ---------- Total at cost ........................................ 172,100 172,100 Less accumulated amortization of customer lists and covenant not to compete ............................ 2,117 1,622 ---------- ---------- Net trademarks and other intangible assets ........... $ 169,983 $ 170,478 ========== ==========
7 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 3. Long-term Debt
October 30, January 31, (In thousands) 2004 2004 ---- ---- 4.75% Senior Convertible Notes, due June 2012 ........ $ 150,000 $ 150,000 Capital lease obligations ............................ 33,331 37,934 6.07% mortgage note, due October 2014 ................ 12,955 0 6.53% mortgage note, due November 2012 ............... 11,200 12,250 7.77% mortgage note, due December 2011 ............... 9,686 10,039 7.5% mortgage note, due March 2005 ................... 5,666 5,840 8.15% note, due December 2004 ........................ 1,483 2,494 Other long-term debt ................................. 1,460 1,540 ---------- ---------- Total long-term debt ................................. 225,781 220,097 Less current portion ................................. 22,558 17,278 ---------- ---------- Long-term debt ....................................... $ 203,223 $ 202,819 ========== ==========
On October 6, 2004, we borrowed $13,000,000 under a 6.07% mortgage note (the "Note"). Repayment of the Note is based on a 15-year amortization schedule, with 119 monthly installments of principal and interest of $110,000 and a balloon payment of $5,800,000 at the end of 10 years. The Note may be prepaid after 2-1/2 years upon the payment of a premium, or, upon certain other events, without the payment of a premium. The Note is secured by a mortgage on real property at our distribution center in Greencastle, Indiana and an Assignment of Lease and Rents and Security Agreement related to the Greencastle facility. Note 4. Stockholders' Equity
Thirty-nine Weeks Ended October 30, (Dollars in thousands) 2004 ---- Total stockholders' equity, beginning of period .................... $ 605,085 Net income ......................................................... 61,698 Issuance of common stock (4,890,925 shares) ........................ 23,722 Tax benefit related to stock plans ................................. 4,187 Amortization of deferred compensation expense ...................... 1,662 Amortization of deferred loss on termination of derivative, net of tax ....................................................... 128 Unrealized gains on available-for-sale securities, net of tax ...... 230 ---------- Total stockholders' equity, end of period .......................... $ 696,712 ==========
8 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 5. Customer Loyalty Card Programs We offer our customers various loyalty card programs. Customers that join these programs are entitled to various benefits, including discounts and rebates on purchases during the membership period. Customers generally join these programs by paying an annual membership fee. We recognize revenue from these loyalty programs as sales over the life of the membership period based on when the customer earns the benefits and when the fee is no longer refundable. We recognize costs we incur in connection with administering these programs as cost of goods sold when incurred. During the Fiscal 2004 First Quarter, we introduced a new FASHION BUG(R) customer loyalty card program that we operate under our FASHION BUG proprietary credit card program. Like our other loyalty programs, this program entitles customers to various rebates, discounts, and other benefits upon payment of an annual membership fee. This program also provides customers with the option to cancel their membership within 90 days, entitling them to a full refund of their annual fee. Additionally, after 90 days, customers that cancel their membership are entitled to a pro rata fee refund based on the number of months remaining on the annual membership. Accordingly, we recognize 25% of the annual membership fee as revenue after 90 days, with the remaining fee recognized on a pro rata basis over nine months. During the thirteen weeks and thirty-nine weeks ended October 30, 2004, we recognized revenues of $1,843,000 and $5,548,000, respectively, in connection with this program. During the thirteen weeks and thirty-nine weeks ended November 1, 2003, we recognized revenues of $2,517,000 and $5,308,000, respectively, in connection with this program. As of October 30, 2004 and January 31, 2004, we accrued $700,000 and $1,200,000, respectively, for the estimated costs of discounts earned and coupons issued and not redeemed. Our CATHERINES(R) brand also offers a loyalty card program. During the thirteen weeks and thirty-nine weeks ended October 30, 2004, we recognized revenues of $1,879,000 and $5,620,000, respectively, in connection with this program. During the thirteen weeks and thirty-nine weeks ended November 1, 2003, we recognized revenues of $1,876,000 and $5,682,000, respectively, in connection with this program. Under a previous FASHION BUG customer loyalty card program, we recognized revenues from annual membership fees as sales over the life of the membership based on discounts earned by the customer. For customers who did not earn discounts during the membership period that exceeded the card fee, the difference between the membership fee and discounts earned was recognized as revenue upon the expiration of the annual membership period. Upon early cancellation of the loyalty card, refunds of membership fees were reduced by the amount of any discounts granted to the member under the program. During the thirteen weeks and thirty-nine weeks ended November 1, 2003, we recognized revenues of $401,000 and $6,709,000, respectively, in connection with this program. We discontinued the issuance of new cards under this program in December 2002, and we terminated the program during the Fiscal 2004 Second Quarter. 9 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 6. Expenses Related to Cost Reduction Plan On March 18, 2003, we announced a cost reduction plan, designed to take advantage of the centralization of all corporate administrative services throughout the Company and to realize certain efficiencies, in order to improve profitability. We accounted for the plan in accordance with the provisions of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The total costs recognized during Fiscal 2004 related to this plan were $11,534,000, with $148,000 of the costs recognized during the thirteen weeks ended November 1, 2003 and $10,968,000 of the costs recognized during the thirty-nine weeks ended November 1, 2003. Costs incurred during the thirteen weeks and thirty-nine weeks ended November 1, 2003 consisted of the following:
Thirteen Thirty-nine Weeks Ended Weeks Ended November 1, November 1, (In thousands) 2003 2003 ---- ---- Workforce reduction costs ............................ $ 0 $ 3,059 Lease termination and related costs .................. 131 3,571 Acceleration of depreciation of property, equipment, and leasehold improvements ......................... 0 3,703 Other facility closure costs ......................... 17 635 ---------- ---------- Total costs .......................................... $ 148 $ 10,968 ========== ==========
Workforce reduction costs represent involuntary termination benefits and retention bonuses. Employees affected by the plan were notified during the Fiscal 2004 First Quarter. During the Fiscal 2004 First Quarter, we terminated 118 employees at our corporate and divisional home offices. During the Fiscal 2004 Second Quarter, we terminated 231 employees in connection with the closing of our Memphis, Tennessee distribution center, our Hollywood, Florida credit operations, and our remaining Monsoon(R) stores. We accrued the severance benefit in accordance with SFAS No. 146 and recognized retention bonuses ratably over the employees' remaining service period. Lease termination and related costs mainly represent the estimated fair value of the remaining lease obligations at our Hollywood, Florida credit facility, reduced by estimated sublease income. We recognized the present value of the remaining lease obligations, less estimated sublease income, related to the Hollywood facility in June 2003 when we closed the facility. Accelerated depreciation costs mainly represent the acceleration of depreciation of the net book value of the assets at our Memphis, Tennessee distribution center and our Hollywood, Florida credit facility, which we closed in June 2003, to their estimated fair values. During the Fiscal 2004 First Quarter, we made the decision to sell our Memphis, Tennessee distribution center, and began accelerating the depreciation of the asset to its estimated net realizable value as of its expected cease-use date of June 2003. During the Fiscal 2004 Third Quarter, we began to evaluate alternative uses for the facility, and began to depreciate the then-current carrying amount of the asset over its estimated useful life. Subsequent to October 30, 2004, we entered into an agreement to lease the Memphis facility to a third party for a three-year period. 10 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 6. Expenses Related to Cost Reduction Plan (Continued) As of January 31, 2004, the accrued lease termination costs related to the closing of the Hollywood facility were $2,596,000. In October 2004, in accordance with SFAS No. 146, we revised our estimated sublease income on the remaining lease obligation for the Hollywood facility and recognized an additional expense of $605,000. As of October 30, 2004, the accrued lease termination costs related to the closing of the Hollywood facility were $2,984,000. Note 7. Net Income Per Share
Thirteen Weeks Ended Thirty-nine Weeks Ended -------------------- ----------------------- October 30, November 1, October 30, November 1, (In thousands) 2004 2003 2004 2003 ---- ---- ---- ---- Basic weighted average common shares outstanding .................................. 117,217 112,533 115,474 112,438 Dilutive effect of assumed conversion of convertible notes ............................ 0 0 15,182 15,182 Dilutive effect of stock options and awards .... 1,416 2,423 1,744 1,139 -------- -------- -------- -------- Diluted weighted average common shares and equivalents outstanding .................. 118,633 114,956 132,400 128,759 ======== ======== ======== ======== Net income ..................................... $ 7,032 $ 2,159 $ 61,698 $ 30,493 Decrease in interest expense from assumed conversion of notes, net of income taxes ..... 0 0 3,404 3,248 -------- -------- -------- -------- Net income used to determine diluted net income per share ............................ $ 7,032 $ 2,159 $ 65,102 $ 33,741 ======== ======== ======== ======== Options with weighted average exercise price greater than market price, excluded from computation of net income per share: Number of shares (in thousands)............... 446 7,542 432 8,351 Weighted average exercise price per share................................... $8.23 $6.67 $8.28 $6.64
The effect of an assumed conversion of our 4.75% senior convertible notes into 15.2 million shares of our common stock was excluded from the calculation of diluted net income per share for the thirteen weeks ended October 30, 2004 and November 1, 2003 because the effect would have been anti-dilutive. 11 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 8. Income Taxes The effective income tax rate was 35.6% for the thirty-nine weeks ended October 30, 2004, as compared to 38.9% for the thirty-nine weeks ended November 1, 2003. The lower effective tax rate for the thirty-nine weeks ended October 30, 2004 is primarily the result of finalizing certain prior-year tax audits. The tax rate for the thirty-nine weeks ended November 1, 2003 was affected by a provision for taxes related to one of our corporate-owned life insurance programs, which we settled with the Internal Revenue Service during the second half of Fiscal 2004. On October 22, 2004, the President of the United States of America signed into law H.R. 4250, "The American Jobs Creation Act of 2004" (the "Act"), which includes among its provisions certain tax benefits related to the repatriation to the United States of profits from a company's international operations. The Act provides for the repatriation of profits from international operations at a tax rate not to exceed 5.25% for approximately a one-year period. As of October 30, 2004, the U.S. Treasury Department has not issued final guidelines for applying the repatriation provisions of the Act. We are currently evaluating the effects of the Act, and have not determined the effect, if any, that it will have on our financial condition and results of operations. Note 9. Asset Securitization On August 5, 2004, in connection with our asset securitization program, the Charming Shoppes Master Trust (the "Trust") issued $180,000,000 of new five-year asset-backed certificates ("Series 2004-1") in a private placement under Rule 144A. Of the $180,000,000 of certificates issued, we sold $161,100,000 to investors and we held $18,900,000 as a retained interest. The certificates pay interest to investors on a floating-rate basis tied to one-month LIBOR. Concurrently, the Trust entered into a series of fixed-rate interest rate hedge agreements with respect to the $161,100,000 of certificates sold to investors. The blended weighted-average interest rate on the hedged certificates is 4.90%. On August 5, 2004, the Trust used $61,500,000 of the proceeds to pay down other securitization series and placed the remaining proceeds of $118,500,000 into a pre-funding cash account. We are using the proceeds from this pre-funding cash account to pay down Series 1999-1 (which is currently in its amortization period) as well as provide financing for additional receivables. On August 24, 2004, we sold to investors $9,450,000 of the $18,900,000 we held as a retained interest. During the Fiscal 2005 Third Quarter, the Trust used $36,800,000 of cash from the pre-funding cash account to fund the Series 1999-1 amortization. 12 CHARMING SHOPPES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Unaudited) Note 10. Impact of Recent Accounting Pronouncements In January 2003, the FASB issued Financial Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities," an interpretation of Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial Statements." A variable interest entity ("VIE") is a legal entity used for business purposes that either does not have equity investors with substantive voting rights or has equity investors that do not provide sufficient financial resources for the entity to finance its activities without additional subordinated financial support from other parties. Consolidation of a VIE by a variable interest holder is required if the variable interest holder is subject to a majority of the VIE's residual returns, risk of loss, or both. Qualifying special purpose entities ("QSPEs") subject to the requirements of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" are excluded from the scope of FIN No. 46. Adoption of FIN No. 46 did not have a material impact on our financial position or results of operations. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and accompanying notes included in Item 1 of this report. It should also be read in conjunction with the management's discussion and analysis of financial condition and results of operations, financial statements, and accompanying notes appearing in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. As used in this management's discussion and analysis, the terms "Fiscal 2005" and "Fiscal 2004" refer to our fiscal year ending January 29, 2005 and our fiscal year ended January 31, 2004, respectively. The terms "Fiscal 2005 Third Quarter" and "Fiscal 2004 Third Quarter" refer to the thirteen weeks ended October 30, 2004 and November 1, 2003, respectively. The terms "Fiscal 2005 First Quarter" and "Fiscal 2005 Fourth Quarter" refer to the thirteen weeks ended May 1, 2004 and the thirteen weeks ending January 29, 2005, respectively. The terms "Fiscal 2004 First Quarter," "Fiscal 2004 Second Quarter," and "Fiscal 2004 Fourth Quarter" refer to the thirteen weeks ended May 3, 2003, August 2, 2003, and January 31, 2004, respectively. The term "Fiscal 2006 First Quarter" refers to the thirteen weeks ending April 30, 2005. The terms "the Company," "we," "us," and "our" refer to Charming Shoppes, Inc. and, where applicable, its consolidated subsidiaries. FORWARD-LOOKING STATEMENTS With the exception of historical information, the matters contained in the following analysis and elsewhere in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include, but are not limited to, projections of revenues, income or loss, cost reductions, capital expenditures, liquidity, financing needs or plans, and plans for future operations, as well as assumptions relating to the foregoing. The words "expect," "should," "project," "estimate," "predict," "anticipate," "plan," "believes," and similar expressions are also intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which we cannot predict or quantify. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. We assume no obligation to update any forward-looking statement to reflect actual results or changes in, or additions to, the factors affecting such forward-looking statements. Factors that could cause our actual results of operations or financial condition to differ from those described in this report include, but are not necessarily limited to, the following: o Our business is dependent upon our being able to accurately predict rapidly changing fashion trends, customer preferences, and other fashion-related factors, which we may not be able to successfully accomplish in the future. o A slowdown in the United States economy, an uncertain economic outlook, and escalating energy costs could lead to reduced consumer demand for our apparel and accessories in the future. o The women's specialty retail apparel industry is highly competitive and we may be unable to compete successfully against existing or future competitors. o We cannot assure the successful implementation of our business plan for increased profitability and growth in our plus-size women's apparel business. o Our business plan is largely dependent upon continued growth in the plus-size women's apparel market, which may not occur. o We depend on key personnel, particularly our Chief Executive Officer, Dorrit J. Bern, and we may not be able to retain or replace these employees or recruit additional qualified personnel. 14 o We depend on our distribution centers and could incur significantly higher costs and longer lead times associated with distributing our products to our stores if any of these distribution centers were to shut down for any reason. o We depend on the availability of credit for our working capital needs, including credit we receive from our suppliers and their agents, and on our credit card securitization program. If we were unable to obtain sufficient financing at an affordable cost, our ability to merchandise our stores would be adversely affected. o We rely significantly on foreign sources of production and face a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad. Such risks include (but are not necessarily limited to) political instability, imposition of, or changes in, duties or quotas, increased security requirements applicable to imports, delays in shipping, increased costs of transportation, and issues relating to compliance with domestic or international labor standards. o Our stores experience seasonal fluctuations in net sales and operating income. Any decrease in sales or margins during our peak sales periods, or in the availability of working capital during the months preceding such periods, could have a material adverse effect on our business. In addition, extreme or unseasonable weather conditions may have a negative impact on our sales. o War, acts of terrorism, or the threat of either may negatively impact availability of merchandise and customer traffic to our stores, or otherwise adversely affect our business. o We may be unable to obtain adequate insurance for our operations at a reasonable cost. o We may be unable to protect our trademarks and other intellectual property rights, which are important to our success and our competitive position. o We may be unable to hire and retain a sufficient number of suitable sales associates at our stores. o Our manufacturers may be unable to manufacture and deliver merchandise to us in a timely manner or to meet our quality standards. o Our sales are dependent upon a high volume of traffic in the strip centers and malls in which our stores are located, and our future growth is dependent upon the availability of suitable locations for new stores. o We may be unable to successfully implement our plan to improve merchandise assortments in our brands. o The carrying amount and/or useful life of intangible assets related to acquisitions are subject to periodic valuation tests. An adverse change in interest rates or other factors could have a significant impact on the results of the valuation tests, resulting in a write-down of the carrying value or acceleration of amortization of acquired intangible assets. o Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to include our assessment of the effectiveness of our internal control over financial reporting in our annual reports beginning with the fiscal year ending January 29, 2005. Our independent accountants are also required to attest to whether or not our assessment is fairly stated in all material respects and to separately report on whether or not they believe that we maintained, in all material respects, effective internal control over financial reporting as of January 29, 2005. If we fail to timely complete this assessment, or if our independent accountants cannot timely attest to our assessment, we could be subject to regulatory sanctions and a possible loss of public confidence in the reliability of our financial reporting. Such a failure, as well as difficulties in implementing required new or improved controls, could result in our inability to provide timely and/or reliable financial information and could adversely affect our business. 15 CRITICAL ACCOUNTING POLICIES Our critical accounting policies are discussed in the management's discussion and analysis of financial condition and results of operations and notes accompanying the consolidated financial statements that appear in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. Except as otherwise disclosed in the financial statements and accompanying notes included in this report, there were no material changes in our critical accounting policies or in the assumptions or estimates we used to prepare the financial information appearing in this report. RESULTS OF OPERATIONS The following table shows our results of operations expressed as a percentage of net sales and on a comparative basis:
Thirteen Weeks Ended Percentage Thirty-nine Weeks Ended Percentage -------------------- Change ----------------------- Change October 30, November 1, From Prior October 30, November 1, From Prior 2004 2003 Period 2004 2003 Period ---- ---- ------ ---- ---- ------ Net sales.................... 100.0% 100.0% 2.2% 100.0% 100.0% 2.7% Cost of goods sold, buying, and occupancy expenses......... 69.7 72.1 (1.1) 69.2 71.0 0.2 Selling, general, and administrative expenses.... 27.6 26.5 6.0 24.7 24.9 2.0 Expenses related to cost reduction plan............. 0.1 - 308.8 - 0.7 (94.5) Income from operations....... 2.6 1.4 91.6 6.1 3.5 76.0 Other income, principally interest....... 0.1 0.1 127.6 0.1 0.1 21.7 Interest expense............. 0.7 0.8 (6.0) 0.7 0.7 (1.2) Income tax provision......... 0.7 0.3 183.6 1.9 1.1 76.4 Net income................... 1.3 0.4 225.7 3.5 1.8 102.3 - -------------------- Results may not add due to rounding.
The following table shows our net sales by store brand:
Thirteen Weeks Ended Thirty-nine Weeks Ended -------------------- ----------------------- October 30, November 1, October 30, November 1, (In millions) 2004 2003 2004 2003 ---- ---- ---- ---- FASHION BUG(R) .......... $ 237.6 $ 247.9 $ 789.9 $ 797.9 LANE BRYANT(R) .......... 230.0 206.7 714.8 652.6 CATHERINES(R) ........... 74.2 75.7 241.5 247.8 Other (1) ............... 0.0 0.0 0.0 1.7 ---------- ---------- ---------- ---------- Total net sales ......... $ 541.8 $ 530.3 $ 1,746.2 $ 1,700.0 ========== ========== ========== ========== - -------------------- (1) Sales attributable to Monsoon/Accessorize stores, which were closed during Fiscal 2004.
16 The following table shows additional information related to changes in our net sales:
Thirteen Weeks Ended Thirty-nine Weeks Ended -------------------- ----------------------- October 30, November 1, October 30, November 1, 2004 2003 2004 2003 ---- ---- ---- ---- Increase (decrease) in comparable store sales(1): Consolidated Company....................... 1% 0% 2% (3)% FASHION BUG................................ (3) 6 2 2 LANE BRYANT................................ 7 (5) 5 (9) CATHERINES................................. (5) (5) (5) (1) Sales from new stores as a percentage of total consolidated prior-period sales: FASHION BUG................................ 1 1 1 1 LANE BRYANT................................ 3 3 3 3 CATHERINES................................. 1 1 1 1 Prior-period sales from closed stores as a percentage of total consolidated prior-period sales: FASHION BUG................................ (2) (4) (2) (5) LANE BRYANT................................ (1) (1) (1) (1) CATHERINES................................. (1) (1) (1) (2) Increase (decrease) in total sales........... 2 (2) 3 (6) - -------------------- (1) Sales from stores in operation during both periods. Stores are added to the comparable store base after 13 full months of operation.
The following table sets forth information with respect to our store activity for the first three quarters of Fiscal 2005 and planned store activity for all of Fiscal 2005 (including the first three quarters of Fiscal 2005):
FASHION LANE BUG BRYANT CATHERINES Total --- ------ ---------- ----- Fiscal 2005 Year-to-Date: Stores at January 31, 2004 ............. 1,051 710 466 2,227 ----- ----- ----- ----- Stores opened .......................... 3 25 13 41 Stores closed .......................... (17) (6) (4) (27) ----- ----- ----- ----- Net change in stores ................... (14) 19 9 14 ----- ----- ----- ----- Stores at October 30, 2004 ............. 1,037 729 475 2,241 ===== ===== ===== ===== Stores relocated during period ......... 19 13 7 39 Stores remodeled during period ......... 3 9 0 12 Fiscal 2005: Planned store openings ................. 5 31 15 51 Planned store closings ................. 27 18 11 56 Planned store relocations .............. 21 14 9 44
17 Comparison of Thirteen Weeks Ended October 30, 2004 and November 1, 2003 Net Sales The increase in net sales from the Fiscal 2004 Third Quarter to the Fiscal 2005 Third Quarter resulted primarily from an increase in comparable store sales at our LANE BRYANT brand, which was partially offset by a decrease in comparable store sales at our FASHION BUG and CATHERINES brands. We operated 2,241 retail stores at the end of the Fiscal 2005 Third Quarter, as compared to 2,257 stores at the end of the Fiscal 2004 Third Quarter. The increase in LANE BRYANT comparable store sales exceeded our sales plan for the quarter. Improvements in the merchandise assortments offered at LANE BRYANT during the Fiscal 2005 Third Quarter resulted in improved sales performance as compared to the Fiscal 2004 Third Quarter. Although we experienced relatively flat traffic levels in our LANE BRYANT stores during the current-year quarter, we experienced an increase in the average dollar sale per transaction. The average dollar sale per transaction increased as a result of both an improved average retail value per unit sold and an increase in the average number of units sold per customer ("UPC"). The improved average retail value per unit sold reflected reduced levels of promotional pricing during the current-year quarter. LANE BRYANT experienced comparable store sales increases for the quarter in wear-to-work and intimate apparel, and accessories. FASHION BUG comparable store sales did not meet our sales plan for the quarter. Negative comparable store sales performance was a result of weaker store traffic levels during the current-year quarter, combined with a slightly higher average dollar sale per transaction. The average dollar sale per transaction for the quarter reflected a decrease in the average retail value per unit sold as a result of increased promotional activity that was offset by an increase in the average UPC. FASHION BUG stores experienced sales decreases in most major merchandise categories, which were partially offset by increases in maternity and girls, two new categories added to the brand during the Fiscal 2004 Fourth Quarter. CATHERINES comparable store sales for the Fiscal 2005 Third Quarter were also below our sales plan for the quarter. The decrease in sales at CATHERINES was primarily a result of continued disappointing performance in the dress and wear-to-work categories. Negative comparable store sales performance was primarily a result of a decrease in the average dollar sale per transaction during the current-year period. The average dollar sale per transaction for the quarter reflected an increase in the average UPC that was more than offset by a decrease in the average retail value per unit sold as a result of higher levels of promotional pricing during the current-year quarter. We offer our customers various loyalty card programs. Customers who join these programs are entitled to various benefits, including discounts and rebates on purchases during the membership period. Customers generally join these programs by paying an annual membership fee. We recognize revenue on these loyalty programs as sales over the life of the membership period based on when the customer earns the benefits and when the fee is no longer refundable. Costs we incur in connection with administering these programs are recognized in cost of goods sold as incurred. See "Item 1. Notes To Condensed Consolidated Financial Statements (Unaudited); Note 5. Customer Loyalty Card Program" above for further information on our loyalty card programs. During the Fiscal 2004 First Quarter, we introduced a new FASHION BUG customer loyalty card program that is being operated under our FASHION BUG proprietary credit card program. During the Fiscal 2005 Third Quarter and Fiscal 2004 Third Quarter, we recognized revenues of $1.8 million and $2.5 million, respectively, in connection with this program. During the Fiscal 2005 Third Quarter and Fiscal 2004 Third Quarter, we also recognized revenues of $1.9 million and $1.9 million, respectively, in connection with our CATHERINES loyalty card program. 18 Cost of Goods Sold, Buying, and Occupancy The decrease in cost of goods sold, buying, and occupancy expenses from the Fiscal 2004 Third Quarter to the Fiscal 2005 Third Quarter principally reflects improved merchandise margins at our Lane Bryant and Fashion Bug brands and reduced buying and occupancy expenses. Cost of goods sold as a percentage of net sales was 1.5% lower in the Fiscal 2005 Third Quarter as compared to the Fiscal 2004 Third Quarter. Improved merchandise offerings at our LANE BRYANT brand during the Fiscal 2005 Third Quarter resulted in increased merchandise margins for the brand as compared to the Fiscal 2004 Third Quarter, which was negatively affected by higher levels of promotional activity. Fashion Bug merchandise margins also improved in the Fiscal 2005 Third Quarter. CATHERINES merchandise margins decreased slightly as a result of increased promotional activity during the current-year period. Cost of goods sold includes merchandise costs net of discounts and allowances, freight, inventory shrinkage, and shipping and handling costs associated with our e-commerce business. Net merchandise costs and freight are capitalized as inventory costs. Buying and occupancy expenses as a percentage of net sales were 0.9% lower in the Fiscal 2005 Third Quarter as compared to the Fiscal 2004 Third Quarter, primarily as a result of leverage on relatively fixed occupancy costs and cost savings from the consolidation of our LANE BRYANT and CATHERINES distribution centers into our White Marsh, Maryland facility. Buying expenses include payroll, payroll-related costs, and operating expenses for our buying departments and warehouses. Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities, maintenance, and depreciation for our stores and warehouse facilities and equipment. Buying and occupancy costs are treated as period costs and are not capitalized as part of inventory. Selling, General, and Administrative Selling, general, and administrative expenses were higher in the Fiscal 2005 Third Quarter as compared to the Fiscal 2004 Third Quarter, and were 1.1% higher as a percentage of net sales. The increase was primarily a result of higher expenses related to incentive-based employee compensation programs and the purchase during the Fiscal 2005 Third Quarter of life insurance policies for certain executives to replace split-dollar life insurance policies that were terminated as a result of the Sarbanes-Oxley Act of 2002, which prohibits loans to executive officers. See "Part II. Other Information; Item 5. Other Information" below for further information with respect to the purchase of the life insurance policies. These increases were partially offset by leverage on the increase in net sales and improved performance of our FASHION BUG credit card operations, which continued to experience favorable trends in delinquencies during the Fiscal 2005 Third Quarter. Selling expenses for the Fiscal 2005 Third Quarter were 0.4% lower as a percentage of sales, while general and administrative expenses were 1.5% higher as a percentage of net sales. Income Tax Provision The effective income tax rate was 35.1% in the Fiscal 2005 Third Quarter, as compared to 38.4% in the Fiscal 2004 Third Quarter. The tax rate for the Fiscal 2004 Third Quarter was affected by a provision for taxes related to one of our corporate-owned life insurance programs, which we settled with the Internal Revenue Service during the second half of Fiscal 2004. 19 Comparison of Thirty-nine Weeks Ended October 30, 2004 and November 1, 2003 Net Sales The increase in net sales from the first three quarters of Fiscal 2004 to the first three quarters of Fiscal 2005 resulted primarily from positive comparable store sales results at our LANE BRYANT and FASHION BUG brands, which were partially offset by negative comparable store sales results at our CATHERINES brand. LANE BRYANT stores experienced an increase in the average dollar sale per transaction, and to a lesser extent, an increase in the average number of transactions per store. The average dollar sale per transaction benefited from both an increase in the average retail value per unit sold, reflecting reduced levels of promotional pricing for the brand as compared to the prior-year period, and the average number of units sold per customer ("UPC"). LANE BRYANT experienced comparable store sales increases in all major merchandise categories, especially wear-to-work and intimate apparel. During the first three quarters of Fiscal 2004, LANE BRYANT experienced poor customer acceptance of, and fit and quality issues with, its product offering and had to maintain higher levels of promotional pricing. Continued improvements in the merchandise assortments offered at LANE BRYANT resulted in improved sales performance during the first three quarters of Fiscal 2005. For FASHION BUG stores, stronger traffic levels during the current-year period were partially offset by a slightly lower average dollar sale per transaction. For the current thirty-nine week period, an increase in the average UPC was offset by a decrease in the average retail value per unit sold. FASHION BUG stores experienced increases in sales of misses sportswear, intimate apparel, and accessories, which were offset by decreases in sales of junior sportswear, dresses, coats, and footwear. FASHION BUG store sales for the current-year period benefited from sales of maternity and girls, two new categories added to the brand during the Fiscal 2004 Fourth Quarter. CATHERINES stores experienced weaker traffic levels and a lower average dollar sale per transaction during the current-year period. An increase in the average UPC was more than offset by a decrease in the average retail value per unit sold, reflecting higher levels of promotional pricing during the current-year period. The decrease in sales at CATHERINES was primarily a result of disappointing performance in the dress and wear-to-work categories. During the first three quarters of Fiscal 2005, we recognized revenues of $5.5 million in connection with our FASHION BUG customer loyalty card program, as compared to revenues of $5.3 million for the first three quarters of Fiscal 2004. During the first three quarters of Fiscal 2005 and Fiscal 2004, we also recognized revenues of $5.6 million and $5.7 million, respectively, in connection with our CATHERINES loyalty card program. During the first three quarters of Fiscal 2004, we also recognized revenues of $6.7 million in connection with a previous Fashion Bug loyalty card program that was terminated during the Fiscal 2004 Second Quarter. Cost of Goods Sold, Buying, and Occupancy Cost of goods sold, buying, and occupancy expenses for the first three quarters of Fiscal 2005 were approximately equal to the first three quarters of Fiscal 2004, and were 1.8% lower as a percentage of sales in the current-year period as compared to the prior-year period. Cost of goods sold as a percentage of net sales was 0.9% lower in the first three quarters of Fiscal 2005 as compared to the first three quarters of Fiscal 2004. Improved merchandise margins at our LANE BRYANT brand and FASHION BUG brands were partially offset by a decrease in merchandise margins at our CATHERINES brand. Margins at the CATHERINES brand for the first three quarters of Fiscal 2005 were negatively affected by increased promotional activity 20 that resulted from reduced traffic levels during the current period. As discussed above, margins at our LANE BRYANT brand for the first three quarters of Fiscal 2004 were negatively affected by higher levels of promotional activity. Cost of goods sold includes merchandise costs net of discounts and allowances, freight, inventory shrinkage, and shipping and handling costs associated with our e-commerce business. Net merchandise costs and freight are capitalized as inventory costs. Buying and occupancy expenses as a percentage of net sales were 0.9% lower in the first three quarters of Fiscal 2005 as compared to the first three quarters of Fiscal 2004, primarily a result of leverage on relatively fixed occupancy costs and cost savings from the consolidation of our LANE BRYANT and CATHERINES distribution centers into our White Marsh, Maryland facility. Buying expenses include payroll, payroll-related costs, and operating expenses for our buying departments and warehouses. Occupancy expenses include rent, real estate taxes, insurance, common area maintenance, utilities, maintenance, and depreciation for our stores and warehouse facilities and equipment. Buying and occupancy costs are treated as period costs and are not capitalized as part of inventory. Selling, General, and Administrative Selling, general, and administrative expenses were higher in the first three quarters of Fiscal 2005 as compared to the first three quarters of Fiscal 2004, but were 0.2% lower as a percentage of net sales. The increase in selling, general, and administrative expenses was primarily a result of higher expenses related to incentive-based employee compensation programs and the purchase during the Fiscal 2005 Third Quarter of life insurance policies for certain executives to replace split-dollar life insurance policies that were terminated as a result of the Sarbanes-Oxley Act of 2002, which prohibits loans to executive officers. See "Part II. Other Information; Item 5. Other Information" below for further information with respect to the purchase of the life insurance policies. These increases were partially offset by improved performance of our FASHION BUG credit card operations, which experienced favorable trends in delinquencies during the current-year period, and leverage from the increase in net sales. Selling expenses for the first three quarters of Fiscal 2005 were 0.5% lower as a percentage of net sales, while general and administrative expenses were 0.3% higher as a percentage of net sales. Expenses Related to Cost Reduction Plan On March 18, 2003, we announced a cost reduction plan designed to take advantage of the centralization of all corporate administrative services throughout the Company and to realize certain efficiencies, in order to improve profitability. See "Item 1. Notes to Condensed Consolidated Financial Statements (Unaudited); Note 6. Expenses Related to Cost Reduction Plan" above and "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 14. Expenses Related to Cost Reduction Plan" in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004 for details of this program. We accounted for the plan in accordance with the provisions of SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The cost reduction plan was substantially completed during Fiscal 2004. The total costs recognized during Fiscal 2004 related to this plan were $11.5 million, with $11.0 million of the costs recognized during the thirty-nine weeks ended November 1, 2003. In October 2004, in accordance with SFAS No. 146, we revised our estimated sublease income on the remaining lease obligation for our Hollywood, Florida credit facility, which we closed in June 2003 as part of the cost reduction plan. As a result of this revision we recognized an additional expense of $605,000 during the thirteen weeks and thirty-nine weeks ended October 30, 2004. 21 During the Fiscal 2004 First Quarter, we made the decision to sell our Memphis, Tennessee distribution center, and began accelerating the depreciation of the asset to its estimated net realizable value as of its expected cease-use date of June 2003. During the Fiscal 2004 Third Quarter, we began to evaluate alternative uses for the facility, and began to depreciate the then-current carrying amount of the asset over its estimated remaining useful life. Subsequent to October 30, 2004, we entered into an agreement to lease the Memphis facility to a third party for a three-year period. This cost reduction plan is expected to improve annualized pre-tax earnings by a total of approximately $45 million. During Fiscal 2004, we realized cost reductions of more than $30 million. Except for the remaining benefits to be realized from the consolidation of our distribution centers, which we expect to realize by the end of Fiscal 2005, we have realized the remaining benefits of the cost reduction plan. Income Tax Provision The effective income tax rate was 35.6% in the first three quarters of Fiscal 2005, as compared to 38.9% in the first three quarters of Fiscal 2004. The lower effective tax rate in Fiscal 2005 is primarily the result of finalizing certain prior-year tax audits. We expect the effective income tax rate for Fiscal 2005 to be approximately 35.9%. The tax rate for the first three quarters of Fiscal 2004 was affected by a provision for taxes related to one of our corporate-owned life insurance programs, which we settled with the Internal Revenue Service during the second half of Fiscal 2004. On October 22, 2004, the President of the United States of America signed into law H.R. 4250, "The American Jobs Creation Act of 2004" (the "Act"), which includes among its provisions certain tax benefits related to the repatriation to the United States of profits from a company's international operations. The Act provides for the repatriation of profits from international operations at a tax rate not to exceed 5.25% for approximately a one-year period. As of October 30, 2004, the U.S. Treasury Department has not issued final guidelines for applying the repatriation provisions of the Act. We are currently evaluating the effects of the Act, and have not determined the effect, if any, that it will have on our financial condition and results of operations. LIQUIDITY AND CAPITAL RESOURCES Our primary sources of working capital are cash flow from operations, our proprietary credit card receivables securitization agreements, our investment portfolio, and our revolving credit facility. The following table highlights certain information related to our liquidity and capital resources:
October 30, January 31, (Dollars in millions) 2004 2004 ---- ---- Cash and cash equivalents ............................ $ 202.9 $ 123.8 Long-term available-for-sale securities .............. $ 2.2 $ 14.5 Working capital ...................................... $ 386.7 $ 271.9 Current ratio ........................................ 2.1 1.9 Long-term debt to equity ratio ....................... 29.2% 33.5%
Our net cash provided by operating activities was $81.5 million for the first three quarters of Fiscal 2005, as compared to $27.3 million for the first three quarters of Fiscal 2004. The increase was a result of a $19.4 million increase in net income before non-cash charges, a $4.2 million tax benefit related to our stock 22 plans, a decrease of $36.6 million in our investment in inventories (net of accounts payable), and a $27.0 million increase in accrued expenses, income taxes, and other liabilities. These increases were partially offset by a $33.0 million increase in prepaid expenses. The decrease in the net investment in inventories was primarily a result of tighter control over inventory levels during the first three quarters of Fiscal 2005. Prepaid expenses increased $19.6 million during the first three quarters of Fiscal 2005, as compared to a decrease of $13.4 million during the first three quarters of Fiscal 2004. The current year increase in prepaid expenses was primarily a result of the timing of payments for rent and increases in other current assets. The decrease in prepaid expenses in Fiscal 2004 was primarily a result of our surrender of existing life insurance policies and receipt of cash surrender value in connection with our settlement of an Internal Revenue Service audit of our corporate-owned life insurance program. Accrued expenses and other liabilities increased $14.8 million during the first three quarters of Fiscal 2005, as compared to a decrease of $5.1 million during the first three quarters of Fiscal 2004, primarily as a result of the timing of certain payments. Income taxes payable increased $0.8 million during the first three quarters of Fiscal 2005, as compared to a decrease of $6.3 million during the first three quarters of Fiscal 2004. The increase in income taxes payable was primarily a result of an increase in taxable income for the first three quarters of Fiscal 2005, as compared to the first three quarters of Fiscal 2004. Capital Expenditures Our capital expenditures were $35.2 million during the first three quarters of Fiscal 2005. In addition, we acquired $3.9 million of point-of-sale equipment for our CATHERINES stores and $1.5 million of equipment for our White Marsh, Maryland distribution center under capital leases. The total investment in property, equipment, and leasehold improvements, including cash expenditures and capital lease financing, was $40.6 million. During the remainder of Fiscal 2005, we anticipate incurring additional capital expenditures of approximately $20 - $25 million, primarily for the construction and fixturing of new stores, remodeling and fixturing of existing stores, and improvements to our corporate offices and distribution centers. We expect to finance these additional capital expenditures primarily through internally generated funds. Common Stock and Dividends During the first three quarters of Fiscal 2005, we received $23.7 million of cash in connection with the issuance of approximately 4.6 million shares of our common stock as a result of exercises of employee stock options and purchases of shares under our employee stock purchase plan. We have not paid any dividends since 1995. The payment of future dividends is within the discretion of our Board of Directors and will depend upon our future earnings, if any, our capital requirements, our financial condition, and other relevant factors. Additionally, our existing credit facility prohibits the payment of dividends on our common stock. Off-Balance-Sheet Financing We have formed a trust called the Charming Shoppes Master Trust (the "Trust"). Spirit of America National Bank (our credit card bank) transfers its interest in credit card receivables created under our FASHION BUG proprietary credit card program to the Trust through a special-purpose entity. Together with the Trust, we have entered into various agreements under which the Trust can sell interests in these receivables on a revolving basis for a specified term. At the end of the revolving period, an amortization period begins during which the Trust makes principal payments to the parties that have entered into the securitization agreement with the Trust. 23 As of October 30, 2004, the Trust had the following securitization facilities outstanding:
(Dollars in millions) Series 1999-1 Series 1999-2 Series 2002-1 Series 2004 Series 2004-1 ------------- ------------- ------------- ----------- ------------- Date of facility................. July 1999 May 1999 November 2002 January 2004 August 2004 Type of facility................. Term Conduit Term Conduit Term Maximum funding.................. $150.0 $50.0 $100.0 $100.0 $180.0 Funding as of October 30, 2004... $ 51.8 $ 0.0 $100.0 $ 0.0 $180.0 First scheduled principal payment March 2004 Not applicable August 2007 Not applicable April 2009 Expected final principal payment. February 2005 Not applicable May 2008 Not applicable March 2010 Renewal.......................... Not applicable Annual Not applicable Annual(1) Not applicable - -------------------- (1) This facility has an initial term of two years, subject to an annual renewal.
The Series 1999-1 securitization began its scheduled amortization period in March 2004, and $98.2 million of principal was amortized in the three quarters of Fiscal 2005. The remainder of the principal is scheduled to amortize as follows: $36.0 million in the Fiscal 2005 Fourth Quarter and $15.8 million in the Fiscal 2006 First Quarter. We will fund this remaining amortization with the proceeds available from Series 2004-1, which was issued on August 5, 2004 (see below). On August 5, 2004, in connection with our asset securitization program, the Trust issued $180.0 million of new five-year asset-backed certificates ("Series 2004-1") in a private placement under Rule 144A. Of the $180.0 million of certificates issued, $161.1 million were sold to investors, and we held $18.9 million as a retained interest. The certificates pay interest to investors on a floating-rate basis tied to one-month LIBOR. Concurrently, the Trust entered into a series of fixed-rate interest rate hedge agreements with respect to the $161.1 million of certificates sold to investors. The blended weighted-average interest rate on the hedged certificates is 4.90%. The Trust used $61.5 million of the proceeds to pay down other securitization series and placed the remaining proceeds of $118.5 million into a pre-funding cash account. We are using the proceeds from this pre-funding cash account to pay down Series 1999-1 (which is currently in its amortization period) as well as provide financing for additional receivables. On August 24, 2004, we sold to investors $9.5 million of the $18.9 million we held as a retained interest. During the Fiscal 2005 Third Quarter, the Trust used $36.8 million of cash from the pre-funding cash account to fund the Series 1999-1 amortization. During the Fiscal 2005 First Quarter, we sold to investors $9.5 million of 2002-1 Series certificates that we were previously holding as a retained interest. Subsequent to October 30, 2004, we sold an additional $10.5 million of 2002-1 Series certificates that we were holding as a retained interest. These certificates are included in the $53.5 million of short-term available-for-sale securities we held at October 30, 2004. As these credit card receivables securitizations reach maturity, we plan to obtain funding for the FASHION BUG proprietary credit card program through additional securitizations. However, we can give no assurance that we will be successful in securing financing through either replacement securitizations or other sources of replacement financing. We securitized $240.0 million of private label credit card receivables in the first three quarters of Fiscal 2005 and had $246.9 million of securitized credit card receivables outstanding as of October 30, 2004. We held certificates and retained interests in our securitizations of $52.2 million as of October 30, 2004, which were generally subordinated in right of payment to certificates issued by the Trust to third-party investors. Our obligation to repurchase receivables sold to the Trust is limited to those receivables that, at the time of their transfer, fail to meet the Trust's eligibility standards under normal representations and warranties. To date, our repurchases of receivables pursuant to this obligation have been insignificant. 24 Charming Shoppes Receivables Corp. ("CSRC") and Charming Shoppes Seller, Inc., our consolidated wholly-owned indirect subsidiaries, are separate special-purpose entities created for the securitization program. As of October 30, 2004, CSRC held $27.8 million of Charming Shoppes Master Trust certificates and retained interests and Charming Shoppes Seller, Inc. held retained interests of $7.5 million (which are included in the $53.5 million of short-term available-for-sale securities we held at October 30, 2004). These assets are first and foremost available to satisfy the claims of the respective creditors of these separate corporate entities, including certain claims of investors in the Charming Shoppes Master Trust. Additionally, if either the Trust or Charming Shoppes, Inc. fails to meet certain financial performance standards, the Trust would be obligated to reallocate to third-party investors holding certain certificates issued by the Trust, collections in an amount up to $17.3 million that otherwise would be available to CSRC. The result of this reallocation would be to increase CSRC's retained interest in the Trust by the same amount. Subsequent to such a transfer occurring, and upon certain conditions being met, these same investors would be required to repurchase these interests. As of October 30, 2004, there were no reallocated collections as the result of a failure to meet these financial performance standards. In addition to the above, we could be affected by certain other events that would cause the Trust to hold proceeds of receivables, which would otherwise be available to be paid to us with respect to our subordinated interests, within the Trust as additional enhancement. For example, if we fail or the Trust fails to meet certain financial performance standards, a credit enhancement condition would occur and the Trust would be required to retain amounts otherwise payable to us. In addition, the failure to satisfy certain financial performance standards could further cause the Trust to stop using collections on Trust assets to purchase new receivables, and would require such collections to be used to repay investors on a prescribed basis, as provided in the Trust agreements. If this were to occur, it could result in our having insufficient liquidity; however, we believe we would have sufficient notice to seek alternative forms of financing through other third-party providers. As of October 30, 2004, the Trust was in compliance with all applicable financial performance standards. Amounts placed into enhancement accounts, if any, that are not required for payment to other certificate holders will be available to us at the termination of the securitization series. We have no obligation to directly fund the enhancement account of the Trust, other than for breaches of customary representations, warranties, and covenants and for customary indemnities. These representations, warranties, covenants, and indemnities do not protect the Trust or investors in the Trust against credit-related losses on the receivables. The providers of the credit enhancements and Trust investors have no other recourse to us. These securitization agreements are intended to improve our overall liquidity by providing short-term sources of funding. The agreements provide that we will continue to service the credit card receivables and control credit policies. This control allows us, absent certain adverse events, to fund continued credit card receivable growth and to provide the appropriate customer service and collection activities. Accordingly, our relationship with our credit card customers is not affected by these agreements. Additional information regarding this program is included in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 16. Asset Securitization" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. We also have non-recourse agreements under which third parties provide accounts receivable proprietary credit card sales accounts receivable funding programs for both our CATHERINES and LANE BRYANT brands. These funding programs expire in January 2005 for CATHERINES and in January 2006 for LANE BRYANT. Under these agreements, the third parties reimburse us daily for sales generated by the respective store's credit card accounts. Additional information regarding these agreements is included in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 16. Asset Securitization" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. 25 On January 28, 2004, in accordance with the terms of the Merchant Services Agreement pursuant to which the CATHERINES proprietary credit cards are issued, we gave notification of termination and election to purchase the CATHERINES credit card portfolio to the third-party provider. In accordance with the terms of the Merchant Services Agreement, the purchase option required us to provide one year's notice in order to terminate the agreement and to purchase the portfolio, subject to the negotiation of the final purchase agreement. We expect to purchase the CATHERINES credit card portfolio during the Fiscal 2006 First Quarter, and expect to fund the purchase using our securitization program, including a portion of the proceeds from the Series 2004-1 securitization. We lease substantially all of our operating stores under non-cancelable operating lease agreements. Additional details on these leases, including minimum lease commitments, are included in "Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 17. Leases" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. FINANCING Revolving Credit Facility We have a $300.0 million revolving credit facility (the "Facility") that provides for cash borrowings and enables us to issue up to $150.0 million of letters of credit for purchases of merchandise and for standby letters of credit. As of October 30, 2004, there were no borrowings outstanding under the Facility. The availability of borrowings under the Facility is subject to limitations based on eligible inventory and, under certain circumstances, credit card receivables and in-transit cash. The Facility is secured by our general assets, except for (i) all assets related to our credit card securitization program, (ii) all real property, (iii) certain equipment subject to other mortgages or capital leases, (iv) the assets of our non-U.S. subsidiaries, and (v) certain other assets. The Facility expires on August 15, 2008. The interest rate on borrowings under the Facility ranges from Prime to Prime plus .50% per annum for Prime Rate Loans, and LIBOR plus 1.5% to LIBOR plus 2.00% per annum for Eurodollar Rate Loans. The applicable rate is determined quarterly, based on our average excess and suppressed availability, as defined in the Facility. As of October 30, 2004, the interest rate on borrowings under the Facility was 4.75% for Prime Rate Loans and 3.46% for Eurodollar Rate Loans. The Facility includes limitations on sales and leasebacks, the incurrence of additional liens and debt, capital lease financing, and other limitations. The Facility also requires, among other things, that we not pay dividends on our common stock and, if our excess and suppressed availability (as defined in the Facility) is less than $50.0 million at any time within a fiscal quarter, that we maintain a minimum level of consolidated 12-month earnings before interest, taxes, depreciation, and amortization ("EBITDA") (excluding non-recurring, non-cash charges as defined in the Facility). During the Fiscal 2005 Third Quarter, our excess and suppressed availability was above $50.0 million at all times. As of October 30, 2004, we were not in violation of any of the covenants included in the Facility. 26 On October 6, 2004, we borrowed $13,000,000 under a 6.07% mortgage note (the "Note"). Repayment of the Note is based on a 15-year amortization schedule, with 119 monthly installments of principal and interest of $110,000 and a balloon payment of $5,800,000 at the end of 10 years. The Note may be prepaid after 2-1/2 years upon the payment of a premium, or, upon certain other events, without the payment of a premium. The Note is secured by a mortgage on real property at our distribution center in Greencastle, Indiana and an Assignment of Lease and Rents and Security Agreement related to the Greencastle facility. We expect to use the net proceeds from the borrowing to repay the scheduled maturities of other debt and for other general corporate purposes. Additional information regarding our long-term borrowings is included in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 8. Financial Statements and Supplementary Data; Notes to Consolidated Financial Statements; Note 7. Debt" of our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. We believe that our capital resources and liquidity position are sufficient to support our current operations. Our requirements for working capital, capital expenditures, and repayment of debt and other obligations are expected to be funded from operations, supplemented as needed by short-term or long-term borrowings available under our credit facility, our proprietary credit card receivables securitization agreements, leases, and other available financing sources. MARKET RISK We manage our FASHION BUG proprietary credit card program through various operating entities that we own. The primary activity of these entities is to service our proprietary credit card receivables portfolio, the balances of which we sell under a credit card securitization program. Under the securitization program, we can be exposed to fluctuations in interest rates to the extent that the interest rates charged to our customers vary from the rates paid on certificates issued by the Trust. The finance charges on most of our proprietary credit card accounts are billed using a floating-rate index (the Prime lending rate), subject to a floor and limited by legal maximums. The certificates issued under the securitization include both floating- and fixed-interest-rate certificates. The floating-rate certificates are based on an index of either one-month LIBOR or the commercial paper rate, depending on the issuance. Consequently, we have basis risk exposure to the extent that the movement of the floating-rate index on the certificates varies from the movement of the Prime rate. Additionally, as of October 30, 2004, the floating finance charge rate on the credit cards was below the contractual floor rate, thus exposing us to interest-rate risk on the portion of certificates that are funded at floating rates. In addition, as a result of the Trust entering into a series of fixed-rate interest rate hedge agreements with respect to the $161.1 million of Series 2004-1certificates (see "Off-Balance-Sheet Financing" above), we have significantly reduced the exposure of floating-rate certificates outstanding to interest-rate risk. To the extent that short-term interest rates were to increase by one percentage point by the end of Fiscal 2005, an increase of approximately $89 thousand in selling, general, and administrative expenses would result. As of October 30, 2004, there were no borrowings outstanding under our revolving credit facility. To the extent that there are borrowings outstanding under our revolving credit facility, such borrowings would be exposed to variable interest rates. An increase in market interest rates would increase our interest expense and decrease our cash flows. Conversely, a decrease in market interest rates would decrease our interest expense and increase our cash flows. We are not subject to material foreign exchange risk, as our foreign transactions are primarily U.S. Dollar-denominated and our foreign operations do not constitute a material part of our business. 27 IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS See "Item 1. Notes To Condensed Consolidated Financial Statements (Unaudited); Note 10. Impact of Recent Accounting Pronouncements" above. Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations; MARKET RISK," above. Item 4. Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate and in such a manner as to allow timely decisions regarding required disclosure. We have a Disclosure Committee, which is made up of several key management employees and reports directly to the CEO and CFO, to centralize and enhance these controls and procedures and assist our management, including our CEO and CFO, in fulfilling their responsibilities for establishing and maintaining such controls and procedures and providing accurate, timely, and complete disclosure. As of the end of the period covered by this report on Form 10-Q (the "Evaluation Date"), our Disclosure Committee, under the supervision and with the participation of management, including our CEO and CFO, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our management, including our CEO and CFO, has concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective. Furthermore, there has been no change in our internal control over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In accordance with Section 404 of the Sarbanes-Oxley Act of 2002, we are in the process of performing our annual assessment of the effectiveness of our internal control over financial reporting. In the course of performing our assessment, we have identified certain deficiencies. We are taking the appropriate steps to make the improvements necessary to remediate these deficiencies. We will consider the results of our remediation efforts and related testing as part of our year-end assessment of the effectiveness of our internal control over financial reporting. 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings There have been no material developments in legal proceedings involving the Company or its subsidiaries since those reported in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004. Other than ordinary routine litigation incidental to our business, there are no other pending material legal proceedings that we or any of our subsidiaries are a party to, and there are no other proceedings that are expected to have a material adverse effect on our financial condition or results of operations. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Total Maximum Number Number of of Shares Shares that Total Purchased as May Yet be Number Average Part of Publicly Purchased of Shares Price Paid Announced Plans Under the Plans Period Purchased per Share or Programs(1) or Programs(1) ------ --------- --------- ------------- ------------- August 1, 2004 through August 28, 2004........ - - - - August 29, 2004 through October 2, 2004........ - - - - October 3, 2004 through October 30, 2004....... - - - - Total...................... - - - - - -------------------- (1) In November 1997, we publicly announced that our Board of Directors granted authority to repurchase up to 10,000,000 shares of our common stock. In March 1999, we publicly announced that our Board of Directors granted authority to repurchase up to an additional 10,000,000 shares of our common stock. As of October 30, 2004, approximately 5,000,000 shares of our common stock remain available for repurchase under these programs. Our ability to exercise this authority is subject to certain restrictions under the terms of our revolving credit facility. As conditions may allow, and if any required consent is granted, we may from time to time acquire additional shares of our common stock under these programs. Such shares, if purchased, would be held as treasury shares. No shares were acquired under this program during the three months ended October 30, 2004. The repurchase program has no expiration date. (2) Our existing revolving credit facility prohibits the payment of dividends on our common stock.
29 Item 5. Other Information The Company has decided that it will terminate its split-dollar life insurance program that had been implemented for the benefit of certain of its executive officers. The Company had not been making premium payments for executive officers under the program since July 2002 following enactment of the Sarbanes-Oxley Act of 2002. Each of Dorrit J. Bern, Colin D. Stern, Anthony A. DeSabato, and Eric M. Specter will agree to terminate her/his participation in the split-dollar program. As a result of the termination of the split-dollar program, the Company will receive the cash surrender value for their policies, which was approximately $380,000, $195,071, $168,383, and $74,923 for Dorrit J. Bern, Colin D. Stern, Anthony A. DeSabato, and Eric M. Specter, respectively. In addition, the Company will agree to provide each of these executives with an unconditional five-year bonus to enable the executive to purchase a replacement life insurance policy. This bonus will be payable in five equal annual installments in an amount equal to the annual insurance premiums paid by the executive for the new policy, plus a tax gross-up amount. The form of bonus agreement is filed as an exhibit to this report. Item 6. Exhibits The following is a list of Exhibits filed as part of this Quarterly Report on Form 10-Q. Where so indicated, Exhibits that were previously filed are incorporated by reference. For Exhibits incorporated by reference, the location of the Exhibit in the previous filing is indicated in parenthesis. 3.1 Restated Articles of Incorporation, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994 (File No. 000-07258, Exhibit 3.1). 3.2 Bylaws, as Amended and Restated, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 1999 (File No. 000-07258, Exhibit 3.2). 10.1 2003 Incentive Compensation Plan, incorporated by reference to Appendix C of the Registrant's Proxy Statement Pursuant to Section 14 of the Securities Exchange Act of 1934, filed on May 22, 2003. 10.2 2004 Stock Award and Incentive Plan, incorporated by reference to Appendix B of the Registrant's Proxy Statement Pursuant to Section 14 of the Securities Exchange Act of 1934, filed on May 19, 2004. 10.3 Amended and Restated Variable Deferred Compensation Plan for Executives, Effective December 23, 2003, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.3). 10.4 Fourth Amendment, dated as of August 5, 2004, to Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997, as amended on July 22, 1999 and on May 8, 2001, among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank) as Trustee, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.4). 10.5 Series 2004-1 Supplement, dated as of August 5, 2004, to Second Amended and Restated Pooling and Service Agreement, dated as of November 25, 1997 (as amended on July 22, 1999, on May 8, 2001 and on August 5, 2004), among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association, as Trustee, on behalf of the Series 2004-1 Certificateholders, for $180,000,000 Charming Shoppes Master Trust Series 2004-1, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.5). 30 10.6 Certificate Purchase Agreement, dated as of July 21, 2004, among Charming Shoppes Receivables Corp., Fashion Service Corp., Spirit of America, Inc., and Barclay's Capital Inc. (as representative of the Initial Purchasers), incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.6). 10.7 Certificate Purchase Agreement, dated as of August 5, 2004, among Wachovia Bank, National Association as Trustee, Charming Shoppes Receivables Corp. as Seller, Spirit of America, Inc. as Servicer, and Clipper Receivables Company LLC as Initial Class C Holder, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.7). 10.8 The Charming Shoppes, Inc. 1993 Employees' Stock Incentive Plan Restricted Stock Agreement, dated as of May 13, 2004, between Charming Shoppes, Inc. and Dorrit J. Bern, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.8). 10.9 Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of October 6, 2004, between FB Distro Distribution Center, LLC, as Mortgagor, and BankAtlantic Commercial Mortgage Capital, LLC, as Mortgagee. 10.10 $13,000,000 Mortgage Note, dated October 6, 2004, between FB Distro Distribution Center, LLC, as Maker, and BankAtlantic Commercial Mortgage Capital, LLC, as Payee. 10.11 Guaranty, executed as of October 6, 2004, by Charming Shoppes, Inc., as Guarantor, for the benefit of BankAtlantic Commercial Mortgage Capital, LLC, as Lender. 10.12 Hazardous Substances Indemnity Agreement, dated October 6, 2004, by FB Distro Distribution Center, LLC and by Charming Shoppes, Inc., jointly and severally as Indemnitors, in favor of BankAtlantic Commercial Mortgage Capital, LLC, as Holder. 10.13 Amended and Restated Certificate Purchase Agreement, dated as of November 22, 2004 and Amended and Restated as of November 18, 2004, among Wachovia Bank, National Association as Trustee, Charming Shoppes Receivables Corp. as Seller, Spirit of America, Inc. as Servicer, and the Class D-2 Certificateholders Described Herein. 10.14 Form of Bonus Agreement by and between Charming Shoppes, Inc. and the Executive Officer named in the Agreement. 10.15 Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Stock Option Agreement. 10.16 Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock Agreement - Section 16 Officers. 10.17 Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock Agreement - Associates Other Than Section 16 Officers. 31.1 Certification by Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 31 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. CHARMING SHOPPES, INC. ---------------------- (Registrant) Date: November 29, 2004 /S/ Dorrit J. Bern ------------------ Dorrit J. Bern Chairman of the Board President and Chief Executive Officer Date: November 29, 2004 /S/ Eric M. Specter ------------------- Eric M. Specter Executive Vice President Chief Financial Officer 32 Exhibit Index Exhibit No. Item 3.1 Restated Articles of Incorporation, incorporated by reference to Form 10-K of the Registrant for the fiscal year ended January 29, 1994 (File No. 000-07258, Exhibit 3.1). 3.2 Bylaws, as Amended and Restated, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 1999 (File No. 000-07258, Exhibit 3.2) 10.1 2003 Incentive Compensation Plan, incorporated by reference to Appendix C of the Registrant's Proxy Statement Pursuant to Section 14 of the Securities Exchange Act of 1934, filed on May 22, 2003. 10.2 2004 Stock Award and Incentive Plan, incorporated by reference to Appendix B of the Registrant's Proxy Statement Pursuant to Section 14 of the Securities Exchange Act of 1934, filed on May 19, 2004. 10.3 Amended and Restated Variable Deferred Compensation Plan for Executives, Effective December 23, 2003, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.3). 10.4 Fourth Amendment, dated as of August 5, 2004, to Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997, as amended on July 22, 1999 and on May 8, 2001, among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association (formerly known as First Union National Bank) as Trustee, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.3). 10.5 Series 2004-1 Supplement, dated as of August 5, 2004, to Second Amended and Restated Pooling and Service Agreement, dated as of November 25, 1997 (as amended on July 22, 1999, on May 8, 2001 and on August 5, 2004), among Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer, and Wachovia Bank, National Association, as Trustee, on behalf of the Series 2004-1 Certificateholders, for $180,000,000 Charming Shoppes Master Trust Series 2004-1, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.3). 10.6 Certificate Purchase Agreement, dated as of July 21, 2004, among Charming Shoppes Receivables Corp., Fashion Service Corp., Spirit of America, Inc., and Barclay's Capital Inc. (as representative of the Initial Purchasers), incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.3). 10.7 Certificate Purchase Agreement, dated as of August 5, 2004, among Wachovia Bank, National Association as Trustee, Charming Shoppes Receivables Corp. as Seller, Spirit of America, Inc. as Servicer, and Clipper Receivables Company LLC as Initial Class C Holder, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.3). 10.8 The Charming Shoppes, Inc. 1993 Employees' Stock Incentive Plan Restricted Stock Agreement, dated as of May 13, 2004, between Charming Shoppes, Inc. and Dorrit J. Bern, incorporated by reference to Form 10-Q of the Registrant for the quarter ended July 31, 2004 (File No. 000-07258, Exhibit 10.3). 10.9 Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of October 6, 2004, between FB Distro Distribution Center, LLC, as Mortgagor, and BankAtlantic Commercial Mortgage Capital, LLC, as Mortgagee. 33 10.10 $13,000,000 Mortgage Note, dated October 6, 2004, between FB Distro Distribution Center, LLC, as Maker, and BankAtlantic Commercial Mortgage Capital, LLC, as Payee. 10.11 Guaranty, executed as of October 6, 2004, by Charming Shoppes, Inc., as Guarantor, for the benefit of BankAtlantic Commercial Mortgage Capital, LLC, as Lender. 10.12 Hazardous Substances Indemnity Agreement, dated October 6, 2004, by FB Distro Distribution Center, LLC and by Charming Shoppes, Inc., jointly and severally as Indemnitors, in favor of BankAtlantic Commercial Mortgage Capital, LLC, as Holder. 10.13 Amended and Restated Certificate Purchase Agreement, dated as of November 22, 2004 and Amended and Restated as of November 18, 2004, among Wachovia Bank, National Association as Trustee, Charming Shoppes Receivables Corp. as Seller, Spirit of America, Inc. as Servicer, and the Class D-2 Certificateholders Described Herein. 10.14 Form of Bonus Agreement by and between Charming Shoppes, Inc. and the Executive Officer named in the Agreement. 10.15 Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Stock Option Agreement. 10.16 Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock Agreement - Section 16 Officers. 10.17 Charming Shoppes, Inc. 2004 Stock Award and Incentive Plan Restricted Stock Agreement - Associates Other Than Section 16 Officers. 31.1 Certification By Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification By Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 34 EX-10 2 exh109.txt EXHIBIT 10.9 EXHIBIT 10.9 FB DISTRO DISTRIBUTION CENTER, LLC (Mortgagor) to BANKATLANTIC COMMERCIAL MORTGAGE CAPITAL, LLC (Mortgagee) - -------------------------------------------------------------------------------- MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT - -------------------------------------------------------------------------------- Dated: As of October 6, 2004 Property Location: 1901 State Road 240 East Greencastle, Indiana WHEN RECORDED, RETURN TO: Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036 Attention: Thomas D. O'Connor, Esq. TABLE OF CONTENTS Page ---- 1. Payment of Debt; Incorporation of Covenants, Conditions and Agreements...3 2. Insurance................................................................3 3. Casualty/Application of Insurance Proceeds...............................7 4. Payment of Taxes, Etc...................................................10 5. Tax and Insurance Escrow Fund...........................................10 6. Replacement Escrow Fund; Rollover Escrow Fund; Additional Escrow Fund; the Debt Service Escrow Fund; Tax Lien Escrow Fund......................12 7. General Provisions Applicable to Escrow Funds...........................16 8. Condemnation............................................................16 9. Leases and Rents........................................................18 10. Representations, Warranties and Covenants Concerning Loan...............19 11. Single Purpose Entity/Separateness......................................27 12. Maintenance of Mortgaged Property.......................................29 13. Transfer or Encumbrance of the Mortgaged Property.......................29 14. Estoppel Certificates and No Default Affidavits.........................33 15. Changes in Laws Regarding Taxation......................................34 16. No Credits on Account of the Debt.......................................34 17. Financial Statements....................................................34 18. Further Acts, Etc.......................................................35 19. Recording of Mortgage, Etc..............................................36 20. Events of Default.......................................................36 21. Late Payment Charge.....................................................38 22. Right To Cure Defaults..................................................39 23. Remedies................................................................39 24. Right of Entry..........................................................42 25. Security Agreement......................................................43 26. Actions and Proceedings.................................................43 27. Contest of Certain Claims...............................................43 28. Marshalling and Other Matters...........................................44 29. Hazardous Substances....................................................44 30. Asbestos................................................................45 31. Environmental Monitoring................................................46 32. Handicapped Access......................................................47 33. Indemnification.........................................................47 34. Notices.................................................................48 35. Non-Waiver..............................................................49 36. No Oral Change..........................................................49 37. Liability...............................................................50 38. Inapplicable Provisions.................................................50 39. Headings, Etc...........................................................50 40. Duplicate Originals.....................................................50 41. Definitions.............................................................50 42. Homestead...............................................................50 43. Assignments.............................................................50 44. Waiver of Jury Trial....................................................50 45. Miscellaneous...........................................................51 46. Mortgagor's Liability...................................................53 47. Yield Maintenance Prepayment Option.....................................53 48. Yield Maintenance.......................................................54 49. Cash Management Agreement...............................................55 50. Annual Budgets..........................................................55 51. Sale of Notes and Securitization........................................56 52. Intentionally Omitted Prior to Execution................................57 53. Intentionally Omitted Prior to Execution................................57 54. Servicer................................................................57 55. Management of the Mortgaged Property....................................57 56. Principles of Construction..............................................57 57. Maturity Date...........................................................58 58. Disclosure Law..........................................................58 59. Environmental Liens.....................................................58 60. Applicable Law..........................................................58 61. Unenforceable Remedies..................................................59 62. No Waiver of Right to Seek Deficiency...................................59 63. Future Advances.........................................................59 64. Reimbursable Costs......................................................59 65. UCC Remedies............................................................60 66. Security Interest - Rents...............................................60 67. Consent to Receiver.....................................................60 68. Release of Mortgage.....................................................61 THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (the "Mortgage"), made as of October 6, 2004, by FB DISTRO DISTRIBUTION CENTER, LLC, a Delaware limited liability company, having its principal place of business at 1901 State Road 240 East, Greencastle, Indiana 46135-7825, ("Mortgagor"), to BANKATLANTIC COMMERCIAL MORTGAGE CAPITAL, LLC, a Florida limited liability company, having its principal place of business at 980 N. Federal Highway, Suite 400, Boca Raton, Florida 33432 ("Mortgagee"). W I T N E S S E T H: To secure the payment of an indebtedness in the original principal sum of Thirteen Million and no/100 Dollars ($13,000,000.00) (the "Loan"), lawful money of the United States of America, to be paid with interest according to a certain promissory note of even date herewith made by Mortgagor to Mortgagee (the promissory note together with all consolidations, extensions, renewals or modifications thereof being hereinafter collectively called the "Note") and all other sums due hereunder, under the other Loan Documents (hereinafter defined) and under the Note (said indebtedness and interest due under the Note and all other sums due hereunder, under the Note and under the other Loan Documents being hereinafter collectively referred to as the "Debt"), Mortgagor has mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted, pledged, assigned, and hypothecated and by these presents does hereby mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm, warrant, pledge, assign and hypothecate unto Mortgagee the real property described in Exhibit A attached hereto (the "Premises") and the buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter located thereon (the "Improvements"); TOGETHER WITH all right, title, interest and estate of Mortgagor now owned, or hereafter acquired, in and to the following property, rights, interests and estates (the Premises, the Improvements, and the property, rights, interests and estates hereinafter described are collectively referred to herein as the "Mortgaged Property"): (a) all easements, rights-of-way, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, all rights to oil, gas, minerals, coal and other substances of any kind or character, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditaments and appurtenances of any nature whatsoever, in any way belonging, relating or pertaining to the Premises and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road, highway, alley or avenue, opened, vacated or proposed, in front of or adjoining the Premises, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, courtesy and rights of courtesy, property, possession, claim and demand whatsoever, both at law and in equity, of Mortgagor of, in and to the Premises and the Improvements and every part and parcel thereof, with the appurtenances thereto; (b) all machinery, furniture, furnishings, equipment, computer software and hardware, fixtures (including, without limitation, all heating, air conditioning, plumbing, lighting, communications and elevator fixtures) and other property of every kind and nature, whether tangible or intangible, whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an interest, now or hereafter located upon the Premises and/or the Improvements, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Premises and/or the Improvements, and all building equipment, materials and supplies of any nature whatsoever owned by Mortgagor, or in which Mortgagor has or shall have an interest, now or hereafter located upon the Premises and the Improvements, or appurtenant thereto, or usable in connection with the present or future operation, enjoyment and occupancy of the Premises and the Improvements (hereinafter collectively referred to as the "Equipment"), including any leases of any of the foregoing, any deposits existing at any time in connection with any of the foregoing, and the proceeds of any sale or transfer of the foregoing, and the right, title and interest of Mortgagor in and to any of the Equipment that may be subject to any "security interests" as defined in the Uniform Commercial Code, as adopted and enacted by the State or States where any of the Mortgaged Property is located (the "Uniform Commercial Code"), superior in lien to the lien of this Mortgage; (c) all awards or payments, including interest thereon, that may heretofore and hereafter be made with respect to the Premises and/or the Improvements, whether from the exercise of the right of eminent domain or condemnation (including, without limitation, any transfer made in lieu of or in anticipation of the exercise of said rights), or for a change of grade, or for any other injury to or decrease in the value of the Premises and/or Improvements; (d) all leases and other agreements or arrangements heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, the Premises and the Improvements, including any extensions, renewals, modifications or amendments thereof (hereinafter collectively referred to as the "Leases") and all rents, rent equivalents, moneys payable as damages or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, fees, receivables, receipts, revenues, deposits (including, without limitation, security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other payment and consideration of whatever form or nature received by or paid to or for the account of or benefit of Mortgagor or its agents or employees from any and all sources arising from or attributable to the Premises and the Improvements (hereinafter collectively referred to as the "Rents"), together with all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt; (e) all proceeds of and any unearned premiums on any insurance policies covering the Mortgaged Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Mortgaged Property; (f) The right, in the name and on behalf of Mortgagor, to appear in and defend any action or proceeding brought with respect to the Mortgaged Property and to commence any action or proceeding to protect the interest of Mortgagee in the Mortgaged Property; (g) all accounts, escrows, documents, instruments, chattel paper, claims, deposits and general intangibles, as the foregoing terms are defined in the Uniform Commercial Code, and all franchises, trade names, trademarks, symbols, service marks, books, records, plans, 2 specifications, designs, drawings, permits, consents, licenses, management agreements, contract rights (including, without limitation, any contract with any architect or engineer or with any other provider of goods or services for or in connection with any construction, repair, or other work upon the Mortgaged Property), approvals, actions, refunds of real estate taxes and assessments (and any other governmental impositions related to the Mortgaged Property), and causes of action that now or hereafter relate to, are derived from or are used in connection with the Mortgaged Property, or the use, operation, maintenance, occupancy or enjoyment thereof or the conduct of any business or activities thereon (hereinafter collectively referred to as the "Intangibles"); and (h) all proceeds, products, offspring, rents and profits from any of the foregoing, including, without limitation, those from sale, exchange, transfer, collection, loss, damage, disposition, substitution or replacement of any of the foregoing. TO HAVE AND TO HOLD the above granted and described Mortgaged Property unto Mortgagee and its successors and assigns, forever; PROVIDED, HOWEVER, these presents are upon the express condition that, if Mortgagor shall pay to Mortgagee the Debt at the time and in the manner provided in the Note and this Mortgage and shall abide by and comply with each and every covenant and condition set forth herein, in the Note and in the other Loan Documents (hereinafter defined) in a timely manner, these presents and the estate hereby granted shall cease, terminate and be void; AND Mortgagor represents and warrants to and covenants and agrees with Mortgagee as follows: PART I. GENERAL PROVISIONS 1. Payment of Debt; Incorporation of Covenants, Conditions and Agreements. Mortgagor shall pay the Debt at the time and in the manner provided in the Note and in this Mortgage and the other Loan Documents. All the covenants, conditions and agreements contained in (a) the Note and (b) all and any of the documents including, without limitation, the Note, that certain Cash Management Agreement of even date herewith by and between Mortgagor and Mortgagee (the "Cash Management Agreement") and this Mortgage now or hereafter executed by Mortgagor and/or others and by or in favor of Mortgagee, which evidences, secures or guarantees all or any portion of the Debt or otherwise is executed and/or delivered in connection with the Note and this Mortgage (collectively, the "Loan Documents") are hereby made a part of this Mortgage to the same extent and with the same force as if fully set forth herein. 2. Insurance. (a) Mortgagor, at its sole cost and expense, shall obtain and maintain (or cause to be obtained and maintained) during the entire term of this Mortgage (the "Term") the following policies of insurance: 3 (i) Casualty insurance against loss or damage by fire, lightning and such other perils as are included in a standard "special form" policy (formerly known as an "all-risk" endorsement policy), and against loss or damage by all other risks and hazards covered by a standard extended coverage insurance policy including, without limitation, riot and civil commotion, terrorist actions, vandalism, malicious mischief, windstorm, burglary and theft in an amount equal to the greatest of (A) the then full replacement cost of the Improvements and Equipment, without deduction for physical depreciation, (B) the outstanding principal balance of the Loan, and (C) such amount that the insurer would not deem Mortgagor a co-insurer under said policies. The policies of insurance required under this Paragraph 2(a)(i) shall not provide for or permit co-insurance and shall contain a "Replacement Cost" endorsement with a waiver of depreciation and an "Agreed Amount" or "No Coinsurance" endorsement and shall have a deductible no greater than $10,000. (ii) Commercial General Liability insurance, including a broad form comprehensive general liability endorsement and coverages for broad form property damage, contractual damages and personal injuries (including death resulting therefrom) and containing minimum limits per occurrence of $1,000,000.00 and $2,000,000.00 in the aggregate for any policy year with no deductible. All liability policies must provide for claims to be made on an occurrence basis. In addition, at least $5,000,000 excess and/or umbrella liability insurance shall be obtained and maintained for any and all claims, including all legal liability imposed upon Mortgagor and all court costs and attorneys' fees incurred in connection with the ownership, operation and maintenance of the Mortgaged Property. (iii) Rental loss and/or business income interruption insurance: (A) with loss payable to Mortgagee; (B) covering all risks required to be covered by the insurance provided for in Paragraph 2(a)(i) above and covered by any other separate insurance required to be maintained hereunder with respect to windstorm, earthquake, terrorist acts and any other risks required to separately insured hereunder; (C) covering a period of restoration of twelve (12) months in addition to containing an extended period of indemnity endorsement which provides that after the physical loss to the Improvements and personal property has been repaired and restored, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of three (3) months from the date that the Mortgaged Property is repaired or replaced, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period; and (D) the policy limits procured shall be at least equal to one hundred percent (100%) of the projected gross potential revenue for the Mortgaged Property for a period equal to at least fifteen (15 ) months. The amount of such rental loss and/or business income interruption insurance shall be determined prior to the date hereof and at least once each year thereafter based on Mortgagor's reasonable estimate of the gross potential revenue from the Mortgaged Property for the succeeding fifteen (15) month period; (iv) Insurance against loss or damage from (A) leakage of sprinkler systems and (B) explosion of steam boilers, air conditioning equipment, high pressure piping, machinery and equipment, pressure vessels or similar apparatus now or hereafter 4 installed in the Improvements (without exclusion for explosions), in an amount at least equal to the outstanding principal amount of the Note or $2,000,000.00, whichever is less. (v) If Mortgagor has employees, worker's compensation insurance with respect to any employees of Mortgagor, as required by any governmental authority or legal requirement. (vi) Flood insurance if any part of the Mortgaged Property is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards in an amount at least equal to the outstanding principal amount of the Loan or such lesser amount as agreed to by Mortgagee in writing. (vii) During any period of repair or restoration, builder's "all risk" insurance in an amount equal to not less than the full insurable value of the Mortgaged Property against such risks (including, without limitation, fire and extended coverage and collapse of the Improvements to agreed limits) as Mortgagee may request, in form and substance reasonably acceptable to Mortgagee. (viii) If the Mortgaged Property is or ever becomes non-conforming with respect to zoning, ordinance or law coverage to compensate for loss of value or property resulting from operation of law and the cost of demolition and the increased cost of construction in amounts as requested by Mortgagee. (ix) If the Mortgaged Property is located in a "seismic zone" of 3 or 4 and a seismic assessment acceptable to Mortgagee reveals a maximum probable or bounded loss equal to or greater than 20% of the amount of the estimated replacement cost of the Improvements, earthquake insurance in an amount equal to the outstanding principal balance of the Loan or such lesser amount as agreed to by Mortgagee in writing. (x) Windstorm insurance in an amount equal to the outstanding principal balance of the Loan or such lesser amount as agreed to by Mortgagee in writing. (b) All policies of insurance (the "Policies") required pursuant to this Paragraph 2: (i) shall be issued by companies licensed to do business in the state where the Mortgaged Property is located, with a financial strength and claims paying ability rating of at least A:VIII from A.M. Best Company and "A" or better by Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc.; (ii) shall, with respect to all property insurance policies, name Mortgagee and its successors and/or assigns as their interest may appear as the mortgagee; (iii) shall, with respect to all property insurance policies and rental loss and/or business interruption insurance policies, contain a Standard Mortgagee Clause and a Lender's Loss Payable Endorsement, or their equivalents, naming Mortgagee as the person to which all payments made by such insurance company shall be paid; (iv) shall, with respect to all liability policies, name Mortgagee and its successors and/or assigns as an additional insured; (v) shall contain a waiver of subrogation against Mortgagee; (vi) shall contain such provisions as Mortgagee deems reasonably necessary or desirable to protect its interest including, without limitation, endorsements providing that neither Mortgagor, Mortgagee nor any other party shall be a co-insurer under said Policies and that Mortgagee shall receive at least thirty (30) days prior 5 written notice of any modification, reduction or cancellation; and (vii) shall be satisfactory in form and substance to Mortgagee and shall be approved by Mortgagee as to amounts, form, risk coverage, deductibles, loss payees and insureds. Certified copies of the Policies shall be delivered to Mortgagee, c/o Wachovia Bank, National Association, as Servicer, PO Box 563956, Charlotte, North Carolina 28256-3956, within 30 days after the effective date thereof. Mortgagor shall pay to Mortgagee the cost of Mortgagee's review of the Policies and any certificates and renewals relating thereto. Mortgagor shall pay the annual premiums for such Policies (the "Insurance Premiums") in full in advance of each renewal date of the respective term of each Policy and shall furnish to Mortgagee evidence of the renewal of each of the Policies with receipts for the full payment of the entire annual Insurance Premiums or other evidence of such payment reasonably satisfactory to Mortgagee which evidence may include, without limitation, a letter certified by Mortgagor's insurance carrier indicating that such Insurance Premiums have been paid (provided, however, that Mortgagor shall not be required to furnish such evidence of payment to Mortgagee in the event that such Insurance Premiums have been paid by Mortgagee pursuant to Paragraph 5 hereof). In addition to the insurance coverages described in Paragraph 2(a) above, Mortgagor shall obtain such other insurance as may from time to time be reasonably required by Mortgagee in order to protect its interests. Within thirty (30) days after request by Mortgagee, Mortgagor shall obtain such increases in the amounts of coverage required hereunder as may be reasonably requested by Mortgagee, taking into consideration changes in the value of money over time, changes in liability laws, changes in prudent customs and practices, and the like. (c) It shall be an Event of Default if Mortgagor fails to maintain and keep in full force and effect all Policies in accordance with the terms and provisions of this Mortgage, and, in addition to any other remedies that Mortgagee shall have under this Mortgage in connection with any such Event of Default, Mortgagee shall also have the right (without any obligation), at the sole cost and expense of Mortgagor, to obtain and put into effect any such Policies not maintained by Mortgagor. Any amounts paid by Mortgagee (including without limitation any Premiums and other costs incurred by Mortgagee with respect to the exercise of Mortgagee's rights hereunder) shall be paid by Mortgagor to Mortgagee within five (5) days after demand by Mortgagee together with interest thereon accrued from the date any such amounts are paid by Mortgagee until repaid to Mortgagee in full at the Default Rate (as defined in the Note). The exercise by Mortgagee of any rights hereunder to obtain any Policies shall not in any event cure or otherwise constitute any waiver with respect to any Event of Default arising because of Mortgagor's failure to maintain the Policies. (d) Upon the occurrence of: (i) an Insured Casualty (as defined herein), Mortgagor shall deposit with Mortgagee ( to be held and applied by Mortgagee in the same manner in which Insurance Proceeds are to be held and applied by Mortgagee under this Mortgage), an amount equal to the difference between the deductible set forth in Paragraph 2(a)(i) above with respect to property insurance and the then current deductible under such property insurance actually maintained by FB Distro and/or Mortgagor (if such deductible is greater than the deductible amount set forth in said Paragraph 2(a)(i) hereof); and (ii) any other claim arising with respect to any matters required to be insured under the Policies, Mortgagor shall deposit with Mortgagee (to be held as additional collateral for the Loan in accordance with Paragraph 7 below), an amount equal to the insurance deductible under the respective Policy that is maintained by FB Distro and/or Mortgagor (if any). 6 3. Casualty/Application of Insurance Proceeds. (a) If the Mortgaged Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (an "Insured Casualty"), Mortgagor shall give prompt notice thereof to Mortgagee. Following the occurrence of an Insured Casualty, Mortgagor, regardless of whether Insurance Proceeds (hereinafter defined) are available, shall promptly proceed to restore, repair, replace or rebuild the same to be of at least equal value and of substantially the same character as prior to such damage or destruction, all to be effected in accordance with applicable law. The expenses incurred by Mortgagee in the adjustment and collection of insurance proceeds shall become part of the Debt and be secured hereby and shall be reimbursed by Mortgagor to Mortgagee upon demand. (b) Upon the occurrence of an Insured Casualty, Mortgagor shall (subject to the right of Mortgagee to elect to do so as set forth below in this clause (b)), promptly file a proof of loss with the respective insurance company or companies insuring such Insured Casualty and provided no Event of Default has occurred, Mortgagor shall have the right (subject to the right of Mortgagee to elect to do so as set forth below in this clause (b)) to proceed to settle and adjust any claims with respect to such Insured Casualty and agree with such company or companies on the amount of the Insurance Proceeds to be paid upon the loss (any amounts so received, including without limitation any proceeds received from rental loss or business interruption coverages (the "Insurance Proceeds"), provided that Mortgagor proceeds with such adjustment promptly and diligently and in a competent and timely manner. In the event Mortgagor fails to promptly file a proof of loss with respect to any Insured Casualty or fails to promptly and diligently proceed to settle and adjust any claims with respect thereto as required in this clause (b), then Mortgagee shall, at the sole cost and expense of Mortgagor, have the right to file such proof of claim, settle and adjust such claim and agree with such insurance company or companies on the amount of the Insurance Proceeds, in the place and stead of Mortgagor without the consent of Mortgagor, and Mortgagor hereby irrevocably appoints Mortgagee as its attorney-in-fact, coupled with an interest, to do so. Notwithstanding the foregoing, with respect to any Insured Casualty where the damage to the Mortgaged Property is greater than $6,500,000.00: (x) if Mortgagor has not concluded such settlement with the insurance company within nine (9) months of the Insured Casualty, then Mortgagee shall have the right to elect to settle and adjust such Insured Casualty and Mortgagor hereby irrevocably appoints Mortgagee as it attorney-in fact, coupled with an interest to do; and (y) in the event Mortgagee does so elect to adjust and settle the claim with respect to such Insured Casualty, then Mortgagor shall have the right within ninety (90) days after such election and upon not less than thirty (30) days notice to Mortgagee, to prepay the entire amount of the Loan in full (but not in part) on any Payment Date (as defined in the Note) without payment of any Proportionate Yield Maintenance Premium with respect to any of the Debt. In the event of an Insured Casualty where the damage to the Mortgaged Property does not exceed the lesser of (x) $250,000 and (y) ten percent (10%) of the outstanding principal balance of the Note (a "Significant Casualty") and provided no Event of Default shall have occurred, so long as Mortgagor shall proceed to restore, repair, replace or rebuild the Mortgaged Property as set forth in Paragraph 3(a) above, and that the restoration or repair of the Mortgaged Property can be completed prior to the earlier to occur of (i) the date which is six (6) months following such Insured Casualty and (ii) the date which is twelve (12) months prior to the Anticipated Repayment Date (as defined in the Note), Mortgagor is hereby authorized to collect and receipt for any such Insurance Proceeds. All other Insurance Proceeds (whether or 7 not Mortgagee elects to settle and adjust the claim or Mortgagor settles such claim) shall be due and payable solely to Mortgagee and held by Mortgagee in accordance with the terms of this Mortgage. In the event Mortgagor or any party other than Mortgagee is a payee on any check representing Insurance Proceeds with respect to any Significant Casualty (or with respect to any Insured Casualty, if an Event of Default has occurred), Mortgagor shall immediately endorse, and cause all such third parties to endorse, such check payable to the order of Mortgagee. Mortgagor hereby irrevocably appoints Mortgagee as its attorney-in-fact, coupled with an interest, to endorse any such check payable to the order of Mortgagee. The expenses incurred by Mortgagee in the adjustment and collection of Insurance Proceeds shall become part of the Debt and be secured hereby and shall be reimbursed by Mortgagor to Mortgagee upon demand. Mortgagor hereby releases Mortgagee from any liability with respect to the settlement and adjustment by Mortgagee of any Insured Casualty. (c) In the event of loss or damages covered by any of the Policies, the following provisions shall apply with respect to application of Insurance Proceeds: (i) In the event of an Insured Casualty where the loss is in an aggregate amount less than twenty-five percent (25%) of the original principal balance of the Note and if, in the reasonable judgment of Mortgagee, the Mortgaged Property can be restored prior to the earlier to occur of (A) the date which is six (6) months following such Insured Casualty and (B) the date which is twelve (12) months prior to the Anticipated Repayment Date, and after such restoration will adequately secure the outstanding balance of the Debt and will have a value at least equal to the value immediately prior to the date hereof, and if the FB Distro Lease is in full force and effect, FB Distro does not have the right to terminate the FB Distro Lease with respect to such Insured Casualty or FB Distro affirms in writing that it has waived any right it has to terminate the FB Distro Lease as a result of such Insured Casualty, then, if no Event of Default (as hereinafter defined) shall have occurred, the Insurance Proceeds (not including any Insurance Proceeds paid in respect of the liability policies required under Paragraph 2(a)(ii) hereof, in respect of any rental loss or business interruption coverage, or in respect of any worker's compensation insurance), after reimbursement of any expenses incurred by Mortgagee, shall be applied to reimburse Mortgagor for the cost of restoring, repairing, replacing or rebuilding the Mortgaged Property or part thereof subject to the Insured Casualty, in the manner set forth below. Mortgagor hereby covenants and agrees to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided always, that Mortgagor shall pay all costs (and if required by Mortgagee, Mortgagor shall deposit the total thereof with Mortgagee in advance) of such restoring, repairing, replacing or rebuilding in excess of the net Insurance Proceeds made available pursuant to the terms hereof. (ii) Except as provided in Paragraph 3(c)(i) above, the Insurance Proceeds collected upon any Insured Casualty shall, at the option of Mortgagee in its sole discretion, be applied to the payment of the Debt or applied to reimburse Mortgagor for the cost of restoring, repairing, replacing or rebuilding the Mortgaged Property or part thereof subject to the Insured Casualty, in the manner set forth below. Additionally, throughout the term of the Loan if an Event of Default, or an event which with notice and/or the passage of time or both would constitute an Event of Default, has occurred 8 then the Mortgagor shall pay to Mortgagee, with respect to any payment of the Debt pursuant to this paragraph, an additional amount equal to the Proportionate Yield Maintenance Premium (as defined in Paragraph 48 below); provided, however, that if an Event of Default, or an event which with notice and/or the passage of time or both would constitute an Event of Default, has not occurred, then the Proportionate Yield Maintenance Premium shall not be payable. Any such application to the Debt shall (A) be applied to those payments of principal and interest last due under the Note but shall not postpone any payments otherwise required pursuant to the Note other than such last due payments and (B) not cause or result in the Monthly Debt Service Payment Amount under the Note being re-cast. Mortgagor acknowledges that in order for Mortgagee to fix the Initial Interest Rate on the Loan, Mortgagee entered into hedging transactions by selling U.S. Treasury securities, which hedging transactions would have to be "unwound" if all or any portion of the Loan is paid down. (iii) In the event Mortgagor is entitled to reimbursement out of Insurance Proceeds held by Mortgagee, such Insurance Proceeds shall be disbursed from time to time upon Mortgagee being furnished with (1) evidence satisfactory to Mortgagee of the estimated cost of completion of the restoration, repair, replacement and rebuilding, (2) funds or, at Mortgagee's option, assurances satisfactory to Mortgagee that such funds are available, sufficient in addition to the Insurance Proceeds to complete the proposed restoration, repair, replacement and rebuilding, and (3) such architect's certificates, waivers of lien, contractor's sworn statements, title insurance endorsements, bonds, plats of survey and such other evidences of cost, payment and performance as Mortgagee may reasonably require and approve. Mortgagee may, in any event, require that all plans and specifications for such restoration, repair, replacement and rebuilding be submitted to and approved by Mortgagee prior to commencement of work. No payment made prior to the final completion of the restoration, repair, replacement and rebuilding shall exceed ninety percent (90%) of the value of the work performed from time to time; funds other than Insurance Proceeds shall be disbursed prior to disbursement of such Insurance Proceeds; and at all times, the undisbursed balance of such proceeds remaining in the hands of Mortgagee, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Mortgagee by or on behalf of Mortgagor for that purpose, shall be at least sufficient in the reasonable judgment of Mortgagee to pay for the cost of completion of the restoration, repair, replacement or rebuilding, free and clear of all liens or claims for lien. Any surplus which may remain out of Insurance Proceeds held by Mortgagee after payment of such costs of restoration, repair, replacement or rebuilding (including, but not limited to, all Insurance Proceeds paid with respect to rental loss and/or business interruption insurance) shall be deposited by Mortgagee into one or more of the Escrow Funds, as determined by Mortgagee, and thereafter held and disbursed by Mortgagee in accordance with the terms and provisions of this Mortgage applicable to such Escrow Funds. (iv) Notwithstanding anything contained in Paragraph 3 or Paragraph 47 to the contrary, in the event Mortgagee elects to apply the proceeds of insurance to the payment of the Debt anytime during the term of the Loan in accordance with this Paragraph 3, Mortgagor may, within ninety (90) days after such election by Mortgagee, upon not less than thirty (30) days notice to Mortgagee, prepay the entire amount of the 9 Loan in full (but not in part) on any Payment Date (as defined in the Note) without payment of any Proportionate Yield Maintenance Premium with respect to any of the Debt regardless of whether the source of repayment is the Insurance Proceeds or Mortgagor's own funds. 4. Payment of Taxes, Etc. Mortgagor shall pay all taxes, assessments, water rates and sewer rents, now or hereafter levied or assessed or imposed against the Mortgaged Property or any part thereof (collectively, the "Taxes") and all water rates, sewer rents, ground rents, maintenance charges, and other impositions and charges now or hereafter levied or assessed or imposed against the Mortgaged Property or any part thereof (collectively, the "Other Charges") as the same become due and payable. Mortgagor shall not suffer and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Mortgaged Property, and shall promptly pay for all utility services provided to the Mortgaged Property. Mortgagor shall furnish to Mortgagee receipts for the payment of the Taxes and the Other Charges prior to the date the same shall become delinquent (provided, however, that Mortgagor shall not be required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Mortgagee pursuant to Paragraph 5 hereof). 5. Tax and Insurance Escrow Fund. (a) Simultaneously with the execution hereof, Mortgagor shall deposit with Mortgagee the amount, as determined by Mortgagee, which, when added to the monthly payments subsequently required to be deposited with Mortgagee hereunder on account of Taxes and Insurance Premiums, will result in there being on deposit with Mortgagee an amount sufficient to pay the next due installment of Taxes on the Mortgaged Property at least thirty (30) days prior to the due date thereof and, subject to the terms of Section 5(b) below, the next due annual Insurance Premiums with respect to the Mortgaged Property at least thirty (30) days prior to the due date thereof. In addition, Mortgagor shall pay to Mortgagee on each Payment Date (as defined in the Note) (a) one-twelfth of the Taxes that Mortgagee estimates will be payable during the next ensuing twelve (12) months in order to accumulate with Mortgagee sufficient funds to pay all such Taxes at least thirty (30) days prior to their respective due dates, and, subject to the terms of Section 5(b) below, (b) one-twelfth of the Insurance Premiums that Mortgagee estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Mortgagee sufficient funds to pay all such Insurance Premiums at least thirty (30) days prior to the expiration of the Policies (said initial deposit, together with the amounts in clauses (a) and (b) above, being hereinafter called the "Tax and Insurance Escrow Fund"). Mortgagee will apply the Tax and Insurance Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Mortgagor pursuant to Paragraphs 2 and 4 hereof. In making any payment relating to the Tax and Insurance Escrow Fund, Mortgagee may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If at any time Mortgagee determines that the Tax and Insurance Escrow Fund is not or will not be sufficient to pay the items set forth in clauses (a) and (b) above, Mortgagee shall notify Mortgagor of such determination and Mortgagor shall increase its monthly payments to Mortgagee by the amount that Mortgagee estimates is sufficient to make up the deficiency at least thirty (30) days prior to delinquency of the Taxes and/or expiration of the Policies, as the case may be. If the amount of the Tax and Insurance Escrow Fund shall exceed the amounts due 10 for Taxes and Insurance Premiums pursuant to Paragraphs 2 and 4 hereof, Mortgagee shall credit such excess against future payments to be made to the Tax and Insurance Escrow Fund, and all excess amounts remaining when the Debt has been satisfied shall be returned to Mortgagor. (b) Notwithstanding the provisions of Paragraph 5(a) to the contrary, provided and on condition that each and all of the Insurance Conditions Precedent (as defined herein) are satisfied and remain satisfied at all times, Mortgagor shall not be required to fund the Tax and Insurance Escrow Fund with respect to Insurance Premiums only as provided herein. If at any time any or all of the Insurance Conditions Precedent are no longer met, Mortgagor shall immediately begin and shall continue to fund the Tax and Insurance Escrow fund as provided herein. The "Insurance Conditions Precedent" shall mean the following conditions precedent: (i) no Event of Default exists, (ii) FB Distro, Inc., an Indiana corporation ("FB Distro") shall be maintaining the insurance in respect of the Mortgaged Property in accordance with that certain lease, dated as of September 28, 2004, (the "FB Distro Lease") by and between FB Distro, as tenant and Mortgagor, as landlord and paying Insurance Premiums directly to the respective insurer or agent, (iii) the FB Distro Lease shall be in full force and effect and neither landlord nor tenant thereunder shall be in default of any of its obligations, (iv) FB Distro shall be and shall remain obligated under the FB Distro Lease to pay Insurance Premiums and maintain insurance in respect of the Mortgaged Property as currently set forth in the FB Distro Lease, and (v) the senior unsecured debt rating of Charming Shoppes, Inc. ("Charming") shall be and remain at least "B" by Standard & Poor's ratings Services, a division of the McGraw-Hill Companies, Inc. (c) In the event that, for any reason, Mortgagor shall be funding the Tax and Insurance Escrow Fund, Mortgagor shall have a one time right to elect, in lieu of funding the Tax and Insurance Escrow Fund as set forth in Paragraph 5(a) above, to deliver to Mortgagee an irrevocable, automatically renewable, transferable letter of credit (the "Letter of Credit") for 110% of the amount of the then annual Taxes on the Mortgaged Property and the next due annual Insurance Premiums with respect to the Mortgaged Property. The Letter of Credit shall be in form and substance acceptable to Mortgagee in its sole discretion, issued by a bank which has a rating by Standard & Poors of not less than "A", name Mortgagee as beneficiary and shall be delivered, together with a letter of credit agreement with respect to such Letter of Credit consistent with the terms and provisions of this Paragraph 5(c) and otherwise in form and substance acceptable to Mortgagee in its sole discretion. If Mortgagor delivers the Letter of Credit to Mortgagee pursuant to this Paragraph 5(c), then Taxes and Insurance Premiums shall cease to be paid from amounts on deposit in the Tax and Insurance Escrow Fund, but Mortgagor shall thereafter directly pay all Taxes not less than thirty (30) days prior to the due date and shall pay all Insurance Premiums not less than two (2) business days prior to the expiration of the Policies and shall deliver to Mortgagee paid invoices, if obtainable, or other evidence of payment with respect to same on or prior to such dates. If Mortgagor fails to pay the Taxes and Insurance Premiums as set forth above and fails to deliver such invoices as forth above, then Mortgagee shall have the right to realize upon the Letter of Credit and apply the proceeds thereof to the payment of due and unpaid Taxes and Insurance Premiums. Failure to either deposit the Letter of Credit (or the replacement letter of credit) as set forth in this Paragraph 5(c) and to pay the Taxes and Insurance Premiums as set forth in this Paragraph 5(c), or to make any payments as required pursuant to this Paragraph 5 shall constitute an Event of Default. During the term of the Loan if after delivering the Letter of Credit to Mortgagee, Mortgagor elects to commence or recommence deposits into the Tax and Insurance Escrow Fund pursuant to Paragraph 5(a) above, 11 then provided no Event of Default exists, the Letter of Credit (or such replacement letter of credit), will be returned to Mortgagor at such time that Mortgagor has deposited into the Tax and Insurance Escrow Fund the respective amount required under Paragraph 5(a) above. At such time that there is an increase in Taxes and/or the annual Insurance Premiums that causes the then maximum amount available under the Letter of Credit to be less than 110% of the then current annual Taxes and Insurance Premiums, Mortgagor shall, within fifteen (15) days after receiving any invoice or bill evidencing such increase (or after receiving any notice of such increase), deliver to Mortgagee a new letter of credit to replace the Letter of Credit, which complies with the terms and provisions of this Paragraph 5(c) and is in an amount equal to 110% of the then current annual Taxes and Insurance Premiums. Upon receipt of such replacement letter of credit, provided no Event of Default exists, Mortgagee shall return the Letter of Credit to Mortgagor. (d) Notwithstanding anything to the contrary contained in this Paragraph 5, in lieu of Mortgagor's obligation to make payments of Taxes pursuant to Paragraph 5(a) herein, on the date hereof, Mortgagor shall deposit with Mortgagee the sum of $83,129.00, and thereafter Mortgagee shall at all times maintain a sum equal to the then current amount of six month's payment of Taxes payable with respect to the Mortgaged Property (such amount being referred to herein as the "Tax Payment"), which shall be deposited with and held by Mortgagee in the Tax and Insurance Escrow Fund. If Taxes are not paid prior to delinquency ("Tax Trigger Event"), Mortgagee shall have the right to apply the Tax Payment to the payment of such Taxes. Upon the occurrence of a Tax Trigger Event, Mortgagor shall be required to deposit monthly payments with respect to Taxes in accordance with Paragraph 5(a) herein. 6. Replacement Escrow Fund; Rollover Escrow Fund; Additional Escrow Fund; the Debt Service Escrow Fund; Tax Lien Escrow Fund. (a) Mortgagor shall pay to Mortgagee on each Payment Date an amount equal to one-twelfth of the Annual Replacement Amount (as defined below) and such payments shall be held in escrow (the "Replacement Escrow Fund") and disbursed in accordance with the following provisions of this Paragraph 6. The "Annual Replacement Amount", which is based on Mortgagee's initial estimate of the annual amount for replacements and repairs of a capital nature required to be made to the Mortgaged Property, shall initially be $194,400. Notwithstanding anything contained herein to the contrary, the amount on deposit in the Replacement Escrow Fund shall not be required to exceed $388,800.00 (the "Replacement Escrow Fund Cap"). At such time that the amount in the Replacement Escrow Fund equals or exceeds the Replacement Escrow Fund Cap, Mortgagor shall not be required to continue to make deposits into the Replacement Escrow Fund as required under this Mortgage unless and until the amount on deposit is less than the Replacement Escrow Fund Cap, whereupon Mortgagor shall resume making such deposits until the amount on deposit therein equals or exceeds the Replacement Escrow Fund Cap (it being agreed and understand that Mortgagor shall be required to resume deposits as required under this Paragraph 6(a) anytime the amount on deposit in the Replacement Escrow Fund is less than the Replacement Escrow Fund Cap). Provided that no Event of Default exists, Mortgagee shall make disbursements from the Replacement Escrow Fund as requested by Mortgagor, and approved by Mortgagee in its reasonable discretion, on a monthly basis in increments of no less than $1,000.00 upon delivery by Mortgagor of a draw request accompanied by (i) copies of paid invoices (or with respect to requests in excess of $10,000.00, unpaid invoices) for the amounts requested, (ii) a brief description of the repair or 12 replacement (including evidence that same is of a capital nature) and, if required by Mortgagee, (iii) lien waivers and releases from all parties furnishing materials and/or services in connection with the requested payment. Any disbursement by Mortgagee hereunder for a capital item in excess of $10,000.00 and not already paid for by Mortgagor, shall be made by joint check, payable to Mortgagor and the applicable contractor, supplier, materialman, mechanic, subcontractor or other party to whom payment is due in connection with such capital item. Mortgagee may require an inspection of the Mortgaged Property at Mortgagor's expense, or other evidence as Mortgagee may in its reasonable discretion require, prior to making a monthly disbursement in order to verify compliance with the requirements of this Paragraph 6(a). (b) Intentionally Omitted Prior to Execution. (c) Mortgagor shall pay to Mortgagee on each Payment Date one-twelfth of $150,000.00, which shall be deposited with and held by Mortgagee for tenant improvement and leasing commission obligations incurred following the date hereof (the "Rollover Escrow Fund"). In addition, notwithstanding any limitations on the amount to be deposited in the Rollover Escrow Fund, Mortgagor shall pay to Mortgagee for deposit in the Rollover Escrow Fund all funds received by Mortgagor from tenants in connection with the cancellation of any Leases, including, but not limited to, any cancellation fees, penalties, and payments relating to unamortized tenant improvements and leasing commissions. Mortgagee may from time to time reassess its estimate of the monthly amount necessary to be deposited into the Rollover Escrow Fund and, upon notice to Mortgagor, Mortgagor shall be required to deposit into the Rollover Escrow Fund each month such reassessed amount. Notwithstanding anything contained herein to the contrary, the amount on deposit in the Rollover Escrow Fund shall not be required to exceed $750,000.00 (the "Rollover Escrow Fund Cap"). At such time that the amount in the Rollover Escrow Fund equals or exceeds the Rollover Escrow Fund Cap, Mortgagor shall not be required to continue to make deposits into the Rollover Escrow Fund as required under this Mortgage unless and until the amount on deposit is less than the Rollover Escrow Fund Cap, whereupon Mortgagor shall resume making such deposits until the amount on deposit therein equals or exceeds the Rollover Escrow Fund Cap (it being agreed and understand that Mortgagor shall be required to resume deposits as required under this Paragraph 6(c) anytime the amount on deposit in the Rollover Escrow Fund is less than the Rollover Escrow Fund Cap). To the extent the Leases were not previously approved by Mortgagee, all such expenses shall be approved by Mortgagee in its sole discretion. Provided that no Event of Default shall exist and remain uncured, Mortgagee shall make disbursements as requested, in writing, by Mortgagor on a monthly basis in increments of no less than $1,000.00 upon delivery by Mortgagor of copies of paid invoices (or with respect to any request in excess of $10,000, unpaid invoices) for the amounts requested for tenant improvements and leasing commissions, the newly executed Lease, extension, renewal, or modification, with terms commensurate with the expired Lease, a certification for tenant improvement disbursements from the Mortgagor stating (a) the nature and type of the related improvement, (b) that the related improvement has been completed in a good and workmanlike manner and (c) that the related improvement has been paid in full (or, with respect to any request in excess of $10,000, will be paid for in full from the requested disbursement) or a certification for leasing commission disbursements stating that such leasing commission has been paid in full (or, with respect to requests in excess of $10,000, will be paid for in full from the requested disbursement) and, if required by Mortgagee, lien waivers and releases from all parties furnishing materials and/or services in connection with the requested 13 payment. Any disbursement by Mortgagee hereunder in excess of $10,000 and not already paid for by Mortgagor, shall be made by joint check, payable to Mortgagor and the applicable contractor, supplier, materialman, mechanic, subcontractor, broker or other party to whom payment is due in connection with such disbursement. Mortgagee may require an inspection of the Mortgaged Property at Mortgagor's expense prior to making a disbursement in order to verify compliance with the requirements of this Paragraph 6 (c). (d) If at anytime during the term of the Loan, the issuer credit rating of Charming falls below "B" (but not below "B-") according to Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc. or the senior implied credit rating of Charming falls below "B2" (but not below "B3") according to Moody's Investors Service, Inc. (individually and collectively, the "Initial Charming Rating Drop"), Mortgagor shall be required to deposit into an additional reserve (the "Additional Escrow Fund") on each Payment Date, beginning with the next Payment Date then due, an amount equal to all Excess Cash Flow (as defined herein) until the amount paid into the Additional Escrow Fund is no less than $2,000,000.00 (the "Additional Escrow Fund Cap"), which amounts shall be held by Mortgagee as additional security for the indebtedness secured hereby. If after the occurrence of the Initial Charming Rating Drop, but prior to the occurrence of the Second Charming Rating Drop (as defined herein) or a Charming Rating Drop Termination, at any time during the term of the Loan the amount on deposit in the Additional Escrow Fund shall fall below the Additional Escrow Fund Cap, Mortgagor shall resume making deposits of Excess Cash Flow into the Additional Escrow Fund as required under this Paragraph 6(d) until the amount on deposit therein equals no less than the Additional Escrow Fund Cap. If at anytime during the term of the Loan, whether prior to or after the occurrence of the Initial Charming Rating Drop, the issuer credit rating of Charming falls below "B-" according to Standard & Poor's Rating Services, a division of the McGraw-Hill Companies, Inc. or the senior implied credit rating of Charming falls below "B3" according to Moody's Investors Service, Inc., (individually and collectively, the "Second Charming Rating Drop") Mortgagor shall be required to deposit into the Additional Escrow Fund on each Payment Date, beginning with the next Payment Date then due, an amount equal to all Excess Cash Flow until the amount paid into the Additional Escrow Fund is no less than the outstanding principal balance of the Loan (the "Second Additional Escrow Fund Cap"). If after the occurrence of the Second Charming Rating Drop, but prior to the occurrence of a Charming Rating Drop Termination, at any time during the term of the Loan the amount on deposit in the Additional Escrow Fund shall fall below the Second Additional Escrow Fund Cap, Mortgagor shall resume making deposits of Excess Cash Flow into the Additional Escrow Fund as required under this Paragraph 6(d) until the amount on deposit therein equals no less than the Second Additional Escrow Fund Cap. Notwithstanding anything contained in this Paragraph 6(d) to the contrary, during the term of the loan if Charming regains an issuer credit rating of "BB-" or greater by Standard & Poors and a senior implied credit rating of "Ba3" by Moody's Investors Service, Inc. (the "Charming Rating Drop Termination"), and provided no Event of Default exists, Mortgagor will no longer be required to make the aforesaid payments into the Additional Escrow Fund. If after the occurrence of the Charming Rating Drop Termination, Charming maintains an issuer credit rating of "BB-" or greater by Standard & Poors and a senior implied credit rating of "Ba3" by Moody's Investors Service, Inc. for the six (6) consecutive months immediately following the Charming Rating Drop Termination (the "6 Month Mark"), and provided no Event of Default exists, fifty percent (50%) of any amounts in the Additional Escrow Fund deposited pursuant to this Paragraph 6(d) will be released to Mortgagor. If after 14 the occurrence of the 6 Month Mark, Charming maintains the issuer credit rating of "BB-" or greater by Standard & Poors and the senior implied credit rating of "Ba3" by Moody's Investors Service, Inc. for the six (6) consecutive months immediately following the 6 Month Mark, and provided no Event of Default exists, any remaining amounts in the Additional Escrow Fund deposited pursuant to this Paragraph 6(d) will be released to Mortgagor. Notwithstanding the foregoing, after the occurrence of a Charming Rating Drop Termination, in the event that the Initial Charming Rating Drop or Second Charming Rating Drop again occurs, then Mortgagor shall fund the Additional Escrow Fund as provided in this Paragraph 6(d) which funds shall again be applied and released in accordance with this Paragraph 6(d) (it being agreed and understood that the obligation to fund the Additional Escrow Fund as set forth in this Paragraph 6(d) is an ongoing obligation which arises every time an Initial Charming Rating Drop or Second Charming Rating Drop occurs). For purposes of this Paragraph 6(d) the term "Excess Cash Flow" shall mean all revenue generated from the Mortgaged Property less Cash Expenses (as such term is defined in the Cash Management Agreement) after deducting, for the respective period, Mortgagor's payment of the Monthly Debt Service Payment and the deposits into the Tax and Insurance Escrow Fund, Replacement Escrow Fund and Rollover Escrow Fund required to be made by Mortgagor pursuant to the terms of this Mortgage. (e) On the date hereof, Mortgagor shall deposit with Mortgagee the sum equal to the Monthly Debt Service Payment Amount (as defined in the Note) together with the sum of $28,700.00 to be held in escrow (the "Debt Service Escrow Fund"), as additional collateral for the Loan. If on any Payment Date during the term of the Loan Mortgagee does not receive the Monthly Debt Service Payment Amount and/or an amount equal to the monthly amounts then being paid by Mortgagor into the Escrow Funds (the "Monthly Escrow Payment Amount"), then, provided no Event of Default exists, Mortgagee shall apply the funds in the Debt Service Escrow Fund on the Payment Date to the payment of the Monthly Debt Service Payment Amount and to the Monthly Escrow Payment Amount due on such Payment Date. In the event Mortgagee applies the funds in the Debt Service Escrow Fund as set forth herein (or at anytime that the Monthly Escrow Payment Amount is not sufficient to pay the monthly amounts then being paid by Mortgagor into the Escrow Funds), at Mortgagor's election, such election to be made in Mortgagor's sole discretion, Mortgagor shall have the right at anytime during the term of the Loan, but not the obligation, to deposit an amount equal to the Monthly Debt Service Payment Amount plus an amount equal to the Monthly Escrow Payment Amount in the Debt Service Escrow Fund and in the event Mortgagee does not receive the Monthly Debt Service Amount or the Monthly Escrow Payment Amount on a subsequent Payment Date, such amount previously deposited into the Debt Service Escrow Fund shall thereafter be applied by Mortgagee to the payment of the Monthly Debt Service Payment Amount and the Monthly Escrow Payment Amount on such Payment Date provided no Event of Default then exists (it being agreed and understood that anytime Mortgagee applies the funds in the Debt Service Escrow Fund as set forth herein, Mortgagor shall have the right, but not the obligation, to deposit such amounts in the Debt Service Escrow Fund to be applied as set forth herein). (f) On the date hereof, Mortgage shall deposit with Mortgagee the sum of $350,000.00 to be held in escrow (the "Tax Lien Escrow Fund"), as additional collateral for the Loan. Provided no Event of Default exists, all funds held in the Tax Lien Escrow Fund shall be promptly disbursed to Mortgagor upon Mortgagee's receipt of evidence satisfactory to Mortgagee in its sole discretion which indicates that Tax Warrant No. 04366131, Tax Warrant 15 No. 04366132, Tax Warrant No. 04366133, Tax Warrant No. 04366134, Tax Warrant No. 04366134, Tax Warrant No. 04366136, Tax Warranty No. 04366137, Tax Warrant No. 04366138 Tax Warrant No. 04366139 and Tax Warrant No. 04366145 each as filed in the Putnam County Clerk's Office, Putnam County, Indiana, have been fully satisfied (including any interest and penalties thereon) and released of record and the title policy insuring Mortgagee's interest under this Mortgage delivered to Mortgagee in connection with this Loan is revised to remove such tax liens as title exceptions to such title policy. 7. General Provisions Applicable to Escrow Funds. All monies on deposit in the Replacement Escrow Fund, the Rollover Escrow Fund, the Additional Escrow Fund, the Debt Service Escrow Fund, the Tax Lien Escrow Fund and the Tax and Insurance Escrow Fund (collectively, the "Escrow Funds") shall earn interest at a rate commensurate with the rate of interest paid from time to time on money market accounts at Servicer, with interest credited monthly to such Escrow Funds (with the exception of the Tax and Insurance Escrow Fund). All earnings or interest on each of the Escrow Funds (with the exception of the Tax and Insurance Escrow Fund) shall be and become part of the respective Escrow Fund and shall be disbursed as provided in the paragraph(s) of this Mortgage applicable to each such Escrow Fund. No earnings or interest on the Tax and Insurance Escrow Fund shall be payable to Mortgagor. Mortgagor hereby pledges to Mortgagee and grants to Mortgagee a first priority perfected security interest in any and all monies now or hereafter deposited in the Escrow Funds as additional security for the payment of the Debt. Upon the occurrence of an Event of Default, Mortgagee may apply any sums then present in the Escrow Funds to the payment of the Debt in any order in its sole discretion. The Escrow Funds shall not constitute a trust fund and may be commingled with other monies held by Mortgagee. Notwithstanding anything contained herein to the contrary, any amounts remaining in the Escrow Funds at the time the Loan is paid off in full shall be credited to the outstanding obligations of Mortgagor with respect to the Loan at the time of such payoff. 8. Condemnation. (a) Mortgagor shall promptly give Mortgagee written notice of the actual or threatened commencement of any condemnation or eminent domain proceeding with respect to all or any portion of the Mortgaged Property (a "Condemnation") and shall deliver to Mortgagee copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Mortgagor, regardless of whether an Award (hereinafter defined) is available, shall promptly proceed to restore, repair, replace or rebuild the same to the extent practicable to be of at least equal value and of substantially the same character as prior to such Condemnation, all to be effected in accordance with applicable law. (b) Any and all awards or payments ("Award") for any taking accomplished through a Condemnation (a "Taking") are hereby assigned by Mortgagor to Mortgagee and Mortgagee is hereby authorized to make any compromise or settlement in connection with such Condemnation, subject to the provisions of this Mortgage. (c) In the event of any Condemnation where the Award is in an aggregate amount less than five percent (5%) of the original principal balance of the Note, and if, in the reasonable judgment of Mortgagee, the Mortgaged Property can be restored prior to the earlier to 16 occur of (i) the date which is six (6) months following such Taking and (ii) the date which is twelve (12) months prior to the Anticipated Repayment Date (as defined in the Note), and after such restoration will adequately secure the outstanding balance of the Debt and will have a value at least equal to the value immediately prior to such Taking and the FB Distro Lease is in full force and effect, and FB Distro does not have the right to terminate the FB Distro Lease due to such Taking, or FB Distro affirms in writing that it has waived any right it has to terminate the FB Distro Lease as a result of such Taking, then, if no Event of Default shall have occurred, the proceeds of the Award (after reimbursement of any expenses incurred by Mortgagee) shall be applied to reimburse Mortgagor for the cost of restoring and rebuilding the Mortgaged Property, and such Award shall be disbursed in the same manner as provided in Paragraph 3(c)(iii) for the application of Insurance Proceeds. Mortgagor hereby covenants and agrees to commence and diligently to prosecute such restoring, repairing, replacing or rebuilding; provided always, that Mortgagor shall pay all costs (and if required by Mortgagee, Mortgagor shall deposit the total thereof with Mortgagee in advance) of such restoring, repairing, replacing or rebuilding in excess of the Award made available pursuant to the terms hereof. Any surplus which may remain out of the Award received by Mortgagee after payment of such costs of restoration, repair, replacement or rebuilding (including, but not limited to, all Insurance Proceeds paid with respect to rental loss and/or business interruption insurance) shall be deposited by Mortgagee into one or more of the Escrow Funds, as determined by Mortgagee, and thereafter held and disbursed by Mortgagee in accordance with the terms of provisions of this Mortgage applicable to such Escrow Funds. (d) Except as provided in Paragraph 8(c) above, the Award collected upon any Condemnation shall, at the option of Mortgagee in its sole discretion, be applied to the payment of the Debt or applied to reimburse Mortgagor for the cost of restoring and rebuilding the Mortgaged Property in the same manner as provided in Paragraph 3(c)(iii) for the application of Insurance Proceeds. Additionally, throughout the term of the Loan if an Event of Default, or an event which with notice and/or the passage of time or both would constitute an Event of Default, has occurred then the Mortgagor shall pay to Mortgagee, with respect to any payment of the Debt pursuant to this paragraph, an additional amount equal to the Proportionate Yield Maintenance Premium in accordance with Paragraph 48 below; provided, however, that if an Event of Default, or an event which with notice and/or the passage of time or both would constitute an Event of Default, has not occurred, then the Proportionate Yield Maintenance Premium shall not be payable. Any such application to the Debt shall (i) be applied to those payments of principal and interest last due under the Note but shall not postpone or reduce any payments otherwise required pursuant to the Note other than such last due payments and (ii) not cause or result in the Monthly Debt Service Payment Amount under the Note to be re-cast based upon the reduction in the principal balance of the Loan and the number of months remaining until the Maturity Date. If the Mortgaged Property is sold, through foreclosure or otherwise, prior to the receipt by Mortgagee of such Award, Mortgagee shall have the right, whether or not a deficiency judgment on the Note shall be recoverable or shall have been sought, recovered or denied, to receive all or a portion of said Award sufficient to pay the Debt. (e) Notwithstanding any Taking by any public or quasi-public authority (including, without limitation, any transfer made in lieu of or in anticipation of such a Taking), Mortgagor shall continue to pay the Debt at the time and in the manner provided for in the Note, in this Mortgage and the other Loan Documents and the Debt shall not be reduced unless and 17 until any Award shall have been actually received and applied by Mortgagee to expenses of collecting the Award and to discharge of the Debt. (f) Notwithstanding anything contained in Paragraph 8 or Paragraph 47 to the contrary, in the event Mortgagee elects to apply the Award to the payment of the Debt anytime during the term of the Loan in accordance with this Paragraph 8, Mortgagor may, within ninety (90) days after such election by Mortgagee, upon not less than thirty (30) days notice to Mortgagee, prepay the entire amount of the Loan in full (but not in part) on any Payment Date (as defined in the Note) without payment of any Proportionate Yield Maintenance Premium with respect to any of the Debt, regardless of whether the source of repayment is the Award or Mortgagor's own funds. 9. Leases and Rents. (a) Mortgagor does hereby absolutely and unconditionally assign to Mortgagee, all Mortgagor's right, title and interest in all current and future Leases and Rents, it being intended by Mortgagor that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Such assignment to Mortgagee shall not be construed to bind Mortgagee to the performance of any of the covenants, conditions or provisions contained in any such Lease or otherwise impose any obligation upon Mortgagee. Nevertheless, subject to the terms of this paragraph, Mortgagee grants to Mortgagor a revocable license to operate and manage the Mortgaged Property and to collect the Rents. Mortgagor shall hold the Rents, or a portion thereof, sufficient to discharge all current sums due on the Debt, in trust for the benefit of Mortgagee for use in the payment of such sums. At anytime that an Event of Default exists, without the need for notice or demand, the license granted to Mortgagor herein shall automatically be revoked, and Mortgagee shall immediately be entitled to possession of all Rents, whether or not Mortgagee enters upon or takes control of the Mortgaged Property. Mortgagee is hereby granted and assigned by Mortgagor the right, at its option, upon revocation of the license granted herein, to enter upon the Mortgaged Property in person, by agent or by court-appointed receiver to collect the Rents. Any Rents collected after the revocation of the license may be applied toward payment of the Debt in such priority and proportions as Mortgagee in its sole discretion shall deem proper. (b) Mortgagor will not enter into, modify, amend, consent to the cancellation of or terminate any Lease, whether now existing or hereafter entered into, without the prior written consent of Mortgagee which consent may be granted or withheld in Mortgagee's sole discretion. (c) Mortgagor (i) shall observe and perform all the obligations imposed upon the lessor under the Leases and shall not do or permit to be done anything to impair the value of the Leases as security for the Debt; (ii) shall promptly send copies to Mortgagee of all notices of default which Mortgagor shall send or receive thereunder; (iii) shall enforce all the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed, (iv) shall not collect any of the Rents more than one (1) month in advance; (v) shall not execute any other assignment of the lessor's interest in the Leases or the Rents; and (vi) shall deliver to Mortgagee, upon request, tenant estoppel certificates from each commercial tenant at the Mortgaged Property in form and substance reasonably satisfactory to 18 Mortgagee, provided that Mortgagor shall not be required to deliver such certificates more frequently than once in any calendar year. Except to the extent Mortgagor has received the prior written consent of Mortgagee, which consent may be granted or withheld in Mortgagee's sole discretion, Mortgagor shall not consent to any assignment of or subletting under any Lease not in accordance with its terms. Notwithstanding anything contained herein to the contrary, so long as no Event of Default exists, without the consent of Mortgagee, FB Distro shall have the right to sublet up to twenty-five percent (25%) of the premises leased to FB Distro pursuant to the FB Distro Lease so long as such sublease shall not relieve FB Distro of any obligations under the FB Distro Lease with respect to the subleased premises. (d) All security deposits of tenants, whether held in cash or any other form, shall: (x) not be commingled with any other funds of Mortgagor and, if cash, shall be deposited by Mortgagor at such commercial or savings bank or banks as may be reasonably satisfactory to Mortgagee; and (y) be applied by Mortgagor as required under the terms and provisions of the respective Lease and in accordance with applicable law . Any bond or other instrument which Mortgagor is permitted to hold in lieu of cash security deposits under any applicable legal requirements shall be maintained in full force and effect in the full amount of such deposits unless replaced by cash deposits as hereinabove described, shall be issued by an institution reasonably satisfactory to Mortgagee, shall name Mortgagee as payee or mortgagee thereunder (or at Mortgagee's option, be fully assignable to Mortgagee) and shall, in all respects, comply with any applicable legal requirements and otherwise be reasonably satisfactory to Mortgagee. Any security deposit of a tenant that is in excess of $250,000 shall be deposited with Mortgagee, to be held by Mortgagee subject to the terms of the Lease. Mortgagor shall, upon request, provide Mortgagee with evidence reasonably satisfactory to Mortgagee of Mortgagor's compliance with the foregoing. Following the occurrence and during the continuance of any Event of Default, Mortgagor shall, upon Mortgagee's request, if permitted by any applicable legal requirements, turn over to Mortgagee the security deposits (and any interest theretofore earned thereon) with respect to all or any portion of the Mortgaged Property, to be held by Mortgagee subject to the terms of the Leases. 10. Representations, Warranties and Covenants Concerning Loan. Mortgagor represents, warrants and covenants as follows: (a) Organization and Existence. Mortgagor is duly organized and validly existing as a limited liability company in good standing under the laws of Delaware and in all other jurisdictions in which Mortgagor is transacting business. Mortgagor has the power and authority to execute, deliver and perform the obligations imposed on it under the Loan Documents and to consummate the transactions contemplated by the Loan Documents. (b) Authorization. Mortgagor has taken all necessary actions for the authorization of the borrowing on account of the Loan and for the execution and delivery of the Loan Documents, including, without limitation, that those members of Mortgagor whose approval is required by the terms of Mortgagor's organizational documents have duly approved the transactions contemplated by the Loan Documents and have authorized execution and delivery thereof by the respective signatories. No other consent by any local, state or federal agency is required in connection with the execution and delivery of the Loan Documents. Mortgagor is not a "foreign person" within the meaning of Section 1445(f)(3) of the Internal 19 Revenue Code of 1986, as amended and the related Treasury Department regulations, including temporary regulations. (c) Valid Execution and Delivery. All of the Loan Documents requiring execution by Mortgagor have been duly and validly executed and delivered by Mortgagor. (d) Enforceability. All of the Loan Documents constitute valid, legal and binding obligations of Mortgagor and are fully enforceable against Mortgagor in accordance with their terms by Mortgagee and its successors, transferees and assigns, subject only to bankruptcy laws and general principles of equity. (e) No Conflict/Violation of Law. The execution, delivery and performance of the Loan Documents by the Mortgagor will not cause or constitute a default under or conflict with the organizational documents of Mortgagor, any guarantor of the Debt or any part thereof ("Guarantor") or any general partner, manager or managing member of Mortgagor or any Guarantor. The execution, delivery and performance of the obligations imposed on Mortgagor under the Loan Documents will not cause Mortgagor to be in default, including after due notice or lapse of time or both, under the provisions of any agreement, judgment or order to which Mortgagor is a party or by which Mortgagor is bound. (f) Compliance with Applicable Laws and Regulations. All of the Improvements and the use of the Mortgaged Property comply in all material respects with, and shall remain in compliance in all material respects with, all applicable laws, zoning and subdivision ordinances (including without limitation, parking requirements), rules, regulations, covenants and restrictions now or hereafter affecting or otherwise relating to the ownership, construction, occupancy, use or operation of the Mortgaged Property, including all applicable laws, rules and regulations pertaining to requirements for equal opportunity, anti-discrimination, fair housing, environmental protection, zoning and land use, and Mortgagor has not received any notice of any violation of any of the foregoing. The Improvements comply with, and shall remain in compliance in all material respects with, applicable health, fire and building codes. There is no evidence of any illegal activities relating to controlled substances on the Mortgaged Property. All certifications, permits, licenses, authorizations and approvals, including, without limitation, certificates of completion and occupancy permits required for the legal use, occupancy and operation of the Mortgaged Property as a warehouse and distribution center have been obtained and are in full force and effect, and Mortgagor has not received any notice to the contrary (including, without limitation, any such certifications, permits, licenses, authorizations and approvals required with respect to the use of the Mortgaged Property by any tenants, franchisors or operators) and Mortgagor shall take all actions necessary to file, keep and maintain all such certification, permits, licenses, authorizations and approvals current and in full force and effect at all times and to obtain any other certifications, permits, licenses, authorizations and approvals that may hereafter be required for the legal use, occupancy and operation of the Mortgaged Property. (g) Consents Obtained. All consents, approvals, authorizations, orders or filings with any court or governmental agency or body, if any, required for the execution, delivery and performance of the Loan Documents by Mortgagor have been obtained or made. 20 (h) No Litigation. There are no pending actions, suits or proceedings, arbitrations or governmental investigations against the Mortgagor or the Mortgaged Property: (i) except as previously fully disclosed in writing by Mortgagor to Mortgagee on a certification delivered by Mortgagor to Mortgagee on the date hereof; and (ii) an adverse outcome of which would affect in any respect the value of the Mortgaged Property or the Mortgagor's performance under the Note, this Mortgage or the other Loan Documents. There are no material legal actions, suits, or proceedings, arbitrations or governmental investigations pending against Guarantor that would adversely affect Guarantor's performance under the Loan Documents to which Guarantor is a party. (i) Title. Mortgagor has good, marketable, and insurable title to the Mortgaged Property, possesses an unencumbered fee estate in the Premises and the Improvements and owns the Mortgaged Property free and clear of all liens, encumbrances and charges whatsoever except as disclosed in the title insurance policy insuring the lien of this Mortgage (the "Permitted Exceptions") and this Mortgage is and will remain a valid and enforceable first lien on and security interest in the Mortgaged Property, subject only to said exceptions. Mortgagor is not a party to any outstanding contract or agreement providing for or requiring it to convey its interest in the Mortgaged Property to any person or entity, and no person or entity other than Mortgagor has any beneficial or equitable right, title or interest in the Mortgaged Property, or any part thereof, other than FB Distro pursuant to the FB Distro Lease. The possession of the Mortgaged Property by Borrower and FB Distro has been peaceful and undisturbed and title thereto has not been disputed or questioned to the best of Mortgagor's knowledge. Subject to the Permitted Exceptions, Mortgagor shall forever warrant, defend and preserve such title and the validity and priority of the lien of this Mortgage and shall forever warrant and defend the same to Mortgagee against the claims of all persons whomsoever. (j) Permitted Exceptions. The Permitted Exceptions do not and will not materially and adversely affect (1) the ability of the Mortgagor to pay in full the principal and interest on the Note in a timely manner, (2) the use of the Mortgaged Property for the use currently being made thereof, the operation of the Mortgaged Property as currently being operated or the value of the Mortgaged Property, or (3) the benefits of the security intended to be provided by this Mortgage. (k) First Lien. Upon the execution by the Mortgagor and the recording of this Mortgage, and upon the execution and filing of UCC-1 financing statements or amendments thereto, the Mortgagee will have a valid first lien on the Mortgaged Property and a valid security interest in the Equipment subject to no liens, charges or encumbrances other than the Permitted Exceptions. (l) ERISA. To the extent applicable, the Mortgagor has made and shall continue to make all required contributions to all employee benefit plans, if any, and the Mortgagor has no knowledge of any material liability which has been incurred by the Mortgagor which remains unsatisfied for any taxes or penalties with respect to any employee benefit plan or any multi-employer plan, and each such plan has been administered in compliance with its terms and the applicable provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and any other federal or state law. 21 (m) Contingent Liabilities. The Mortgagor has no known material contingent liabilities other than those created by the Loan Documents. (n) No Other Obligations. The Mortgagor has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Mortgagor is a party or by which the Mortgagor or the Mortgaged Property is otherwise bound, other than obligations under the FB Distro Lease, obligations incurred in the ordinary course of the operation of the Mortgaged Property and other than obligations under this Mortgage and the other Loan Documents. (o) Fraudulent Conveyance. The Mortgagor (1) has not entered into the Loan or any Loan Document with the actual intent to hinder, delay, or defraud any creditor and (2) received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the Loan contemplated by the Loan Documents, the fair saleable value of the Mortgagor's assets exceed and will, immediately following the execution and delivery of the Loan Documents, exceed the Mortgagor's total liabilities, including, without limitation, subordinated, unliquidated, disputed or contingent liabilities. The fair saleable value of the Mortgagor's assets is and will, immediately following the execution and delivery of the Loan Documents, be greater than the Mortgagor's probable liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. The Mortgagor's assets do not and, immediately following the execution and delivery of the Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. The Mortgagor does not intend to, and does not believe that it will, incur debts and liabilities (including, without limitation, contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of the Mortgagor). (p) Investment Company Act. The Mortgagor is not (1) an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended; (2) a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of either a "holding company" or a "subsidiary company" within the meaning of the Public Utility Holding Company Act of 1935, as amended; or (3) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money. (q) Access/Utilities. The Mortgaged Property has adequate rights of access to public ways and is served by adequate water, sewer, sanitary sewer and storm drain facilities, in each case for its current use and operation. All public utilities necessary to the continued use and enjoyment of the Mortgaged Property as presently used and enjoyed are located in the public right-of-way abutting the Mortgaged Property, and all such utilities are connected so as to serve the Mortgaged Property without passing over other property. All roads necessary for the full utilization of the Mortgaged Property for its current purpose have been completed and dedicated to public use and accepted by all governmental authorities or are the subject of access easements for the benefit of the Mortgaged Property. (r) Taxes Paid. Mortgagor has filed all federal, state, county and municipal tax returns required to have been filed by Mortgagor, and has paid all taxes which have become 22 due pursuant to such returns or to any notice of assessment received by Mortgagor, and Mortgagor has no knowledge of any basis for additional assessment with respect to such taxes paid for any prior period. (s) Single Tax Lot; Subdivision. The Premises consists of a single tax lot or multiple tax lots; no portion of said tax lot(s) covers property other than the Premises or a portion of the Premises and no portion of the Premises lies in any other tax lot. The Premises consists of one or more legally subdivided lots. (t) Special Assessments. Except as disclosed in the title insurance policy, there are no pending or, to the knowledge of the Mortgagor, proposed special or other assessments for public improvements or otherwise affecting the Mortgaged Property, nor, to the knowledge of the Mortgagor, are there any contemplated improvements to the Mortgaged Property that may result in such special or other assessments. (u) Flood Zone. The Mortgaged Property is not located in a flood hazard area as defined by the Federal Insurance Administration. (v) Seismic Exposure. The Premises are not located in Zone 3 or Zone 4 of the "Seismic Zone Map of the U.S." (w) Misstatements of Fact. No statement of fact made in the Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not materially misleading. There is no fact presently known to the Mortgagor which has not been disclosed which materially and adversely affects, nor as far as the Mortgagor can foresee, might materially and adversely affect the business, operations or condition (financial or otherwise) of the representing party. (x) Condition of Improvements. The Mortgaged Property has not been damaged by fire, water, wind or other cause of loss or any previous damage to the Mortgaged Property has been fully restored. (y) No Insolvency or Judgment. Neither Mortgagor, nor any member of Mortgagor, nor any guarantor of the Loan is currently (a) the subject of or a party to any completed or pending bankruptcy, reorganization or insolvency proceeding; (b) with respect to Mortgagor or any member of Mortgagor, the subject of any judgment unsatisfied of record or docketed in any court of the state in which the Mortgaged Property is located or in any other court located in the United States; or (c) with respect to any guarantor of the Loan, the subject of any material, final and non-appealable judgment unsatisfied of record or docketed in any court of the state in which the Mortgaged Property is located or in any other court located in the United States that would have a material, adverse affect on Guarantor's ability to perform under the Loan Documents to which such guarantor is a party. The Loan will not render the Mortgagor nor any member of Mortgagor insolvent. As used herein, the term "insolvent" means that the sum total of all of an entity's liabilities (whether secured or unsecured, contingent or fixed, or liquidated or unliquidated) is in excess of the value of all such entity's non-exempt assets, i.e., all of the assets of the entity that are available to satisfy claims of creditors. 23 (z) No Condemnation. No part of any property subject to this Mortgage has been taken in condemnation or other like proceeding nor is any proceeding pending, threatened or known to be contemplated for the partial or total condemnation or taking of the Mortgaged Property. (aa) No Labor or Materialmen Claims. All parties furnishing labor and materials have been paid in full and, except for such liens or claims insured against by the policy of title insurance to be issued in connection with the Loan, there are no mechanics', laborers' or materialmens' liens or claims outstanding for work, labor or materials affecting the Mortgaged Property, whether prior to, equal with or subordinate to the lien of this Mortgage. (bb) No Purchase Options. No tenant, person, party, firm, corporation or other entity has an option to purchase the Mortgaged Property, any portion thereof or any interest therein. (cc) Leases. The Mortgaged Property is not subject to any Leases other than the Leases described in the rent roll delivered to Mortgagee in connection with this Mortgage. No person has any possessory interest in the Mortgaged Property or right to occupy the same except under and pursuant to the provisions of the Leases or any of the Permitted Exceptions. As of the date hereof, (i) the Mortgagor is the owner and holder of the landlord's interest under each Lease; (ii) there are no prior assignments of any Lease or any portion of Rents which are presently outstanding and have priority over the Assignment of Leases and Rents (the "Assignment of Leases and Rents"), dated the date hereof, given by Mortgagor to Mortgagee and intended to be duly recorded; (iii) no Lease has been modified or amended and all Leases are in full force and effect, except as disclosed to Mortgagee in writing on the date hereof; (iv) each Lease is in full force and effect; (v) neither Mortgagor nor any tenant under any Lease is in default under any of the terms, covenants or provisions of the Lease, and Mortgagor knows of no event which, but for the passage of time or the giving of notice or both, would constitute an event of default under any Lease; (vi) there are no offsets or defenses to the payment of any portion of the Rents; (vii) all Rents due and payable under each Lease have been paid in full and no said Rents have been paid more than one (1) month in advance of the due dates thereof; (viii) Mortgagor has not received any notice that any tenant of the Mortgaged Property intends to vacate their respective demised premises or otherwise cease operating at the Mortgaged Property and Mortgagor has no knowledge that any of the tenants of the Mortgaged Property intend to vacate their respective demised premises or otherwise cease operating at the Mortgaged Property; and (viii) none of the Leases at the Mortgaged Property are subject to any actions, whether voluntary or otherwise, against the tenants thereunder under the bankruptcy or insolvency laws of the United States or any state and to the best of Mortgagor's knowledge, no such actions have been threatened. (dd) Appraisal. All requirements and conditions of the appraisal of the Property submitted to Mortgagee in connection with the Loan, upon which the value of the Mortgaged Property was conditioned, have been fully satisfied. (ee) Boundary Lines. Except as set forth on the survey delivered to Mortgagee in connection with the Loan, all of the Improvements which were included in determining the appraised value of the Mortgaged Property lie wholly within the boundaries and building 24 restriction lines of the Mortgaged Property, and no improvements on adjoining properties encroach upon the Mortgaged Property, and no easements or other encumbrances upon the Premises encroach upon any of the Improvements, so as to affect the value or marketability of the Mortgaged Property except those which are insured against by title insurance. (ff) Survey. The survey of the Mortgaged Property delivered to Mortgagee in connection with this Mortgage, has been performed by a duly licensed surveyor or registered professional engineer in the jurisdiction in which the Mortgaged Property is situated, is certified to the Mortgagee, its successors and assigns, and the title insurance company, and is in accordance with the most current minimum standards for title surveys as determined by the American Land Title Association, with the signature and seal of a licensed engineer or surveyor affixed thereto, and does not fail to reflect any material matter affecting the Mortgaged Property or the title thereto. (gg) Forfeiture. There has not been and shall never be committed by Mortgagor or any other person in occupancy of or involved with the operation or use of the Mortgaged Property any act or omission affording the federal government or any state or local government the right of forfeiture as against the Mortgaged Property or any part thereof or any monies paid in performance of Mortgagor's obligations under any of the Loan Documents. (hh) Mortgagor shall personally manage the Mortgaged Property in its own name and for its own account. Mortgagor hereby represents and warrants to Mortgagee that Mortgagor has not engaged and has no present intention of engaging any affiliate of Mortgagor or any third party to manage the Mortgaged Property for or on behalf of Mortgagor. In no event shall any management fee for the Mortgaged Property exceed four percent (4%) of effective gross rental income. Any fee relating to the management or operation of the Mortgaged Property is and shall at all times remain subordinate to this Mortgage. Mortgagor shall not enter into any agreement relating to the management or operation of the Mortgaged Property with any party without the express prior written consent of Mortgagee, which consent shall not be unreasonably withheld and shall be conditioned upon receipt by Mortgagee of a written confirmation from the Rating Agencies to the effect that such appointment of a new manager will not result in a requalification, reduction or withdrawal of any current securities rating assigned in a Securitization (as hereinafter defined). If at any time Mortgagee consents to the appointment of a new manager, such new manager and Mortgagor shall, as a condition of Mortgagee's consent, execute an Assignment and Subordination of Management Agreement in the form then being used by Mortgagee. (ii) No Defense. The Note, this Mortgage and the other Loan Documents are not subject to any right of rescission, offset, abatement, set-off, counterclaim or defense, including the defense of usury, nor would the operation of any of the terms of the Note, this Mortgage and the other Loan Documents, or the exercise of any right thereunder, render this Mortgage unenforceable, in whole or in part, or subject to any right of rescission, offset, abatement, set-off, counterclaim or defense, including the defense of usury. The Loan complies with or is exempt from all applicable usury laws. No default, breach, violation or event of acceleration exists under this Mortgage or any other Loan Documents. 25 (jj) Patriot Act Compliance. (i) Mortgagor will use its good faith and commercially reasonable efforts to not cause any violation of the Patriot Act (as defined below) and all applicable requirements of governmental authorities having jurisdiction of the Mortgagor and the Mortgaged Property, including those relating to money laundering and terrorism. The Mortgagee shall have the right to audit the Mortgagor's compliance with the Patriot Act and all applicable requirements of governmental authorities having jurisdiction of the Mortgagor and the Mortgaged Property, including those relating to money laundering and terrorism. In the event that the Mortgagor fails to comply with the Patriot Act or any such requirements of governmental authorities, then the Mortgagee may, at its option, cause the Mortgagor to comply therewith and any and all reasonable costs and expenses incurred by the Mortgagee in connection therewith shall be secured by this Mortgage and the other Loan Documents and shall be immediately due and payable. For purposes hereof, the term "Patriot Act" means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as the same may be amended from time to time, and corresponding provisions of future laws. (ii) Neither the Mortgagor nor any partner in the Mortgagor or member of such partner nor any owner of a direct or indirect interest in the Mortgagor (but excluding the holders of publicly traded securities of Charming traded on a nationally recognized exchange) and Borrower has no knowledge that the holders of any publicly traded securities of Charming (a) is listed on any Government Lists (as defined below), (b) is a person who has been determined by competent authority to be subject to the prohibitions contained in Presidential Executive Order No. 13224 (Sept. 23, 2001) or any other similar prohibitions contained in the rules and regulations of OFAC (as defined below) or in any enabling legislation or other Presidential Executive Orders in respect thereof, (c) has been previously indicted for or convicted of any felony involving a crime or crimes of moral turpitude or for any Patriot Act Offense (as defined below), or (d) is not currently under investigation by any governmental authority for alleged criminal activity. For purposes hereof, the term "Patriot Act Offense" means any violation of the criminal laws of the United States of America or of any of the several states, or that would be a criminal violation if committed within the jurisdiction of the United States of America or any of the several states, relating to terrorism or the laundering of monetary instruments, including any offense under (a) the criminal laws against terrorism; (b) the criminal laws against money laundering, (c) the Bank Secrecy Act, as amended, (d) the Money Laundering Control Act of 1986, as amended, or the (e) Patriot Act. "Patriot Act Offense" also includes the crimes of conspiracy to commit, or aiding and abetting another to commit, a Patriot Act Offense. For purposes hereof, the term "Government Lists" means (i) the Specially Designated Nationals and Blocked Persons Lists maintained by Office of Foreign Assets Control ("OFAC"), (ii) any other list of terrorists, terrorist organizations or narcotics traffickers maintained pursuant to any of the Rules and Regulations of OFAC that Mortgagee notified Mortgagor in writing is now included in "Governmental Lists", or (iii) any similar lists maintained by the United States Department of State, the United States Department of Commerce or any other government authority or pursuant to any Executive Order of the President of the United States of America that Mortgagee notified Mortgagor in writing is now included in "Governmental Lists". (kk) Plans. As of the date hereof: (i) Mortgagor is not and does not maintain an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of 26 ERISA, or a "governmental plan" within the meaning of Section 3(32) of ERISA; (ii) none of the assets of Mortgagor constitute "plan assets" of a governmental plan for purposes of any state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true: A) equity interests in Mortgagor are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (B) less than twenty-five percent (25%) of each outstanding class of equity interests in Mortgagor are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (C) Mortgagor qualifies as an "operating company", a "venture capital operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c), (d) or (e). 11. Single Purpose Entity/Separateness. Mortgagor represents, warrants and covenants as follows: (a) Mortgagor has not owned, does not own and will not own any asset or property other than (i) the Mortgaged Property, and (ii) incidental personal property necessary for the ownership or operation of the Mortgaged Property. (b) Mortgagor has not engaged and will not engage in any business other than the ownership, management and operation of the Mortgaged Property and Mortgagor will conduct and operate its business as presently conducted and operated. (c) Mortgagor will not enter into any contract or agreement with any affiliate of the Mortgagor, any constituent party of Mortgagor, any guarantor (a "Guarantor") of the Debt or any part thereof or any affiliate of any constituent party of Mortgagor or any Guarantor, except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any such party. (d) Mortgagor has not incurred and will not incur any indebtedness, secured or unsecured, direct or indirect, absolute or contingent (including guaranteeing any obligation), other than the Debt except for trade payables incurred in the ordinary course of its business of owning and operating the Mortgaged Property, provided that such debt (i) is not evidenced by a note, (ii) is not outstanding for more than sixty (60) days from the date such trade payables were incurred, (iii) is with trade creditors and in amounts as are normal and reasonable under the circumstances, and (iv) does not exceed $260,000 in the aggregate. No indebtedness other than the Debt may be secured (subordinate or pari passu) by the Mortgaged Property. (e) Mortgagor has not made and will not make any loans or advances to any third party (including any affiliate or constituent party of Mortgagor, any Guarantor or any affiliate or constituent party of Guarantor), and shall not acquire obligations or securities of its affiliates or any constituent party. (f) Mortgagor: (i) is solvent and agrees to give prompt notice to Mortgagee of the insolvency or bankruptcy filing of Mortgagor or any general partner, managing member or controlling shareholder of Mortgagor, or the death, insolvency or bankruptcy filing of any Guarantor; and (ii) will remain solvent. (g) Mortgagor has done or caused to be done and will do all things necessary to observe organizational formalities and preserve its existence, and Mortgagor will not amend, 27 modify or otherwise change the partnership certificate, partnership agreement, articles of incorporation and bylaws, articles of organization or operating agreement, trust or other organizational documents of Mortgagor. (h) Mortgagor will maintain all of its books, records, financial statements and bank accounts separate from those of its affiliates and any constituent party of Mortgagor. Mortgagor will file its own tax returns when required to do so under applicable income tax law; to the extent that the Mortgagor is not required to do so, the Mortgagor's income and expenses are included on the tax return of one or more of its affiliates with notations on such tax return to indicate the separateness of the Mortgagor from its affiliates as legal entities, and to indicate that the Mortgagor's assets and credit are not available to satisfy the debts and obligations of its affiliates or any other entity; Mortgagor shall maintain its books, records, resolutions and agreements as official records. (i) Mortgagor will be, and at all times will hold itself out to the public as, a legal entity separate and distinct from any other entity (including any affiliate of Mortgagor, any constituent party of Mortgagor, any Guarantor or any affiliate of any such constituent party or Guarantor), shall correct any known misunderstanding regarding its status as a separate entity, shall conduct business in its own name, shall not identify itself or any of its affiliates as a division or part of the other and shall maintain and utilize separate stationery and invoices. (j) Mortgagor will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations. (k) Neither Mortgagor nor any constituent party of Mortgagor will seek the dissolution, winding up, liquidation, consolidation or merger in whole or in part, of the Mortgagor. (l) Mortgagor will not commingle the funds and other assets of Mortgagor with those of any affiliate or constituent party of Mortgagor, any Guarantor, or any affiliate of any constituent party or Guarantor, or any other person. (m) Mortgagor has and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any affiliate or constituent party of Mortgagor, any Guarantor, or any affiliate of any constituent party or Guarantor, or any other person. (n) Mortgagor does not and will not guarantee, become obligated for or hold itself out to be responsible for the debts or obligations of any other person or entity or the decisions or actions respecting the daily business or affairs of any other person or entity. (o) Mortgagor will not permit any affiliate or constituent party of Mortgagor independent access to its bank accounts. (p) Mortgagor shall pay the salaries of its own employees and maintain a sufficient number of employees in light of its contemplated business operations. 28 12. Maintenance of Mortgaged Property. Mortgagor shall cause the Mortgaged Property to be maintained in a good and safe condition and repair. The Improvements and the Equipment shall not be removed, demolished or materially altered (except for normal replacement of the Equipment) without the consent of Mortgagee, which consent shall not be unreasonably withheld if such proposed removal, demolition or alteration is conducted in the ordinary course of business and does not materially adversely affect the economic value of the Mortgaged Property. Notwithstanding anything contained herein to the contrary, Mortgagee's consent shall not be required with respect to non-structural repairs, alterations, improvements, demolition or removal of any of the Improvements so long as such repairs, alterations, improvements, demolition or removal do not materially adversely affect the economic value of the Mortgaged Property and the cost of same shall not exceed $5,000,000.00. Mortgagor shall promptly comply with all laws, orders and ordinances affecting the Mortgaged Property, or the use thereof, provided that Mortgagor shall have the right to contest any such law, order or ordinance or the application thereof to the Mortgaged Property by any lawful petition, appeal, action or proceeding, subject to the terms and provisions of Section 27 herein. Mortgagor shall promptly repair, replace or rebuild any part of the Mortgaged Property that becomes damaged or unreasonably worn, ordinary wear and tear excepted. Mortgagor shall comply with all of the recommendations concerning the maintenance and repair of the Mortgaged Property which are contained in the inspection and engineering report which was delivered to Mortgagee in connection with the origination of the Loan. 13. Transfer or Encumbrance of the Mortgaged Property. (a) (i) Mortgagor acknowledges that Mortgagee has examined and relied on the creditworthiness and experience of Mortgagor (and the creditworthiness and experience of the parties owning the direct and indirect interests in Mortgagor) in owning and operating properties such as the Mortgaged Property in agreeing to make the Loan, and that Mortgagee will continue to rely on Mortgagor's ownership of the Mortgaged Property (and on the ownership of the direct and indirect interests in Mortgagor) as a means of maintaining the value of the Mortgaged Property as security for repayment of the Debt. Mortgagor acknowledges that Mortgagee has a valid interest in maintaining the value of the Mortgaged Property so as to ensure that, should Mortgagor default in the repayment of the Debt, Mortgagee can recover the Debt by a sale of the Mortgaged Property. Mortgagor shall not, without the prior written consent of Mortgagee, sell, convey, alienate, mortgage, encumber, pledge or otherwise transfer (collectively, "Transfer") the Mortgaged Property or any part thereof or any direct or indirect interest therein or in Mortgagor or permit the Mortgaged Property or any part thereof or any direct or indirect interest therein or in Mortgagor to be transferred; provided, however, notwithstanding any other provision of this Paragraph 13 or any other provision of this Mortgage or the Loan Documents, so long as there remains outstanding any class of publicly traded securities of Charming traded on a nationally recognized exchange, then (A) no transaction of any kind involving shares, securities or other beneficial interests of Charming shall constitute a Transfer or require any consent of Mortgagee, and (B) no transaction of any kind involving the ownership of any direct or indirect interest in Mortgagor shall constitute a Transfer or require any consent of Mortgagee, so long as Mortgagor shall continue to be a direct or indirect wholly owned subsidiary of Charming or a direct or indirect wholly owned subsidiary of one or more wholly owned subsidiaries of Charming. 29 (ii) The death of any natural person which holds any direct or indirect interests in Mortgagor and/or the Mortgaged Property shall not constitute a "Transfer" so long as: (i) all of the direct and/or indirect interests of such decedent in the Mortgagor and/or the Mortgaged Property are held and remain the property of the legal representative (i.e., the administrator or the executor) of such decedent's estate; (ii) no Event of Default has occurred; (iii) the Mortgaged Property continues to be managed in a manner acceptable to Mortgagee; and (iv) within thirty (30) days of such death, Mortgagor delivers notice thereof to Mortgagee and thereafter provides Mortgagee with such information as may be reasonably requested by Mortgagee as to the continued management of the Mortgaged Property. Any distribution or transfer by such legal representative of the decedent of any of the direct and/or indirect interests of the decedent in the Mortgagor and/or the Mortgaged Property (whether by operation of law, devise, bequest or otherwise) shall constitute a "Transfer" and shall be subject to the terms and provisions of this Paragraph 13 and the other applicable terms and provisions of the Loan Documents. (b) A Transfer within the meaning of this Paragraph 13 shall be deemed to mean any voluntary or involuntary sale, hypothecation, assignment, pledge, transfer, grant of a security interest in or other encumbrance or conveyance of any direct or indirect ownership interest in Mortgagor or the Mortgaged Property, and shall include, without limitation, the following: (i) an installment sales agreement wherein Mortgagor agrees to sell the Mortgaged Property or any part thereof or any direct or indirect interest in Mortgagor for a price to be paid in installments; (ii) an agreement by Mortgagor leasing all or a substantial part of the Mortgaged Property for other than actual occupancy by a space tenant thereunder or any voluntary or involuntary sale, hypothecation, assignment, pledge, transfer, grant of a security interest in or other encumbrance or conveyance of, Mortgagor's right, title and interest in and to any Leases or any Rents; (iii) if Mortgagor, Guarantor, or any partner, member or shareholder of Mortgagor or Guarantor is a corporation, any voluntary or involuntary sale, hypothecation, assignment, pledge, transfer, grant of a security interest in or other encumbrance or conveyance of any direct or indirect interest in such corporation's stock or the creation or issuance of new stock in any of such entities (or in any entities holding any direct or indirect interests in such entities) in one or a series of transactions (including, without limitation, the creation of any preferred stock); and (iv) if Mortgagor, any Guarantor or any partner, member or shareholder of Mortgagor or any Guarantor is a limited or general partnership, joint venture or limited liability company, the voluntary or involuntary sale, hypothecation, assignment, pledge, transfer, grant of a security interest in or other encumbrance or conveyance of any direct or indirect interest in such partnership, joint venture or membership interests or the creation or issuance of new partnership, joint venture or membership interests in any of such entities (or in any entities holding any direct or indirect interests in such entities) in one or a series of transactions (including, without limitation, the creation of any preferred interests or preferred equity). (c) Mortgagee shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon a Transfer without Mortgagee's consent. This provision shall apply to every Transfer of the Mortgaged Property regardless of whether voluntary or not, or whether or not Mortgagee has consented to any previous Transfer of the Mortgaged Property. 30 (d) Mortgagee's consent to one Transfer of the Mortgaged Property shall not be deemed to be a waiver of Mortgagee's right to require such consent to any future Transfer. Any Transfer of the Mortgaged Property made in contravention of this paragraph shall be null and void and of no force and effect. (e) Mortgagor agrees to bear and shall pay or reimburse Mortgagee on demand for all costs and expenses (including, without limitation, the cost of any required counsel opinions relating to any requests made under this Paragraph 13, attorneys' fees and disbursements, title search costs and title insurance endorsement premiums) incurred by Mortgagee and Mortgagee's Servicer (hereinafter defined) in connection with the review, approval and documentation of any matters under this Paragraph 13 (including without limitation, the review of any matters which do not require approval of Mortgagor but which are required to be submitted to Mortgagee under this Paragraph 13). (f) Mortgagee's consent to a Transfer will not be unreasonably withheld after consideration of all relevant factors, provided that: (i) no Event of Default or event which with the giving of notice or the passage of time or both would constitute an Event of Default shall have occurred and remain uncured; (ii) the proposed transferee ("Transferee") shall be a reputable entity or person of good character, creditworthy, with sufficient financial worth considering the obligations assumed and undertaken, as evidenced by financial statements and other information reasonably requested by Mortgagee, and the Transferee shall satisfy the Single Purpose Entity/Separateness requirements of Paragraph 11 above; (iii) the Transferee and its property manager shall have sufficient experience in the ownership and management of properties similar to the Mortgaged Property, and Mortgagee shall be provided with reasonable evidence thereof (and Mortgagee reserves the right to approve the Transferee without approving the substitution of the property manager); (iv) Mortgagee shall have received a non-consolidation opinion and confirmation in writing from the Rating Agencies (as hereinafter defined) to the effect that such transfer will not result in a re-qualification, reduction or withdrawal of any rating initially assigned or to be assigned in a Secondary Market Transaction (as hereinafter defined). The term "Rating Agencies" as used herein shall mean each of Standard & Poor's Ratings Group, a division of the McGraw-Hill Companies, Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch Investors Service, L.P., or any other nationally-recognized statistical rating agency which has been approved by Mortgagee; (v) the Transferee shall have executed and delivered to Mortgagee an assumption agreement in form and substance acceptable to Mortgagee, evidencing such Transferee's agreement to abide and be bound by the terms of the Note, this Mortgage and the other Loan Documents, together with such legal opinions and title insurance endorsements as may be reasonably requested by Mortgagee; and 31 (vi) Mortgagee shall have received an assumption fee equal to one percent (1%) of the Debt on the date of such assumption and the payment of, or reimbursement for, all costs and expenses incurred by Mortgagee in connection with such assumption (including, without limitation, reasonable attorney's fees and costs). Mortgagee may, as a condition to evaluating any requested consent to a Transfer, require that Mortgagor post a cash deposit with Mortgagee in an amount equal to Mortgagee's anticipated costs and expenses in evaluating any such request for consent. (g) Notwithstanding anything to the contrary contained in this Paragraph 13, holders of interests in Mortgagor (or holders of interests in any entity directly or indirectly holding an interest in Mortgagor) as of the date of this Mortgage (the "Interest Holders") shall have the right to transfer their interest in Mortgagor (or any entity directly or indirectly holding an interest in Mortgagor) to another person or entity who is not an Interest Holder, including, without limitation, to immediate family members for estate planning purposes, without Mortgagee's consent; provided, however, that: (i) after taking into account any prior transfers pursuant to this Paragraph 13, whether to the proposed transferee or otherwise, no such transfer (or series of transfers) shall result in (x) the proposed transferee, together with all members of his/her immediate family or any affiliates thereof, owning in the aggregate (directly, indirectly or beneficially) more than 20% of the interests in Mortgagor (or any entity directly or indirectly holding an interest in Mortgagor), or (y) a transfer in the aggregate of more than 20% of the interests in Mortgagor as of the date hereof; (ii) no such transfer of interest shall result in a change of control of Mortgagor (or its managing member/general partner) or the day to day operations of the Mortgaged Property; (iii) Mortgagor shall give Mortgagee notice of such transfer together with copies of all instruments effecting such transfer not less than ten (10) days prior to the date of such transfer; (iv) no Event of Default shall have occurred and remain uncured; and (v) the legal and financial structure of Mortgagor and its shareholders, partners or members, and the single purpose nature and bankruptcy remoteness of Mortgagor and its shareholders, partners or members after such transfer, shall satisfy Mortgagee's then current applicable underwriting criteria and requirements, including, without limitation, the requirement, at the request of Mortgagee, to deliver written confirmations from the Rating Agencies that such transfer or series of transfers will not result in a qualification, downgrade or withdrawal of the then applicable ratings. (h) In addition to the provisions of Paragraph 13(g) above, a transfer that occurs by inheritance, devise or bequest or by operation of law upon the death of a natural person who is an Interest Holder shall not require the consent of Mortgagee, provided that such transfer is to a member of the immediate family of such Interest Holder, or a trust established for the benefit of such immediate family member, and provided further that each of the following transfer conditions (the "49% Transfer Conditions") are satisfied: 32 (i) after taking into account any prior transfers pursuant to this Paragraph 13, whether to the proposed transferee or otherwise, no such transfer (or series of transfers) shall result in (x) the proposed transferee, together with all members of his/her immediate family or any affiliates thereof, owning in the aggregate (directly, indirectly or beneficially) more than 49% of the interests in Mortgagor (or any entity directly or indirectly holding an interest in Mortgagor), or (y) a transfer in the aggregate of more than 49% of the interests in Mortgagor as of the date hereof; (ii) no such transfer of interest shall result in a change of control of Mortgagor (or its managing member/general partner) or the day to day operations of the Mortgaged Property; (iii) Mortgagor shall give Mortgagee notice of such transfer together with copies of all instruments effecting such transfer not less than ten (10) days prior to the date of such transfer; (iv) no Event of Default shall have occurred and remain uncured; and (v) the legal and financial structure of Mortgagor and its shareholders, partners or members, and the single purpose nature and bankruptcy remoteness of Mortgagor and its shareholders, partners or members after such transfer, shall satisfy Mortgagee's then current applicable underwriting criteria and requirements, including without limitation the requirement, at the request of Mortgagee, to deliver written confirmations from the Rating Agencies that such transfer or series of transfers will not result in a qualification, downgrade or withdrawal of the then applicable ratings. (i) For purposes of this Paragraph 13, (i) a change of control of Mortgagor (or its managing member/general partner) shall be deemed to have occurred if there is any change in the identity of the individual or entities or group of individuals or entities who have the right, by virtue of any partnership agreement, articles of incorporation, by-laws, articles of organization, operating agreement or any other agreement, with or without taking any formative action, to cause Mortgagor (or its managing member/general partner) to take some action or to prevent, restrict or impede Mortgagor from taking some action which, in either case, Mortgagor could take or could refrain from taking were it not for the rights of such individuals; and (ii) an "immediate family member" shall mean a spouse or a child of any Interest Holder. 14. Estoppel Certificates and No Default Affidavits. Mortgagor shall, within fifteen (15) days after request by Mortgagee, furnish Mortgagee with a statement, duly acknowledged and certified, setting forth (i) the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest of the Note, (iv) the date installments of interest and/or principal were last paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi) a statement that the Note, this Mortgage and the other Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification. Mortgagor shall, within fifteen (15) days after request by Mortgagee, furnish Mortgagee with a certificate reaffirming all representations and warranties of Mortgagor set forth herein and in the other Loan Documents as of the date requested by Mortgagee or, to the extent of any changes to any such representations and warranties, so stating such changes. 33 15. Changes in Laws Regarding Taxation. If any law is enacted or adopted or amended after the date of this Mortgage which deducts the Debt from the value of the Mortgaged Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Mortgagee's interest in the Mortgaged Property, Mortgagor will pay such tax, with interest and penalties thereon, if any. In the event Mortgagee is advised by counsel chosen by it that the payment of such tax or interest and penalties by Mortgagor would be unlawful or taxable to Mortgagee or unenforceable or provide the basis for a defense of usury, then in any such event, Mortgagee shall have the option, upon not less than ninety (90) days written notice to Mortgagor, to declare the Debt immediately due and payable without liability for any Proportionate Yield Maintenance Premium or any other prepayment penalty, premium or charge so long as no Event of Default exists. 16. No Credits on Account of the Debt. Mortgagor will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against the Mortgaged Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Mortgaged Property, or any part thereof, for real estate tax purposes by reason of this Mortgage or the Debt. In the event such claim, credit or deduction shall be required by law, Mortgagee shall have the option, upon not less than ninety (90) days written notice to Mortgagor, to declare the Debt immediately due and payable. 17. Financial Statements. (a) The financial statements heretofore furnished to Mortgagee are, as of the dates specified therein, complete and correct and fairly present the financial condition of the Mortgagor and any other persons or entities that are the subject of such financial statements, and are prepared in accordance with generally accepted accounting principles. Mortgagor does not have any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to Mortgagor and reasonably likely to have a materially adverse effect on the Mortgaged Property or the operation thereof as a warehouse project, except as referred to or reflected in said financial statements. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operation or business of Mortgagor from that set forth in said financial statements. (b) Mortgagor will maintain full and accurate books of accounts and other records reflecting the results of the operations of the Mortgaged Property and will furnish to Mortgagee on or before forty-five (45) days after the end of each Charming Calendar Quarter (as hereinafter defined) the following items, each certified by Mortgagor as being true and correct: (i) a written statement (rent roll) dated as of the last day of each such calendar quarter identifying each of the Leases by the term, space occupied, rental required to be paid, security deposit paid, any rental concessions, and identifying any defaults or payment delinquencies thereunder; and (ii) monthly and year to date operating statements prepared for each calendar month during each Charming Calendar Quarter, noting Net Operating Income (as defined in the Cash Management Agreement), Gross Income from Operations (as defined in the Cash Management Agreement), and Operating Expenses (as defined in the Cash Management Agreement) each of which shall include an itemization of actual (not pro forma) capital expenditures and other information necessary and sufficient under generally accepted accounting practices to fairly represent the 34 financial position and results of operation of the Mortgaged Property during such calendar month, all in form satisfactory to Mortgagee; (iii) a property balance sheet for each Charming Calendar Quarter; and (iv) a calculation reflecting the Debt Service Coverage Ratio (as hereinafter defined) as of the last day of each Charming Calendar Quarter. Notwithstanding the foregoing, until the final sale of the Loan in a Secondary Market Transaction (hereinafter defined) has occurred, the Mortgagor shall, upon request from Mortgagee, furnish monthly each of the items listed in the immediately preceding sentence (collectively, the "Pre-Securitization Financials") within twenty (20) days after the end of such month. Within ninety (90) days following the end of each Charming Fiscal Year (as hereinafter defined), Mortgagor shall furnish statements of its financial affairs and condition including a balance sheet and a statement of profit and loss for the Mortgagor in such detail as Mortgagee may request, and setting forth the financial condition and the income and expenses for the Mortgaged Property for the immediately preceding Charming Fiscal Year prepared by Charming and certified by a responsible officer of Charming or an independent accounting firm or independent certified public accountant approved by Mortgagee (which approval shall not be unreasonably withheld). Mortgagor's annual financial statements shall include (i) a list of the tenants, if any, occupying more than twenty (20%) percent of the total floor area of the Improvements, and (ii) a breakdown showing the year in which each Lease then in effect expires and the percentage of total floor area of the Improvements and the percentage of base rent with respect to which Leases shall expire in each such year, each such percentage to be expressed on both a per year and a cumulative basis. Mortgagor's annual financial statements shall be accompanied by: (x) a certificate executed by the chief financial officer of Mortgagor or the general partner of Mortgagor, as applicable, stating that each such annual financial statement presents fairly the financial condition of the Mortgaged Property being reported upon and has been prepared in accordance with generally accepted accounting principles consistently applied; and (y) payment to Mortgagee of an annual fee in the amount of $250.00 in respect of Mortgagee's review of the financial statements delivered by Mortgagor pursuant to this Paragraph 17(b). At any time and from time to time Mortgagor shall deliver to Mortgagee or its agents such other financial data as Mortgagee or its agents shall reasonably request with respect to the ownership, maintenance, use and operation of the Mortgaged Property. For the purposes herein, "Charming Fiscal Year" shall mean each twelve (12) month period ending on the Saturday closest to January 31 of every year, and "Charming Calendar Quarter" shall mean, generally, each consecutive thirteen (13) week period within each Charming Fiscal Year. (c) In the event that Mortgagor fails to provide Mortgagee with Pre-Securitization Financials on or before the date they are due, and if such failure continues for two (2) business days following notice of same from Mortgagee, then, in addition to all other rights and remedies of Mortgagee hereunder, Mortgagor shall pay to Mortgagee, at Mortgagee's option and in its sole discretion, an amount equal to $1,000 for each Pre-Securitization Financial that is not delivered. 18. Further Acts, Etc. Mortgagor will, without expense to Mortgagee, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, subordinations, notices of assignment, Uniform Commercial Code financing statements or continuation statements, transfers and assurances as Mortgagee shall, from time to time, 35 reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Mortgagee the property and rights hereby mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated or intended now or hereafter so to be, or which Mortgagor may be or may hereafter become bound to convey or assign to Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage or for filing, registering or recording this Mortgage or for facilitating the sale of the Loan and the Loan Documents as described in Paragraph 51 below. 19. Recording of Mortgage, Etc. Mortgagor forthwith upon the execution and delivery of this Mortgage and thereafter, from time to time, will cause this Mortgage, and any security instrument creating a lien or security interest or evidencing the lien hereof upon the Mortgaged Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect the lien or security interest hereof upon, and the interest of Mortgagee in, the Mortgaged Property. Mortgagor will pay all filing, registration or recording fees, and all expenses incident to the preparation, execution and acknowledgment of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Mortgaged Property and any instrument of further assurance, and all federal, state, county and municipal taxes (including, without limitation, documentary stamp taxes), duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Mortgaged Property or any instrument of further assurance, except where prohibited by law so to do. 20. Events of Default. The Debt shall become immediately due and payable at the option of Mortgagee upon the happening of any one or more of the following events of default (each an "Event of Default"): (a) if any portion of the Debt is not paid when due; (b) subject to Mortgagor's right to contest as provided herein, if any Other Charges or any of the Taxes (except, the failure to pay such Taxes shall not constitute an Event of Default, if such Taxes are not paid when due solely because Mortgagee fails to make proceeds in the Tax and Insurance Escrow Fund available in accordance with the terms of this Mortgage, to the extent proceeds are available in the Tax and Insurance Escrow Fund and provided there exists no Event of Default and Mortgagor has complied with all provisions set forth herein with respect to any such Taxes) are not paid when the same are due and payable; (c) if the Policies are not kept in full force and effect, or if the Policies are not delivered to Mortgagee upon request; (d) if Mortgagor effects a Transfer without Mortgagee's prior written consent or otherwise violates Paragraph 13 hereof; (e) if any representation or warranty of Mortgagor, or of any Guarantor, made herein or in any other Loan Document or in any certificate, report, financial statement or other 36 instrument or document furnished to Mortgagee shall have been false or misleading in any material respect when made; (f) if Mortgagor or any Guarantor shall make an assignment for the benefit of creditors or if Mortgagor shall generally not be paying its debts as they become due; (g) if a receiver, liquidator or trustee of Mortgagor or of any Guarantor shall be appointed or if Mortgagor or any Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, Mortgagor or any Guarantor or if any proceeding for the dissolution or liquidation of Mortgagor or any Guarantor shall be instituted; however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by Mortgagor or such Guarantor, upon the same not being discharged, stayed or dismissed within ninety (90) days; (h) if Mortgagor shall be in default under any other mortgage or security agreement covering any part of the Mortgaged Property whether it be superior or junior in lien to this Mortgage; (i) subject to Mortgagor's right to contest as provided herein, if the Mortgaged Property becomes subject to any mechanic's, materialman's or other lien, and, anytime after a Securitization, Mortgagor fails to obtain a release, lift or stay of such lien within ten (10) business days after Mortgagor obtains actual knowledge thereof (with respect to anytime prior to a Securitization, if Mortgagor fails to obtain a release, lift or stay of such lien within five (5) days of actual knowledge thereof) except a lien for local real estate taxes and assessments not then due and payable; (j) subject to Mortgagor's right to contest as provided herein, if Mortgagor fails to cure properly any violations of laws or ordinances affecting or which may be interpreted to affect the Mortgaged Property within thirty (30) days after Mortgagor first receives notice of any such violations; provided, however, if such violation of laws or ordinances is reasonably susceptible of cure, but not within such thirty (30) day period, then Mortgagor may be permitted up to an additional ninety (90) days (or such lesser period of time as required by applicable law) to cure such default provided that Mortgagor diligently and continuously pursues such cure and provided further that Mortgagor promptly provides Mortgagee with a written report and evidence reasonably satisfactory to Mortgagee of the progress of Mortgagor's cure efforts from time to time as requested by Mortgagee; (k) except as permitted in this Mortgage, the alteration, improvement, demolition or removal of any of the Improvements without the prior consent of Mortgagee; (l) (i) if Mortgagor shall continue to be in default under any monetary term, covenant, or provision of the Note or any of the other Loan Documents, beyond applicable grace or cure periods, if any, contained in those documents; or (ii) if Mortgagor shall continue to be in default under any non-monetary term, covenant, or provision of the Note or any of the other Loan Documents, beyond applicable grace or cure periods, if any, contained in those documents, provided, however, if there is no stated notice and grace period in such other documents then 37 Mortgagor shall have the right to cure such default within five (5) days after notice thereof, provided, further, however, that in the event such continuing default shall also constitute a default under this Mortgage, Mortgagor shall not be entitled to any such notice or opportunity to cure with respect to such default as set forth in this Section 20(l) except to the extent such right to notice and the opportunity to cure is otherwise specifically set forth in this Mortgage (it being specifically agreed and understood that the terms and provisions of this Mortgage shall prevail with respect to any right of Mortgagor to notice and opportunity to cure any such default); (m) if Mortgagor fails to cure a default under any other term, covenant or provision of this Mortgage within thirty (30) days after Mortgagor first receives notice of any such default; provided, however, if such default is reasonably susceptible of cure, but not within such thirty (30) day period, then Mortgagor may be permitted up to an additional ninety (90) days (but in no event beyond the Maturity Date (as defined in the Note) to cure such default provided that Mortgagor diligently and continuously pursues such cure and provided further that Mortgagor promptly provides Mortgagee with a written report and evidence reasonably satisfactory to Mortgagee of the progress of Mortgagor's cure efforts from time to time as requested by Mortgagee; (n) if without Mortgagee's prior written consent, Mortgagor enters into an agreement relating to the management or operation of the Mortgaged Property; (o) if Mortgagor ceases to continuously operate the Mortgaged Property or any material portion thereof as a warehouse for any reason whatsoever (other than temporary cessation in connection with any repair or renovation thereof undertaken with the consent of Mortgagee); provided, however, the foregoing shall not constitute an Event of Default so long as the Mortgaged Property shall be and continue to remain in the condition the Mortgaged Property was in immediately prior to the date Mortgagor ceased to continuously operate the Mortgaged Property or any material portion thereof as a warehouse for any reason whatsoever; (p) Intentionally Omitted. (q) if Mortgagor fails to comply with the terms and provisions of Paragraph 11 hereof; (r) if the FB Distro Lease shall be terminated, modified or amended by Mortgagor without the prior written consent of Mortgagee. 21. Late Payment Charge. If any portion of the Debt is not paid on the date on which it is due, Mortgagor shall pay to Mortgagee upon demand an amount equal to the lesser of five percent (5%) of such unpaid portion of the Debt or the maximum amount permitted by applicable law in order to defray a portion of the expenses incurred by Mortgagee in handling and processing such delinquent payment and to compensate Mortgagor for the loss of the use of such delinquent payment, and such amount shall be secured by this Mortgage (provided, however, that with respect that the payment due on the Maturity Date (as defined in the Note), the aforesaid 5% sum shall be paid if the payment due on the Maturity Date is not paid within 20 days after the Maturity Date (provided further, however, that the foregoing shall not in any way 38 constitute any type of extension of the Maturity Date, it being understood and agreed that, failure to make all payments due on the Maturity Date shall constitute an Event of Default). 22. Right To Cure Defaults. Upon the occurrence and during the continuation of any Event of Default or if Mortgagor fails to make any payment or to do any act as herein provided, Mortgagee may, but without any obligation to do so and without notice to or demand on Mortgagor and without releasing Mortgagor from any obligation hereunder, cure such Event of Default make or do the same in such manner and to such extent as Mortgagee may deem necessary to protect the security hereof. Mortgagee is authorized to enter upon the Mortgaged Property for such purposes or appear in, defend, or bring any action or proceeding to protect its interest in the Mortgaged Property or to foreclose this Mortgage or collect the Debt, and the cost and expense thereof (including reasonable attorneys' fees and disbursements to the extent permitted by law), with interest at the Default Rate (as defined in the Note) for the period after notice from Mortgagee that such cost or expense was incurred to the date of payment to Mortgagee, shall constitute a portion of the Debt, shall be secured by this Mortgage and the other Loan Documents and shall be due and payable to Mortgagee upon demand. 23. Remedies. (a) Upon the occurrence of any Event of Default, Mortgagee may take such action, without notice or demand, as it deems advisable to protect and enforce its rights against Mortgagor and in and to the Mortgaged Property by Mortgagee itself or otherwise, including, without limitation, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Mortgagee may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Mortgagee: (i) declare the entire Debt to be immediately due and payable; (ii) institute a proceeding or proceedings, judicial or nonjudicial, by advertisement or otherwise, for the complete foreclosure of this Mortgage in which case the Mortgaged Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner; (iii) with or without entry, to the extent permitted and pursuant to the procedures provided by applicable law, institute proceedings for the partial foreclosure of this Mortgage for the portion of the Debt then due and payable, subject to the continuing lien of this Mortgage for the balance of the Debt not then due; (iv) sell for cash or upon credit the Mortgaged Property or any part thereof and all estate, claim, demand, right, title and interest of Mortgagor therein and rights of redemption thereof, pursuant to the power of sale or otherwise, at one or more sales, as an entirety or in parcels, at such time and place, upon such terms and after such notice thereof as may be required or permitted by law; (v) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, or in any of the other Loan Documents; 39 (vi) recover judgment on the Note either before, during or after any proceedings for the enforcement of this Mortgage; (vii) take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Mortgagee thereafter to foreclose this Mortgage; (viii) apply for the appointment of a trustee, receiver, liquidator or conservator of the Mortgaged Property, without notice and without regard for the adequacy of the security for the Debt and without regard for the solvency of the Mortgagor, any Guarantor or of any person, firm or other entity liable for the payment of the Debt; (ix) enforce Mortgagee's interest in the Leases and Rents and enter into or upon the Mortgaged Property, either personally or by its agents, nominees or attorneys and dispossess Mortgagor and its agents and servants therefrom, and thereupon Mortgagee may (A) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Mortgaged Property and conduct the business thereat; (B) complete any construction on the Mortgaged Property in such manner and form as Mortgagee deems advisable; (C) make alterations, additions, renewals, replacements and improvements to or on the Mortgaged Property; (D) exercise all rights and powers of Mortgagor with respect to the Mortgaged Property, whether in the name of Mortgagor or otherwise, including, without limitation, the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents; and (E) apply the receipts from the Mortgaged Property to the payment of Debt, after deducting therefrom all expenses (including reasonable attorneys' fees and disbursements) incurred in connection with the aforesaid operations and all amounts necessary to pay the taxes, assessments, insurance and other charges in connection with the Mortgaged Property, as well as just and reasonable compensation for the services of Mortgagee, its counsel, agents and employees; (x) require Mortgagor to pay monthly in advance to Mortgagee, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of any portion of the Mortgaged Property occupied by Mortgagor or any related and/or affiliated party and require Mortgagor to vacate and surrender possession to Mortgagee of the Mortgaged Property or to such receiver and, in default thereof, evict Mortgagor or any related and/or affiliated party by summary proceedings or otherwise; (xi) enforce Mortgagee's rights and remedies under the Cash Management Agreement; or (xii) pursue such other rights and remedies as may be available at law or in equity or under the Uniform Commercial Code. In the event of a sale, by foreclosure or otherwise, of less than all of the Mortgaged Property, this Mortgage shall continue as a lien on the remaining portion of the Mortgaged Property. 40 (b) The proceeds of any sale made under or by virtue of this paragraph, together with any other sums which then may be held by Mortgagee under this Mortgage, whether under the provisions of this paragraph or otherwise, shall be applied by Mortgagee to the payment of the Debt in such priority and proportion as Mortgagee in its sole discretion shall deem proper. (c) Mortgagee may adjourn from time to time any sale by it to be made under or by virtue of this Mortgage by announcement at the time and place appointed for such sale or for such adjourned sale or sales; and, except as otherwise provided by any applicable provision of law, Mortgagee, without further notice or publication, may make such sale at the time and place to which the same shall be so adjourned. (d) Upon the completion of any sale or sales pursuant hereto, Mortgagee, or an officer of any court empowered to do so, shall execute and deliver to the accepted purchaser or purchasers a good and sufficient instrument, or good and sufficient instruments, conveying, assigning and transferring all estate, right, title and interest in and to the property and rights sold. Any sale or sales made under or by virtue of this paragraph, whether made under the power of sale herein granted or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, shall operate to divest all the estate, right, title, interest, claim and demand whatsoever, whether at law or in equity, of Mortgagor in and to the properties and rights so sold, and shall be a perpetual bar both at law and in equity against Mortgagor and against any and all persons claiming or who may claim the same, or any part thereof from, through or under Mortgagor. (e) Upon any sale made under or by virtue of this paragraph, whether made under a power of sale or under or by virtue of judicial proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may bid for and acquire the Mortgaged Property or any part thereof and in lieu of paying cash therefor may make settlement for the purchase price by crediting upon the Debt the net sales price after deducting therefrom the expenses of the sale and costs of the action and any other sums which Mortgagee is authorized to deduct under this Mortgage. (f) No recovery of any judgment by Mortgagee and no levy of an execution under any judgment upon the Mortgaged Property or upon any other property of Mortgagor shall affect in any manner or to any extent the lien of this Mortgage upon the Mortgaged Property or any part thereof, or any liens, rights, powers or remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of Mortgagee shall continue unimpaired as before. (g) Mortgagee may terminate or rescind any proceeding or other action brought in connection with its exercise of the remedies provided in this paragraph at any time before the conclusion thereof, as determined in Mortgagee's sole discretion and without prejudice to Mortgagee. (h) The rights and remedies of Mortgagee under this Mortgage shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. Mortgagee may resort to any remedies and the security given by the Note, this Mortgage or in any of the other Loan Documents in whole or in part, and in such portions and in such order as 41 determined by Mortgagee in its sole discretion. No such action shall in any way be considered a waiver or election of any rights, benefits or remedies evidenced or provided by the Note, this Mortgage or in any of the other Loan Documents. The failure of Mortgagee to exercise any right, remedy or option provided in the Note, this Mortgage or any of the other Loan Documents, shall not be deemed a waiver of such right, remedy or option or of any covenant or obligation secured by the Note, this Mortgage or any of the other Loan Documents. No acceptance by Mortgagee of any payment after the occurrence of any Event of Default and no payment by Mortgagee of any obligation for which Mortgagor is liable hereunder shall be deemed to waive or cure any Event of Default with respect to Mortgagor, or Mortgagor's liability to pay such obligation. No sale of all or any portion of the Mortgaged Property, no forbearance on the part of Mortgagee, and no extension of time for the payment of the whole or any portion of the Debt or any other indulgence given by Mortgagee to Mortgagor, shall operate to release or in any manner affect the interest of Mortgagee in the remaining Mortgaged Property or the liability of Mortgagor to pay the Debt. No waiver by Mortgagee shall be effective unless it is in writing and then only to the extent specifically stated. All costs and expenses of Mortgagee in exercising its rights and remedies under this Paragraph 23 (including reasonable attorneys' fees and disbursements to the extent permitted by law), shall be paid by Mortgagor immediately upon notice from Mortgagee, with interest at the Default Rate for the period after notice from Mortgagee and such costs and expenses shall constitute a portion of the Debt and shall be secured by this Mortgage. (i) The interests and rights of Mortgagee under the Note, this Mortgage and the other Loan Documents shall not be impaired by any indulgence, including (i) any renewal, extension or modification which Mortgagee may grant with respect to any of the Debt, (ii) any surrender, compromise, release, renewal, extension, exchange or substitution which Mortgagee may grant with respect to the Mortgaged Property or any portion thereof; or (iii) any release or indulgence granted to any maker, endorser, Guarantor or surety of any of the Debt. (j) In the event the Loan is repaid in whole or in part in connection with the exercise by Mortgagee of any of its remedies hereunder upon the occurrence of an Event of Default (including, without limitation, a foreclosure sale of the Property) and such repayment occurs prior to the Anticipated Repayment Date, then Mortgagor shall be required to pay Mortgagee, in addition to such repayment, accrued interest and all other sums due under this Mortgage, the Proportionate Yield Maintenance Premium. 24. Right of Entry. In addition to any other rights or remedies granted under this Mortgage, Mortgagee and its agents shall have the right to enter and inspect the Mortgaged Property at any reasonable time during the Term. Mortgagor agrees to pay to Mortgagee within ten (10) days after demand, an annual inspection fee in the amount of $250.00 in respect of annual inspections of the Mortgaged Property to be made by or on behalf of Mortgagee. Additionally, the cost of all inspections or audits shall be borne by Mortgagor should Mortgagee determine that an Event of Default exists, including the cost of all follow up or additional investigations or inquiries deemed reasonably necessary by Mortgagee. The cost of such inspections, if not paid for by Mortgagor following demand, may be added to the Debt and shall bear interest thereafter until paid at the Default Rate. 42 25. Security Agreement. This Mortgage is both a real property mortgage and a "security agreement" within the meaning of the Uniform Commercial Code. The Mortgaged Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Mortgagor in the Mortgaged Property. Mortgagor by executing and delivering this Mortgage has granted and hereby grants to Mortgagee, as security for the Debt, a security interest in the Mortgaged Property to the full extent that the Mortgaged Property may be subject to the Uniform Commercial Code (said portion of the Mortgaged Property so subject to the Uniform Commercial Code being called in this paragraph the "Collateral"). This Mortgage shall also constitute a "fixture filing" for the purposes of the Uniform Commercial Code. As such, this Mortgage covers all items of the Collateral that are or are to become fixtures. Information concerning the security interest herein granted may be obtained from the parties at the addresses of the parties set forth in the first paragraph of this Mortgage. If an Event of Default exists, Mortgagee, in addition to any other rights and remedies which it may have, shall have and may exercise immediately and without demand, any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing, the right to take possession of the Collateral or any part thereof, and to take such other measures as Mortgagee may deem necessary for the care, protection and preservation of the Collateral. Upon request or demand of Mortgagee, Mortgagor shall at its expense assemble the Collateral and make it available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on demand any and all expenses, including attorneys' fees and disbursements, incurred or paid by Mortgagee in protecting its interest in the Collateral and in enforcing the rights hereunder with respect to the Collateral. Any notice of sale, disposition or other intended action by Mortgagee with respect to the Collateral sent to Mortgagor in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Mortgagor. The proceeds of any disposition of the Collateral, or any part thereof, may be applied by Mortgagee to the payment of the Debt in such priority and proportions as Mortgagee in its sole discretion shall deem proper. Mortgagor hereby irrevocably appoints Mortgagee as its attorney-in-fact, coupled with an interest, to file with the appropriate public office on its behalf any financing or other statements signed only by Mortgagee, as secured party, in connection with the Collateral covered by this Mortgage. 26. Actions and Proceedings. Mortgagee has the right to appear in and defend any action or proceeding brought with respect to the Mortgaged Property and to bring any action or proceeding, in the name and on behalf of Mortgagor, which Mortgagee, in its sole discretion, decides should be brought to protect its interest in the Mortgaged Property. Mortgagee shall, at its option, be subrogated to the lien of any mortgage or other security instrument discharged in whole or in part by the Debt, and any such subrogation rights shall constitute additional security for the payment of the Debt. 27. Contest of Certain Claims. Notwithstanding the provisions of Paragraphs 4 and 20 hereof, Mortgagor shall not be in default for failure to pay or discharge Taxes, Other Charges or mechanic's or materialman's lien asserted against the Mortgaged Property if, and so long as, (a) Mortgagor shall have provided Mortgagee with written notice thereof within five (5) days of obtaining knowledge thereof; (b) Mortgagor shall diligently and in good faith contest the same by appropriate legal proceedings which shall operate to prevent the enforcement or collection of the same and the sale of the Mortgaged Property or any part thereof, to satisfy the same; (c) 43 Mortgagor shall have furnished to Mortgagee a cash deposit, or an indemnity bond satisfactory to Mortgagee with a surety satisfactory to Mortgagee, in the amount of the Taxes, Other Charges or mechanic's or materialman's lien claim, plus a reasonable additional sum to pay all costs, interest and penalties that may be imposed or incurred in connection therewith, to assure payment of the matters under contest and to prevent any sale or forfeiture of the Mortgaged Property or any part thereof; (d) Mortgagor shall promptly upon final determination thereof pay the amount of any such Taxes, Other Charges or claim so determined, together with all costs, interest and penalties which may be payable in connection therewith; (e) the failure to pay the Taxes, Other Charges or mechanic's or materialman's lien claim does not constitute a default under any other deed of trust, mortgage or security interest covering or affecting any part of the Mortgaged Property; and (f) notwithstanding the foregoing, Mortgagor shall immediately upon request of Mortgagee pay any such Taxes, Other Charges or claim (and if Mortgagor shall fail so to do, Mortgagee may, but shall not be required to, pay or cause to be discharged or bonded against), if in the opinion of Mortgagee, the Mortgaged Property or any part thereof or interest therein may be in danger of being sold, forfeited, foreclosed, terminated, cancelled or lost. Mortgagee may pay over any such cash deposit or part thereof to the claimant entitled thereto at any time when, in the judgment of Mortgagee, the entitlement of such claimant is established. 28. Marshalling and Other Matters. Mortgagor hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Mortgaged Property or any part thereof or any interest therein. Further, Mortgagor hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Mortgage on behalf of Mortgagor, and on behalf of each and every person acquiring any interest in or title to the Mortgaged Property subsequent to the date of this Mortgage and on behalf of all persons to the extent permitted by applicable law. 29. Hazardous Substances. Mortgagor hereby represents and warrants to Mortgagee that, to the best of Mortgagor's knowledge and except as disclosed in that certain Phase I Environmental Site Assessment dated April 12, 2004 prepared by National Assessment Corporation and previously delivered to Mortgagee in connection with the Loan (the "Environmental Report"): (a) the Mortgaged Property is not in violation of any local, state, federal or other governmental authority, statute, ordinance, code, order, decree, law, permits, rule or regulation pertaining to or imposing liability or standards of conduct concerning environmental regulation, contamination or clean-up including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), the Resource Conservation and Recovery Act, as amended ("RCRA"), the Emergency Planning and Community Right-to-Know Act of 1986, as amended, the Hazardous Substances Transportation Act, as amended, the Solid Waste Disposal Act, as amended, the Clean Water Act, as amended, the Clean Air Act, as amended, the Toxic Substance Control Act, as amended, the Safe Drinking Water Act, as amended, the Occupational Safety and Health Act, as amended, any state super-lien and environmental clean-up statutes and all regulations adopted in respect to the foregoing laws (collectively, "Environmental Laws"); (b) the Mortgaged Property is not subject to any private or governmental lien or judicial or administrative notice or action or inquiry, investigation, claim or threatened claim relating to hazardous and/or toxic, dangerous and/or regulated, substances, wastes, materials, raw materials which include hazardous constituents, pollutants or contaminants including without limitation, petroleum, 44 tremolite, anthlophylie, actinolite or polychlorinated biphenyls and any other substances or materials which are included under or regulated by Environmental Laws or which are considered by scientific opinion to be otherwise dangerous in terms of the health, safety and welfare of humans (collectively, "Hazardous Substances"); (c) no Hazardous Substances are or have been (including the period prior to Mortgagor's acquisition of the Mortgaged Property), discharged, generated, treated, disposed of or stored on, incorporated in, or removed or transported from the Mortgaged Property other than in compliance with all Environmental Laws; (d) no Hazardous Substances are present in, on or under any nearby real property which could migrate to or otherwise affect the Mortgaged Property; (e) no underground storage tanks exist on any of the Mortgaged Property, and (f) no Mold is present in the indoor air of the Mortgaged Property at concentrations exceeding ambient air levels and no visible Mold is present on any building materials or surfaces at the Mortgaged Property for which the EPA Mold Guidelines (as defined below) recommends or requires removal thereof by remediation professionals, and Mortgagor is not aware of any conditions at the Mortgaged Property that are likely to result in the presence of Mold in the indoor air at concentrations that exceed ambient air levels or on building materials or surfaces that would require such removal. As used herein the term "Mold" shall mean fungi that reproduces through the release of spores or the splitting of cells or other means, including but not limited to mold, mildew, fungi, fungal spores, fragments and metabolites such as mycotoxins and microbial volatile organic compounds. So long as Mortgagor owns or is in possession of the Mortgaged Property, Mortgagor (i) shall keep or cause the Mortgaged Property to be kept free from Hazardous Substances and in compliance with all Environmental Laws including without limitation any and all environmental permits, (ii) shall not install or permit to be installed on the Premises any underground storage tank, (iii) shall remove such Hazardous Substances and/or cure such violations and/or remove such threats, as applicable, as required by law (or as shall be required by Mortgagee in the case of removal which is not required by law, but in response to the opinion of a licensed hydrogeologist, licensed environmental engineer or other qualified consultant engaged by Mortgagee), promptly after Mortgagor becomes aware of same, at Mortgagor's sole expense and (iv) shall comply with all of the recommendations contained in the Environmental Report. Nothing herein shall prevent Mortgagor from recovering such expenses from any other party that may be liable for such removal or cure. The obligations and liabilities of Mortgagor under this Paragraph 29 shall survive any termination, satisfaction, or assignment of this Mortgage and the exercise by Mortgagee of any of its rights or remedies hereunder, including, without limitation, the acquisition of the Mortgaged Property by foreclosure or a conveyance in lieu of foreclosure. 30. Asbestos. Mortgagor represents and warrants that, to the best of Mortgagor's knowledge and except as disclosed in the Environmental Report, no asbestos or any substance or material containing asbestos ("Asbestos") is located on the Mortgaged Property. Mortgagor (i) shall not install in the Mortgaged Property, nor permit to be installed in the Mortgaged Property, Asbestos, (ii) shall remove, encapsulate or otherwise control any friable Asbestos promptly upon discovery to the satisfaction of Mortgagee, at Mortgagor's sole expense, (iii) shall in all instances comply with, and ensure compliance by all occupants of the Mortgaged Property with, all applicable federal, state and local laws, ordinances, rules and regulations with respect to Asbestos, and shall keep the Mortgaged Property free and clear of any liens imposed pursuant to such laws, ordinances, rules or regulations. The obligations and liabilities of Mortgagor under this Paragraph 30 shall survive any termination, satisfaction, or assignment of this Mortgage and the exercise by Mortgagee of any of its rights or remedies hereunder, including but not limited 45 to, the acquisition of the Mortgaged Property by foreclosure or a conveyance in lieu of foreclosure. 31. Environmental Monitoring. Mortgagor shall give prompt written notices to Mortgagee: (a) if Mortgagor shall become aware of any Hazardous Substances on or near the Mortgaged Property and/or if Mortgagor shall become aware that the Mortgaged Property is in direct or indirect violation of any Environmental Laws and/or if Mortgagor shall become aware of any condition on or near the Mortgaged Property which shall pose a threat to the health, safety or welfare of humans, except to the extent such Hazardous Substances, direct or indirect violation of any Environmental Laws, or such condition are disclosed in the Environmental Report, (b) of any proceeding or inquiry by any party with respect to the presence of any Hazardous Substance, Asbestos or Mold on, under, from or about the Mortgaged Property, except to the extent such proceeding or inquiry is disclosed in the Environmental Report, (c) of all claims made or threatened by any third party against Mortgagor or the Mortgaged Property relating to any loss or injury resulting from any Hazardous Substance, Asbestos or Mold, except to the extent such claims are disclosed in the Environmental Report, and (d) of Mortgagor's discovery from and after the date hereof of any occurrence or condition on any real property adjoining or in the vicinity of the Mortgaged Property that could cause the Mortgaged Property to be subject to any investigation or cleanup pursuant to any Environmental Law. Mortgagor shall promptly provide to Mortgagee a copy of any written notice, order or other communication received by Mortgagor concerning or in connection with any actual or threatened claim, proceeding, investigation or inquiry involving Hazardous Materials, Asbestos and/or Mold on, under, in or near the Mortgaged Property. Mortgagor shall permit Mortgagee to join and participate in, as a party if it so elects, any legal proceedings or actions initiated with respect to the Mortgaged Property in connection with any Environmental Law or Hazardous Substance or Mold, and Mortgagor shall pay all reasonable attorneys' fees and disbursements incurred by Mortgagee in connection therewith. Upon Mortgagee's request, at any time and from time to time while this Mortgage is in effect, Mortgagor shall provide (i) an inspection or audit of the Mortgaged Property satisfactory in scope to the Mortgagee prepared by a licensed hydrogeologist or licensed environmental engineer approved by Mortgagee indicating the presence or absence of Hazardous Substances on, in or near the Mortgaged Property, and (ii) an inspection or audit of the Mortgaged Property satisfactory in scope to the Mortgagee and prepared by a duly qualified engineering or consulting firm approved by Mortgagee, indicating the presence or absence of Asbestos, Lead-Based Paint ("LBP") or Mold on the Mortgaged Property. The cost and expense of such audit or inspection shall be paid by Mortgagor not more frequently than once every five (5) calendar years after the final sale of the Loan in a Secondary Market Transaction unless an Event of Default has occurred and is continuing or Mortgagee, in its good faith judgment, determines that reasonable cause exists for the performance of an environmental inspection or audit of the Mortgaged Property, then such inspections or audits described in the preceding sentence shall be at Mortgagor's sole expense. If Mortgagor fails to provide any inspection or audit required pursuant to this Paragraph 31 within thirty (30) days after such request, Mortgagee may order same, and Mortgagor hereby grants to Mortgagee and its employees and agents access to the Mortgaged Property and a license to undertake such inspection or audit. The cost of such inspection or audit may be added to the Debt and shall bear interest thereafter until paid at the Default Rate. In the event that any environmental assessment report prepared in connection with such inspection or audit recommends that an operations and maintenance plan be implemented for Asbestos, LBP or any Hazardous Substance, Mortgagor 46 shall cause such operations and maintenance plan to be prepared and implemented at Mortgagor's expense upon request of Mortgagee. In the event that any investigation, site monitoring, containment cleanup, removal, restoration or other work of any kind is reasonably necessary or desirable under an applicable Environmental Law (the "Remedial Work"), Mortgagor shall commence and thereafter diligently prosecute to completion all such Remedial Work within thirty (30) days after written demand by Mortgagee for performance thereof (or such shorter period of time as may be required under applicable law). All Remedial Work shall be performed by contractors approved in advance by Mortgagee, and under the supervision of a consulting engineer approved by Mortgagee. All costs and expenses of such Remedial Work shall be paid by Mortgagor including, without limitation, Mortgagee's reasonable attorneys' fees and disbursements incurred in connection with monitoring or review of such Remedial Work. In the event that any environmental assessment report, inspection or audit reveals the presence of Mold at concentrations exceeding ambient air levels or the presence of Mold on any building materials or surfaces at the Mortgaged Property for which the EPA Mold Guidelines recommends or requires removal thereof by remediation professionals, Mortgagor shall immediately remediate the Mold and perform post-remedial clearance sampling in accordance with the EPA Mold Guidelines. Following abatement of the Mold, Mortgagor shall prepare and implement an Operations and Maintenance Plan for Mold and Moisture acceptable to the Mortgagee and in accordance with the EPA Mold Guidelines. For purposes hereof, "EPA Mold Guidelines" shall mean the guidelines set forth in "Mold Remediation in Schools and Commercial Buildings" prepared by the U.S. Environmental Protection Agency. 32. Handicapped Access. (a) Mortgagor agrees that the Mortgaged Property shall at all times strictly comply to the extent applicable with the requirements of the Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of 1988 (if applicable), all state and local laws and ordinances related to handicapped access and all rules, regulations, and orders issued pursuant thereto including, without limitation, the Americans with Disabilities Act Accessibility Guidelines for Buildings and Facilities (collectively "Access Laws"). Mortgagor agrees to give prompt notice to Mortgagee of the receipt by Mortgagor of any complaints related to violation of any Access Laws and of the commencement of any proceedings or investigations which relate to compliance with applicable Access Laws. (b) Notwithstanding any provisions set forth herein or in any other document regarding Mortgagee's approval of alterations of the Mortgaged Property, Mortgagor shall not alter the Mortgaged Property (including without limitation construction of tenant improvements by Mortgagor or any of its tenants) in any manner which would increase Mortgagor's responsibilities for compliance with the applicable Access Laws without the prior written approval of Mortgagee. Mortgagee may condition any such approval upon receipt of a certificate of compliance with Access Laws from an architect, engineer, or other person acceptable to Mortgagee. 33. Indemnification. In addition to any other indemnifications provided herein or in the other Loan Documents, subject to the terms and provisions of Paragraph 18 of the Note, Mortgagor shall protect, defend, indemnify and save harmless Mortgagee from and against all liabilities, obligations, claims, demands, damages, penalties, causes of action, losses, fines, costs 47 and expenses (including, without limitation, reasonable attorneys' fees and disbursements), imposed upon or incurred by or asserted against Mortgagee by reason of (a) ownership of this Mortgage, the Mortgaged Property or any interest therein or receipt of any Rents; (b) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Mortgaged Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (c) any use, nonuse or condition in, on or about the Mortgaged Property or any part thereof or on adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (d) any failure on the part of Mortgagor to perform or comply with any of the terms of this Mortgage; (e) performance of any labor or services or the furnishing of any materials or other property in respect of the Mortgaged Property or any part thereof; (f) the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release, or threatened release of any Hazardous Substance or Asbestos on, from, or affecting the Mortgaged Property; (g) any personal injury (including wrongful death) or property damage (real or personal) arising out of or related to such Hazardous Substance or Asbestos; (h) any lawsuit brought or threatened, settlement reached, or government order relating to such Hazardous Substance or Asbestos; (i) any violation of the Environmental Laws, which are based upon or in any way related to such Hazardous Substance or Asbestos including, without limitation, the costs and expenses of any Remedial Work, attorney and consultant fees and disbursements, investigation and laboratory fees, court costs, and litigation expenses; (j) any failure of the Mortgaged Property to comply with any Access Laws; (k) any representation or warranty made in the Note, this Mortgage or any of the other Loan Documents being false or misleading in any material respect as of the date such representation or warranty was made; (l) any claim by brokers, finders or similar persons claiming to be entitled to a commission in connection with any Lease or other transaction involving the Mortgaged Property or any part thereof under any legal requirement or any liability asserted against Mortgagee with respect thereto; and (m) the claims of any lessee of any or any portion of the Mortgaged Property or any person acting through or under any lessee or otherwise arising under or as a consequence of any Lease. Any amounts payable to Mortgagee by reason of the application of this paragraph shall be secured by this Mortgage and shall become immediately due and payable and shall bear interest at the Default Rate from the date loss or damage is sustained by Mortgagee until paid. The obligations and liabilities of Mortgagor under this Paragraph 33 shall survive the termination, satisfaction, or assignment of this Mortgage and the exercise by Mortgagee of any of its rights or remedies hereunder, including, but not limited to, the acquisition of the Mortgaged Property by foreclosure or a conveyance in lieu of foreclosure. 34. Notices. Any notice, report, demand or other instrument authorized or required to be given or furnished ("Notices") shall be in writing and shall be given as follows: (a) by hand delivery; (b) by deposit in the United States mail as first class certified mail, return receipt requested, postage paid; (c) by overnight nationwide commercial courier service; or (d) by telecopy transmission (other than for notices of default) with a confirmation copy to be delivered by duplicate notice in accordance with any of clauses (a)-(c) above, in each case, addressed to the party intended to receive the same at the following address(es): 48 Mortgagee: BankAtlantic Commercial Mortgage Capital, LLC 980 N. Federal Highway, Suite 400 Boca Raton, Florida 33432 Attention: Michael Comparato Telecopier: (561) 391-7432 with copies to: Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036 Attention: Thomas O'Connor, Esq. Telecopier: (212) 479-6275 and: Wachovia Bank, National Association 8739 Research Dr., URP4 Charlotte, North Carolina 28288-1075 Attention: David Tucker Telecopier: (704) 593-7735 or any successor servicer of the Loan Mortgagor: FB Distro Distribution Center, LLC c/o Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: Kathleen Lieberman, Esq. Vice President- Corporate Telecopier:(215) 638-6919 Any party may change the address to which any such Notice is to be delivered, by furnishing ten (10) days written notice of such change to the other parties in accordance with the provisions of this Paragraph 40. Notices shall be deemed to have been given on the date they are actually received; provided, that the inability to deliver Notices because of a changed address of which no Notice was given, or rejection or refusal to accept any Notice offered for delivery shall be deemed to be receipt of the Notice as of the date of such inability to deliver or rejection or refusal to accept delivery. Notice for either party may be given by its respective counsel. Additionally, notice from Mortgagee may also be given by the Servicer. 35. Non-Waiver. The failure of Mortgagee to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Mortgage. Any consent or approval by Mortgagee in any single instance shall not be deemed or construed to be Mortgagee's consent or approval in any like matter arising at a subsequent date. 36. No Oral Change. This Mortgage, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Mortgagor or Mortgagee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. 49 37. Liability. If Mortgagor consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. Subject to the provisions hereof requiring Mortgagee's consent to any Transfer, this Mortgage shall be binding upon and inure to the benefit of Mortgagor and Mortgagee and their respective successors and assigns forever. 38. Inapplicable Provisions. If any term, covenant or condition of the Note or this Mortgage is held to be invalid, illegal or unenforceable in any respect, the Note and this Mortgage shall be construed without such provision. 39. Headings, Etc. The headings and captions of various paragraphs of this Mortgage are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. 40. Duplicate Originals. This Mortgage may be executed in any number of duplicate originals and each such duplicate original shall be deemed to be an original. 41. Definitions. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Mortgage may be used interchangeably in singular or plural form and the word "Mortgagor" shall mean "each Mortgagor and any subsequent owner or owners of the Mortgaged Property or any part thereof or any interest therein," the word "Mortgagee" shall mean "Mortgagee and any subsequent holder of the Note," the word "Note" shall mean "the Note and any other evidence of indebtedness secured by this Mortgage," the word "person" shall include an individual, corporation, limited liability company, partnership, trust, unincorporated association, government, governmental authority, and any other entity, the words "Mortgaged Property" shall include any portion of the Mortgaged Property and any interest therein and the words "attorneys' fees" shall include any and all attorneys' fees, paralegal and law clerk fees, including, without limitation, fees at the pre-trial, trial and appellate levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged Property and Collateral and enforcing its rights hereunder. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. 42. Homestead. Mortgagor hereby waives and renounces all homestead and exemption rights provided by the Constitution and the laws of the United States and of any state, in and to the Mortgaged Property as against the collection of the Debt, or any part hereof. 43. Assignments. Mortgagee shall have the right to assign or transfer its rights under this Mortgage without limitation. Any assignee or transferee shall be entitled to all the benefits afforded Mortgagee under this Mortgage. 44. Waiver of Jury Trial. MORTGAGOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND FOREVER WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE NOTE, THIS MORTGAGE, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, 50 COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY MORTGAGOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGOR IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER. 45. Miscellaneous. (a) (i) Mortgagor covenants and agrees that during the Term, unless Mortgagee shall have previously consented in writing, (a) Mortgagor will take no action that would cause it to become an "employee benefit plan" as defined in 29 C.F.R. Section 2510.3-101, or "assets of a governmental plan" subject to regulation under the state statutes, and (b) Mortgagor will not sell, assign or transfer the Mortgaged Property, or any portion thereof or interest therein, to any transferee that does not execute and deliver to Mortgagee its written assumption of the obligations of this covenant. Mortgagor further covenants and agrees to protect, defend, indemnify and hold Mortgagee harmless from and against all loss, cost, damage and expense (including without limitation, all attorneys' fees and excise taxes, costs of correcting any prohibited transaction or obtaining an appropriate exemption) that Mortgagee may incur as a result of Mortgagor's breach of this covenant, subject to the provisions of Paragraph 18 of the Note. This covenant and indemnity shall survive the extinguishment of the lien of this Mortgage by foreclosure or action in lieu thereof; furthermore, the foregoing indemnity shall supersede any limitations on Mortgagor's liability under any of the Loan Documents. (ii) Mortgagor covenants and agrees to deliver to the Mortgagee, on the date hereof and from time to time throughout the term of the Loan, such certifications or other evidence as requested by the Mortgagee in its sole discretion, that (x) Mortgagor is not and does not maintain an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(32) of ERISA; (y) none of the assets of Mortgagor constitute "plan assets" of a governmental plan for purposes of any state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (z) one or more of the following circumstances is true: (A) equity interests in Mortgagor are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (B) less than twenty-five percent (25%) of each outstanding class of equity interests in Mortgagor are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (C) Mortgagor qualifies as an "operating company", a "venture capital operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c), (d) or (e). (iii) Mortgagor will not sell, assign or transfer the Mortgaged Property, or any portion thereof or interest therein, to any transferee that does not execute and deliver to Mortgagee its written assumption of the obligations of this covenant. (iv) Mortgagor further covenants and agrees to protect, defend, indemnify and hold Mortgagee harmless from and against all loss, cost, damage and expense (including without limitation, all attorneys' fees and excise taxes, costs of correcting any 51 prohibited transaction or obtaining an appropriate exemption) that Mortgagee may incur as a result of Mortgagor's breach of this covenant. This covenant and indemnity shall survive the extinguishment of the lien of this Mortgage by foreclosure or action in lieu thereof; furthermore, the foregoing indemnity shall supersede any limitations on Mortgagor's liability under any of the Loan Documents. (b) The Loan Documents contain the entire agreement between Mortgagor and Mortgagee relating to or connected with the Loan. Any other agreements relating to or connected with the Loan not expressly set forth in the Loan Documents are null and void and superseded in their entirety by the provisions of the Loan Documents. (c) Mortgagor represents and warrants to Mortgagee that there has not been committed by Mortgagor or any other person in occupancy of or involved with the operation or use of the Mortgaged Property any act or omission affording the federal government or any state or local government the right of forfeiture as against the Mortgaged Property or any part thereof or any monies paid in performance of Mortgagor's obligations under the Note or under any of the other Loan Documents. Mortgagor hereby covenants and agrees not to commit, permit or suffer to exist any act, omission or circumstance affording such right of forfeiture. In furtherance thereof, subject to the terms of Paragraph 18 of the Note, Mortgagor hereby indemnifies Mortgagee and agrees to defend and hold Mortgagee harmless from and against any loss, damage or injury by reason of the breach of the covenants and agreements or the representations and warranties set forth in this paragraph. Without limiting the generality of the foregoing, the filing of formal charges or the commencement of proceedings against Mortgagor or all or any part of the Mortgaged Property under any federal or state law for which forfeiture of the Mortgaged Property or any part thereof or of any monies paid in performance of Mortgagor's obligations under the Loan Documents is a potential result, shall, at the election of Mortgagee, constitute an Event of Default hereunder without notice or opportunity to cure. (d) Mortgagor acknowledges that, with respect to the Loan, Mortgagor is relying solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Mortgagee or any parent, subsidiary or affiliate of Mortgagee. Mortgagor acknowledges that Mortgagee engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the business of the Mortgagor or its affiliates. Mortgagor acknowledges that it is represented by competent counsel and has consulted counsel before executing the Loan Documents. (e) Mortgagor covenants and agrees to pay Mortgagee upon receipt of written notice from Mortgagee, subject to the terms of Paragraph 18 of the Note, all reasonable costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements and the costs and expenses of any title insurance company, appraisers, engineers or surveyors) incurred by Mortgagee in connection with (i) the preparation, negotiation, execution and delivery of this Mortgage and the other Loan Documents; (ii) Mortgagor's performance of and compliance with Mortgagor's respective agreements and covenants contained in this Mortgage and the other Loan Documents on its part to be performed or complied with after the date hereof; (iii) Mortgagee's performance and compliance with all agreements and conditions contained in this Mortgage and the other Loan Documents on its part to be performed or complied with after the date hereof; (iv) 52 the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Mortgage and the other Loan Documents; (v) the filing and recording fees and expenses, title insurance fees and expenses, and other similar expenses incurred in creating and perfecting the lien in favor of Mortgagee pursuant to this Mortgage and the other Loan Documents.; and (vi) the enforcement by Mortgagee of any right and/or remedies of Mortgagee under this Mortgage or under any of the other Loan Documents. (f) This Mortgage shall be governed by and construed in accordance with the laws of the State in which the Premises are located and the applicable laws of the United States of America. This Mortgage has been negotiated by parties knowledgeable in the matters contained herein, with the advice of counsel, and is to be construed and interpreted in absolute parity, and shall not be construed or interpreted against any party by reason of such party's preparation of the initial or any subsequent draft of the Loan Documents or this Mortgage. (g) This Mortgage may be executed in two or more counterparts, each of which shall constitute an original but all of which together shall constitute but one and the same instrument. 46. Mortgagor's Liability. Anything contained in this Mortgage to the contrary notwithstanding, the liability of Mortgagor for the Debt and for the performance of all other agreements, covenants and obligations contained herein and in the Loan Documents shall be as set forth in the Note. 47. Yield Maintenance Prepayment Option. (a) Provided no Event of Default has occurred and is continuing, at any time after the date that is two and one-half years after the date hereof and before the Optional Prepayment Date (as defined in the Note), Mortgagor may prepay the principal balance of the Note, in whole but not in part, upon the satisfaction in full of all the following conditions: (i) not less than sixty (60) days prior written notice shall be given to Mortgagee specifying a Payment Date (as defined in the Note) on which the prepayment is to be made (the "Tender Date"); (ii) the principal balance under the Note and all accrued and unpaid interest and all other sums due under the Note and under the other Loan Documents up to the Tender Date shall be paid in full; (iii) all out-of-pocket third party costs and expenses incurred by Mortgagee or its agents (not to exceed $40,000 in the aggregate provided no Event of Default exists) in connection with such prepayment, shall be paid in full; and (iv) Mortgagor shall pay to Mortgagee on or prior to the Tender Date a prepayment consideration (the "Prepayment Consideration") in an amount equal to the greater of: (A) one percent (1%) of the principal amount of the Note being prepaid; and (B) the present value of a series of payments each equal to the Payment Differential (as hereinafter defined) and payable on each Payment Date over the remaining original term of the Note until the Anticipated Repayment Date Date on the Anticipated Repayment 53 Date, discounted at the Reinvestment Yield (hereinafter defined) for the number of months remaining from the Tender Date to each such Payment Date until the Anticipated Repayment Date and to the Anticipated Repayment Date. The term "Reinvestment Yield" as used herein shall be equal to the (i) yield on the U.S. Treasury issue (primary issue) with the same maturity date as the Anticipated Repayment Date; or (ii) if no such U.S. Treasury issue is available, then the interpolated yield on the two U.S. Treasury issues (primary issues) with maturity dates (one prior to and one following) that are closest to the Anticipated Repayment Date, with each such yield being based on the bid price for such issue as published in The Wall Street Journal on the date that is fourteen (14) days prior to the Tender Date set forth Mortgagor's notice of repayment (or, if such bid price is not published on that date, the next preceding date on which such bid price is so published) and converted to a monthly compounded nominal yield. The term "Payment Differential" as used herein shall be equal to (x) the Interest Rate minus the Reinvestment Yield, divided by (y) twelve (12) and multiplied by (z) the principal sum outstanding and payable hereunder on such Tender Date after application of the Monthly Debt Service Payment Amount (if any) due and actually paid on such Tender Date, provided that the Payment Differential shall in no event be less than zero. In no event, however, shall Mortgagee be required to reinvest any prepayment proceeds in U.S. Treasury obligations or otherwise. Mortgagee shall notify Mortgagor of the amount, and the basis of determination, of the required Prepayment Consideration, and, provided that Mortgagee shall have in good faith applied the applicable formula described above, Mortgagor shall not have the right to challenge the calculation or the method of calculation set forth in the any such statement in the absence of manifest error. Mortgagor acknowledges and agrees that such Prepayment Consideration represents a reasonable and fair estimate of compensation for the loss that Mortgagee may sustain from the prepayment of the Note. Mortgagor acknowledges and agrees that it has no right to prepay the Note without paying the Prepayment Consideration except as specifically provided herein. If any notice of prepayment is given, the principal balance of the Note and the other sums required under this paragraph shall be due and payable on the Tender Date. Payee shall not be obligated to accept any prepayment of the principal balance of the Note unless (a) the payment is accompanied by the required Prepayment Consideration and all other sums required under this paragraph and (b) the prepayment is made on the applicable Tender Date. 48. Yield Maintenance. In the event of an Unscheduled Loan Prepayment (as defined below) where Mortgagor is required, pursuant to the provisions of Paragraph 3(c)(ii), Paragraph 8(d) or Paragraph 23(j), to pay a Proportionate Yield Maintenance Premium, the following terms shall have the following meanings: (a) "Proportionate Yield Maintenance Premium" shall mean the product of (a) the Prepayment Consideration multiplied by (b) the Prepayment Percentage. (b) "Prepayment Percentage" shall mean, with respect to any Unscheduled Loan Prepayment, the percentage of the then current outstanding principal balance of the Note that is being prepaid. 54 (c) "Unscheduled Loan Prepayment" shall mean any principal prepayment of the Note prior to the Anticipated Repayment Date other than the portion of each Monthly Debt Service Payment Amount (as defined in the Note) which comprises a principal payment. An Unscheduled Loan Prepayment shall include, without limitation, (i) a paydown of the Loan (in whole or in part) prior to the Anticipated Repayment Date as a result of an Insured Casualty pursuant to Paragraph 3(c)(ii) of this Mortgage if an Event of Default, or an event which, with notice and/or the passage of time or both, would constitute an Event of Default, has occurred (but not otherwise), (ii) a paydown of the Loan (in whole or in part) prior to the Anticipated Repayment Date as a result of a Condemnation pursuant to Paragraph 8(d) of this Mortgage if an Event of Default, or an event which, with notice and/or the passage of time or both, would constitute an Event of Default, has occurred (but not otherwise) and (iii) a paydown of the Loan (in whole or in part) in connection with the exercise by Mortgagee of any of its remedies under this Mortgage upon the occurrence of an Event of Default, including, without limitation, a foreclosure sale of the Mortgaged Property. 49. Cash Management Agreement. On or before the date hereof, Mortgagor covenants and agrees at Mortgagor's sole cost and expense to enter into one or more servicing account agreements, lockbox servicing agreements and/or cash management agreements acceptable to Mortgagee among Mortgagor, Manager, (as defined below) Mortgagee and, as applicable, one or more financial institutions (together with any modification, amendment, substitution or replacement thereof, hereinafter collectively referred to as the "Cash Management Agreement"). The Cash Management Agreement shall provide, among other things (i) when and in what manner all Rents and other sums collected from, or arising with respect to, the Mortgaged Property shall be deposited directly into a clearing account established in connection with such Cash Management Agreement, and (ii) the order and priority of the application of such funds. 50. Annual Budgets. For the Charming Fiscal Year commencing in the year 2014 and for each Charming Fiscal Year thereafter and anytime an Initial Charming Rating Drop or Second Charming Rating Drop occurs until the occurrence of a Charming Rating Drop Termination, Mortgagor shall submit to Mortgagee for Mortgagee's written approval an annual budget (an "Annual Budget") not later than sixty (60) days prior to the commencement of such Charming Fiscal Year, in form satisfactory to Mortgagee setting forth in reasonable detail budgeted monthly operating income and monthly operating capital and other expenses for the Mortgaged Property. Each Annual Budget shall contain, among other things, limitations on management fees, third party service fees, and other expenses as Mortgagee may reasonably require. Mortgagee shall have the right to approve such Annual Budget and in the event that Mortgagee objects to the proposed Annual Budget submitted by Mortgagor, Mortgagee shall advise Mortgagor of such objections within fifteen (15) days after receipt thereof (and deliver to Mortgagor a reasonably detailed description of such objections) and Mortgagor shall within ten (10) days after receipt of notice of any such objections revise such Annual Budget and resubmit the same to Mortgagee. Mortgagee shall advise Mortgagor of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Mortgagor a reasonably detailed description of such objections) and Mortgagor shall revise the same in accordance with the process described in this Paragraph 50 until Mortgagee approves an Annual Budget, provided, however, that if Mortgagee shall not advise Mortgagor of its objections to any proposed Annual Budget within the applicable time period set forth in this paragraph, then such 55 proposed Annual Budget shall be deemed approved by Mortgagee. Each such Annual Budget approved by Mortgagee in accordance with terms hereof shall hereinafter be referred to as an "Approved Annual Budget". Until such time that Mortgagee approves a proposed Annual Budget, the most recently Approved Annual Budget shall apply; provided that, such Approved Annual Budget shall be adjusted to reflect actual increases in real estate taxes, insurance premiums and utilities expenses. 51. Sale of Notes and Securitization. (a) Mortgagor acknowledges that Mortgagee and its successors and assigns may (i) sell this Mortgage, the Note and other Loan Documents to one or more investors as a whole loan, (ii) participate the Loan secured by this Mortgage to one or more investors, (iii) deposit this Mortgage, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (iv) otherwise sell the Loan or interest therein to investors (the transactions referred to in clauses (i) through (iv) are hereinafter each referred to as "Secondary Market Transaction" or "Securitization"). Mortgagor shall cooperate with Mortgagee in effecting any such Secondary Market Transaction and shall cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Mortgagor, however, shall not be required to modify any documents evidencing or securing the Loan which would modify (A) the interest rate payable under the Note, (B) the stated maturity of the Note, (C) the amortization of principal of the Note, or (D) any other material economic term of the Loan. Mortgagor shall provide such information, legal opinions and documents relating to Mortgagor, Guarantor, if any, the Mortgaged Property and any tenants of the Improvements as Mortgagee may reasonably request in connection with such Secondary Market Transaction. In addition, Mortgagor shall make available to Mortgagee all information concerning its business and operations that Mortgagee may reasonably request, subject to applicable securities and other laws and regulations to which Mortgagor or any of its affiliates may be subject. Mortgagee shall be permitted to share all such information with the investment banking firms, Rating Agencies, accounting firms, law firms and other third-party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction. It is understood that the information provided by Mortgagor to Mortgagee may ultimately be incorporated into the offering documents for the Secondary Market Transaction and thus various investors may also see some or all of the information. Mortgagee and all of the aforesaid third-party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, Mortgagor and, subject to the terms of Paragraph 18 of the Note, Mortgagor indemnifies Mortgagee as to any losses, claims, damages or liabilities that arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such information or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated in such information or necessary in order to make the statements in such information, or in light of the circumstances under which they were made, not misleading. Mortgagee may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction or otherwise as part of its business development. (b) In the event that the provisions of this Mortgage or any Loan Documents require the receipt of written confirmation from each Rating Agency with respect to the ratings on the Securities, or, in accordance with the terms of the transaction documents relating to a 56 Secondary Market Transaction, such a rating confirmation is required in order for the consent of the Mortgagee to be given, the Mortgagor shall pay all of the costs and expenses of the Mortgagee, Servicer and each Rating Agency in connection therewith, and, if applicable, shall pay any fees imposed by any Rating Agency as a condition to the delivery of such confirmation. 52. Intentionally Omitted Prior to Execution. 53. Intentionally Omitted Prior to Execution. 54. Servicer. At the option of Mortgagee, the Loan may be serviced by a servicer/trustee (the "Servicer") selected by Mortgagee and Mortgagee may delegate all or any portion of its responsibilities under this Mortgage and the other Loan Documents to the Servicer pursuant to a servicing agreement (the "Servicing Agreement") between Mortgagee and Servicer. Mortgagor shall be responsible for any reasonable set-up fees or any other initial costs relating to or arising under the Servicing Agreement. 55. Management of the Mortgaged Property. If Mortgagor enters into any subsequent agreement relating to the operation and management of the Mortgaged Property approved by Mortgagee, Mortgagor shall maintain such agreement in full force and effect and timely perform all of Mortgagor's obligations thereunder and enforce performance of all obligations of the Manager thereunder, and not permit the termination or amendment of such subsequent agreement relating to the operation and management of the Mortgaged Property approved by Mortgagee, unless the prior written consent of Mortgagee is first obtained. Upon the occurrence of an Event of Default, Mortgagor at Mortgagee's request made at any time while such Event of Default continues, shall terminate any such subsequent agreement relating to the operation and management of the Mortgaged Property approved by Mortgagee and replace the manager thereunder with a manager approved by Mortgagee. In addition, if within forty-five (45) days before the end of each calendar quarter Mortgagor does not provide evidence of the achievement of a Debt Service Coverage Ratio of not less than 1.10 (the "Required DSCR") Mortgagor, at Mortgagee's request made at any time after such Required DSCR is not maintained, shall terminate any such subsequent agreement relating to the operation and management of the Mortgaged Property approved by Mortgagee, and replace the manager thereunder with manager approved by Mortgagee or if no management agreement is then in place enter into a management agreement acceptable to Mortgagee with a manager approved by Mortgagee. All references in this Mortgage and in the Loan Documents to "Debt Service Coverage Ratio" shall mean the debt service coverage ratio of the Mortgaged Property calculated by Mortgagee in its sole discretion by dividing the underwritten net cash flow of the Mortgaged Property (as determined by Mortgagee in its sole discretion based upon Mortgagee's then current underwriting standards and practices) by the actual annual principal and interest payable under the Note. PART II SPECIAL STATE PROVISIONS 56. Principles of Construction. In the event of any inconsistencies between the terms and conditions of this Part II and the terms and conditions of this Mortgage, the terms and conditions of this Part II shall control and be binding. 57 57. Maturity Date. The Debt shall mature on or before October 11, 2019, or earlier subject to the terms and conditions of the Note and this Mortgage. 58. Disclosure Law. Mortgagor has complied, and will comply, with the Indiana Responsible Property Transfer Law, Ind. Code 13-25-3-1 et seq. (the "Disclosure Law"), by (A) the completion and delivery to Mortgagee of a disclosure document in the form required by the Disclosure Law (the "Disclosure Document"), (B) the timely recording of the Disclosure Documents in the Office of the Recorder of the County in which the Mortgaged Property is located, and (C) the timely filing of the Disclosure Document in the Office of the Indiana Department of Environmental Management; or Mortgagor has determined after diligent investigation, and Mortgagor hereby certifies to Mortgagee, that the Mortgaged Property does not constitute "property" under the Disclosure Law, and therefore, delivery, filing and recording of a Disclosure Document is not required, because: (a) the Mortgaged Property does not contain (1) or more facilities that are subject to reporting under Section 312 of the Federal Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. 11022); (b) the Mortgaged Property is not the site of one (1) or more underground storage tanks for which notification is required under: (A) 42 U.S.C. 6991(a) and (B) Ind. Code 13-23-1-2(c)(8)(A); or (c) the Mortgaged Property is not listed in the Comprehensive Environmental Response, Compensation and Liability Information System (CERCLIS) in accordance with Section 116 of CERCLA (42 U.S.C. 9616). 59. Environmental Liens. Neither Mortgagor nor, to the best of Mortgagor's knowledge, after diligent inquiry and investigation, any tenant of the Mortgaged Property has received a notice of intention to hold a lien as may be imposed under Ind. Code 13-25-4-1 et seq.. 60. Applicable Law. Notwithstanding anything in this Mortgage or the Loan Documents to the contrary, Mortgagee shall be entitled to all rights and remedies that a mortgagee would have under Indiana law or in equity including, but not by way of limitation, Ind. Code 32-30-10, Mortgage Foreclosure Actions, Ind. Code 32-30-5, Receiverships, and the Revised Uniform Commercial Code Ind. Code 26-1-9.1 (the "UCC") (such laws, as amended, modified and/or recodified from time to time are collectively referred to herein collectively as, the "Applicable Law"). In the event of any inconsistency between the provisions of this Mortgage and the provisions of Applicable Law, the provisions of Applicable Law shall take precedence over the provisions of this Mortgage, but shall not invalidate or render unenforceable any other provisions of this Mortgage that can be construed in a manner consistent with Applicable Law. Conversely, if any provision of this Mortgage shall grant to Mortgagee any rights or remedies upon default of the Mortgagor which are more limited than the rights or remedies that would otherwise be vested in the Mortgage under Applicable Law in the absence of said provision, Mortgagee shall be vested with the rights and remedies granted under Applicable Law. Notwithstanding any provision in this Mortgage relating to a power of sale or other provision for sale of the Mortgaged Property upon default other than under a judicial 58 proceeding, any sale of the Mortgaged Property pursuant to this Mortgage will be made through a judicial proceeding, except as otherwise may be permitted under the UCC. 61. Unenforceable Remedies. To the extent Applicable Law limits: (i) the availability of the exercise of any of the remedies set forth in the Mortgage, including without limitation the remedies involving a power of sale on the part of Mortgagee and the right of Mortgagee to exercise self-help in connection with the enforcement of the terms of this Mortgage, or (ii) the enforcement of waivers and indemnities made by Mortgagor, such remedies, waivers, or indemnities shall be exercisable or enforceable, any provisions in this Mortgage to the contrary notwithstanding, if, and to the extent, permitted by the laws in force at the time of the exercise of such remedies or the enforcement of such waivers or indemnities without regard to whether such remedies, waivers or indemnities were enforceable at the time of the execution and delivery of this Mortgage. 62. No Waiver of Right to Seek Deficiency. Anything contained in Ind. Code. 32-29-7-5 to the contrary notwithstanding, no waiver made by Mortgagor in this Mortgage or in any of the other terms and provisions of the Loan Documents shall constitute the consideration for or be deemed to be a waiver or release by Mortgagee or any judgment holder of the Debt secured by the Mortgage of the right to seek a deficiency judgment against the Mortgagor or any other person or entity who may be personally liable for the Debt hereby secured, which right to seek a deficiency judgment is hereby reserved, preserved and retained by Mortgagee for its own behalf and its successors and assigns, subject to the provisions of Paragraph 18 of the Note and Paragraph 46 of this Mortgage. 63. Future Advances. Notwithstanding anything contained in this Mortgage or the Loan Documents to the contrary, this Mortgage shall secure: (i) a maximum principal amount of $26,000,000.00, exclusive of any items described in (ii) below, including any additional advances made from time to time after the date hereof pursuant to the Loan Documents whether made as part of the Debt secured hereby or made at the option of the Mortgagee, (ii) all other amounts payable by Mortgagor, or advanced by Mortgagee for the account, or on behalf, of Mortgagor, pursuant to the Loan Documents, including amounts advanced with respect to the Mortgaged Property for the payment of taxes, assessments, insurance premiums and other costs and impositions incurred for the protection of the Mortgaged Property to the same extent as if the future Debt and advances were made on the date of execution of the Mortgage; and (iii) future modifications, extensions, and renewals of any Loan Documents or Debt secured by this Mortgage. Pursuant to Ind. Code 32-29-1-10, the lien of this Mortgage with respect to any future advances, modifications, extensions, and renewals referred to herein and made from time to time shall have the same priority to which this Mortgage otherwise would be entitled as of the date this Mortgage is executed and recorded without regard to the fact that any such future advance, modification, extension, or renewal may occur after the Mortgage is executed. Such maximum principal amount is stated herein for the purpose of any applicable future advance laws and is not deemed a commitment by Mortgagee to make any future advances. 64. Reimbursable Costs. Notwithstanding anything to the contrary contained in this Mortgage, but subject to the provisions of Paragraph 18 of the Note and Paragraph 46 of this Mortgage, all costs incurred by Mortgagee pursuant to this Mortgage, to the extent reimbursable under Applicable Law, whether or not enumerated in this Mortgage, shall be added to the Debt 59 secured by this Mortgage or by the judgment of foreclosure, which Reimbursable Costs may include, without limitation, all costs and expenses which may be paid or incurred by or on behalf of Mortgagee in any proceeding to enforce this Mortgage or foreclose upon the Mortgaged Property, all expenses of any environmental site assessments, environmental audits, environmental remediation costs, appraisals, surveys, engineering studies, wetlands delineations, flood plain studies, and any other similar testing or investigation deemed necessary or advisable by Mortgagee incurred in preparation for, contemplation of or in connection with the enforcement of this Mortgage and/or the collection of the debt and for attorneys' fees, appraiser's fees, receiver's costs and expenses, insurance, taxes, outlays for documentary and expert evidence, expenses and costs for preservation of the Mortgages Property, stenographer's charges, publication costs and costs of procuring all abstracts of title, title searches and examination, guarantee policies, and similar data and assurances with respect to title as may deem to be reasonably necessary either to prosecute such suit or to evidence to bidders at any foreclosure sale which may be had pursuant to such decree the true condition of the title to or value of the Mortgaged Property or for any other reasonable purpose. The amount of any such Reimbursable Costs which may be paid or incurred after the decree or judgment for sale is entered may be estimated and the amount of such estimate may be allowed and included as additional Debt secured hereby in the foreclosure judgment or decree for or sale. The phrases "attorneys fees", "legal fees" and counsel fees" when used herein or in the other Loan Documents shall include any and all attorneys', paralegals' and law clerks' fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged Property, or any part thereof and enforcing its rights hereunder. 65. UCC Remedies. It is the intention of the parties hereto that this Mortgage shall constitute a security agreement within the meaning of Applicable Law. If an Event of Default shall occur under this Mortgage, then in addition to having any other right or remedy available at law or in equity, Mortgagee shall have the option pursuant to Applicable Law of either (i) proceeding under Applicable Law and exercising such rights and remedies as may be provided to a secured party by Applicable Law with respect to all or any portion of the Collateral that is not real property (including, without limitation, taking possession of and selling such property) or (ii) treating such Collateral as real property and proceeding with respect to both the real and personal property constituting the Mortgaged Property in accordance with Mortgagee's rights, powers and remedies with respect to the real property (in which event the default provisions of the UCC shall not apply). 66. Security Interest - Rents. Without limiting the scope of the assignment of Rents contained in this Mortgage, the assignment of Rents set forth herein shall constitute an assignment of rents as set forth in Ind. Code 32-21-4-2 and thereby creates, and Mortgagor hereby grants to Mortgagee, a security interest in the Rents that will be perfected upon the recording of this Mortgage. 67. Consent to Receiver. Subject to the terms and provisions of this Mortgage, Mortgagor hereby irrevocably consents to the appointment of a receiver, which receiver, when duly appointed, shall have all of the powers and duties of receivers pursuant to Applicable Law. 60 68. Release of Mortgage. Upon payment and performance of the Debt secured hereby, or otherwise in accordance with the provisions of the Note, Mortgagee, upon written request, and at the expense, of Mortgagor, will execute and deliver such proper instruments of release and satisfaction as may be reasonably be requested to evidence such release, and any such instrument, when duly executed by Mortgagee and duly recorded in the place where this Mortgage is recorded, shall conclusively evidence the release of this Mortgage; provided, however, any of the terms and provisions of the Mortgage that are intended to survive, shall nevertheless survive the release or satisfaction of the Mortgage whether voluntarily granted by Mortgagee, as a result of a judgment upon judicial foreclosure of this Mortgage or in the event a deed in lieu of foreclosure is granted by Mortgagor to Mortgagee. [SIGNATURE PAGE FOLLOWS] 61 IN WITNESS WHEREOF, Mortgagor has executed this Mortgage, Assignment of Leases and Rents and Security Agreement the day and year first above written. MORTGAGOR: FB DISTRO DISTRIBUTION CENTER, LLC, a Delaware limited liability company By: FB Distro, Inc., an Indiana corporation, its Sole Member By:_________________________ Name: Title: ACKNOWLEDGMENT COMMONWEALTH OF PENNSYLVANIA: COUNTY OF ________________________: The foregoing instrument was acknowledged before me this ___ day of October, 2004, by _________________________, who acknowledged himself/herself to be the _____________ of FB Distro, Inc., an Indiana corporation, the sole member of FB Distro Distribution Center, LLC, a Delaware limited liability company, and that he/she as such officer, being authorized to do so, executed the foregoing instrument, and acknowledged that he/she executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand and official seal. ___________________________ Notary Public My Commission Expires: THIS INSTRUMENT WAS PREPARED BY: Thomas D. O'Connor, Esq. Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036 EXHIBIT A LEGAL DESCRIPTION EX-10 3 exh1010.txt EXHIBIT 10.10 EXHIBIT 10.10 MORTGAGE NOTE $13,000,000.00 October 6, 2004 For value received, FB DISTRO DISTRIBUTION CENTER, LLC, a Delaware limited liability company, having its principal place of business at 1901 State Road 240 East, Greencastle, Indiana 46135-7825 (hereinafter referred to as "Maker"), promises to pay to the order of BANKATLANTIC COMMERCIAL MORTGAGE CAPITAL, LLC,, a Florida limited liability company, at its principal place of business at 980 N. Federal Highway, Suite 400, Boca Raton, Florida 33432 (hereinafter referred to as "Payee"), or at such place as the holder hereof may from time to time designate in writing, the principal sum of Thirteen Million and no/100 Dollars ($13,000,000.00), in lawful money of the United States of America, with interest thereon to be computed on the unpaid principal balance from time to time outstanding at the Applicable Interest Rate (as hereinafter defined), and to be paid in installments as follows: A. A payment of interest only on the date the Loan (as hereinafter defined) is funded to Maker, representing interest to be accrued from the date of such funding through and including October 10, 2004; B. A constant payment of $110,193.63 (such amount hereinafter the "Monthly Debt Service Payment Amount"), on the eleventh day of November, 2004 and on the eleventh day of each calendar month thereafter up to and including the eleventh day of September, 2019 (each, a "Payment Date"); each of such payments to be applied (a) to the payment of interest computed at the Initial Interest Rate (as hereinafter defined); and (b) the balance applied toward the reduction of the principal sum; and the balance of said principal sum together with all accrued and unpaid interest thereon shall be due and payable on the eleventh day of October, 2019 (the "Maturity Date");. Payee shall have the right from time to time, in its sole discretion, upon not less than thirty (30) days prior written notice to Maker, to change the Payment Date to a different calendar day each month which is not more than five (5) days earlier nor more than five (5) days later than the eleventh day of each calendar month. Interest on the principal sum of this Note shall be calculated on the basis of the actual number of days elapsed in the related interest accrual period over a three hundred sixty (360) day year. The first interest accrual period hereunder shall commence on and include the date that principal is advanced hereunder and shall end on and include the next tenth (10th) day of a calendar month; unless principal is advanced on the tenth (10th) day of a month, in which case the first interest accrual period shall consist of only such tenth (10th) day. Each interest accrual period thereafter shall commence on the eleventh (11th) day of each calendar month during the term of this Note and shall end on and include the tenth (10th) day of the next occurring calendar month; provided, however, that if Payee shall have elected to change the Payment Date as aforesaid, Payee shall have the option, but not the obligation, to adjust the interest accrual period correspondingly. All amounts due under this Note shall be payable without setoff, counterclaim or any other deduction whatsoever. 1. The term "Applicable Interest Rate" as used in this Note shall mean (a) from the date of this Note through but not including the Anticipated Repayment Date (as hereinafter defined), a rate of six and seven hundredths percent (6.07%) per annum (the "Initial Interest Rate"), and (b) from and after the Anticipated Repayment Date through and including the Maturity Date or earlier date on which this Note is paid in full, a rate per annum equal to (i) the greater of (A) the Initial Interest Rate plus five (5) percentage points or (B) the Treasury Rate (as hereinafter defined) plus five (5) percentage points or (ii) for so long as the Note is an asset of the trust, partnership, corporation or other entity formed in connection with a Secondary Market Transaction (as defined in the Security Instrument (as defined below)) pursuant to which securities rated by any Rating Agency (as defined in the Security Instrument) have been issued, the greater of (A) the Initial Interest Rate plus two (2) percentage points or (B) the Treasury Rate plus two (2) percentage points (the "Revised Interest Rate"). For purposes of this Note, (A) the term "Anticipated Repayment Date" shall mean, October 11, 2014, and (B) the term "Treasury Rate" shall mean, as of the Anticipated Repayment Date, the yield, calculated by linear interpolation (rounded to the nearest one-thousandth of one percent (i.e., 0.001%)) of the yields of noncallable United States Treasury obligations with terms (one longer and one shorter) most nearly approximating the period from the Anticipated Repayment Date to the Maturity Date, as determined by Payee on the basis of Federal Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S. Governmental Security/Treasury Constant Maturities, or other recognized source of financial market information selected by Payee. 2. This Note is evidence of that certain loan made by Payee to Maker contemporaneously herewith (the "Loan"). This Note is secured by (a) a Mortgage, Assignment of Leases and Rents and Security Agreement of even date herewith given by Maker for the use and benefit of Payee covering the estate of Maker in certain premises as more particularly described therein (the "Security Instrument"), (b) an Assignment of Leases and Rents of even date herewith executed by Maker in favor of Payee (the "Assignment of Leases"), (c) a Cash Management Agreement of even date herewith by and between Maker and Payee (the "Cash Management Agreement") and (d) the other Loan Documents (as hereinafter defined). The term "Loan Documents" as used in this Note relates collectively to this Note, the Security Instrument, the Assignment of Leases, the Cash Management Agreement and any and all other documents securing, evidencing, or guaranteeing all or any portion of the Loan or otherwise executed and/or delivered in connection with this Note and the Loan. 3. If any sum payable under this Note is not paid on the date on which it is due, Maker shall pay to Payee upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law in order to defray a portion of the expenses incurred by Payee in handling and processing such delinquent payment and to compensate Payee for the loss of the use of such delinquent payment (provided, however, that with respect to the payment due on the Maturity Date, the aforesaid 5% sum shall be paid if the payment due on the Maturity Date is not paid within 20 days after the Maturity Date (provided further, however, that the foregoing shall not in any way constitute any type of extension of the Maturity Date, it being understood and agreed that, failure to make all payments due on the Maturity Date shall constitute an Event of Default)). If the day when any payment required under this Note is due is not a Business Day (as hereinafter defined), then payment shall be due on the first Business Day thereafter. The term "Business Day" shall mean a day other than (i) a Saturday or Sunday, or (ii) any day on which banking and savings and loan institutions 2 in New York are authorized or obligated by law or executive order to be closed. 4. The whole of the principal sum of this Note, together with all interest accrued and unpaid thereon and all other sums due under the Loan Documents (all such sums hereinafter collectively referred to as the "Debt"), shall without notice become immediately due and payable at the option of Payee if any payment required in this Note is not paid on the date on which it is due or upon the happening of any other Event of Default (as defined in the Security Instrument). In the event that it should become necessary to employ counsel to collect or enforce the Debt or to protect or foreclose the security therefor, Maker also shall pay on demand all costs of collection incurred by Payee, including reasonable attorneys' fees and costs reasonably incurred for the services of counsel whether or not suit be brought. 5. Maker does hereby agree that upon the occurrence of an Event of Default (including upon the failure of Maker to pay the Debt in full on the Maturity Date), Payee shall be entitled to receive and Maker shall pay interest on the entire unpaid principal sum and any other amounts due at a rate (the "Default Rate") equal to the lesser of (a) the maximum rate permitted by applicable law, or (b) five percent (5%) above the Applicable Interest Rate. The Default Rate shall be computed from the occurrence of the Event of Default until the date Maker cures the Event of Default and such cure is accepted by Payee. This charge shall be added to the Debt and shall be secured by the Security Instrument. This paragraph, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Debt, nor as a waiver of any other right or remedy accruing to Payee by reason of the occurrence of any Event of Default. 6. This Note may not be prepaid prior to the Anticipated Repayment Date; provided, however, Maker shall have the right on any scheduled payment date after the period set forth in Section 47(a) of the Security Instrument, to prepay the entire principal balance of the this Note and any other amounts outstanding in accordance with the terms and provisions set forth in Paragraph 47 of the Security Instrument (the "Yield Maintenance Prepayment Option"). In addition, Maker shall have the privilege to prepay the entire principal balance of this Note and any other amounts outstanding on any scheduled payment date after the date that is three (3) months immediately preceding the Anticipated Repayment Date (hereinafter, the "Optional Prepayment Date") upon thirty (30) days' prior written notice to Payee, without payment of the Yield Maintenance Premium (as defined in the Security Instrument) or any other premium or penalty so long as no Event of Default has occurred and is continuing. In addition, on the Anticipated Repayment Date or on any scheduled Payment Date thereafter, Maker may, at its option and upon thirty (30) days prior written notice from Maker to Payee, prepay in whole or in part, in $100,000 increments only, the outstanding principal balance of this Note and any other amounts outstanding without payment of the Prepayment Consideration or any other premium or penalty. If prior to the Optional Prepayment Date and while any Event of Default exists, Maker shall tender payment of an amount sufficient to satisfy the Debt at any time prior to a sale of the Mortgaged Property, either through foreclosure or the exercise of the other remedies available to Payee under the Security Instrument, such tender by Maker shall be deemed to be voluntary and Maker shall pay, in addition to the Debt, the Prepayment Consideration, if any, that would be required under the Yield Maintenance Prepayment Option. 7. In the event that Maker does not prepay the entire principal balance of this Note and any other amounts outstanding hereunder and under the other Loan Documents on the 3 Anticipated Repayment Date or prior to the Anticipated Repayment Date as specifically permitted in Paragraph 6 above, then commencing on the Anticipated Repayment Date and continuing until the Debt has been repaid in full, Interest shall accrue on the unpaid principal balance from time to time outstanding on this Note at the Revised Interest Rate and interest accrued at the Revised Interest Rate and not paid shall be deferred and added to the Debt and shall earn interest at the Revised Interest Rate to the extent permitted by applicable law (such accrued interest is hereinafter defined as "Accrued Interest"). All of the Debt, including any Accrued Interest, shall be due and payable on the Maturity Date. 8. It is expressly stipulated and agreed to be the intent of Maker and Payee at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Payee to contract for, charge, take, reserve, or receive a greater amount of interest than under state law) and that this paragraph shall control every other covenant and agreement in this Note and the other Loan Documents. If the applicable law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under this Note or under any of the other Loan Documents, or contracted for, charged, taken, reserved, or received with respect to the Debt, or if Payee's exercise of the option to accelerate the Maturity Date, or if any prepayment or the exercise of any Yield Maintenance Prepayment Option by Maker results in Maker having paid any interest in excess of that permitted by applicable law, then it is Payee's express intent that all excess amounts theretofore collected by Payee shall be credited on the principal balance of this Note and all other Debt and the provisions of this Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder. All sums paid or agreed to be paid to Payee for the use, forbearance, or detention of the Debt shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Debt until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Payee to accelerate the maturity of any interest that has not accrued at the time of any acceleration of the Debt hereunder or to collect unearned interest at the time of any such acceleration. 9. This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Maker or Payee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Whenever used, the singular number shall include the plural, the plural the singular, and the words "Payee" and "Maker" shall include their respective successors, assigns, heirs, executors and administrators. If Maker consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. 10. Maker and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest, notice of protest, notice of nonpayment, notice of intent to accelerate the maturity hereof and of acceleration. No release of any security for the Debt or any person liable 4 for payment of the Debt, no extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of the Loan Documents made by agreement between Payee and any other person or party shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Maker, and any other person or party who may become liable under the Loan Documents for the payment of all or any part of the Debt. 11. Intentionally Omitted Prior to Execution. 12. Maker (and the undersigned representative of Maker, if any) represents that Maker has full power, authority and legal right to execute, deliver and perform its obligations pursuant to this Note, the Security Instrument and the other Loan Documents and that this Note, the Security Instrument and the other Loan Documents constitute valid and binding obligations of Maker. 13. All notices or other communications required or permitted to be given pursuant hereto shall be given in the manner specified in the Security Instrument directed to the parties at their respective addresses as provided therein. 14. MAKER (BY ITS ACCEPTANCE OF THIS NOTE) HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY MAKER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MAKER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY MAKER. 15. This Note shall be governed by and construed in accordance with the laws of the State in which the Mortgaged Property is located and the applicable laws of the United States of America. 16. Any capitalized term used in this Note and not defined herein shall have the meaning given to such term in the Security Instrument. 17. This Note may be executed in one or more counterparts, each of which shall be deemed to constitute an original, but all of which, when taken together, shall constitute one and the same instrument. 18. This Note is fully recourse to Maker; provided, however, the liability of Maker pursuant to this Note and all other Loan Documents for all amounts due hereunder or thereunder (other than with respect to principal and interest payable under this Note for which there shall be no limitation) shall not exceed 25% of the then outstanding principal balance of the Loan less: (a) any payments made by Maker to Payee pursuant to the Loan Documents (not 5 including any payments hereunder applied by Payee to principal or interest hereunder), and (b) payments by Charming Shoppes, Inc. ("Charming") to Payee pursuant to (i) that certain Guaranty, dated as of the date hereof, given by Charming to Holder (not including any such payments applied by Payee to any principal or interest hereunder); and (ii) that certain Hazardous Substances Indemnity Agreement, dated as of the date hereof, given by Maker and Charming to Payee. [signature page follows] 6 Maker has duly executed this Note the day and year first above written. MAKER: FB DISTRO DISTRIBUTION CENTER, LLC, a Delaware limited liability company By: FB Distro, Inc., an Indiana corporation, its Sole Member By:___________________________ Name: Title: 7 ACKNOWLEDGMENT COMMONWEALTH OF PENNSYLVANIA: COUNTY OF ________________________: The foregoing instrument was acknowledged before me this ___ day of October, 2004, by _________________________, who acknowledged himself/herself to be the _____________ of FB Distro, Inc., an Indiana corporation, the sole member of FB Distro Distribution Center, LLC, a Delaware limited liability company, and that he/she as such officer, being authorized to do so, executed the foregoing instrument, and acknowledged that he/she executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand and official seal. __________________________ Notary Public My Commission Expires: EX-10 4 exh1011.txt EXHIBIT 10.11 EXHIBIT 10.11 GUARANTY This GUARANTY ("Guaranty") is executed as of October 6, 2004 by CHARMING SHOPPES, INC., a Pennsylvania corporation, whose address is 450 Winks Lane, Bensalem, Pennsylvania 19020 ("Guarantor"), for the benefit of BANKATLANTIC COMMERCIAL MORTGAGE CAPITAL, LLC a Florida limited liability company, having a place of business at 980 N. Federal Highway, Suite 400, Boca Raton, Florida 33432 ("Lender"). W I T N E S S E T H: WHEREAS, pursuant to that certain Mortgage Note, dated of even date herewith, executed by FB DISTRO DISTRIBUTION CENTER, LLC, a Delaware limited liability company ("Borrower"), and payable to the order of Lender in the original principal amount of $13,000,000.00 (together with all renewals, modifications, increases and extensions thereof, the "Note"), Borrower has become indebted, and may from time to time be further indebted, to Lender with respect to a loan ("Loan") which is secured by the lien and security interest of that certain Mortgage, Assignment of Leases and Rents, and Security Agreement of even date herewith (the "Security Instrument"), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note and Security Instrument, the "Loan Documents"); and WHEREAS, Lender is not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined); and WHEREAS, Guarantor and Borrower are affiliates of each other, and Guarantor will receive a direct and material benefit from the Loan made to the Borrower. Lender is willing to make the Loan only if Guarantor agrees to execute, deliver and be bound by this Guaranty NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower, and to extend such additional credit as Lender may from time to time agree to extend under the Loan Documents, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows: ARTICLE I NATURE AND SCOPE OF GUARANTY 1.1 Guaranty of Obligation. Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor. 1.2 Definition of Guaranteed Obligations. Subject to Section 5.15 herein, as used herein, the term "Guaranteed Obligations" means the obligations or liabilities of Borrower to Lender to pay the principal sum of the Note, together with all interest accrued and unpaid thereon and all other sums due under the Loan Documents (the "Debt") as and when due (including, without limitation, the obligations or liabilities of Borrower to pay and perform all obligations as set forth in Paragraph 2(d) of the Security Instrument). Guarantor agrees that partial payments of the Debt shall not relieve any of Guarantor's obligations under this Guaranty except with respect to the last portion of the Debt equal to the remaining balance of the Guaranteed Obligations, and until all of the Guaranteed Obligations are paid in full, Lender may enforce this Guaranty with respect to any portion of the Debt which remains unpaid. 1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor and after (if Guarantor is a natural person) Guarantor's death (in which event this Guaranty shall be binding upon Guarantor's estate and Guarantor's legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note. 1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 1.5 Payment By Guarantor. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender's address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof. 1.6 No Duty To Pursue Others. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (ii) enforce Lender's rights against any collateral which shall ever have been given to secure the Loan, (iii) enforce Lender's rights against any other guarantors of the Guaranteed Obligations, (iv) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (v) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (vi) resort to any other means of obtaining 2 payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations. 1.7 Waivers. Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Note, the Security Instrument or of any other Loan Documents, (iv) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower's execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Property, (v) the occurrence of any breach by Borrower or an Event of Default, (vi) Lender's transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest, proof of non-payment or default by Borrower, or (ix) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed. 1.8 Payment of Expenses. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all costs and expenses (including court costs and attorneys' fees) incurred by Lender in the enforcement hereof or the preservation of Lender's rights hereunder. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations. 1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, any or all of Borrower's obligations to Lender are released or discharged or, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, none of Guarantor's obligations to Lender shall be released or discharged thereby, and any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and Guarantor that Guarantor's obligations hereunder shall not be discharged except by Guarantor's performance of such obligations and then only to the extent of such performance. 1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise. 1.11 Borrower. The term "Borrower" as used herein shall include any new or successor corporation, association, partnership (general or limited), joint venture, trust or other 3 individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower. ARTICLE II EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR'S OBLIGATIONS Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor's obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following: 2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Security Instrument, the other Loan Documents, or any other document, instrument, contract or understanding between Borrower and Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action. 2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor. 2.3 Condition of Borrower or Guarantor. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor. 2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (i) the Guaranteed Obligations, or any part thereof, exceeds the amount permitted by law, (ii) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (iii) the officers or representatives executing the Note, the Security Instrument or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable usury laws, (v) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (vii) the Note, the Security Instrument or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that Guarantor shall remain liable hereon regardless of 4 whether Borrower or any other person be found not liable on the Guaranteed Obligations or any part thereof for any reason. 2.5 Release or Discharge of Obligors. Any full or partial release or discharge of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, whether voluntarily or involuntarily, as a result of bankruptcy or insolvency proceedings or otherwise, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations. 2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations. 2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations. 2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (ii) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (iii) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations. 2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations. 2.10 Offset. The Note, the Guaranteed Obligations and the liabilities and obligations of the Guarantor to Lender hereunder shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Borrower against Lender, or any other party, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise. 5 2.11 Merger. The reorganization, merger or consolidation of Borrower into or with any other corporation or entity. 2.12 Preference. Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else. 2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations. ARTICLE III REPRESENTATIONS AND WARRANTIES To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows: 3.1 Benefit. Guarantor is an affiliate of Borrower, is the owner of a direct or indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations. 3.2 Familiarity and Reliance. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty. 3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce the Guarantor to execute this Guaranty. 3.4 Guarantor's Financial Condition. As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities. 3.5 Legality. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would 6 constitute a default) under, or result in the breach of, any indenture, mortgage, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights. 3.6 Survival. All representations and warranties made by Guarantor herein shall survive the execution hereof. ARTICLE IV SUBORDINATION OF CERTAIN INDEBTEDNESS 4.1 Subordination of All Guarantor Claims. As used herein, the term "Guarantor Claims" shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor's payment of all or a portion of the Guaranteed Obligations. All Guarantor Claims are and shall remain subordinate to the Loan. 4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit upon the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims. 4.3 Payments Held in Trust. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender. 7 4.4 Subordination. Guarantor agrees that any claims, liens, security interests, judgment liens, charges or other encumbrances against the Borrower and/or Borrower's assets with respect to the Guarantor Claims shall be and remain inferior and subordinate to any claims, liens, security interests, judgment liens, charges or other encumbrances of Lender against Borrower and/or Borrower's assets, regardless of whether any of the foregoing in favor of Guarantor or Lender presently exist or are hereafter created or attached. Without the prior written consent of Lender, Guarantor shall not (i) exercise or enforce any creditor's right it may have against Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or insolvency proceeding) to enforce any claims, liens, mortgage, deeds of trust, security interests, collateral rights, judgments or other encumbrances against Borrower and/or the assets of Borrower held by Guarantor. ARTICLE V MISCELLANEOUS 5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. 5.2 Notices. Any notice, report, demand or other instrument authorized or required to be given or furnished ("Notices") shall be in writing and shall be given as follows: (a) by hand delivery; (b) by deposit in the United States mail as first class certified mail, return receipt requested, postage paid; (c) by overnight nationwide commercial courier service; or (d) by telecopy transmission (other than for notices of default) with a confirmation copy to be delivered by duplicate notice in accordance with any of clauses (a)-(c) above, in each case, addressed to the party intended to receive the same at the following address(es): Lender: BankAtlantic Commercial Mortgage Capital, LLC 980 N. Federal Highway, Suite 400 Boca Raton, Florida 33432 Attention: Michael Comparato Telecopier: (212) 713-4391 8 with copies to: Kronish Lieb Weiner & Hellman LLP 1114 Avenue of the Americas New York, New York 10036 Attention: Thomas O'Connor, Esq. Telecopier: (212) 479-6275 Borrower: FB Distro Distribution Center, LLC c/o Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: Kathleen Lieberman, Esq. Vice President- Corporate Telecopier:(215) 638-6919 Guarantor: Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: Kathleen Lieberman, Esq. Vice President- Corporate Telecopier:(215) 638-6919 Any party may change the address to which any such Notice is to be delivered, by furnishing ten (10) days written notice of such change to the other parties in accordance with the provisions of this Paragraph. Notices shall be deemed to have been given on the date they are actually received; provided, that the inability to deliver Notice because of a changed address of which no Notice was given, or rejection or refusal to accept any Notice offered for delivery, shall be deemed to be receipt of the Notice as of the date of such inability to deliver or rejection or refusal to accept delivery. Notice for either party may be given by its respective counsel. 5.3 Governing Law; Jurisdiction. This Guaranty shall be governed by and construed in accordance with the laws of the State in which the Property is located, except to the extent that the applicability of any of such laws may now or hereafter be preempted by Federal law, in which case such Federal law shall so govern and be controlling. GUARANTOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN WHICH THE PROPERTY IS LOCATED, OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS GUARANTY, (B) AGREE THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION OVER THE COUNTY IN WHICH THE PROPERTY IS LOCATED, (C) SUBMIT TO THE JURISDICTION OF SUCH COURTS, AND, (D) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREE THAT GUARANTOR WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO BRING ANY ACTION, SUIT OR 9 PROCEEDING IN ANY OTHER FORUM HAVING JURISDICTION). GUARANTOR FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO GUARANTOR AT THE ADDRESS FOR NOTICES DESCRIBED IN SECTION 5.2 HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW). 5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein. 5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced. 5.6 Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several. 5.7 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty. 5.8 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein. 5.9 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages. 10 5.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. 5.11 Other Defined Terms. Any capitalized term utilized herein shall have the meaning as specified in the Security Instrument, unless such term is otherwise specifically defined herein. 5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER. 5.13 Waiver of Right To Trial By Jury. GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE SECURITY INSTRUMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR. 5.14 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by the Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor's obligations 11 hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time. 5.15 Limitation on Liability. Notwithstanding anything contained in this Guaranty to the contrary, the total cumulative liability of Guarantor pursuant to this Guaranty and that certain Hazardous Substances Indemnity Agreement, dated as of the date hereof, given by Borrower and Guarantor for the benefit of Lender (the "Environmental Indemnity") (other than for all principal due under the Loan Documents for which there shall be no limitation) shall not exceed 25% of the then outstanding principal balance of the Debt less: (a) any payments previously made by Borrower to Lender pursuant to the Loan Documents (not including any such payments applied by Lender to principal under the Note), and (b) any payments by Guarantor to Lender pursuant to the Environmental Indemnity. (signature page follows) 12 EXECUTED as of the day and year first above written. GUARANTOR: CHARMING SHOPPES, INC., a Pennsylvania corporation By:___________________________ Name: Title: ACKNOWLEDGMENT COMMONWEALTH OF PENNSYLVANIA: COUNTY OF ________________________: The foregoing instrument was acknowledged before me this ___ day of October, 2004, by _________________________, who acknowledged himself/herself to be the _____________ of Charming Shoppes, Inc., a Pennsylvania corporation, and that he/she as such officer, being authorized to do so, executed the foregoing instrument, and acknowledged that he/she executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand and official seal. __________________________ Notary Public My Commission Expires: EX-10 5 exh1012.txt EXHIBIT 10.12 EXHIBIT 10.12 HAZARDOUS SUBSTANCES INDEMNITY AGREEMENT THIS HAZARDOUS SUBSTANCES INDEMNITY AGREEMENT (this "Agreement"), made as of the 6th day of October, 2004, is by FB DISTRO DISTRIBUTION CENTER, LLC, a Delaware limited liability company ("Borrower"), whose address is c/o 1901 State Road 240 East, Greencastle, Indiana 46135-7825 and by CHARMING SHOPPES, INC., a Pennsylvania corporation ("Charming"), whose address is 450 Winks Lane, Bensalem, Pennsylvania 19020, jointly and severally (Borrower and Charming being referred to herein collectively as "Indemnitors" and individually as "Indemnitor"), in favor of BANKATLANTIC COMMERCIAL MORTGAGE CAPITAL, LLC, a Florida limited liability company ("Holder"), whose address is 980 Federal Highway, Suite 400, Boca Raton, Florida 33432. W I T N E S S E T H: WHEREAS, Holder has extended to Borrower a loan in the principal amount of Thirteen Million and 00/100 ($13,000,000.00) Dollars (the "Loan"); and WHEREAS, the Loan is evidenced by a Mortgage Note dated of even date herewith (the "Note"), executed by Borrower and payable to the order of Holder in the stated principal amount of Thirteen Million and 00/100 ($13,000,000.00) Dollars and is secured by a Mortgage, Assignment of Leases and Rents and Security Agreement dated of even date herewith (the "Security Instrument"), from Borrower, as mortgagor, to Holder, as mortgagee, encumbering that certain real property situated in the City of Greencastle, County of Putnam, State of Indiana, as is more particularly described on Exhibit A attached hereto and incorporated herein by this reference, together with the buildings, structures and other improvements now or hereafter located thereon (said real property, buildings, structures and other improvements being hereinafter collectively referred to as the "Property") and by other documents and instruments (the Note, the Security Instrument and such other documents and instruments, as the same may from time to time be amended, consolidated, renewed or replaced, being collectively referred to herein as the "Loan Documents"); and WHEREAS, as a condition to making the Loan, Holder has required that Indemnitors indemnify Holder with respect to hazardous wastes on, in, under or affecting the Property as herein set forth. NOW, THEREFORE, to induce Holder to extend the Loan to Borrower and in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Indemnitors hereby covenant and agree for the benefit of Holder, as follows: 1. Indemnity. Indemnitors hereby, jointly and severally assume liability for, and hereby agree to pay, protect, defend (at trial and appellate levels) and with attorneys, consultants and experts reasonably acceptable to Holder, and save Holder harmless from and against, and hereby indemnify Holder from and against any and all present or future liens, damages, losses, liabilities, obligations, settlement payments, penalties, assessments, citations, directives, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements and expenses of any kind or of any nature whatsoever (including, without limitation, reasonable attorneys', consultants' and experts' fees and disbursements actually incurred in investigating, defending, settling or prosecuting any claim, litigation or proceeding) (collectively, "Costs") which may at any time be imposed upon, incurred by or asserted or awarded against Holder or the Property, and arising directly or indirectly from or out of: (i) the violation of any present or future local, state or federal law, rule or regulation pertaining to environmental regulation, contamination or clean-up (collectively, "Environmental Laws"), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq. and 40 CFR Section 302.1 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.) and 40 CFR Section 116.1 et seq.), and the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), and those relating to Lead Based Paint (as hereinafter defined, all as same have been or may be amended, relating to or affecting the Property, whether or not caused by or within the control of Indemnitors; (ii) the actual or alleged presence, release or threat of release of any hazardous, toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls, petroleum products, flammable explosives, radioactive materials, paint containing more than 0.5% lead by dry weight ("Lead Based Paint"), Mold (as hereinafter defined), infectious substances or raw materials which include hazardous constituents) or any other substances or materials which are included under or regulated by Environmental Laws (collectively, "Hazardous Substances"), now or hereafter on, in, under or affecting all or any portion of the Property or any surrounding areas, regardless of whether or not caused by or within the control of Indemnitors; (iii) the failure by Indemnitors to comply fully with the terms and conditions of this Agreement; (iv) the breach of any representation or warranty contained in this Agreement; or (v) the enforcement of this Agreement, including, without limitation, the cost of assessment, containment and/or removal of any and all Hazardous Substances from all or any portion of the Property or any surrounding areas, the cost of any actions taken in response to the presence, release or threat of release of any Hazardous Substances on, in, under or affecting any portion of the Property or any surrounding areas to prevent or minimize such release or threat of release so that it does not migrate or otherwise cause or threaten danger to present or future public health, safety, welfare or the environment, and costs incurred to comply with the Environmental Laws in connection with all or any portion of the Property or any surrounding areas. "Costs" as used in this Agreement shall also include any diminution in the value of the security afforded by the Property or any future reduction of the sales price of the Property by reason of any matter set forth in this Paragraph 1. "Mold" as used in this Agreement shall mean fungi that reproduces through the release of spores or the splitting of cells or other means, including but not limited to mold, mildew, fungi, fungal spores, fragments and metabolites such as mycotoxins and microbial volatile organic compounds . 2. Representations Regarding Hazardous Substances. Except as set forth in the Environmental Report (as such term is defined in the Security Agreement), Indemnitors hereby represent and warrant to and covenant and agree with Holder as follows: (a) To the best of Indemnitors' present knowledge, information and belief, the Property is not in direct or indirect violation of any Environmental Law; 2 (b) No Hazardous Substances are located on or, to the best of Indemnitors' present knowledge, information and belief, have been handled, generated, stored, processed or disposed of on or released or discharged from the Property (including underground contamination) except for those substances used by Borrower or any tenants at the Property in the ordinary course of their business and in compliance with all Environmental Laws; (c) Indemnitors have received no notice that the Property is subject to, and to the best of their present knowledge, information and belief, the Property is not subject to any private or governmental lien or judicial or administrative notice or action relating to Hazardous Substances; (d) There are no underground storage tanks or other underground storage receptacles for Hazardous Substances in use or closed and existing on the Property; (e) Indemnitors have received no notice of, and to the best of Indemnitors' present knowledge, information and belief, there exists no investigation, action, proceeding or claim by any agency, authority or unit of government or by any third party which could result in any liability, penalty, sanction or judgment under any Environmental Laws with respect to any condition, use or operation of the Property nor do Indemnitors know of any basis for such a claim; and (f) Indemnitors have received no notice that, and to the best of Indemnitors' present knowledge, information and belief, there has been no claim by any party that, any use, operation or condition of the Property has caused any nuisance or any other liability or adverse condition on any other property nor do Indemnitors know of any basis for such a claim. (g) No Mold is present in the indoor air of the Property at concentrations exceeding ambient air levels and no visible Mold is present on any building materials or surfaces at the Property for which the EPA Mold Guidelines (as defined below) recommends or requires removal thereof by remediation professionals, and Indemnitors are not aware of any conditions at the Property that are likely to result in the presence of Mold in the indoor air at concentrations that exceed ambient air levels or on building materials or surfaces that would require such removal. 3. Covenants of Indemnitors. (a) Indemnitors shall keep or cause the Property to be kept free from Hazardous Substances (except those substances used by Borrower or any tenants at the Property in the ordinary course of its business and in compliance with all Environmental Laws) and in compliance with all Environmental Laws, shall not install or use any underground storage tanks, shall expressly prohibit the use, generation, handling, storage, production, processing and disposal of Hazardous Substances by all tenants of space in the improvements (except in the ordinary course of such tenant's business and in compliance with all Environmental Laws), and, without limiting the generality of the foregoing, during the term of this Agreement, shall not install in the improvements or permit to be installed in the improvements any asbestos or any asbestos-containing materials (collectively, "asbestos"). Indemnitors acknowledge their 3 responsibility to be aware of, and fully advised concerning, all applicable Environmental Laws in effect during the term of the Loan. Indemnitors further acknowledge and agree that Holder has no duty to provide Indemnitors with any information regarding the Environmental Laws or any interpretation thereof. (b) Indemnitors shall immediately notify Holder should Indemnitors, or either of them, become aware of (i) any Hazardous Substances, or other potential environmental problem or liability, with respect to the Property, except to the extent such Hazardous Substances, or other potential environmental problem or liability is disclosed in the Environmental Report, (ii) any lien, action or notice affecting the Property or Borrower resulting from any violation or alleged violation of the Environmental Laws, except to the extent such lien, action or notice is disclosed in the Environmental Report, (iii) the institution of any investigation, inquiry or proceeding concerning Borrower or the Property pursuant to any Environmental Law or otherwise relating to Hazardous Substances, except to the extent such investigation, inquiry or proceeding is disclosed in the Environmental Report, or (iv) the discovery of any occurrence, condition or state of facts which would render any representation or warranty contained in this Agreement incorrect in any respect if made at the time of such discovery. Indemnitors shall, promptly and when and as required and regardless of the source of the contamination, at their own expense, take all actions as shall be necessary or advisable for the clean-up of any and all portions of the Property or other affected property, including, without limitation, all investigative, monitoring, removal, containment and remedial actions in accordance with all applicable Environmental Laws (and in all events in a manner reasonably satisfactory to Holder), and shall further pay or cause to be paid, at no expense to Holder, all clean-up, administrative and enforcement costs of applicable governmental agencies which may be asserted against the Property. In the event Indemnitors fail to do so, Holder may cause the Property or other affected property to be freed from any Hazardous Substances or otherwise brought into conformance with Environmental Laws and any cost incurred in connection therewith shall be included in Costs and shall be paid by Indemnitors in accordance with the terms of Paragraph 4(c) hereof. In furtherance of the foregoing, Indemnitors hereby grant to Holder access to the Property and an irrevocable license to remove any items deemed by Holder to be Hazardous Substances and to do all things Holder shall deem necessary to bring the Property into conformance with Environmental Laws. (c) Upon the request of Holder, at any time and from time to time after the occurrence of a default under this Agreement or the Loan Documents or at such other time as Holder has reasonable grounds to believe that Hazardous Substances are or have been released, stored or disposed of on or around the Property or that the Property may be in violation of the Environmental Laws, Indemnitors shall provide, at Indemnitors' sole expense, an inspection or audit of the Property prepared by a hydrogeologist or environmental engineer or other appropriate consultant approved by Holder indicating the presence or absence of Hazardous Substances on the Property or an inspection or audit of the improvements located on the Property prepared by an engineering or consulting firm approved by Holder indicating the presence or absence of asbestos on the Property. If Indemnitors fail to provide such inspection or audit within thirty (30) days after such request, Holder may order the same, and Indemnitors hereby grant to Holder access to the Property and an irrevocable license to undertake such inspection or audit. The cost of such inspection or audit shall be included in Costs and shall be paid by Indemnitors in accordance with the terms of Paragraph 4(c) hereof. 4 (d) If prior to the date hereof, it was determined that the Property contains Lead Based Paint, Borrower had prepared an assessment report describing the location and condition of the Lead Based Paint (a "Lead Based Paint Report"). If at any time hereafter Lead Based Paint is suspected of being present on the Property, Indemnitors agree, at their sole cost and expense and within twenty (20) days thereafter, to cause to be prepared a Lead Based Paint Report prepared by an expert, and in form, scope and substance, acceptable to Holder. (e) If prior to the date hereof, it was determined that the Property contains asbestos, Borrower had prepared an assessment report describing the location and condition of the asbestos (an "Asbestos Report"). If at any time hereafter asbestos is suspected of being present on the Property, Indemnitors agree, at their sole cost and expense and within twenty (20) days thereafter, to cause to be prepared an Asbestos Report prepared by an expert, and in form, scope and substance, acceptable to Holder. (f) Indemnitors agree that if it has been, or if at any time hereafter it is, determined that the Property contains Lead Based Paint or asbestos, on or before thirty (30) days following (i) the date hereof, if such determination was made prior to the date hereof or (ii) such determination, if such determination is hereafter made, as applicable, Indemnitors shall, at their sole cost and expense, develop and implement, and thereafter diligently and continuously carry out (or cause to be developed and implemented and thereafter diligently and continually to be carried out), an operations, abatement and maintenance plan to monitor, maintain and remediate any such Lead Based Paint and/or asbestos(as applicable) affecting the Property, which plan shall be prepared by an expert, and be in form, scope and substance, acceptable to Holder and sufficient to cause the Property to comply with any applicable law and recommendations contained in such plan (such plan, together with any Lead Based Paint Report and/or Asbestos Report, as applicable, the "O&M Plan"). If an O&M Plan has been prepared prior to the date hereof, Indemnitors agree to diligently and continually carry out (or cause to be carried out) the provisions thereof. Compliance with the O&M Plan shall require or be deemed to require, without limitation, the proper preparation and maintenance of all records, papers and forms required under the Environmental Laws. (g) Indemnitors agree that if prior to the date hereof, or if at any time hereafter, any inspection or audit reveals (or revealed, as applicable) the presence of Mold in the indoor air of the Property at concentrations exceeding ambient air levels or visible Mold on any building materials or surfaces at the Property for which the EPA Mold Guidelines recommends or requires removal thereof by remediation professionals, then, on or before thirty (30) days following (i) the date hereof, if such inspection or audit was made prior to the date hereof or (ii) such inspection or audit, if such inspection or audit is hereafter made, as applicable, Indemnitors shall, at their sole cost and expense, develop and implement, and thereafter diligently and continuously carry out (or cause to be developed and implemented and thereafter diligently and continually to be carried out), an operations, abatement and maintenance plan (the "Mold O&M Plan") to monitor, maintain and remediate any water filtration and Mold issues affecting the Trust Property, which plan shall be prepared by an expert, and be in form, scope and substance acceptable to Holder and sufficient to cause the Property to comply with all applicable laws and all EPA Mold Guidelines and in accordance with the Mold O&M Plan. If a Mold O&M Plan has been prepared prior to the date hereof, Indemnitors agree to diligently and continually carry out (or cause to be carried out) the provisions thereof. Compliance with the Mold O&M Plan shall 5 require or be deemed to require, without limitation, the proper preparation and maintenance of all records, papers and forms required under the Environmental Laws. For purposes hereof, "EPA Mold Guidelines"shall mean the guidelines set forth in "Mold Remediation in Schools and Commercial Buildings" prepared by the U.S. Environmental Protection Agency. (h) (i) By entering into this Agreement, Holder acknowledges that is has knowledge of that certain environmental condition for which an indemnity was provided to FB Distro, Inc. by IBM (as defined below) pursuant to that certain Contract dated as of October 26, 1987 by and between IBM to FB Distro, Inc. (ii) Notwithstanding anything to the contrary set forth in this Agreement, Holder shall not require or cause, nor shall Indemnitors be required hereunder to install groundwater monitoring wells on the Property in violation of Section E of that certain Special Warranty Deed, recorded on October 29, 1987, given by International Business Machines Corp. ("IBM") to FB Distro, Inc. 4. Indemnification Procedures. (a) If any action shall be brought against Holder based upon any of the matters for which Holder is indemnified hereunder, Holder shall notify Indemnitors in writing thereof and Indemnitors shall promptly assume the defense thereof, including, without limitation, the employment of counsel reasonably acceptable to Holder and the negotiation of any settlement; provided, however, that any failure of Holder to notify Indemnitors of such matter shall not impair or reduce the obligations of Indemnitors hereunder. Holder shall have the right, at the expense of Indemnitors (which expense shall be included in Costs), to employ separate counsel in any such action and to participate in the defense thereof. In the event Indemnitors shall fail to discharge or undertake to defend Holder against any claim, loss or liability for which Holder is indemnified hereunder, Holder may, at its sole option and election, defend or settle such claim, loss or liability. The liability of Indemnitors to Holder hereunder shall be conclusively established by such settlement, provided such settlement is made in good faith, the amount of such liability to include both the settlement consideration and the costs and expenses, including, without limitation attorneys' fees and disbursements, incurred by Holder in effecting such settlement. In such event, such settlement consideration, costs and expenses shall be included in Costs and Indemnitors shall pay the same as hereinafter provided. Holder's good faith in any such settlement shall be conclusively established if the settlement is made on the advice of independent legal counsel for Holder. (b) Indemnitors shall not, without the prior written consent of Holder: (i) settle or compromise any action, suit, proceeding or claim or consent to the entry of any judgment that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to Holder of a full and complete written release of Holder (in form, scope and substance satisfactory to Holder in its sole discretion) from all liability in respect of such action, suit, proceeding or claim and a dismissal with prejudice of such action, suit, proceeding or claim; or (ii) settle or compromise any action, suit, proceeding or claim in any manner that may adversely affect Holder or obligate Holder to pay any sum or perform any obligation as determined by Holder in its sole discretion. 6 (c) All Costs shall be immediately reimbursable to Holder when and as incurred and, in the event of any litigation, claim or other proceedings without any requirement of waiting for the ultimate outcome of such litigation, claim or other proceedings and Indemnitors shall pay to Holder any and all Costs within ten (10) days after written notice from Holder itemizing the amounts thereof incurred to the date of such notice. In addition to any other remedy available for the failure of Indemnitors to periodically pay such Costs, such Costs, if not paid within said ten-day period, shall bear interest at the Default Interest Rate (as defined in the Note) and such costs and interest shall be additional indebtedness of Borrower secured by the Security Instrument and by the other Loan Documents securing all or part of the Loan. 5. Reinstatement of Obligations. If at any time all or any part of any payment made by Indemnitors or received by Holder from Indemnitors under or with respect to this Agreement is or must be rescinded or returned for any reason whatsoever (including, but not limited to, the insolvency, bankruptcy or reorganization of either Indemnitor), then the obligations of Indemnitors hereunder shall, to the extent of the payment rescinded or returned, be deemed to have continued in existence, notwithstanding such previous payment made by Indemnitors, or receipt of payment by Holder, and the obligations of Indemnitors hereunder shall continue to be effective or be reinstated, as the case may be, as to such payment, all as though such previous payment by Indemnitors had never been made. 6. Waivers by Indemnitors. To the extent permitted by law, Indemnitors hereby waive and agree not to assert or take advantage of: (a) Any right to require Holder to proceed against any other person or to proceed against or exhaust any security held by Holder at any time or to pursue any other remedy in Holder's power or under any other agreement before proceeding against Indemnitors hereunder; (b) The defense of the statute of limitations in any action hereunder; (c) Any defense that may arise by reason of the incapacity, lack of authority, death or disability of any other person or persons or the failure of Holder to file or enforce a claim against the estate (in administration, bankruptcy or any other proceedings) of any other person or persons; (d) Demand, presentment for payment, notice of nonpayment, protest, notice of protest and all other notices of any kind, or the lack of any thereof, including, without limiting the generality of the foregoing, notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Holder, any endorser or creditor of either Indemnitor or any other person whomsoever under this or any other instrument in connection with any obligation or evidence of indebtedness held by Holder; (e) Any defense based upon an election of remedies by Holder; (f) Any right or claim of right to cause a marshalling of the assets of either Indemnitor. 7 (g) Any principle or provision of law, statutory or otherwise, which is or might be in conflict with the terms and provisions of this Agreement; (h) Any duty on the part of Holder to disclose to Indemnitors any facts Holder may now or hereafter know about the Property, regardless of whether Holder has reason to believe that any such facts materially increase the risk beyond that which Indemnitors intend to assume or has reason to believe that such facts are unknown to Indemnitors or has a reasonable opportunity to communicate such facts to Indemnitors, it being understood and agreed that Indemnitors are fully responsible for being and keeping informed of the condition of the Property and of any and all circumstances bearing on the risk that liability may be incurred by Indemnitors hereunder; (i) Any lack of notice of disposition or of manner of disposition of any collateral for the Loan; (j) Any invalidity, irregularity or unenforceability, in whole or in part, of any one or more of the Loan Documents; (k) Any lack of commercial reasonableness in dealing with the collateral for the Loan; (l) Any deficiencies in the collateral for the Loan or any deficiency in the ability of Holder to collect or to obtain performance from any persons or entities now or hereafter liable for the payment and performance of any obligation hereby guaranteed; (m) An assertion or claim that the automatic stay provided by 11 U.S.C. Section 362 (arising upon the voluntary or involuntary bankruptcy proceeding of Borrower) or any other stay provided under any other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of Holder to enforce any of its rights, whether now or hereafter required, which Holder may have against Charming or the collateral for the Loan; (n) Any modifications of the Loan Documents or any obligation of Borrower relating to the Loan by operation of law or by action of any court, whether pursuant to the Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, or otherwise; and (o) Any action, occurrence, event or matter consented to by Indemnitors under Paragraph 7(h) hereof, under any other provision hereof, or otherwise. 7. General Provisions. (a) Fully Recourse. All of the terms and provisions of this Agreement are recourse obligations of Indemnitors and not restricted by any limitation on personal liability, except as set forth in Section 8 herein. 8 (b) Unsecured Obligations. Indemnitors hereby acknowledge that Holder's appraisal of the Property is such that Holder is not willing to accept the consequences of the inclusion of Indemnitors' indemnity set forth herein among the obligations secured by the Security Instrument and the other Loan Documents and that Holder would not make the Loan but for the unsecured personal liability undertaken by Indemnitors herein. Indemnitors further hereby acknowledge that even though the representations, warranties, covenants or agreements of Indemnitors contained herein may be identical or substantially similar to representations, warranties, covenants or agreements of Borrower set forth in the Security Instrument and secured thereby, the obligations of Indemnitors under this Agreement are not secured by the lien of the Security Instrument or the security interests or other collateral described in the Security Instrument or the other Loan Documents, it being the intent of Holder to create separate obligations of Indemnitors hereunder which can be enforced against Indemnitors without regard to the existence of the Security Instrument or other Loan Documents or the liens or security interests created therein, subject to the limitation on Indemnitors' liability set forth in Section 8 herein. (c) Survival. This Agreement shall be deemed to be continuing in nature and shall remain in full force and effect and shall survive the payment of the indebtedness evidenced and secured by the Loan Documents and the exercise of any remedy by Holder under the Security Instrument or any of the other Loan Documents, including, without limitation, any foreclosure or deed in lieu thereof, even if, as a part of such remedy, the Loan is paid or satisfied in full. (d) No Subrogation; No Recourse Against Holder. Notwithstanding the satisfaction by Charming of any liability hereunder, Charming shall not have any right of subrogation, contribution, reimbursement or indemnity whatsoever or any right of recourse to or with respect to the assets or property of Borrower or to any collateral for the Loan. In connection with the foregoing, Charming expressly waives any and all rights of subrogation to Holder against Borrower, and Charming hereby waives any rights to enforce any remedy which Holder may have against Borrower and any right to participate in any collateral for the Loan. In addition to and without in any way limiting the foregoing, Charming hereby subordinates any and all indebtedness of Borrower now or hereafter owed to Charming to all indebtedness of Borrower to Holder, and agrees with Holder that Charming shall not demand or accept any payment of principal or interest from Borrower, shall not claim any offset or other reduction of Charming obligations hereunder because of any such indebtedness and shall not take any action to obtain any of the collateral from the Loan. Further, neither Indemnitor shall have any right of recourse against Holder by reason of any action Holder may take or omit to take under the provisions of this Agreement or under the provisions of any of the Loan Documents. (e) Reservation of Rights. Nothing contained in this Agreement shall prevent or in any way diminish or interfere with any rights or remedies, including, without limitation, the right to contribution, which Holder may have against either Indemnitor or any other party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (codified at Title 42 U.S.C. Section 9601 et seq.), as it may be amended from time to time, or any other applicable federal, state or local laws, all such rights being hereby expressly reserved. 9 (f) Financial Statements. Each Indemnitor hereby agrees, as a material inducement to Holder to make the Loan to Borrower, to furnish to Holder promptly upon demand by Holder current and dated financial statements certified by or on behalf of each Indemnitor detailing the assets and liabilities of said Indemnitor, in form and substance reasonably acceptable to Holder. Each Indemnitor hereby warrants and represents unto Holder that any and all balance sheets, net worth statements and other financial data which have heretofore been given or may hereafter be given to Holder with respect to said Indemnitor did or will at the time of such delivery fairly and accurately present, in all material respects, the financial condition of said Indemnitor. So long as shares in Charming are publicly traded on a nationally recognized exchange, then Charming shall not be required to provide Holder with any other financial statements other than the then current financial statements and annual reports as are publicly disseminated by Charming. (g) Rights Cumulative; Payments. Holder's rights under this Agreement shall be in addition to all rights of Holder under the Note, the Security Instrument and the other Loan Documents. Further, payments made by Indemnitors under this Agreement shall not reduce in any respect Borrower's obligations and liabilities under the Note, the Security Instrument and the Other Loan Documents. (h) No Limitation on Liability. Indemnitors hereby consent and agree that Holder may at any time and from time to time without further consent from Indemnitors do any of the following events, and the liability of Indemnitors under this Agreement shall be unconditional and absolute and shall in no way be impaired or limited by any of the following events, whether occurring with or without notice to Indemnitors or with or without consideration: (i) any extensions of time for performance required by any of the Loan Documents or extension or renewal of the Note; (ii) any sale, assignment or foreclosure of the Note, the Security Instrument or any of the other Loan Documents or any sale or transfer of the Property; (iii) any change in the composition of Borrower, including, without limitation, the withdrawal or removal of Indemnitors from any current or future position of ownership, management or control of Borrower; (iv) the accuracy or inaccuracy of the representations and warranties made by Indemnitors herein or by Borrower in any of the Loan Documents; (v) the release of Borrower or of any other person or entity from performance or observance of any of the agreements, covenants, terms or conditions contained in any of the Loan Documents by operation of law, Holder's voluntary act or otherwise; (vi) the release or substitution in whole or in part of any security for the Loan; (vii) Holder's failure to record the Security Instrument or to file any financing statement (or Holder's improper recording or filing thereof) or to otherwise perfect, protect, secure or insure any lien or security interest given as security for the Loan; (viii) the modification of the terms of any one or more of the Loan Documents; or (ix) the taking or failure to take any action of any type whatsoever. No such action which Holder shall take or fail to take in connection with the Loan Documents or any collateral for the Loan, nor any course of dealing with Borrower or any other person, shall limit, impair or release Indemnitors' obligations hereunder, affect this Agreement in any way or afford Indemnitors any recourse against Holder. Nothing contained in this Paragraph shall be construed to require Holder to take or refrain from taking any action referred to herein. (i) Entire Agreement; Amendment; Severability. This Agreement contains the entire agreement between the parties respecting the matters herein set forth and 10 supersedes (except as to the Security Instrument) all prior agreements, whether written or oral, between the parties respecting such matters. Any amendments or modifications hereto, in order to be effective, shall be in writing and executed by the parties hereto. A determination that any provision of this Agreement is unenforceable or invalid shall not affect the enforceability or validity of any other provision, and any determination that the application of any provision of this Agreement to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to any other persons or circumstances. (j) Governing Law; Binding Effect; Waiver of Acceptance. This Agreement shall be governed by and construed in accordance with the laws of the State in which the Property is located, except to the extent that the applicability of any of such laws may now or hereafter be preempted by Federal law, in which case such Federal law shall so govern and be controlling. This Agreement shall bind and inure to the benefit of each Indemnitor and Holder and their respective officers, directors, shareholders, agents and employees and their respective heirs, successors and assigns. Notwithstanding the foregoing, Indemnitors shall not assign any of their respective rights or obligations under this Agreement without the prior written consent of Holder, which consent may be withheld by Holder in its sole discretion. Each Indemnitor hereby waives any acceptance of this Agreement by Holder, and this Agreement shall immediately be binding upon Indemnitors. (k) Notice. All notices, demands, requests or other communications to be sent by one party to the other hereunder or required by law (collectively, "Notices") shall be in writing and shall be deemed to have been validly given or served by delivery of the same in person to the intended addressee, or by depositing the same with Federal Express or another reputable private courier service for next business day delivery to the intended addressee at its address set forth on the first page of this Agreement or at such other address as may be designated by such party as herein provided, or by depositing the same in the United States mail, postage prepaid, registered or certified mail, return receipt requested, addressed to the intended addressee at its address set forth on the first page of this Agreement or at such other address as may be designated by such party as herein provided. All Notices to be sent to Holder shall be addressed to the attention of the Michael Comparato. All Notices shall be deemed to have been given on the date they are actually received; provided that rejection or other refusal to accept any Notice offered for delivery or the inability to deliver a Notice because of changed address of which no notice was given as herein required shall be deemed to be receipt of the Notice. By giving to the other party hereto at least fifteen (15) days' prior written notice thereof in accordance with the provisions hereof, the parties hereto shall have the right from time to time to change their respective addresses and each shall have the right to specify as its address any other address within the United States of America. (l) No Waiver: Time of Essence; Business Days. The failure of any party hereto to enforce any right or remedy hereunder, or to promptly enforce any such right or remedy, shall not constitute a waiver thereof nor give rise to any estoppel against such party nor excuse any of the parties hereto from their respective obligations hereunder. Any waiver of such right or remedy must be in writing and signed by the party to be bound. This Agreement is subject to enforcement at law or in equity, including actions for damages or specific performance. Time is of the essence hereof. The term "business day" as used herein shall mean 11 a weekday, Monday through Friday, except a legal holiday or a day on which banking institutions in New York are authorized by law to be closed. (m) Captions for Convenience. The captions and headings of the sections and paragraphs of this Agreement are for convenience of reference only and shall not be construed in interpreting the provisions hereof. (n) Attorneys' Fees. In the event it is necessary for Holder to retain the services of an attorney or any other consultants in order to enforce this Agreement, or any portion thereof, Indemnitors agree to pay to Holder any and all costs and expenses, including, without limitation, reasonable attorneys' fees, incurred by Holder as a result thereof and such costs, fees and expenses shall be included in Costs. (o) Successive Actions. A separate right of action hereunder shall arise each time Holder acquires knowledge of any matter indemnified by Indemnitors under this Agreement. Separate and successive actions may be brought hereunder to enforce any of the provisions hereof at any time and from time to time. No action hereunder shall preclude any subsequent action, and Indemnitors hereby waive and covenant not to assert any defense in the nature of splitting of causes of action or merger of judgments. (p) Joint and Several Liability. Notwithstanding anything to the contrary contained herein, the representations, warranties, covenants and agreements made by Indemnitors herein, and the liability of Indemnitors hereunder, are joint and several. (q) Reliance. Holder would not make the Loan to Borrower without this Agreement. Accordingly, Indemnitors intentionally and unconditionally enter into the covenants and agreements as set forth above and understand that, in reliance upon and in consideration of such covenants and agreements, the Loan shall be made and, as part and parcel thereof, specific monetary and other obligations have been, are being and shall be entered into which would not be made or entered into but for such reliance. (r) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be effective only upon delivery and thereafter shall be deemed an original, and all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page. Any signature page of this Agreement may be detached from any counterpart of this Agreement without impairing the legal effect of any signatures thereon and may be attached to another counterpart of this Agreement identical in form hereto but having attached to it one or more additional signature pages. (s) SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. (1) INDEMNITORS, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, (A) SUBMIT TO PERSONAL JURISDICTION IN THE STATE IN WHICH THE PROPERTY IS LOCATED, OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT, (B) AGREE THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT 12 JURISDICTION OVER THE COUNTY IN WHICH THE PROPERTY IS LOCATED, (C) SUBMIT TO THE JURISDICTION OF SUCH COURTS, AND, (D) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREE THAT NEITHER OF THEM WILL BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF HOLDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM HAVING JURISDICTION). INDEMNITORS FURTHER CONSENT AND AGREE TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO THE INDEMNITORS AT THE ADDRESS FOR NOTICES DESCRIBED IN PARAGRAPH 7(k) HEREOF, AND CONSENT AND AGREE THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW). (2) HOLDER AND INDEMNITORS, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVE, RELINQUISH AND FOREVER FORGO THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF HOLDER OR INDEMNITORS, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH HOLDER OR INDEMNITORS, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. (t) Waiver by Indemnitors. Borrower and Charming covenant and agree that upon the commencement of a voluntary or involuntary bankruptcy proceeding by or against Borrower, neither Borrower nor Charming shall seek a supplemental stay or otherwise pursuant to 11 U.S.C. Section 105 or any other provision of the Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law (whether statutory, common law, case law, or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may be or become applicable, to stay, interdict, condition, reduce or inhibit the ability of Holder to enforce any rights of Holder against Charming by virtue of this Agreement or otherwise. (u) Decisions. Wherever pursuant to this Agreement (i) Holder exercises any right given to it to approve or disapprove, (ii) any arrangement or term is to be satisfactory or acceptable to Holder, or (iii) any other decision or determination is to be made by Holder, the decision of Holder to approve or disapprove or to accept or not accept, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by Holder, shall be in the sole and absolute discretion of Holder and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein. (v) Costs. Wherever pursuant to this Agreement it is provided that Indemnitors shall pay any costs and expenses, such costs and expenses shall include, but not be limited to, legal fees and disbursements of Holder, whether retained firms, the reimbursement for the expenses of in-house staff or otherwise. 13 (w) Secondary Market. Holder may sell, transfer and deliver the Loan Documents to one or more investors in the secondary mortgage market. In connection with such sale, Holder may retain or assign responsibility for servicing the Loan or may delegate some or all of such responsibility and/or obligations to a servicer, including, but not limited to, any subservicer or master servicer, on behalf of the investors. All references to Holder herein shall refer to and include, without limitation, any such servicer, to the extent applicable. 8. Limitation on Liability. (i) Notwithstanding anything contained in this Agreement to the contrary, the liability of Borrower pursuant to this Agreement shall not exceed 25% of the then outstanding principal balance of the Loan less: (a) any payments made by Borrower to Holder pursuant to the Loan Documents (not including any payments of principal or interest thereunder), and (b) any payments by Charming pursuant to that certain Guaranty, dated as of the date hereof, given by Charming to Holder (not including any payments of principal or interest thereunder). (ii) Notwithstanding anything contained in this Agreement to the contrary, the total cumulative liability of Charming pursuant to this Agreement and that certain Guaranty, dated as of the date hereof, given by Charming to Holder (the "Guaranty") (other than for all principal due under the Loan Documents for which there shall be no limitation) shall not exceed 25% of the then outstanding principal balance of the Loan less: (a) any payments made by Borrower to Holder pursuant to the Loan Documents (not including any payments of principal thereunder), and (b) any payments by Charming pursuant to the Guaranty (not including any payments of principal thereunder). [Remainder of Page Left Intentionally Blank; Signature Page Follows] 14 IN WITNESS WHEREOF, Indemnitors have executed this Hazardous Substances Indemnity Agreement as of the day and year first above written. FB DISTRO DISTRIBUTION CENTER, LLC, a Delaware limited liability company By: FB Distro, Inc., an Indiana corporation, its Sole Member By:___________________________ Name: Title: CHARMING SHOPPES, INC., a Pennsylvania corporation By:___________________________ Name: Title: ACKNOWLEDGMENTS COMMONWEALTH OF PENNSYLVANIA: COUNTY OF ________________________: The foregoing instrument was acknowledged before me this ___ day of October, 2004, by _________________________, who acknowledged himself/herself to be the _____________ of FB Distro, Inc., an Indiana corporation, the sole member of FB Distro Distribution Center, LLC, a Delaware limited liability company, and that he/she as such officer, being authorized to do so, executed the foregoing instrument, and acknowledged that he/she executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand and official seal. __________________________ Notary Public My Commission Expires: COMMONWEALTH OF PENNSYLVANIA: COUNTY OF ________________________: The foregoing instrument was acknowledged before me this ___ day of October, 2004, by _________________________, who acknowledged himself/herself to be the _____________ of Charming Shoppes, Inc., a Pennsylvania corporation, and that he/she as such officer, being authorized to do so, executed the foregoing instrument, and acknowledged that he/she executed the same for the purposes therein contained. In witness whereof, I hereunto set my hand and official seal. __________________________ Notary Public My Commission Expires: EXHIBIT A LEGAL DESCRIPTION EX-10 6 exh1013.txt EXHIBIT 10.13 EXHIBIT 10.13 - -------------------------------------------------------------------------------- AMENDED AND RESTATED CERTIFICATE PURCHASE AGREEMENT among WACHOVIA BANK, NATIONAL ASSOCIATION as Trustee CHARMING SHOPPES RECEIVABLES CORP., as Seller SPIRIT OF AMERICA, INC., as Servicer and THE CLASS D-2 CERTIFICATEHOLDERS DESCRIBED HEREIN dated as of November 22, 2002 and amended and restated as of November 18, 2004 - --------------------------------------------------------------------------------
TABLE OF CONTENTS Page ARTICLE I Definitions.............................................................................. 1 SECTION 1.1 Defined Terms................................................................... 1 SECTION 1.2 Other Definitional Provisions................................................... 5 ARTICLE II Amount and Terms of Class D-2 Certificates............................................... 5 SECTION 2.1 Purchase and Sale............................................................... 5 SECTION 2.2 Distributions................................................................... 5 SECTION 2.3 Interest Rate; Payment Dates.................................................... 6 SECTION 2.4 Payments........................................................................ 6 SECTION 2.5 Nonrecourse and Recourse Obligations; Obligations Absolute...................... 6 SECTION 2.6 No Increase to Class D-1 Investor Interest...................................... 6 ARTICLE III Cash Collateral Account.................................................................. 7 SECTION 3.1 Class D-2 Cash Collateral Account............................................... 7 SECTION 3.2 Calculations.................................................................... 8 ARTICLE IV Conditions Precedent..................................................................... 8 SECTION 4.1 Representations and Warranties.................................................. 8 SECTION 4.2 Related Agreements.............................................................. 8 SECTION 4.3 Certificate Issuance............................................................ 8 SECTION 4.4 Reliance Letters and Opinions................................................... 8 ARTICLE V Representations, Warranties and Covenants of the Seller, Servicer and Trustee............ 9 SECTION 5.1 Representations of the Seller................................................... 9 SECTION 5.2 Representations of the Servicer................................................. 9 SECTION 5.3 Representations of the Trustee.................................................. 10 SECTION 5.4 Covenants of the Seller and Services............................................ 10 ARTICLE VI Representations, Warranties and Covenants of the Initial Class D-2 Certificateholders and the Trustee................................................................. 11 SECTION 6.1 Representations, Warranties and Covenants of the Class D-2 Certificateholder.... 11 ARTICLE VII Miscellaneous............................................................................ 12 SECTION 7.1 Amendments and Waivers.......................................................... 12
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TABLE OF CONTENTS (Continued) Page SECTION 7.2 Governing Law................................................................... 12 SECTION 7.3 No Waiver....................................................................... 12 SECTION 7.4 Severability.................................................................... 12 SECTION 7.5 Termination..................................................................... 13 SECTION 7.6 Transfer Restrictions........................................................... 13 SECTION 7.7 Notices......................................................................... 13 SECTION 7.8 Survival of Representations and Warranties...................................... 14 SECTION 7.9 Exclusive Benefit............................................................... 14 SECTION 7.10 Limitation of Remedies.......................................................... 14 SECTION 7.11 Counterparts.................................................................... 14 SECTION 7.12 Entire Agreement................................................................ 14 SECTION 7.13 Headings........................................................................ 14 SECTION 7.14 Nonpetition Agreement........................................................... 15 SECTION 7.15 Waiver of Jury Trial............................................................ 15
-ii- AMENDED AND RESTATED CERTIFICATE PURCHASE AGREEMENT, dated as of November 22, 2002 and amended and restated as of November 18, 2004 (as amended, modified or supplemented from time to time, the "Agreement"), among WACHOVIA BANK, NATIONAL ASSOCIATION, as trustee (together with its successors and assigns, the "Trustee") for the Charming Shoppes Master Trust (the "Trust"), SPIRIT OF AMERICA, INC., a Delaware corporation ("Spirit, Inc."), as Servicer, CHARMING SHOPPES RECEIVABLES CORP., a Delaware corporation ("CSRC"), as Seller and as the initial Holder of the Class D-2 Certificates (the "Initial Class D-2 Certificateholder"), and NewStar CP Funding LLC, a Delaware limited liability company, (the "Class D-2 Purchaser"). WHEREAS the Seller, the Servicer and the Trustee have entered into a Second Amended and Restated Pooling and Servicing Agreement, dated as of November 25, 1997 (as amended on July 22, 1999, May 8, 2001 and August 5, 2004 and as the same may from time to time be further amended, modified or otherwise supplemented, the "Pooling and Servicing Agreement"), for the Trust and the Series 2002-1 Supplement, dated as of November 20, 2002 to the Pooling and Servicing Agreement (as the same may from time to time be amended, modified or otherwise supplemented, the "Supplement"); WHEREAS the Trust has issued and sold certain Investor Certificates, designated as the Class A Certificates, the Class B Certificates, the Class C Certificates and the Class D-2 Certificates, pursuant to the Pooling and Servicing Agreement and the Supplement; and WHEREAS in order to fulfill a condition to the issuance of the Class A Certificates, the Class B Certificates and the Class C Certificates, the Initial Class D-2 Certificateholder entered into the Class D Certificate Purchase Agreement and purchased the Class D-2 Certificates provided for herein on November 22, 2002 (the "Original Certificate Purchase Agreement"); and WHEREAS, the Servicer, Trustee, Seller and the Initial Class D-2 Certificateholder desire to amend and restate the Original Certificate Purchase Agreement in connection with the purchase of the Class D-2 Certificates by the Class D-2 Purchaser from the Initial Class D-2 Certificateholder; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, the receipt and adequacy of which are hereby expressly acknowledged, the parties hereto agree as follows: ARTICLE I Definitions SECTION 1.1 Defined Terms. Unless otherwise defined herein, all terms used herein which are defined in the Supplement or the Pooling and Servicing Agreement shall have the meanings assigned thereto in the Supplement, or if not defined therein, in the Pooling and Servicing Agreement, and the following terms shall have the following meanings: "Additional Collection Amount" shall mean, with respect to each Distribution Date, the sum of (i) the amount distributed by the Servicer or the Trustee (acting in accordance with the instructions of the Servicer) for application under this Agreement pursuant to Section 4.11(q) of Article IV under Section 7 of the Supplement, plus (ii) the amount distributed by the Servicer or the Trustee (acting in accordance with instructions of the Servicer) for application under this Agreement pursuant to Section 4.9(e)(i) or 4.9(f)(v), as applicable, of Article IV under Section 7 of the Supplement. "Agreement" shall mean this Certificate Purchase Agreement, as amended, supplemented, restated or otherwise modified from time to time. "Base Rate" shall mean, (a) for any Due Period during the Revolving Period, the Base Rate calculated for such Due Period pursuant to the Supplement and (b) for any Due Period during an Amortization Period, the Base Rate calculated pursuant to the Supplement for the last Due Period ending on or prior to the last day of the Revolving Period. "Charming" shall mean Charming Shoppes, Inc., a Pennsylvania corporation. "Class D Expected Final Payment Date" shall mean the May, 2008 Distribution Date. "Class D-2 Certificate Rate" shall mean, with respect to any Interest Period, the lesser of (a) 9.0% per annum and (b) a rate per annum equal to LIBOR as of the related LIBOR Determination Date for such Interest Period plus 4.75%. "Class D-2 Purchaser" shall have the meaning assigned thereto in the preamble to this Agreement. "Closing Date" shall mean November 18, 2004 "Collateral Deposit Event" means the occurrence of any of the following (subject, in the case of clauses (b) through (f), to the further conditions described in the first proviso below): (a) an Excess Yield Shortfall Event, (b) during any fiscal year, the number of Participating Retail Stores is reduced (on a net basis, after taking into account the opening of any new Participating Retail Stores) to an amount equal to or less than 90% of the number of Participating Retail Stores as of the first day of such fiscal year, (c) at any time after the Closing Date, the number of Participating Retail Stores is reduced (on a net basis, after taking into account the opening of any new Participating Retail Stores) to an amount equal to or less than 75% of the number of Participating Retail Stores as of the Closing Date, (d) as of the date of filing of Charming's financial statements pursuant to Form 10-Q or Form 10-K, Charming's Tangible Net Worth shall be less than $228 million, (e) Charming transfers control of a majority of the economic interest and/or voting control in the Fashion Bug retail chain and/or any other retail chain for which related Accounts have been designated to the Trust in an amount equal to more than 10% of the total number of Accounts designated to the Trust, (f) on any Distribution Date, both (i) the Three Month Net Loss Rate shall be greater than 18% and (ii) the Three Month Excess Yield Percentage shall be less than 7.0%; provided that, in the case of any event described in the preceding clauses (b) through (f), if the Seller shall have notified the Class D-2 Certificateholders of the occurrence of such event within 10 Business Days of the occurrence thereof and shall have requested a waiver of such event, the occurrence of any such event shall not give rise to a Collateral Deposit Event unless the Required Class D-2 Certificateholders shall have notified the Seller in writing within 20 Business Days of receipt of such request that they are unwilling to waive such event, in which case the related Collateral Deposit Event shall be 2 deemed to have occurred on the date such notice is received by the Seller; provided, further that, in the case of any event described in the preceding clauses (b) through (f), the occurrence of any such event shall not give rise to a Collateral Deposit Event if (x) the Required Class D-2 Certificateholders shall have notified the Seller in writing that they are willing to waive such event or (y) such event is deemed to have been waived by the Required Class D-2 Certificateholders pursuant to Section 6.1(c) hereof; provided, further, that a Collateral Deposit Event described in clause (a) or a Collateral Deposit Event described in clause (f) shall be deemed "Cured" if: (x) in the case of a Collateral Deposit Event described in clause (a), the Three Month Excess Yield Percentage shall be equal to or greater than 5.0% on any Distribution Date following the occurrence of such Collateral Deposit Event and (y) in the case of a Collateral Deposit Event described in clause (f), on any Distribution Date following the occurrence of such Collateral Deposit Event, both (i) the Three Month Net Loss Rate shall be equal to or less than 18% and (ii) the Three Month Excess Yield Percentage shall be equal to or greater than 7.0%. "Collateral Period" shall mean a period (x) from and including the first day of the first Due Period commencing after the occurrence of a Collateral Deposit Event, and (y) to and including the last day of the Due Period ending immediately prior to a Collateral Release Date. "Collateral Release Date" means the earlier to occur of (x) the Distribution Date following the first Due Period in a Collateral Period on which no Collateral Deposit Event exists, provided that the Early Amortization Period has not commenced, and (y) the Distribution Date on which all Class D-2 Certificates have been paid in full. "CSRC" has the meaning assigned thereto in the preamble. "Cured" is defined in the provisos to the definition of "Collateral Deposit Event". "Dollars" and "$" shall mean dollars in lawful currency of the United States of America. "Excess Class D-2 Monthly Interest" shall mean, with respect to any Distribution Date, the excess, if any, of (a) the amount of Class D-2 Monthly Interest, calculated without giving effect to the limitation imposed by clause (a) of the definition of Class D-2 Certificate Rate over (b) the Class D-2 Monthly Interest for such Distribution Date calculated in accordance with the Supplement. "Excess Yield Percentage" shall mean, with respect to any Distribution Date, the excess of the Portfolio Yield for the immediately prior Due Period over the Base Rate for such Due Period. "Excess Yield Shortfall Event" shall mean, on any Distribution Date, that the Three Month Excess Yield Percentage shall be less than 5.0%. "GAAP" shall mean United States generally accepted accounting principles. "Initial Class D-2 Certificateholder" shall have the meaning assigned thereto in the preamble to this Agreement. 3 "Net Loss Rate" shall mean, with respect to any Distribution Date, the annualized percentage equivalent of a fraction, the numerator of which is an amount equal to the Investor Loss Amount for such Distribution Date and the denominator of which is the outstanding principal amount of the Series 2002-1 Certificates as of the last day of the preceding Due Period. "Participating Retail Store" means a retail store participating in Charming's retail card program, for which related Accounts have been designated to the Trust; provided that, if Charming shall have announced the proposed closure of any such retail store, such retail store shall be deemed to have been closed for purposes of calculating the number of Participating Retail Stores at any time. "Pooling and Servicing Agreement" shall have the meaning assigned thereto in the recitals to this Agreement. "Portfolio Yield" shall mean, for any Due Period, the Portfolio Yield calculated pursuant to the Supplement, except that such calculation shall be made without giving effect to any recharacterization of Discount Option Receivables as Finance Charge Receivables. "Repayment Amount" shall mean, as of any date, amounts owed to the Class D-2 Certificateholders hereunder or under the Supplement. "Required Cash Collateral Amount" shall mean (a) at any time after a Collateral Deposit Event shall have occurred (unless all applicable Collateral Deposit Events shall have been Cured in accordance with the definition of "Collateral Deposit Event"), the outstanding principal amount of the Class D-2 Certificates and (b) at all other times, zero. "Required Class D-2 Certificateholders" shall mean holders of Class D-2 Certificates representing more than 50% of the Class D-2 Investor Interest. "Shareholders Equity" shall mean, as of the end of any fiscal quarter of Charming, the amount which, in conformity with GAAP, would be set forth opposite the caption "Shareholders Equity" (or any like caption) on a consolidated balance sheet of Charming and its consolidated subsidiaries at such date. "Spirit, Inc." has the meaning assigned thereto in the preamble. "Supplement" shall have the meaning assigned thereto in the recitals to this Agreement. "Tangible Net Worth" shall mean as of the end of any fiscal quarter of Charming, an amount equal to (x) Shareholder's Equity at such date minus (y) all licenses, franchises, patents, patent applications, trademarks, program rights, good will, research and development expense and other like intangible assets shown on the consolidated balance sheet of Charming and its consolidated subsidiaries. "Three Month Excess Yield Percentage" shall mean, with respect to any Distribution Date, the average of the Excess Yield Percentages for the most recent three Distribution Dates (including such Distribution Date). 4 "Three Month Net Loss Rate" shall mean, with respect to any Distribution Date, the average of the Net Loss Rates for the most recent three Distribution Dates (including such Distribution Date). "Trust" has the meaning assigned thereto in the preamble. "Trustee" has the meaning assigned thereto in the preamble. SECTION 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any certificate or other document made or delivered pursuant hereto, accounting terms not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, subsection, Schedule, Attachment and Exhibit references are to this Agreement, unless otherwise specified. The words "including" and "include" shall be deemed to be followed by the words "without limitation." ARTICLE II Amount and Terms of Class D-2 Certificates SECTION 2.1 Purchase and Sale. (a) Subject to terms and conditions hereof, the Class D-2 Purchaser hereby agrees to purchase from CSRC on the Closing Date the Class D-2 Certificates in a principal amount equal to $10,500,000 for a purchase price equal to 96% of such principal amount, plus 100% of the accrued interest on the Class D-2 Certificates through (but excluding) the Closing Date. Upon delivery of the purchase price by the Class D-2 Purchaser, CSRC hereby transfers, assigns and conveys all of its right, title and interest in and to the Class D-2 Certificates to the Class D-2 Purchaser. (b) Except as otherwise set forth herein, all rights of any Class D-2 Certificateholder with respect to any Class D-2 Certificate shall be governed by the Pooling and Servicing Agreement and the Supplement. SECTION 2.2 Distributions. (a) On each Distribution Date, after giving effect to any payments to the Class D-2 Certificateholders pursuant to Sections 4.9(f)(iv) and 4.11(m) of Article IV under Section 7 of the Supplement, the Trustee (at the written direction of the Servicer) shall distribute the Additional Collection Amount in the order of priority listed below: 5 (i) an amount equal to any Class D-2 Monthly Interest for such Distribution Date and any Class D-2 Deficiency Amount that remains unpaid shall be distributed to the Class D-2 Certificateholders; (ii) an amount equal to any Excess Class D-2 Monthly Interest for such Distribution Date (and any Excess Class D-2 Monthly Interest for a prior Distribution Date that remains unpaid) shall be distributed to the Class D-2 Certificateholders; (iii) on any Distribution Date during a Collateral Period, the amount, if any, by which the Required Cash Collateral Amount exceeds the amount on deposit in the Class D-2 Cash Collateral Account shall be deposited into the Class D-2 Cash Collateral Account; and (iv) during the Amortization Period, beginning with the first Distribution Date on which the Class C Certificates have been paid in full, any remaining Additional Collection Amount shall be distributed as a principal payment to the Class D-2 Certificateholders until the outstanding principal amount of the Class D-2 Certificates has been reduced to zero. (b) In order to effect the distributions required to be made under this Section 2.2, this Agreement hereby requires that amounts be paid pursuant to Sections 4.9(e)(i), 4.9(f)(v) and 4.11(q) of Article IV under Section 7 of the Supplement, in each case to the extent funds are available for such payment under the terms of the Supplement, to fund amounts described in Sections 2.2(a). SECTION 2.3 Interest Rate; Payment Dates. (a) The Class D-2 Investor Interest shall bear interest at the Class D-2 Certificate Rate. (b) Class D-2 Monthly Interest, Class D-2 Deficiency Amount, Excess Class D-2 Monthly Interest and Class D-2 Monthly Principal shall be payable on each Distribution Date as provided in Section 2.2 hereof and the Supplement. SECTION 2.4 Payments. On or prior to 10:00 a.m., New York City time, on each Distribution Date, the Servicer shall deliver instructions to the Trustee regarding all payments to be made hereunder on such Distribution Date. All payments to be made on behalf of the Trust hereunder, whether on account of principal, interest, or otherwise, shall be made without setoff or counterclaim and shall be made prior to 2:30 p.m., New York City time, on the due date thereof, to each Class D-2 Certificateholder in accordance with the terms of the Pooling and Servicing Agreement and the Supplement. SECTION 2.5 Nonrecourse and Recourse Obligations; Obligations Absolute. Notwithstanding any provision in any other Section of this Agreement to the contrary, the obligation to pay the Repayment Amount shall be without recourse to (i) the Seller, the Servicer, the Trustee, any Certificateholder, any Certificate Owner, any Receivables Purchaser or any Purchaser Representative or (ii) any affiliate, officer, director, employee or agent of any Person described in clause (i), and the obligation to pay such amounts hereunder shall be limited solely 6 to the application of funds described in Sections 2.2 and 3.1 hereof, in the Pooling and Servicing Agreement and the Supplement, which amounts shall be subordinated to the rights of other Investor Certificateholders as provided herein and in the Pooling and Servicing Agreement and the Supplement. SECTION 2.6 No Increase to Class D-1 Investor Interest. The Class D-1 Certificate was issued to CSRC with a Class D-1 Initial Investor Interest of $0. Each of the parties hereto acknowledges and agrees that the Class D-1 Certificate has a Class D-1 Investor Interest of $0 as of the Closing Date and CSRC agrees that it will not cause the Trust to increase the Class D-1 Investor Interest. ARTICLE III Cash Collateral Account SECTION 3.1 Class D-2 Cash Collateral Account. (a) The Servicer, for the benefit of the Class D-2 Certificateholders, shall establish and maintain in the name of the Trustee, on behalf of the Class D-2 Certificateholders, a segregated trust account with a Qualified Depository Institution bearing a designation clearly indicating that the funds deposited therein are held in the name of the Trustee for the benefit of the Class D-2 Certificateholders (the "Class D-2 Cash Collateral Account"). The Trustee shall possess all right, title and interest in all funds on deposit from time to time in the Class D-2 Cash Collateral Account and in all proceeds thereof. The Class D-2 Cash Collateral Account shall be under the sole dominion and control of the Trustee for the sole benefit of the Class D-2 Certificateholders. Except as expressly provided in this Agreement, the Servicer agrees that it shall have no right of setoff or banker's lien against, and no right to otherwise deduct from, any funds held in the Class D-2 Cash Collateral Account for any amount owed to it by the Trustee, the Trust or any Class D-2 Certificateholder. Amounts on deposit in the Class D-2 Cash Collateral Account shall not under any circumstances be available to any Series 2002-1 Certificateholder other than a Holder of a Class D-2 Certificate until the full amount of principal and interest on the Class D-2 Certificates is paid in full. If, at any time, the Trustee is advised in writing by the Servicer that the institution holding the Class D-2 Cash Collateral Account ceases to be a Qualified Depository Institution, the Trustee upon receiving such notice by the Servicer (or the Servicer on its behalf) shall promptly (but in any event within 20 Business Days) establish a new Class D-2 Cash Collateral Account with a Qualified Depository Institution meeting the conditions specified above, transfer any cash or any investments to such new Class D-2 Cash Collateral Account and from the date such new Class D-2 Cash Collateral Account is established, it shall be the "Class D-2 Cash Collateral Account." (b) Funds on deposit in the Class D-2 Cash Collateral Account shall, at the direction of the Servicer, be invested by the Trustee in Permitted Investments selected by the Servicer. All such Permitted Investments shall be held by the Trustee for the benefit of the Class D-2 Certificateholders. The Trustee shall maintain for the benefit of the Class D-2 Certificateholders possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. Funds on deposit in the Class D-2 Cash Collateral Account on any date (after giving effect to any withdrawals from the Class D-2 Cash Collateral Account on such date) will 7 be invested in Permitted Investments that will mature so that funds will be available for withdrawal on the Distribution Date following such date. Interest and earnings on funds on deposit in the Class D-2 Cash Collateral Account shall remain on deposit in the Class D-2 Cash Collateral Account and be available for distribution to the Class D-2 Certificateholders as set forth in this Section 3.1, provided, that such amounts may be withdrawn and paid to CSRC in its capacity as holder of the Exchangeable Seller Certificate on any Distribution Date on which (i) there is no accrued and unpaid Class D-2 Monthly Interest or Excess Class D-2 Monthly Interest after giving effect to the distributions to be made on such Distribution Date and (ii) if such Distribution Date occurs on or after the occurrence of a Series 2002-1 Early Amortization Event, the amount on deposit in the Class D-2 Cash Collateral Account equals or exceeds the outstanding principal balance of the Class D-2 Certificates after giving effect to the distributions and withdrawals to be made on such Distribution Date. On each Determination Date, the Servicer shall instruct the Trustee to withdraw on the related Distribution Date from the Class D-2 Cash Collateral Account and distribute to CSRC in its capacity as holder of the Exchangeable Seller Certificate all interest and earnings on funds on deposit in the Class D-2 Cash Collateral Account to the extent such interest and earnings are available to be paid to CSRC pursuant to the preceding sentence. (c) On each Distribution Date, if, after giving effect to the payments described in Section 4.11 of Article IV under Section 7 of the Supplement and Section 2.2 of this Agreement, any Class D-2 Monthly Interest or Excess Class D-2 Monthly Interest remains unpaid, the Trustee shall withdraw funds from the Class D-2 Cash Collateral Account in an amount equal to the sum of the unpaid Class D-2 Monthly Interest and Excess Class D-2 Monthly Interest and shall pay such amount to the Class D-2 Certificateholders. (d) On the earlier of (i) the first Distribution Date on which the Class A Investor Interest, the Class B Investor Interest and Class C Investor Interest shall have been paid in full and (ii) the Series 2002-1 Termination Date, the Trustee shall withdraw funds from the Class D-2 Cash Collateral Account in an amount equal to the sum of (A) the outstanding principal amount of the Class D-2 Certificates (after giving effect to all other payments to the Class D-2 Certificateholders on such date) and (B) the aggregate amount of Class D-2 Monthly Interest and Excess Class D-2 Monthly Interest which would have been payable on any Distribution Date had such interest been calculated based on the outstanding principal balance of the Class D-2 Certificates rather than the Class D-2 Investor Interest, and shall pay such amount to the Class D-2 Certificateholders in payment of the principal amount of the Class D-2 Certificates and, if applicable, interest thereon. (e) On each Collateral Release Date, the Trustee shall withdraw all funds in the Class D-2 Cash Collateral Account and pay such funds to CSRC in its capacity as holder of the Exchangeable Seller Certificate. SECTION 3.2 Calculations. On each Determination Date, the Servicer shall notify the Trustee in writing as to all funds to be withdrawn from the Class D-2 Cash Collateral Account and as to how such funds are to be applied. 8 ARTICLE IV Conditions Precedent Sections 4.1 through 4.3 constitute conditions precedent to the obligation of the Class D-2 Purchaser to purchase the Class D-2 Certificates on the Closing Date. SECTION 4.1 Representations and Warranties. On the Closing Date, after giving effect to the sale of the Class D-2 Certificates to the Class D-2 Purchaser, all representations and warranties of the Seller and the Servicer contained in the Purchase Agreement and the Pooling and Servicing Agreement shall be true and correct in all material respects with the same force and effect as though such representations and warranties had been made on and as of such date (unless such representations and warranties specifically relate to an earlier date). SECTION 4.2 Related Agreements. The Class D-2 Purchaser shall have received certified copies of each of the Purchase Agreement, the Pooling and Servicing Agreement, and the Supplement. SECTION 4.3 Certificate Issuance. A Class D-2 Certificate shall have been delivered to the Class D-2 Purchaser in accordance with the terms hereof and shall have been duly executed and authenticated and delivered in accordance with Section 6.2 of the Pooling and Servicing Agreement. SECTION 4.4 Reliance Letters and Opinions. The Class D-2 Purchaser shall have received (a) reliance letters with respect to (i) the opinions of Mayer, Brown, Rowe & Maw LLP with respect to certain bankruptcy related matters and certain matters under the Uniform Commercial Code delivered to the Rating Agencies on the date of the issuance of the Series 2004-1 Certificates and (ii) the corporate opinions of Mayer, Brown, Rowe & Maw LLP and Colin Stern delivered to the Rating Agencies on the date of the issuance of the Series 2002-1 Certificates and (b) an opinion of counsel as to the due authorization and enforceability of this Agreement. ARTICLE V Representations, Warranties and Covenants of the Seller, Servicer and Trustee SECTION 5.1 Representations of the Seller. As of the date hereof, the Seller represents and warrants to the Class D-2 Purchaser that: (a) Authority. The Seller has full power and authority to execute and deliver this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. (b) Existence. The Seller is a corporation duly and validly incorporated in the State of Delaware. 9 (c) Binding Obligation. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid and binding obligations of the Seller enforceable in accordance with its terms. (d) Ownership and No Liens. The Seller has marketable title to the Class D-2 Certificates and the interests represented thereby, free and clear of all liens, encumbrances and claims created by or through the Seller and the Seller has not sold, transferred, conveyed, pledged or assigned to any person, any of its rights, title or interests in the Class D-2 Certificates. The Seller has been the only owner and holder of the Class D-2 Certificates since the date of issuance of the Class D-2 Certificates. (e) No Default; No Conflict. No event has occurred or is continuing that constitutes an Early Amortization Event. The execution and delivery of this Agreement by the Seller will not cause or result in (i) any violation, default or breach of any provision of the Pooling and Servicing Agreement or the Supplement or (ii) the occurrence of an Early Amortization Event under the Pooling and Servicing Agreement or the Supplement. (f) No Proceedings. There are no proceedings pending or, to the best knowledge of the Seller, threatened against the Seller before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, (iii) seeking any determination or ruling that, in the reasonable judgment of the Seller, would materially and adversely affect the performance by the Seller of its obligations under this Agreement or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement. SECTION 5.2 Representations of the Servicer. As of the date hereof, the Servicer represents and warrants to the Class D-2 Purchaser that: (a) Authority. The Servicer has full power and authority to execute and deliver this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. (b) Existence. The Servicer is a corporation duly and validly incorporated in the State of Delaware. (c) Binding Obligation. This Agreement has been duly executed and delivered by the Servicer and constitutes the legal, valid and binding obligations of the Servicer enforceable in accordance with its terms. (d) No Default; No Conflict. No event has occurred or is continuing that constitutes a Servicer Default. The execution and delivery of this Agreement by the Servicer will not cause or result in (i) any violation, default or breach of any provision of the Pooling and Servicing Agreement or the Supplement or (ii) the occurrence of a Servicer Default under the Pooling and Servicing Agreement or the Supplement. (e) No Proceedings. There are no proceedings pending or, to the best knowledge of the Servicer, threatened against the Servicer before any court, regulatory body, administrative 10 agency, or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, (iii) seeking any determination or ruling that, in the reasonable judgment of the Servicer, would materially and adversely affect the performance by the Servicer of its obligations under this Agreement or (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement. SECTION 5.3 Representations of the Trustee. As of the date hereof, the Trustee represents and warrants to the Class D-2 Purchaser that: (a) Existence. The Trustee is a national banking association duly authorized to engage in the business of banking under the laws of the United States of America. (b) Authority. The Trustee has full power and authority to deliver and perform this Agreement, and has taken all necessary action to authorize the execution, delivery and performance by it of this Agreement. (c) Binding Obligation. This Agreement has been duly executed and delivered by the Trustee and constitutes the legal, valid and binding obligations of the Trustee enforceable in accordance with its terms. SECTION 5.4 Covenants of the Seller and Services. Each of the Seller and Servicer covenants and agrees that, until the Class D-2 Investor Interest is reduced to zero, unless the Required Class D-2 Certificateholders shall otherwise consent in writing: (a) Monthly Status Reports. The Servicer will furnish to each Class D-2 Certificateholder (or cause to be furnished to each Class D-2 Certificateholder), two Business Days prior to each Distribution Date information relating to distributions hereunder in a certificate substantially in the form of Exhibit A hereto. (b) Rule 144A Information. The Seller will promptly furnish or cause to be furnished to any Class D-2 Certificateholder and upon request of any Class D-2 Certificateholder, to any prospective purchaser of any Class D-2 Certificate, copies of the information required to be delivered to Class D-2 Certificateholders and any prospective purchasers pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Class D-2 Certificates. (c) Notice of Change in Finance Charge Rates. The Servicer will promptly notify the Class D-2 Certificateholders if the periodic finance charge rates applicable to 50% or more of the Accounts designated to the Trust are lowered to less than 12% per annum. (d) Notice of Collateral Deposit Event. The Servicer will promptly notify the Class D-2 Certificateholders of the occurrence of a Collateral Deposit Event. (e) Amendments to Pooling and Servicing Agreement and Supplement. The Servicer shall not amend, modify, supplement or otherwise change (i) the Series 2002-1 Early Amortization Event set forth in Section 9(c) of the Supplement or (ii) any other provision of the 11 Pooling and Servicing Agreement or Supplement to include any covenant or Series 2002-1 Early Amortization Event which would have a material adverse effect on the Class D-2 Certificateholders. The Servicer will promptly notify the Class D-2 Certificateholders of any amendments to the Pooling and Servicing Agreement and the Supplement. ARTICLE VI Representations, Warranties and Covenants of the Initial Class D-2 Certificateholders SECTION 6.1 Representations, Warranties and Covenants of the Class D-2 Certificateholder. (a) As of the Closing Date, the Class D-2 Purchaser shall be deemed to represent and warrant as of the date that its acquisition of any Class D-2 Certificate becomes effective that: (i) (x) it is a "qualified institutional buyer" as that term is defined under Rule 144A of the Securities Act and (y) it is not purchasing its Certificate with a view to making a distribution thereof (within the meaning of the Securities Act); (ii) either (A) it is not (and is not purchasing a Class D-2 Certificate on behalf of) an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not subject to ERISA, any "plan" described in Section 4975(1) of the Code or an entity deemed to hold "plan assets" of any of the foregoing (each, a "Benefit Plan Investor") or (B) it is an insurance company purchasing a Class D-2 Certificate with assets of its general account, and at the time of acquisition and throughout the period of holding, (1) it meets all of the requirements of and is eligible for exemptive relief under Prohibited Transaction Class Exemption 95-60, (2) less than 25% of the assets of such general account are assets of a Benefit Plan Investor and (3) it is not a servicer to the Trust or an affiliate of a servicer to the Trust, and would not otherwise be excluded under Section 29 C.F.R. 2510.3-101(f)(1); (iii) no registration with consent or approval of or other action by any federal, state or other governmental authority or regulatory body having jurisdiction over it is required in connection with the execution, delivery or performance by it of this Agreement; and (iv) such Class D-2 Certificateholder is one Private Holder. (b) Each Class D-2 Certificateholder covenants and agrees to maintain as confidential, not disclose to any Person (other than any officer, director, member, employee, agent, counsel, advisor or representative of a party hereto) and not use for any purpose other than in connection with this Agreement, all information acquired by such Class D-2 Certificateholder that is not publicly available relating to the Trust, the Originator, the Seller or the Servicer which it obtained in connection with the transactions contemplated hereby, except as the Trustee, the Seller, the Originator or the Servicer may have consented to in writing prior to any proposed disclosure (such consent not to be unreasonably withheld) or except as it may have been advised 12 by counsel is (i) required by law, including, without limitation, any securities or banking laws, rules, orders or regulations or (ii) reasonably necessary or desirable in connection with any lawsuit or governmental investigation or proceeding; provided, however, that in any such instance such Class D-2 Certificateholder will notify the Seller and the Servicer of its intention to make any such disclosure prior to making any such disclosure. (c) Upon receipt of a request from the Seller to waive any Collateral Deposit Event, each Class D-2 Certificateholder covenants and agrees to notify the Seller in writing as soon as reasonably practicable, but in any event within 20 Business Days, whether such Class D-2 Certificateholder is willing to waive such Collateral Deposit Event. Any waiver of the Collateral Deposit Event shall be in the sole and absolute discretion of each Class D-2 Certificateholder; provided that if the Seller shall have notified the Class D-2 Certificateholders of the occurrence of any Collateral Deposit Event described in clauses (b) through (f) of the definition of Collateral Deposit Event within 10 Business Days of the occurrence thereof and shall have requested a waiver thereof, and the Required Class D-2 Certificateholders shall not have notified the Seller in writing within 20 Business Days of receipt of such request that they are unwilling to waive such event, such event shall be deemed to be waived and shall not give rise to a Collateral Deposit Event. Any waiver of a Collateral Deposit Event shall only constitute a waiver of the Collateral Deposit Event to which such waiver expressly relates and shall not constitute a waiver of any other Collateral Deposit Event. Unless otherwise specified in any waiver delivered by the Class D-2 Certificateholders, (i) any waiver of a Collateral Deposit Event specified in clause (a) or clause (f) of the definition of Collateral Deposit Event shall only constitute a waiver of the applicable Collateral Deposit Event for the related Distribution Date and shall not extend to any subsequent or other Collateral Deposit Event occurring on any other Distribution Date, and (ii) any waiver of a Collateral Deposit Event specified in clause (b) of the definition of Collateral Deposit Event shall only constitute a waiver of the applicable Collateral Deposit Event for the related fiscal year and shall not extend to any Collateral Deposit Event occurring under such clause (b) for any subsequent fiscal year. ARTICLE VII Miscellaneous SECTION 7.1 Amendments and Waivers. This Agreement shall not be amended or modified without the written consent of the Seller, the Trustee, the Servicer and the Required Class D-2 Certificateholders. No waiver of, or consent to the departure from, any provision of this Agreement by any party hereto shall be effective without the written consent of the Seller, the Servicer, the Trustee, and the Required Class D-2 Certificateholders; provided, however, that no amendment reducing the amount or delaying any payment to be made to the Class D-2 Certificateholders hereunder or modifying the definition of Required Class D-2 Certificateholders shall be effective without the written consent of all Class D-2 Certificateholders. The Servicer shall give the Rating Agencies written notice of any amendment to this Agreement. SECTION 7.2 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF 13 NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW PROVISIONS. SECTION 7.3 No Waiver. Neither any failure nor any delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege. SECTION 7.4 Severability. In case any one or more of the provisions contained in this Agreement should be 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. 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 7.5 Termination. This Agreement shall remain in full force and effect until the earlier of (i) the payment in full of the Class D-2 Investor Interest and all other amounts payable to the Class D-2 Certificateholders hereunder (including pursuant to Section 3.1(c) hereof) and under the Supplement and (ii) the Series 2002 -1 Termination Date provided that Sections 7.8, 7.9, 7.10 and 7.14 shall survive the termination of this Agreement. SECTION 7.6 Transfer Restrictions. (a) No Class D-2 Certificate may be offered, sold or otherwise transferred to any Person (other than the Seller) unless the Seller shall have given its prior written approval to such offer, sale or transfer (which approval shall not be unreasonably withheld); provided that such approval shall not be required with respect to any such sale or transfer to an Affiliate of a Class D-2 Certificateholder that otherwise satisfies the requirements of this Section 7.6 and the Supplement.. Each Class D-2 Certificateholder further agrees that it will not make any general solicitation or general advertising for the offer or sale of its Class D-2 Certificate and will not transfer its Class D-2 Certificate (or any portion thereof) to any Person except to a Person within the United States which such Class D-2 Certificateholder reasonably believes is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) that is purchasing (1) for its own account or (2) for the account of a "qualified institutional buyer" (as so defined) that is aware that such resale, pledge or transfer is being made in reliance on an exemption from registration under the Securities Act. Additionally, no such transfer shall be made to any Person unless such Person shall have delivered to the Seller and the Trustee a purchaser representation letter substantially in the form attached hereto as Exhibit B. Each Class D-2 Certificateholder further agrees to provide to any Person purchasing a Class D-2 Certificate (or any portion thereof) from it a notice advising such purchaser that resales of the Class D-2 Certificates are restricted as stated above. (b) Seller shall not execute, and (if given prior written notice by the Servicer of the inability of the Seller to execute any Subject Instrument by operation of this clause (b)) the Transfer Agent and Registrar shall not register the transfer of, any Class D-2 Certificate unless (i) after giving effect to the execution or transfer of such Class D-2 Certificate, there would be no more than 5 Private Holders of Class D-2 Certificates and (ii) the other conditions to transfer set forth in Section 6.3 of the Pooling Agreement and in Section 17 of the Supplement have been satisfied. 14 SECTION 7.7 Notices. (a) All notices and other communications provided for hereunder shall be in writing (including telecopy) and, if to the Seller, the Servicer or the Trustee either mailed, telecopied, couriered or delivered to it, addressed to it at its address set forth in the Pooling and Servicing Agreement. If such notice is to any Class D-2 Certificateholder, such notice shall be given in accordance with the terms of the Pooling and Servicing Agreement at such address as it shall have specified to the other parties hereto prior to its execution hereof. All notices and other communications shall, when mailed, be effective on the first Business Day after the date of receipt, addressed as aforesaid. Any party hereto may change the address or telecopier number to which notices to it are to be sent by notice given to the other parties hereto. (b) Any notice or written direction given by a Class D-2 Certificateholder to the Trustee hereunder may conclusively be relied upon by the Trustee, absent manifest error. SECTION 7.8 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement. SECTION 7.9 Exclusive Benefit. The rights and remedies of the Class D-2 Certificateholders specified herein are for the sole and exclusive benefit, use and protection of the Class D-2 Certificateholders, and the Class D-2 Certificateholders are entitled, but shall have no duty or obligation to the Seller, the Servicer, the Trustee, the other Certificateholders or otherwise, to exercise or to refrain from exercising any right or remedy reserved to the Class D-2 Certificateholders hereunder or cause the Trustee or any other party to exercise or to refrain from exercising any right or remedy available to it. SECTION 7.10 Limitation of Remedies. (a) No Class D-2 Certificateholder shall have the right to cause the Class D-2 Investor Interest or any portion thereof to become due and payable prior to any Distribution Date or other date on which amounts are payable hereunder to such Class D-2 Certificateholder other than as set forth in Section 2.2 hereof and shall not attempt to exercise any of its rights hereunder with respect to any amounts prior to such due date or Distribution Date. (b) The obligations of each Class D-2 Certificateholder under this Agreement, or any other agreement, instrument, document or certificate executed and delivered by or issued by such Class D-2 Certificateholder or any officer thereof are solely the corporate obligations of such Class D-2 Certificateholder. No recourse shall be had for payment of any fee or other obligation or claim arising out of or relating to this Agreement or any other agreement, instrument, document or certificate executed and delivered or issued by such Class D-2 Certificateholder or any officer thereof in connection therewith, against any stockholder, employee, officer, director or incorporator of such Class D-2 Certificateholder. 15 SECTION 7.11 Counterparts. This Agreement may be executed in any number of counterparts, and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. SECTION 7.12 Entire Agreement. This Agreement constitutes the entire agreement between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 7.13 Headings. Article, Section and subsection headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 7.14 Nonpetition Agreement. Notwithstanding any prior termination of this Agreement, no Class D-2 Certificateholder shall, prior to the date which is one year and one day after the final payment of the Certificates, acquiesce, petition or otherwise invoke or cause the Trust or the Seller to invoke the process of any governmental authority for the purpose of commencing or sustaining a case against the Trust or the Seller under any federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of the Trust or the Seller or any substantial part of its property or ordering the winding up or liquidation of the affairs of the Trust or the Seller. SECTION 7.15 Waiver of Jury Trial. EACH OF, THE SELLER, THE SERVICER, THE TRUSTEE, AND EACH CLASS D-2 HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE CLASS D-2 CERTIFICATES OR ANY OTHER DOCUMENTS AND INSTRUMENTS EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE SELLER, THE SERVICER, THE TRUSTEE, OR ANY CLASS D-2 HOLDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE CLASS D-2 HOLDERS PURCHASING THE CLASS D-2 CERTIFICATES DESCRIBED HEREIN. 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written. SPIRIT OF AMERICA, INC., as Servicer By:_______________________________________________ Name: Title: CHARMING SHOPPES RECEIVABLES CORP., as Seller and Initial Class D-2 Certificateholder By:_______________________________________________ Name: Title: WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee By:_______________________________________________ Name: Title: NEWSTAR CP FUNDING LLC as Class D-2 Purchaser By: NewStar Financial, Inc., its designated Manager By:________________________________________________ Name: Title: Exhibit B to Certificate Purchase Agreement [FORM OF REPRESENTATION LETTER] [Date] Wachovia Bank, National Association 123 South Broad Street, M.B.O., 18th Floor Philadelphia, PA 19109 Attn: Corporate Trust Administration Charming Shoppes Receivables Corp. c/o Charming Shoppes, Inc. 450 Winks Lane Bensalem, PA 19020 Re: Purchase of $________ principal amount of Charming Shoppes Master Trust Series 2002-1 Asset Backed Certificates, Class D-2 Ladies and Gentlemen: In connection with our purchase of the above Asset Backed Certificates (the "Certificates") pursuant to that certain Amended and Restated Certificate Purchase Agreement, dated as of November 18, 2004 (the "Class D CPA"), among Wachovia Bank, National Association, as Trustee, Charming Shoppes Receivables Corp., as Seller, Spirit of America, Inc., as Servicer and the Class D Holders described therein), we (the "Purchaser") confirm that: (i) we understand that the Certificates are not being registered under the Securities Act of 1933, as amended (the "1933 Act"), and are being sold to us in a transaction that is exempt from the registration requirements of the 1933 Act and of any applicable state securities laws; (ii) any information we desire concerning the Certificates or any other matter relevant to our decision to purchase the Certificates is or has been made available to us; (iii) we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Certificates, and we (and any account for which we are purchasing) are able to bear the economic risk of an investment in the Certificates; (iv) we are a qualified institutional buyer as defined in Rule 144A promulgated under the 1933 Act (a "QIB") that is purchasing for its own account or for the account of a QIB, in either case, and have completed one of the forms of certification to that effect attached hereto as Annex 1 or Annex 2 (each, a "Certification Form"); (v) we will not make any general solicitation or general advertising for the offer or sale of our Certificate and will not transfer our Certificates (or any portion B-1 thereof) to any Person except to a U.S. Person (as defined in Section 7701(a)(30) of the Code) within the United States which we reasonably believes is a QIB that is purchasing (1) for its own account or (2) for the account of a QIB, and, in such case, unless such Person shall have delivered to us a purchaser representation letter substantially in the form hereof; (vi) we are either (i) not acquiring such Certificates with the assets of an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not subject to ERISA, any "plan" described in Section 4975(e)(1) of the Code or any entity deemed to hold "plan assets" of any of the foregoing by reason of an employee benefit plan's or other plan's investment in such entity (each, a "Benefit Plan Investor") or (ii) an insurance company purchasing the Certificates with assets of our general account, and at the time of acquisition and throughout the period of holding, (a) we meet all of the requirements of and are eligible for exemptive relief under Prohibited Transaction Class Exemption 95-60; (b) less than 25% of the assets of that general account are assets of a Benefit Plan Investor; and (c) we are not a servicer to the Trust or an affiliate of a servicer to the Trust, and would not otherwise be excluded under 29 C.F.R. Section 2510.3-101(f)(1); (vii) no registration with consent or approval of or other action by any federal, state or other governmental authority or regulatory body having jurisdiction over it is required in connection with the execution, delivery or performance by it of the Class D CPA; (viii) we are each 1 Private Holder; (ix) we covenant and agree to maintain as confidential and not disclose to any Person (other than any officer, director, member, employee, agent, counsel, advisor or representative of a party hereto or the funding sources of the Purchaser that have entered into similar agreements to maintain such confidentiality) all information relating to the Trust, the Seller or the Servicer which we obtained in connection with the transactions contemplated hereby, except as the Trustee, the Seller or the Servicer may have consented to in writing prior to any proposed disclosure (such consent not to be unreasonably withheld) or except as it may have been advised by counsel is (i) required by law, including, without limitation, any securities or banking laws, rules, orders or regulations or (ii) reasonably necessary or desirable in connection with any lawsuit or governmental investigation or proceeding; and (x) we understand that the Certificates will bear a legend to substantially the following effect: "THIS CERTIFICATE WAS ISSUED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY BE SOLD ONLY PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE ACT OR AN EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE ACT. IN ADDITION, THE TRANSFER OF B-2 THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS SET FORTH IN THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN. A COPY OF THE POOLING AND SERVICING AGREEMENT WILL BE FURNISHED TO THE HOLDER OF THIS CERTIFICATE BY THE TRUSTEE UPON WRITTEN REQUEST. THIS CERTIFICATE, OR AN INTEREST HEREIN, MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF ANY EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), WHETHER OR NOT SUBJECT TO ERISA, OR A PLAN THAT IS DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT (EACH, A "BENEFIT PLAN"), OR BY OR FOR THE ACCOUNT OF ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE ANY BENEFIT PLAN ASSETS BY REASON OF A BENEFIT PLAN'S INVESTMENT IN SUCH ENTITY (EACH, A "BENEFIT PLAN INVESTOR"). BY ACQUIRING THIS CERTIFICATE OR AN INTEREST HEREIN, THE PURCHASER THEREOF WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (I) IT IS NOT A BENEFIT PLAN INVESTOR, AND THAT ITS ACQUISITION OF THIS CERTIFICATE OR AN INTEREST HEREIN IS IN COMPLIANCE WITH THE FOREGOING RESTRICTIONS ON BENEFIT PLAN ASSETS OR (II) IT IS AN INSURANCE COMPANY PURCHASING THIS CERTIFICATE OR INTEREST HEREIN WITH ASSETS OF ITS GENERAL ACCOUNT, AND AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD OF HOLDING, (A) IT MEETS ALL OF THE REQUIREMENTS OF AND IS ELIGIBLE FOR EXEMPTIVE RELIEF UNDER PROHIBITED TRANSACTION CLASS EXEMPTION 95-60, (B) LESS THAN 25% OF THE ASSETS OF SUCH ACCOUNT ARE BENEFIT PLAN ASSETS AND (C) IT IS NOT A SERVICER TO THE TRUST OR AN AFFILIATE OF SUCH SERVICER, AND WOULD NOT OTHERWISE BE EXCLUDED UNDER 29 C.F.R. SECTION 2510.3-101(f)(1). NEITHER THIS CERTIFICATE, NOR ANY PORTION OF THIS CERTIFICATE, MAY BE TRANSFERRED (X) IF AFTER GIVING EFFECT TO THE EXECUTION OR TRANSFER OF SUCH CERTIFICATE, THERE WOULD BE MORE THAN (I) 5 PRIVATE HOLDERS OF CLASS D CERTIFICATES OR (II) 100 PRIVATE HOLDERS, OR (Y) ON OR THROUGH (I) AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATION THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN OVER-THE-COUNTER-MARKET OR AN INTERDEALER QUOTATIONS SYSTEM THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS OR (II) "SECONDARY MARKET" OR "SUBSTANTIAL EQUIVALENT THEREOF" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND ANY PROPOSED, TEMPORARY OR FINAL TREASURY REGULATION THEREUNDER, INCLUDING A MARKET WHEREIN INTERESTS IN THE TRUST ARE REGULARLY QUOTED BY ANY PERSON MAKING A MARKET IN SUCH INTERESTS AND A MARKET WHEREIN ANY B-3 PERSON REGULARLY MAKES AVAILABLE BID OR OFFER QUOTES WITH RESPECT TO INTEREST IN THE TRUST AND STANDS READY TO EFFECT BUY OR SELL TRANSACTIONS AT THE QUOTED PRICES FOR ITSELF OR ON BEHALF OF OTHERS. ANY ATTEMPTED TRANSFER, ASSIGNMENT, CONVEYANCE, PARTICIPATION OR SUBDIVISION IN CONTRAVENTION OF THE PRECEDING RESTRICTIONS, AS REASONABLY DETERMINED BY THE SELLER, SHALL BE VOID AB INITIO AND THE PURPORTED TRANSFEROR, SELLER, OR SUBDIVIDER OF SUCH CERTIFICATE SHALL BE CONSTRUED TO BE TREATED AS THE CERTIFICATEHOLDER OF ANY SUCH CERTIFICATE FOR ALL PURPOSES OF THE POOLING AND SERVICING AGREEMENT AS DEFINED IN THE CLASS D CPA" The Seller and the Trustee are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Purchaser] By: ______________________________ (Authorized Officer) B-4 Annex 1 to Exhibit B Qualified Institutional Buyer Status Under SEC Rule 144A -------------------------------------------------------- (Buyers other than investment companies) Wachovia Bank, National Association 123 South Broad Street, M.B.O., 18th Floor Philadelphia, PA 19109 Attn: Corporate Trust Administration Charming Shoppes Receivables Corp. c/o Charming Shoppes, Inc. 450 Winks Lane Bensalem, PA 19020 [Transferring Class D Holder] Name of Buyer:______________________________("Buyer") I hereby certify that as indicated below, I am the duly-authorized President, Chief Financial Officer, Vice President or other executive officer of Buyer. In connection with purchases of securities by Buyer, I hereby certify to you and, if you act as broker for one or more customers, to such customers, that Buyer is a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended ("Rule 144A") because (i) Buyer owned and/or invested on a discretionary basis $_______(1) in securities (except for the excluded securities referred to below) as of the end of Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A) and (ii) Buyer satisfies the criteria in the category marked below: o Corporation, etc. Buyer is a corporation (other than a bank, savings and loan association or similar institution), Massachusetts or similar business trust, partnership, or charitable organization described in Section 501(c)(3) of the Internal Revenue Code. o Bank. Buyer (a) is a national bank or banking institution organized under the laws of any State, territory or the District of Columbia, the business of which is substantially confined to banking and is supervised by the State or territorial banking commission or similar official or is a foreign bank or equivalent institution, and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements, a copy of which is attached hereto. ------------------- (1) Buyer must own and/or invest on a discretionary basis at least $100,000,000 in securities of issuers that are not affiliated with the Buyer, unless Buyer is a dealer, and, in that case, Buyer must own and/or invest on a discretionary basis at least $10,000,000 in securities of issuers that are not affiliated with the Buyer. o Savings and Loan. Buyer (a) is a savings and loan association, building and loan association, cooperative bank, homestead association or similar institution, which is supervised and examined by a State or Federal authority having supervision over any such institution or is a foreign savings and loan association or equivalent institution and (b) has an audited net worth of at least $25,000,000 as demonstrated in its latest annual financial statements, a copy of which is attached hereto. o Broker-dealer. Buyer is a dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934. o Insurance Company. Buyer is an insurance company whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies and which is subject to supervision by the insurance commissioner or a similar official or agency of a State, territory or the District of Columbia. o State or Local Plan. Buyer is a plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of a State or its political subdivisions, for the benefit of its employees. o Investment Advisor. Buyer is an investment advisor registered under the Investment Advisers Act of 1940. The term "securities" as used herein does not include (i) securities of issuers that are affiliated with Buyer, (ii) securities that are part of an unsold allotment to or subscription by Buyer (if Buyer is a dealer), (iii) securities issued or guaranteed by the U.S. or any instrumentality thereof, (iv) bank deposit notes and certificates of deposit, (v) loan participations, (vi) repurchase agreements, (vii) securities owned but subject to a repurchase agreement, and (viii) currency, interest rate and commodity swaps. For purposes of determining the aggregate amount of securities owned and/or invested on a discretionary basis, Buyer used the cost of such securities to Buyer and did not include any of the securities referred to in the preceding paragraph. Further, in determining such aggregate amount, Buyer may have included securities owned by subsidiaries of Buyer, but only if such subsidiaries are consolidated with Buyer in its financial statements prepared in accordance with generally accepted accounting principles and if the investments of such subsidiaries are managed under Buyer's direction. However, such securities were not included if Buyer is a majority-owned, consolidated subsidiary of another enterprise and Buyer is not itself a reporting company under the Securities Exchange Act of 1934. Buyer acknowledges that it is familiar with Rule 144A and understands that you and your customers (if you act as a broker for one or more customers) are and will continue to rely on the statements made herein because one or more sales by you for your own account of your customer's account to Buyer may be in reliance on Rule 144A. 2 Will Buyer be purchasing Rule 144A securities only for Buyer's own account? ______ ______ Yes No If the answer to this question is "no", Buyer agrees that, in connection with any purchase of securities sold to Buyer for the account of a third party (including any separate account) in reliance on Rule 144A, Buyer will only purchase for the account of a third party that at the time is a "qualified institutional buyer" within the meaning of Rule 144A. In addition, Buyer agrees that Buyer will not purchase securities for a third party unless Buyer has obtained a current representation letter from such third party or taken other appropriate steps contemplated by Rule 144A to conclude that such third party independently meets the definition of "qualified institutional buyer" set forth in Rule 144A. Buyer agrees to notify you of any changes in the information and conclusions herein. Until such notice is given to you, Buyer's purchase of securities from you, or through you from your customers, will constitute a reaffirmation of the foregoing certifications and acknowledgments as of the date of such purchase. Further, if Buyer is a bank or savings and loan as provided above, Buyer agrees that it will furnish you with updated annual financial statements promptly after they become available. Date:______________________ Very truly yours, [Print Name of Buyer] By: _________________________________________ Name: Title: 3 Annex 2 to Exhibit B Wachovia Bank, National Association 123 South Broad Street, M.B.O., 18th Floor Philadelphia, PA 19109 Attn: Corporate Trust Administration Charming Shoppes Receivables Corp. c/o Charming Shoppes, Inc. 450 Winks Lane Bensalem, PA 19020 Name of Buyer:______________________________ ("Buyer") Name of Investment Adviser:_______________________________ ("Adviser") I hereby certify that, as indicated below, I am the duly-authorized President, Chief Financial Officer or Vice President of Buyer or, if Buyer is a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933, as amended ("Rule 144A") because Buyer is part of a Family of Investment Companies (as defined below), of Adviser. In connection with purchases of securities by Buyer, I hereby certify to you and, if you act as broker for one or more customers, to such customers, that Buyer is a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933 ( "Rule 144A") because (i) Buyer is an investment company registered under the Investment Company Act of 1940 and (ii) as marked below, Buyer alone, or Buyer's Family of Investment Companies, owned at least $100,000,000 in securities (other than the excluded securities referred to below) as of the end of Buyer's most recent fiscal year. _____ Buyer owned $________ in securities (other than the excluded securities referred to below) as of the end of Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). ______ Buyer is part of a Family of Investment Companies which owned in the aggregate $_____ in securities (other than the excluded securities referred to below) as of the end of Buyer's most recent fiscal year (such amount being calculated in accordance with Rule 144A). For purposes of determining the amount of securities owned by Buyer or Buyer's Family of Investment Companies, I used the cost of such securities. The term "Family of Investment Companies" as used herein means two or more registered investment companies (or series thereof) that have the same investment adviser or investment advisers that are affiliated (by virtue of being majority owned subsidiaries of the same parent or because one investment adviser is a majority owned subsidiary of the other). The term "securities" as used herein does not include (i) securities of issuers that are affiliated with Buyer or are part of Buyer's Family of Investment Companies, (ii) securities issued or guaranteed by the U.S. or any instrumentality thereof, (iii) bank deposit notes and certificates of deposit, (iv) loan participations, (v) repurchase agreements, (vi) securities owned but subject to a repurchase agreement and (vii) currency, interest rate and commodity swaps. On behalf of Buyer, I acknowledge that Buyer is familiar with Rule 144A and understands that you and your customers (if you act as a broker for one or more customers) are and will continue to rely on the statements made herein because one or more sales to Buyer by you for your own account or your customer's account will be in reliance on Rule 144A. In addition, on behalf of Buyer, I agree that, in connection with any purchase of securities sold by or through you in reliance on Rule 144A, Buyer will only purchase for Buyer's own account. Finally, on behalf of Buyer or Adviser (as appropriate), I also agree to notify you of any changes in the information and conclusions herein. Until such notice is given to you, Buyer's purchase of securities from you, or through you from your customers, will constitute a reaffirmation of the foregoing certifications and acknowledgments as of the date of such purchase. Date:___________________________ Very truly yours, ______________________________________ Name: Title: On behalf of: [Name of Buyer/Adviser] 2 EX-10 7 exh1014.txt EXHIBIT 10.14 EXHIBIT 10.14 FORM OF BONUS AGREEMENT This Bonus Agreement is dated as of _______________________, 2004 by and between CHARMING SHOPPES, INC., a Pennsylvania corporation ("Corporation") and _____________________ (1) ("Executive"). WITNESSETH: WHEREAS, the Corporation and ________________ or her successors, as Trustee under the Indenture of Trust of _________________ dated ___________________ (the "Trust") were parties to that certain Amended and Restated Collateral Assignment Split Dollar Insurance Agreement effected as of _____________________ (the "Split Dollar Agreement"), pursuant to which the Corporation was assisting Executive with a personal life insurance program; and WHEREAS, as a result of the enactment Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") and other reasons, the Trust has terminated the Split Dollar Agreement and has relinquished to Corporation all of its rights in the subject life insurance policy; and WHEREAS, the Corporation desires to assist the Executive with a new personal life insurance program for the benefit of his beneficiaries; NOW, THEREFORE, for and in consideration of the promises and mutual covenants expressed herein by each of the parties and intending to be legally bound hereby, each party does bind itself and its heirs, successors and assigns, and agrees as follows: 1. Bonus. Corporation shall pay a bonus (the "Bonus Payment") to Executive on each of the dates set forth in Section 2 equal to ______________Dollars ($_______) (2) divided by: the reciprocal of the highest combined marginal Federal, state and local income tax rate in effect for the year in which the Bonus Payment is made and applicable to Executive. For example, if the highest marginal rates are: Federal 36%, Pennsylvania 3.07% and local 0%, the divisor would be: 0.6093 (1- (.36+.0307)). 2. Payment Dates. Bonus Payments shall be paid on each of the dates set forth below, provided that the Executive is alive on such date: [five annual installments] - -------- (1) Each of Dorrit J. Bern, Colin D. Stern, Anthony A. DeSabato, and Eric M. Specter are executing this Form of Bonus Agreement. (2) For Dorrit J. Bern, the amount is approximately $240,000. For Colin D. Stern, the amount is approximately $45,000. For Anthony A. DeSabato, the amount is approximately $39,000. For Eric M. Specter, the amount is approximately $29,000. -1- 3. Unconditional Obligation to Pay. Corporation's obligation to make the Bonus Payment shall be absolute and unconditional. Such obligation shall not be affected by the termination of Executive's employment with Corporation for any reason whatsoever (except for Executive's death), whether Executive's employment is terminated voluntarily or involuntarily, including, without limitation, as a result of his resignation, retirement, disability, termination by Corporation (with or without cause) or a change in control of the Corporation. 4. No Employment Agreement. This Agreement shall not be deemed to constitute a contract of employment between the Corporation and the Executive, nor shall any provision restrict the right of the Corporation to terminate employment at any time not in contravention of any applicable employment agreement. The Executive's rights under this agreement shall be unaffected by any other agreement between the Corporation and the Executive. 4. Miscellaneous. (a) Amendment. No change or modification to this Agreement shall be valid unless the same be in writing and signed by the parties hereto. (b) Successors. This Agreement shall inure to the benefit of and shall be binding upon all of the parties and their respective heirs, successors and assigns. (c) Applicable Law. This Agreement and the rights of the parties hereunder shall be interpreted in accordance with the laws of the Commonwealth of Pennsylvania. (d) Severability. If any provision of this Agreement or the application thereof to any Person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby but rather shall be enforced to the greatest extent permitted by law. (e) Counterparts. This Agreement may be executed simultaneously in one or more counterparts with the same effect as if all parties had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument. (f) Construction. When from the context it appears appropriate, each term stated either in the singular or the plural shall include the singular and the plural and pronouns stated either in the masculine, the feminine or the neuter shall include the masculine, the feminine and the neuter. (g) Headings and Captions. The headings and captions contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of this Agreement or any provisions hereof. (h) No Waiver. The failure of any party to insist upon strict performance of a covenant hereunder or of any obligation hereunder or to exercise any right or remedy hereunder, regardless of how long such failure shall continue, shall not be a waiver of such party's right to demand strict compliance therewith in the future unless such waiver is in writing and signed by the party giving the same. -2- (I) Additional Instruments. Each party agrees to execute and deliver such additional agreements, certificates, and other documents as may be necessary or appropriate to carry out the intent and purposes of this Agreement. (j) Notices. All notices, approvals, consents, requests, instructions, and other communications (collectively "Communications") intended to be given pursuant to this Agreement shall be validly given, made or served only if in writing and when delivered personally or by registered or certified mail, return receipt requested, postage prepaid, or by a reputable overnight or same day courier, addressed to the Corporation or the party at the address that is on record at the principal office of the Corporation. Any such Communication shall be treated as given under this Agreement when the Communication is delivered to such address. The designation of the Person to receive such Communication on behalf of a party or the address of any such Person for the purposes of such Communication may be changed from time to time by notice given to the Corporation pursuant to this Section. IN WITNESS WHEREOF, this Bonus Agreement has been executed by the parties hereto on the day and year first above written. CHARMING SHOPPES, INC. By:________________________________ (Title) Attest: ---------------------------------- (Title) EXECUTIVE ---------------------------------- -3- EX-10 8 exh1015.txt EXHIBIT 10.15 EXHIBIT 10.15 CHARMING SHOPPES, INC. 2004 STOCK AWARD AND INCENTIVE PLAN STOCK OPTION AGREEMENT Agreement dated as of _________ , 200__ between CHARMING SHOPPES, INC. (the "Company") and __________________ (the "Employee"). It is agreed as follows: 1. Grant of Option, Consideration and Employee Acknowledgments The Company hereby confirms the grant, under and pursuant to the Company's 2004 Stock Award and Incentive Plan (the "Plan"), to the Employee on _____________ of a nonqualified stock option to purchase up to ____________ shares of the Company's common stock, par value $.10 per share (the "Shares"), at an exercise price of $_________ per share (the "Option"). The Option granted hereunder is not intended to constitute an incentive stock option within the meaning of Section 422 of the Code. The Employee shall be required to pay no consideration for the grant of the Option except for his or her agreement to provide services to the Company prior to exercise and his or her agreement to abide by the terms set forth in the Plan, this Stock Option Agreement (the "Agreement"), and any Rules and Regulations under the Plan. The Employee acknowledges and agrees that (i) the Option is nontransferable, except as provided in Section 10 hereof and Section 10(b) of the Plan, (ii) the Option is subject to forfeiture in the event of Employee's termination of employment in certain circumstances, as specified in Section 8 hereof, and (iii) sales of Shares will be subject to the Company's policies regulating trading by employees, including any applicable "blackout" or other designated periods in which sales of Shares are not permitted. 2. Incorporation of Plan by Reference The Option has been granted to the Employee under the Plan, a copy of which is attached hereto. All of the terms, conditions and other provisions of the Plan are hereby incorporated by reference into this Agreement . Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the Plan. If there is any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. Employee hereby accepts the grant of the Option , acknowledges receipt of the attached copy of the Plan, and agrees to be bound by all the terms and provisions hereof and thereof (as presently in effect or hereafter amended), and by all decisions and determinations of the Board or Committee under the Plan. 3. Date When Exercisable (a) This Option may not be exercised unless and only to the extent that it has become exercisable as specified in this Agreement. Subject to acceleration as provided in this Section 3, and Sections 7 and 8 below, limitations on exercisability imposed in Section 8 below, and all other terms and conditions of this Agreement, this Option shall become exercisable as follows: The Employee may purchase up to ________ of the total number of shares granted hereunder commencing ______ (___) year after the date of grant of this Option, an additional one-fourth commencing ___________ (___) years after the date of grant of this Option, an additional __________ commencing _______ (___) years after the date of grant of this Option, and the remaining shares granted hereunder commencing _________ (___) years after the date of grant of this Option. [to be completed in accordance with each individual grant] Except as otherwise specifically provided herein, the Option to purchase any and all Shares covered by this Agreement shall expire at 5:00 p.m. on the date _______ (__) years after the date of grant of this Option. - -------------------------------------------------------------------------------- THE DATE OF GRANT OF THIS OPTION IS: _____________ GRANT NUMBER: _______________ (b) The number of Shares with respect to which the Option may be exercised shall be cumulative so that if, in any of the aforementioned periods, the full number of Shares shall not have been purchased, any such unpurchased Shares shall continue to be included in the number of Shares with respect to which this Option shall then be exercisable along with any other Shares as to which this Option may become exercisable in accordance with its terms. (c) The provisions contained in Section 3(a) above notwithstanding, the Committee may, in its sole discretion, at any time, upon written notice to the Employee, accelerate the vesting described in Section 3(a) so that the Option shall become immediately exercisable to the extent of all or any portion of the Shares covered hereunder. Acceleration pursuant to this Section 3(c) shall be separate and independent from any acceleration pursuant to Section 7 of this Agreement, and the provisions of Sections 3(d) and (e) shall not apply in the case of acceleration pursuant to Section 7 of this Agreement. (d) In the event that the acceleration described in Section 3(c) occurs prior to the time that all of the Options would have otherwise been exercisable in accordance with Section 3(a), in consideration of such acceleration, the Employee, if so requested by the Company at the time, agrees to hold and not dispose of that number of Shares covered by this Option for which this Option would not have been exercisable at the time of such acceleration, if such acceleration had not occurred, and further agrees to dispose of such Shares only at such time and to the extent of that number of Shares for which this Option would have been exercisable in accordance with the schedule set forth in Section 3(a) as if the acceleration had not occurred. In addition, if the Employee's employment with the Company or any of its subsidiaries shall be voluntarily terminated (other than for a temporary leave of absence approved by the Company or Retirement as defined below ) prior to a Change of Control and prior to the expiration of three (3) years after the date of grant of this Option, the Employee shall be obligated, at the Company's option exercisable within 60 days after termination of the Employee's employment, to sell to the Company any Shares theretofore acquired by the Employee upon exercise of this Option at a price which is equal to the price that the Employee paid for such Shares, but only to the extent that the Option would not have been exercisable at the date of termination of employment in accordance with Section 3(a) were it not for the acceleration provided for herein. (e) The Employee acknowledges that the certificates representing those Shares received upon exercise of the Option at a time the Option would not otherwise have been exercisable but for an acceleration pursuant to Section 3(c) may bear an appropriate legend giving notice of the foregoing restrictions, including the restriction on transfer of the Shares. 4. Method of Exercise The Option may be exercised as to any part of the Shares which may then be purchased by delivery to and receipt by the Secretary of the Company at 450 Winks Lane, Bensalem, Pennsylvania 19020, of a written notice, signed by the Employee, specifying the number of Shares which the Employee wishes to purchase, accompanied by either (1) payment in full of the exercise price therefor in accordance with Section 5, or (2) a commitment, approved by the Committee in advance, in which the Employee irrevocably instructs any registered broker or dealer designated by the Committee (a "Designated Broker") to make a cash payment of the exercise price and any required withholding taxes from the proceeds of the Employee's market sale of the underlying shares on the T+3 settlement date of the sale. Simultaneous with or as soon as practicable after the receipt of such payment, the Company shall deliver to the Employee a stock certificate for the Shares so purchased, with any requisite legend affixed. Such exercise may include instructions to the Company to deliver Shares due upon exercise of the Option to a Designated Broker in lieu of delivery to the Employee. Such instructions must designate the account into which the Shares are to be deposited. The method of exercise and related matters governed by Sections 4 and 5 shall be subject to Rules and Regulations adopted by the Committee and in effect at the time the Employee's notice of exercise is received by the Company; such Rules and Regulations may vary from or limit the procedures specified in this Section 4 and 5 , and may specify other methods of exercise. 2 5. Payment of Exercise Price The exercise price of the Option shall be payable in cash or by certified or bank cashier's check, provided, however, that, in lieu of payment in full in cash or by such check, the exercise price may, with the approval of the Committee, upon written request of the Employee, be paid in full or in part by transfer to or withholding by the Company of that number of shares of the Company's common stock with an aggregate fair market value (determined in such manner as may be specified by the Committee) equal to the aggregate exercise price of that number of Shares for which the Option is being exercised or such lesser portion of the aggregate purchase price as may be specified by the Employee (in which case the balance must be paid in cash or by certified or bank cashier's check). 6. Tax Withholding Whenever Shares are to be delivered upon exercise of the Option, the Company shall be entitled to require as a condition of delivery that the Employee remit or, in appropriate cases, agree to remit when due an amount sufficient to satisfy all federal, state and local withholding tax requirements relating thereto. Unless otherwise determined by the Committee, the Employee will be entitled to elect to have the Company withhold from the Shares to be delivered upon the exercise of the Option, or to elect to deliver to the Company from shares of the Company's common stock owned separately by the Employee, a sufficient number of such shares to satisfy the Employee's federal, state and local tax obligations relating to the Option exercise (and the Company's withholding obligations), to the extent, if any, permitted under Rules and Regulations adopted by the Committee and in effect at the time of the exercise of the Option. In such case, the Shares withheld or the shares surrendered will be valued at the fair market value, determined in such manner as may be specified by the Committee. The Committee may specify that an exercise in which the exercise price is paid as permitted under Section 5 shall be subject to automatic share withholding. 7. Change of Control Provisions (a) Acceleration of Exercisability. In the event of a Change of Control at a time that the Employee is employed by the Company or any of its subsidiaries, this Option shall become immediately and fully exercisable immediately prior to the occurrence of such Change of Control, and no restriction or limitation on the rights of the Employee set forth in Section 3 hereof (other than the stated expiration date) shall have any further force or effect. (b) Definitions of Certain Terms. For purposes of this Agreement, the following definitions shall apply: (1) "Beneficial Owner," "Beneficially Owns," and "Beneficial Ownership" shall have the meanings ascribed to such terms for purposes of Section 13(d) of the Exchange Act and the rules thereunder, except that, for purposes of this Section 7, "Beneficial Ownership" (and the related terms) shall include Voting Securities that a Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants, options or otherwise, regardless of whether any such right is exercisable within 60 days of the date as of which Beneficial Ownership is to be determined. (2) "Change of Control" means and shall be deemed to have occurred if (i) any Person, other than the Company or a Related Party, acquires directly or indirectly the Beneficial Ownership of any Voting Security of the Company and immediately after such acquisition such Person has, directly or indirectly, the Beneficial Ownership of Voting Securities representing 20 percent or more of the total voting power of all the then-outstanding Voting Securities; or (ii) those individuals who as of _____________ constitute the Board or who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors as of 3 _____________ or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board; or (iii)there is consummated a merger, consolidation, recapitalization or reorganization of the Company, a reverse stock split of outstanding Voting Securities, or an acquisition of securities or assets by the Company (a "Transaction"), other than a Transaction which would result in the holders of Voting Securities having at least 80 percent of the total voting power represented by the Voting Securities outstanding immediately prior thereto continuing to hold Voting Securities or voting securities of the surviving entity having at least 60 percent of the total voting power represented by the Voting Securities or the voting securities of such surviving entity outstanding immediately after such Transaction and in or as a result of which the voting rights of each Voting Security relative to the voting rights of all other Voting Securities are not altered; or (iv) there is implemented or consummated a plan of complete liquidation of the Company or sale or disposition by the Company of all or substantially all of the Company's assets other than any such transaction which would result in Related Parties owning or acquiring more than 50 percent of the assets owned by the Company immediately prior to the transaction. (3) "Person" shall have the meaning ascribed for purposes of Section 13(d) of the Exchange Act and the rules thereunder. (4) "Related Party" means (i) a majority-owned subsidiary of the Company; or (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any majority-owned subsidiary of the Company; or (iii) a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportion as their ownership of Voting Securities; or (iv) if, prior to any acquisition of a Voting Security which would result in any Person Beneficially Owning more than ten percent of any outstanding class of Voting Security and which would be required to be reported on a Schedule 13D or an amendment thereto, the Board approved the initial transaction giving rise to an increase in Beneficial Ownership in excess of ten percent and any subsequent transaction giving rise to any further increase in Beneficial Ownership; provided, however, that such Person has not, prior to obtaining Board approval of any such transaction, publicly announced an intention to take actions which, if consummated or successful (at a time such Person has not been deemed a "Related Party"), would constitute a Change of Control. (5) "Voting Securities" means any securities of the Company which carry the right to vote generally in the election of directors. 8. Termination of Employment (a) This Option shall terminate and no longer be exercisable at the earlier of the scheduled expiration time of the Option, as set forth in Section 3(a) above, or the earliest time specified below at or following a termination of employment of the Employee; provided, however, that in the event of termination of the employment of the Employee, this Option shall be exercisable during the period, if any, between the occurrence of such termination and the time designated for the termination of this Option only to the extent indicated below: (1) at the time of involuntary termination of the Employee's employment with the Company or any of its subsidiaries for reasons of moral turpitude, at which time this Option shall immediately terminate; provided, however, that, the provisions of Section 3(a) notwithstanding, this Option may not be exercised during any period prior to a Change of Control during which the Company, having given notice to the Employee, is investigating a claim that the Employee has engaged in one or more acts of moral turpitude; or (2) at the time of voluntary or involuntary termination of the Employee's employment with the Company or any of its subsidiaries for any reason at any time prior to the expiration of one year after the 4 date of grant of this Option and prior to any Change of Control, other than by reason of the Employee's death or disability, at which time this Option shall immediately terminate; or (3) at the expiration of three months after the voluntary or, if for cause (other than for reasons of moral turpitude), the involuntary termination of the Employee's employment with the Company or any of its subsidiaries, in either case at any time (A) after the expiration of one year after the date of grant of this Option, except as may be otherwise provided in Section 8(a)(7) below, during which three-month period this Option shall be exercisable only to the extent that it was exercisable at the date of the Employee's termination of employment, or (B) after a Change of Control, except as may be otherwise provided in Section 8(a)(7) below, during which three-month period this Option shall be exercisable in full; or (4) at the expiration of one year after the involuntary termination of the Employee's employment, other than for reasons of cause, moral turpitude, death or disability, with the Company or any of its subsidiaries at any time (A) after the expiration of one year after the date of grant of this Option, except as may be otherwise provided in Section 8(a)(7) below, during which one-year period this Option shall be exercisable to purchase the greater of (i) a number of Shares determined pursuant to the Option Formula (as set forth in Section 8(e) below) and (ii) the number of Shares as to which this Option was exercisable at the date of the Employee's termination of employment, or (B) after a Change of Control, except as may be otherwise provided in Section 8(a)(7) below, during which one-year period this Option shall be exercisable in full; or (5) at the expiration of three years after the date this Option is scheduled to become exercisable in full under Section 3 above or three years after the termination of employment, whichever is the later (but in no event later than the scheduled expiration time of this Option), if the Employee's termination results from his retirement at age 62 or thereafter ("Retirement")or such longer or shorter period as may be provided in Section 8(a)(6) below, provided that (i) during the period between Retirement, as the case may be, and termination of the Option as specified in this Section 8(a)(5) (the "Exercisability Period"), this Option shall continue to be exercisable by the Employee at such times and to the same extent that it would have been exercisable had the Employee continued his employment throughout the Exercisability Period, except as may be otherwise provided in Section 8(a)(6) below, and (ii) the Option (whether or not then exercisable) will immediately terminate if, during the Exercisability Period, Employee (A) directly or indirectly owns any equity or proprietary interest in (except for ownership of shares in a publicly traded company not exceeding five percent of any class of outstanding securities), or is an employee, agent, director, advisor, or consultant to or for, any Competitor (as defined below) of the Company in the United States, whether on his or her own behalf or on behalf of any person, in the procuring, sale, marketing, promotion, or distribution of any product or product lines competitive with any product or product lines of the Company at the time of Employee's Retirement, or if Employee assists in, manages, or supervises any of the foregoing activities, or (B) undertakes any action to induce or cause any supplier to discontinue any part of its business with the Company, or (C) attempts to induce any merchant, buyer, or manager or higher level employee of the Company to terminate his or her employment with the Company, or (D) discloses confidential or proprietary information of the Company to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever, or make use of any such information for his or her own purposes, so long as such information has not otherwise been disclosed to the public or is not otherwise in the public domain except as required by law or pursuant to administrative or legal process. For purposes of this Agreement, "Competitor" shall mean at any time only a chain of retail stores with 50 or more store locations; provided, however, that the average square footage of the chain's stores is less than 15,000 square feet. As a condition to the continuation of the Option in the Exercisability Period under this Section 8(a)(5), Employee shall be required to enter into an agreement not to engage in the activities described above in this Section 8(a)(5) and containing other customary terms and conditions; or (6) at the expiration of one year after the Employee's death if the Employee dies while employed by the Company or any of its subsidiaries or dies during the Exercisability Period specified in Section 8(a)(5) above, during which one-year period this Option shall be exercisable in full; or 5 (7) at the expiration of one year after the Employee's death if the Employee dies during the three-month periods referred to in Sections 8(a)(3) or the one-year period referred to in Section 8(a)(4) above, during which one-year period this Option shall be exercisable to the same extent provided in Section 8(a)(3) or (4) above (whichever was applicable prior to the Employee's death); or (8) at the expiration of one year after the termination of the Employee's employment with the Company or any of its subsidiaries by reason of the Employee's permanent disability if the Employee becomes permanently disabled while employed by the Company or any of its subsidiaries, during which one-year period this Option shall be exercisable in full. (b) For purposes hereof, "cause" shall mean the Employee's chronic neglect, refusal or failure to fulfill his or her employment duties and responsibilities, other than for reasons of sickness, accident or other similar causes beyond the Employee's control. Such neglect, refusal or failure shall be determined in the sole and reasonable judgment of the Committee. (c) For purposes hereof, the existence of a "disability" shall be determined by, or in accordance with criteria and standards adopted by, the Committee. (d) For purposes hereof, "moral turpitude" shall mean the Employee's dishonesty or intentional wrongdoing committed against the Company, its agents or employees or otherwise in connection with his or her employment by the Company or conviction of a crime, whether or not in connection with employment, other than a traffic infraction or other minor violation. The Committee shall have the sole discretion to determine whether the Employee has committed an act of moral turpitude. (e) For purposes hereof, the "Option Formula" shall be the product of (i) the total number of Shares covered by this Option at the date of termination of employment times (ii) a fraction, the numerator of which shall be the lesser of _________ (__) or the number of full and partial years that the Employee has been employed by the Company or any of its subsidiaries between the date of grant of this Option and the date of termination of employment and the denominator of which shall be the number ________ (___). (f) Except as provided in Section 9, an Employee shall not be deemed to have terminated his employment for purposes of this Section 8 if his employment terminates with the Company but thereafter continues with one of the Company's subsidiaries or terminates with a subsidiary but thereafter continues with the Company or another subsidiary. 9. Change in Job Status Should the Employee's job classification change, and as a result of such change the Committee determines, in its sole discretion and prior to any Change of Control, that the Employee is no longer employed in a position which would enable him to contribute to the success of the Company on at least as great a level as that to which he was enabled by his prior job classification, then the Committee may deem the Employee's employment with the Company or its subsidiaries to have been terminated involuntarily (but not for cause or moral turpitude) in respect of all or a portion of this Option. 10. Limits on Transfer of Options; Beneficiaries No right or interest of a participant in this Option shall be pledged, encumbered or hypothecated to or in favor of any third party or shall be subject to any lien, obligation or liability of the Employee to any third party. This Option shall not be transferable to any third party by the Employee otherwise than by will or the laws of descent and distribution, and this Option shall be exercisable, during the lifetime of the Employee, only by the Employee; provided, however, that the Employee will be entitled to designate a beneficiary or beneficiaries to exercise his rights under this Option upon the death of Employee, in the manner and to the extent permitted by the Committee under 6 Rules and Regulations adopted by the Committee under the Plan, and the Committee may permit transfers otherwise to the extent permitted under Section 10(b) of the Plan. 11. Investment Representation Unless, at the time of any exercise of this Option, the issuance and delivery of Shares hereunder to the Employee is registered under a then-effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), and complies with all applicable registration requirements under state securities laws, the Employee shall provide to the Company, as a condition to the valid exercise of this Option and the delivery of any certificates representing Shares, appropriate evidence, satisfactory in form and substance to the Company, that he is acquiring the Shares for investment and not with a view to the distribution of the Shares or any interest in the Shares, and a representation to the effect that the Employee shall make no sale or other disposition of the Shares unless (i) the Company shall have received an opinion of counsel satisfactory to it in form and substance that such sale or other disposition may be made without registration under the then-applicable provisions of the Securities Act, the related rules and regulations of the Securities and Exchange Commission, and applicable state securities laws and regulations, or (ii) the sale or other disposition of the Shares shall be registered under a currently effective registration statement under the Securities Act of 1933 and complies with all applicable registration requirements under state securities laws. The certificates representing the Shares may bear an appropriate legend giving notice of the foregoing restriction on transfer of the Shares, and any other restrictive legend deemed necessary or appropriate by the Committee. 12. Employee Bound by Plan The Employee hereby acknowledges receipt of the attached copy of the Plan and agrees to be bound by all the terms and provisions thereof (as presently in effect or hereafter amended), and by all decisions and determinations of the Committee thereunder. 13. Miscellaneous This Agreement shall be binding upon the heirs, executors, administrators and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the Option, and supersedes any prior agreements or documents with respect to the Option. No amendment, alteration, suspension, discontinuation or termination of this Agreement which may impose any additional obligation upon the Company or impair the rights of the Employee with respect to the Option shall be valid unless in each instance such amendment, alteration, suspension, discontinuation or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and by the Employee. CHARMING SHOPPES, INC. BY:_____________________________ (Authorized Officer) EMPLOYEE: ________________________________ 7 EX-10 9 exh1016.txt EXHIBIT 10.16 EXHIBIT 10.16 CHARMING SHOPPES, INC. 2004 STOCK AWARD AND INCENTIVE PLAN RESTRICTED STOCK AGREEMENT - SECTION 16 OFFICERS Agreement dated as of ______ __, 200__, between CHARMING SHOPPES, INC. (the "Company") and __________________ (the "Employee"). It is agreed as follows: 1. Grant of Restricted Stock; Consideration; Employee Acknowledgments. The Company hereby confirms the grant, under the Company's 2004 Stock Award and Incentive Plan (the "Plan"), to Employee on the date of this Restricted Stock Agreement (the "Date of Grant") of __________ shares of the Company's common stock, par value $0.10 per share ("Shares"), pursuant to Section 6(d) of the Plan, and subject to restrictions as set forth herein and in the Plan ("Restricted Stock"). Employee shall be required to pay no cash consideration for the grant of the Restricted Stock, but Employee's prior services to the Company, performance of services to the Company from the date of grant to the date of issuance of the Shares and performance of further services prior to the expiration of applicable restrictions relating to the Restricted Stock and otherwise during the term of his or her employment, and his or her agreement to abide by the terms set forth in the Plan, this Restricted Stock Agreement (the "Agreement"), and any Rules and Regulations under the Plan, shall be deemed to be consideration for this grant of Restricted Stock. Employee acknowledges and agrees that (i) the Restricted Stock is nontransferable as provided in Section 3(a) hereof and Sections 6(d) and 10(b) of the Plan, (ii) the Restricted Stock is subject to forfeiture in the event of Employee's termination of employment in certain circumstances, as specified in Section 3(b) hereof, and (iii) sales of Shares following the lapse of restrictions will be subject to the Company's policies regulating trading by employees, including any applicable "blackout" or other designated periods in which sales of Shares are not permitted. 2. Incorporation of Plan by Reference. The Restricted Stock has been granted to Employee under the Plan, a copy of which is attached hereto. All of the terms, conditions and other provisions of the Plan are hereby incorporated by reference into this Agreement. Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the Plan. If there is any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. Employee hereby accepts the grant of Restricted Stock, acknowledges receipt of the attached copy of the Plan, and agrees to be bound by all the terms and provisions hereof and thereof (as presently in effect or hereafter amended), and by all decisions and determinations of the Board or Committee under the Plan. - -------------------------------------------------------------------------------- THE DATE OF GRANT OF THIS RESTRICTED STOCK IS: _____________ GRANT NUMBER: _______________ 3. Restrictions on Restricted Stock. (a) Restrictions Generally. Until they lapse in accordance with Section 3(b), 3(c), or 5(a), the following restrictions (the "Restrictions") shall apply to the Restricted Stock: (1) Employee shall have no right to sell, transfer, assign, pledge, or otherwise encumber or dispose of the Restricted Stock (except for transfers and forfeitures to the Company); and (2) the Restricted Stock shall be subject to the risk of forfeiture as set forth in Section 3(b). Employee shall be entitled to receive dividends and distributions on the Restricted Stock in accordance with Section 4. Employee shall be entitled to vote Restricted Stock on any matter submitted to a vote of holders of Common Stock, to the extent permitted by law; and Employee shall have all other rights of a shareholder of the Company except as otherwise expressly limited or provided under this Agreement. (b) Forfeiture. Unless otherwise determined by the Committee, if Employee's employment terminates and he or she thereafter is not an employee of the Company or any of its subsidiaries (a "Termination"), and such Termination is for any reason other than due to death, permanent disability, Retirement or involuntary termination by the Company for reasons other than "Cause," the Restricted Stock as to which Restrictions have not lapsed at or before such Termination shall be forfeited at the time of such Termination. Accordingly, Employee's voluntary Termination (other than due to Retirement) or Termination by the Company for Cause will result in all shares of Restricted Stock which remain subject to Restrictions being immediately forfeited. Vesting and forfeiture terms applicable to other terminations are as follows: (i) Death or Disability. In the event of Employee's Termination due to death or permanent disability, all Restrictions on the Restricted Stock shall lapse at the time of such Termination (i.e., none of the Restricted Stock will be forfeited). For purposes of this Agreement, the existence of a "permanent disability" shall be determined by, or in accordance with criteria and standards adopted by, the Committee. (ii) Termination Not for Cause. In the event of Employee's Termination due to involuntary termination by the Company for reasons other than "Cause," the Restrictions on those shares of Restricted Stock as to which Restrictions would have lapsed at the next anniversary of the Date of Grant in the absence of a Termination (but disregarding any other event occurring prior to that next anniversary date) will lapse on an accelerated basis at the time of such Termination (i.e., if Termination is more than ______ (___) years after the Date of Grant, one additional tranche of the Restricted Stock will become non-forfeitable), so those shares of Restricted Stock will not be forfeited, and the other shares of Restricted Stock as to which Restrictions have not lapsed at or before such Termination (i.e., any tranche as to which Restrictions would have lapsed at an anniversary of the Date of Grant after the next anniversary date) shall be forfeited at the time of such Termination. (iii) Definition of "Cause." For purposes of this Agreement, "Cause" shall mean Employee's chronic neglect, refusal or failure to fulfill his or her employment duties and responsibilities, other than for reasons of sickness, accident or other similar causes beyond Employee's control. Such neglect, refusal or failure shall be determined in the sole and reasonable judgment of the Committee. (iv) Retirement. In the event of Employee's Termination due to Retirement, Employee's Restricted Stock will not be forfeited upon such Retirement, but instead the Restrictions on Employee's Restricted Stock shall remain in effect until the earlier of the time such Restrictions lapse under Section 3(c) or 5(a) or Employee's death. During such post-Retirement period in which the Restrictions remain in effect, the Restricted Stock shall be immediately forfeited if Employee: (A) directly or indirectly owns any equity or proprietary interest in (except for ownership of shares in a publicly traded company not exceeding five percent of any class of outstanding securities), or is an employee, agent, director, advisor, or consultant to or for, any Competitor (as defined below) of the Company in the United States, whether on his or her own behalf or on behalf of any person, in the procuring, sale, marketing, promotion, or distribution of any product or product lines competitive with any product or product lines of the Company at the time of Employee's Retirement, or if Employee assists in, manages, or supervises any of the foregoing activities, or (B) undertakes any action to induce or cause any supplier to discontinue any part of its business with the Company, or (C) attempts to induce any merchant, buyer, or manager or higher level employee of the Company to terminate his or her employment with the Company, or (D) discloses confidential or 2 proprietary information of the Company to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever, or make use of any such information for his or her own purposes, so long as such information has not otherwise been disclosed to the public or is not otherwise in the public domain except as required by law or pursuant to administrative or legal process. For purposes of this Agreement, "Retirement" shall mean a retirement at or after Employee has attained age 62, and "Competitor" shall mean at any time only a chain of retail stores with 50 or more store locations; provided, however, that the average square footage of the chain's stores is less than 15,000 square feet. (c) Expiration of Restrictions. Unless the Restrictions on Restricted Stock lapse earlier under Section 3(b) or 5(a), the Restrictions shall lapse as to _______________ (_____%) percent of the total number of shares of Restricted Stock on the _____________ anniversary of the Date of Grant, an additional ___________ (___%) percent of the total number of shares of Restricted Stock on the __________ anniversary of the Date of Grant and the remaining _____________ (___%) percent of the total number of shares of Restricted Stock on the __________ anniversary of the Date of Grant. [to be completed in accordance with each individual grant] Upon expiration of the Restrictions on any Restricted Stock, the Company shall promptly deliver to Employee one or more certificates representing such Shares (which shall no longer be deemed to be Restricted Stock), with any legend referring to the Restrictions removed from such certificate(s), or shall cause such Shares to be delivered to a broker or bank which maintains an account for Employee or Employee's designee, for deposit to such account, or shall make delivery of such Shares by other reasonable means determined by the Committee. (d) Certificates Representing Restricted Stock. Restricted Stock shall be evidenced by issuance of one or more certificates in the name of Employee, bearing an appropriate legend referring to the terms, conditions, and Restrictions applicable hereunder. Unless otherwise determined by the Committee, such certificates shall remain in the physical custody of the General Counsel of the Company or his designee until such time as the Restrictions on such shares have lapsed. In addition, Restricted Stock shall be subject to such stop-transfer orders and other restrictive measures as the General Counsel of the Company shall deem advisable under federal or state securities laws, rules and regulations thereunder, and the rules of the Nasdaq National Market System or any national securities exchange on which Common Stock is then quoted or listed, or to implement the Restrictions, and the General Counsel may cause a legend or legends to be placed on any such certificates to make appropriate reference to the Restrictions. (e) Stock Powers. Employee agrees to execute and deliver to the Company one or more stock powers, in such form as may be specified by the General Counsel, authorizing the transfer of the Restricted Stock to the Company, at the Date of Grant of the Restricted Stock or upon request at any time thereafter. 4. Dividends and Distributions. Unless otherwise determined by the Committee, payment of all dividends and distributions on the Restricted Stock which would otherwise be payable to the Employee when, as, and if declared and paid on Shares, shall be deferred until and payable to the Employee when, as and if the Restrictions on the Restricted Stock lapse under Sections 3(a), 3(b), 3(c) or 5(a) in the same proportion that the number of shares of Restricted Stock as to which the Restrictions have lapsed bears to the total number of shares of Restricted Stock. Unless otherwise determined by the Committee, all dividends and distributions referred to in the immediately preceding sentence, other than regular quarterly cash dividends (if any), shall be deemed reinvested in additional Restricted Stock at the Fair Market Value of Shares on the date when such dividends and distributions would be paid on Shares and such additional Restricted Stock shall be subject to the same Restrictions as apply to the original Restricted Stock. No interest will be credited on any cash amount (if any) of such dividends payable at the time of lapse of the Restrictions. Such Restrictions shall lapse as to the shares of additional Restricted Stock in the same proportion that the number of shares of original Restricted Stock as to which the Restrictions have lapsed bears to the total number of shares of original Restricted Stock. 3 5. Change of Control Provisions. (a) Acceleration of Expiration of Restrictions. In the event of a Change of Control at a time that Employee is employed by the Company or any of its subsidiaries (or simultaneously with Employee's Termination) and after the date of grant of the Restricted Stock, the Restrictions on the Restricted Stock shall lapse immediately prior to the Change of Control. (b) Definitions of Certain Terms. For purposes of this Agreement, the following definitions shall apply: (1) "Beneficial Owner," "Beneficially Owns," and "Beneficial Ownership" shall have the meanings ascribed to such terms for purposes of Section 13(d) of the Exchange Act and the rules thereunder, except that, for purposes of this Section 5, "Beneficial Ownership" (and the related terms) shall include Voting Securities that a Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants, options, or otherwise, regardless of whether any such right is exercisable within 60 days of the date as of which Beneficial Ownership is to be determined. (2) "Change of Control" means and shall be deemed to have occurred if (i) any Person, other than the Company or a Related Party, acquires directly or indirectly the Beneficial Ownership of any Voting Security of the Company and immediately after such acquisition such Person has, directly or indirectly, the Beneficial Ownership of Voting Securities representing 20 percent or more of the total voting power of all the then-outstanding Voting Securities; or (ii) those individuals who as of the Date of Grant constitute the Board or who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors as of the Date of Grant or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board; or (iii) there is consummated a merger, consolidation, recapitalization, or reorganization of the Company, a reverse stock split of outstanding Voting Securities, or an acquisition of securities or assets by the Company (a "Transaction"), other than a Transaction which would result in the holders of Voting Securities having at least 80 percent of the total voting power represented by the Voting Securities outstanding immediately prior thereto continuing to hold Voting Securities or voting securities of the surviving entity having at least 60 percent of the total voting power represented by the Voting Securities or the voting securities of such surviving entity outstanding immediately after such Transaction and in or as a result of which the voting rights of each Voting Security relative to the voting rights of all other Voting Securities are not altered; or (iv) there is implemented or consummated a plan of complete liquidation of the Company or sale or disposition by the Company of all or substantially all of the Company's assets other than any such transaction which would result in Related Parties owning or acquiring more than 50 percent of the assets owned by the Company immediately prior to the transaction. (3) "Person" shall have the meaning ascribed for purposes of Section 13(d) of the Exchange Act and the rules thereunder. (4) "Related Party" means (i) a majority-owned subsidiary of the Company; or (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any majority-owned subsidiary of the Company; or (iii) a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportion as their ownership of Voting Securities; or (iv) if, prior to any acquisition of a Voting Security which would result in any Person Beneficially 4 Owning more than ten percent of any outstanding class of Voting Security and which would be required to be reported on a Schedule 13D or an amendment thereto, the Board approved the initial transaction giving rise to an increase in Beneficial Ownership in excess of ten percent and any subsequent transaction giving rise to any further increase in Beneficial Ownership; provided, however, that such Person has not, prior to obtaining Board approval of any such transaction, publicly announced an intention to take actions which, if consummated or successful (at a time such Person has not been deemed a "Related Party"), would constitute a Change of Control. (5) "Voting Securities" means any securities of the Company which carry the right to vote generally in the election of directors. 6. Tax Withholding. Employee agrees to remit to the Company and any subsidiary, and authorizes the Company and any subsidiary to deduct from any payment to be made to Employee hereunder if such remittance has not been made, any amount that federal, state, local, or foreign tax law requires to be withheld with respect to the Restricted Stock or lapse of restrictions thereon. Unless otherwise determined by the Board or Committee, unless the Employee has made other arrangements satisfactory to the Company to provide for payment of mandatory withholding taxes in advance of the applicable date on which the risk of forfeiture is to lapse (by such deadline as the Company may specify), the Company will withhold from the number of Shares as to which the risk of forfeiture is then to lapse a number of whole shares up to but not exceeding that number which has a Fair Market Value nearest to but not exceeding the amount of federal, state and local taxes required to be withheld as a result of the lapse of such risks of forfeiture. The Employee may elect such other methods of satisfying such withholding obligation as may be permitted under rules and regulations adopted by the Committee and in effect at the time of the lapse of such risks of forfeiture, which may include the surrender of shares of the Company's common stock owned separately by Employee. In the case of the withholding or surrender of Shares to pay withholding taxes, the Shares withheld or the shares surrendered will be valued at the Fair Market Value determined in accordance with procedures for valuing shares as set forth in rules and regulations adopted by the Committee and otherwise in effect at the time of lapse of such risks of forfeiture. 7. Miscellaneous. This Agreement shall be binding upon the heirs, executors, administrators, and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the Restricted Stock granted hereby, and supersedes any prior agreements or documents with respect to such Restricted Stock. No amendment, alteration, suspension, discontinuation, or termination of this Agreement which may impose any additional obligation upon the Company or materially and adversely affect the rights of Employee with respect to the Restricted Stock shall be valid unless in each instance such amendment, alteration, suspension, discontinuation, or termination is expressed in a written instrument duly executed in the name and on behalf of the Company (if subject to such an additional obligation) and by Employee (if Employee's rights are materially and adversely affected). CHARMING SHOPPES, INC. BY:________________________________ (Authorized Officer) EMPLOYEE: ________________________________ Attachments: 2004 Stock Award and Incentive Plan Form of Stock Power 5 STOCK POWER FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto Charming Shoppes, Inc. __________ shares of Common Stock, $0.10 par value per share, of Charming Shoppes, Inc., a Pennsylvania corporation (the "Corporation"), registered in the name of the undersigned on the books and records of the Corporation, and does hereby irrevocably constitute and appoint Colin D. Stern and Anthony A. DeSabato, and each of them, attorneys, to transfer the Common Stock on the books of the Corporation, with full power of substitution in the premises. ________________________________ Date:___________________________ 6 EX-10 10 exh1017.txt EXHIBIT 10.17 EXHIBIT 10.17 CHARMING SHOPPES, INC. 2004 STOCK AWARD AND INCENTIVE PLAN RESTRICTED STOCK AGREEMENT - ASSOCIATES OTHER THAN SECTION 16 OFFICERS Agreement (the "Agreement"), dated as of ____________ , 200__ (the "Grant Date") between CHARMING SHOPPES, INC. (the "Company") and _____________________ ("Participant") 1. Grant of Restricted Stock; Consideration; Participant Acknowledgments. The Company hereby confirms the grant, under the 2004 Stock Award and Incentive Plan (the "Plan"), on the Grant Date, of __________ shares of Restricted Stock pursuant to Section 6(e) of the Plan. The Restricted Stock is subject to the terms and conditions of the Plan and the provisions of this Agreement. Participant shall be required to pay no cash consideration for the grant of the Restricted Stock, but performance of services prior to the expiration of applicable restrictions relating to the Restricted Stock and otherwise during his or her employment, and his or her agreement to abide by the terms set forth in the Plan, this Restricted Stock Agreement (the "Agreement"), and any Rules and Regulations under the Plan, shall be deemed to be consideration for this grant of Restricted Stock. Participant acknowledges and agrees that (i) the Restricted Stock is nontransferable as provided in Section 5(b) hereof and Sections 6(e) and 10(b) of the Plan, (ii) the Restricted Stock is subject to forfeiture in the event of Participant's termination of employment in certain circumstances, as specified in Section 5(a) hereof, and (iii) sales of shares of the Company's common stock, par value $0.10 per share ("Shares"), following the lapse of restrictions will be subject to the Company's policies regulating trading by employees as specified in Section 5(c) hereof. 2. Nature of Award of Restricted Stock; Restricted Period. Each share of "Restricted Stock" granted hereunder represents the right to receive one share of the Company's Common Stock, which will be issued at the end of a specified "Restricted Period" and which right is subject to a risk of forfeiture and other conditions during such Restricted Period. The Restricted Period applicable to the Restricted Stock shall begin on the Grant Date and lapse as to ______________ (__%) percent of the total number of shares of Restricted Stock on the _________ anniversary of the Date of Grant, an additional _______________ (___%) percent of the total number of shares of Restricted Stock on the _____________ anniversary of the Date of Grant and the remaining ___________ (____%) percent of the total number of shares of Restricted Stock on the _________ anniversary of the Date of Grant, provided, however, that the Restricted Period will lapse on an accelerated basis as provided in Section 5(a) and Section 8 hereof. [to be completed in accordance with each individual grant] Shares of Common Stock will be issued to Participant in settlement of Restricted Stock promptly following the lapse of the applicable Restricted Period. This award differs from some other awards of "restricted stock" which involve issuance of Shares at the beginning rather than the end of the restricted period; Participant has no voting rights or rights to actual dividends prior to the end of the Restricted Period. - -------------------------------------------------------------------------------- DATE OF RESTRICTED STOCK: _____________ AWARD NUMBER: _______________ 3. Incorporation of Plan by Reference. The Restricted Stock has been granted to Participant under the Plan, a copy of which is attached hereto. All of the terms, conditions, and other provisions of the Plan are hereby incorporated by reference into this Agreement. Capitalized terms used in this Agreement but not defined herein shall have the same meanings as in the Plan. If there is any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall govern. Participant hereby accepts the grant of Restricted Stock, acknowledges receipt of the attached copy of the Plan, and agrees to be bound by all the terms and provisions hereof and thereof (as presently in effect or hereafter amended), and by all decisions and determinations of the Board, the Committee, or any person or committee designated by the Committee to administer the Plan (the "Administrator"). 4. Participant's Account. Shares of Restricted Stock are bookkeeping units, and do not constitute ownership of Shares or any other equity security. The Company shall maintain a bookkeeping account for Participant (the "Account") reflecting the number of shares of Restricted Stock then credited to Participant hereunder as a result of this grant of Restricted Stock and any crediting of additional Restricted Stock to Participant pursuant to payments equivalent to dividends paid on Shares under Section 7 ("Dividend Equivalents"). 5. Risk of Forfeiture; Non-Transferability; Insider Trading Policy. (a) Risk of Forfeiture. In the event of a Termination of Employment of Participant, the Restricted Stock as to which the Restricted Period has not ended shall be forfeited; provided, however, that: (i) In the event of a Change of Control at or before Participant's Termination of Employment, this risk of forfeiture shall automatically lapse, and all Restricted Periods shall end, on all of Participant's Restricted Stock immediately prior to the Change of Control, so Participant's Restricted Stock will not be forfeited; (ii) In the event that Participant's Termination of Employment is due to death or a permanent disability, this risk of forfeiture shall automatically lapse, and all Restricted Periods shall end, on all of Participant's Restricted Stock, so Participant's Restricted Stock will not be forfeited; iii) In the event that Participant's Termination of Employment is due to an involuntary termination by the Company for reasons other than "Cause," the risk of forfeiture shall automatically lapse, and the Restricted Period shall end, on those shares of Participant's Restricted Stock as to which the Restricted Period would have ended at the next anniversary of the Date of Grant (i.e., if Termination of Employment is more than _______ years after the Grant Date and before settlement, one additional tranche of the Restricted Stock will become non-forfeitable), so those shares of Restricted Stock will not be forfeited, but those shares of Restricted Stock as to which the Restricted Period would not have ended due to the passage of time at or before the next anniversary of the Date of Grant shall be forfeited at the time of such Termination of Employment; (iv) In the event that Participant's Termination is due to Retirement, Participant's Restricted Stock will not be forfeited upon such Retirement, but instead the risk of forfeiture and other restrictions on Participant's Restricted Stock shall remain in effect until the earlier of the end of the Restricted Period or Participant's death. During such post-Retirement period in which the restrictions remain in effect, the Restricted Stock shall be immediately forfeited if Participant: (A) directly or indirectly owns any equity or proprietary interest in (except for ownership of shares in a publicly traded company not 2 exceeding five percent of any class of outstanding securities), or is an employee, agent, director, advisor, or consultant to or for, any Competitor (as defined below) of the Company in the United States, whether on his or her own behalf or on behalf of any person, in the procuring, sale, marketing, promotion, or distribution of any product or product lines competitive with any product or product lines of the Company at the time of Participant's Retirement, or if Participant assists in, manages, or supervises any of the foregoing activities, or (B) undertakes any action to induce or cause any supplier to discontinue any part of its business with the Company, or (C) attempts to induce any merchant, buyer, or manager or higher level employee of the Company to terminate his or her employment with the Company, or (D) discloses confidential or proprietary information of the Company to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever, or make use of any such information for his or her own purposes, so long as such information has not otherwise been disclosed to the public or is not otherwise in the public domain except as required by law or pursuant to administrative or legal process. (v) The Committee may otherwise accelerate the date or dates as of which this risk of forfeiture and the Restricted Period shall lapse, subject to Section 6(c). For purposes of this Agreement, (A) "Termination of Employment" means a termination of employment with the Company or any subsidiary immediately after which the Participant is not employed by the Company or any subsidiary; (B) "Cause" means Participant's chronic neglect, refusal or failure to fulfill his or her employment duties and responsibilities, other than for reasons of sickness, accident or other similar causes beyond Participant's control, such neglect, refusal or failure shall be determined in the sole and reasonable judgment of the Administrator; and (C) "permanent disability" shall be determined by, or in accordance with criteria and standards adopted by, the Administrator; and (D) "Retirement" shall mean a retirement at or after Participant has attained age 62, and (E) "Competitor" shall mean at any time only a chain of retail stores with 50 or more store locations; provided, however, that the average square footage of the chain's stores is less than 15,000 square feet. . (b) Nontransferability. Restricted Stock and all related rights hereunder shall not be transferable or assignable by a Participant (subject to any exception approved by the Committee under the Plan), other than by will or the laws of descent and distribution, and shall not be pledged, hypothecated, or otherwise encumbered in any way or subject to execution, attachment, lien, or similar process. (c) Insider Trading Policy. After settlement of Restricted Stock and delivery of Shares under Section 6, Participant will be subject to restrictions on selling such Shares or otherwise disposing of them under the Company's policies regulating trading by employees and affiliates, as such policies may then be in effect. Such policies may specify "blackout" or other designated periods in which sales of Shares are not permitted or otherwise restrict such sales. 6. Settlement. (a) Generally. Settlement of Restricted Stock shall occur upon the lapse of the Restricted Period applicable to the Restricted Stock. The Company may make delivery of Shares hereunder in settlement of Restricted Stock by either delivering one or more certificates representing such Shares to the Participant, registered in the name of the Participant (and any joint name, if so directed by the Participant), or by depositing such Shares into an account maintained for the Participant (or of which the Participant is a joint owner, with the consent of the Participant) established in connection with the Company's Employee Stock Purchase Program or another plan or arrangement providing for investment in Shares and under which the Participant's rights are similar in nature to those under a stock brokerage account. If the Company determines to settle Restricted Stock by making a deposit of Shares into such an account, the Company may settle any fractional Share of Restricted Stock by means of such deposit. In other circumstances or if so determined by the Company, the Company shall instead pay cash in lieu of fractional Shares, on such basis as the Administrator may determine. In no event will the Company in fact issue fractional Shares. 3 (b) Effect of Settlement. Upon settlement of the Restricted Stock, all obligations of the Company in respect of such Restricted Stock shall be terminated. Any shares delivered in settlement of Restricted Stock shall no longer be deemed Restricted Stock for purposes of the Plan or this Agreement. (c) Avoidance of Constructive Receipt. Other provisions of this Agreement notwithstanding, if under U.S. federal income tax laws as presently in effect or hereafter amended (i) the timing of any settlement hereunder would result in the Participant's constructive receipt of income relating to the Restricted Stock prior to such settlement, the date of settlement will be the earliest date after the specified date of settlement that settlement can be effected without resulting in such constructive receipt; and (ii) any other rights of the Participant with respect to the Restricted Stock shall be automatically modified and limited to the extent necessary such that the Participant will not be deemed to be in constructive receipt of income relating to any portion of the Restricted Stock prior to such settlement. 7. Dividend Equivalents and Adjustments. (a) Dividend Equivalents. If the Company pays a dividend or distribution on Shares, Participant shall be entitled to receive credit of equivalent cash amount on each share of Restricted Stock then credited to Participant's Account. Unless otherwise determined by the Committee, payment of all such amounts equivalent to dividends and distributions which would otherwise be payable to the Participant when, as, and if declared and paid on Shares, shall be deferred until and payable to the Participant when, as, and if the risk of forfeiture and other restrictions on the Restricted Stock lapse under Sections 2, 5(a) or 8 in the same proportion that the number of shares of Restricted Stock as to which the Restrictions have lapsed bears to the total number of shares of Restricted Stock. Unless otherwise determined by the Committee, all dividends and distributions referred to in the immediately preceding sentence, other than regular quarterly cash dividends (if any), shall be deemed reinvested in additional Restricted Stock at the Fair Market Value of Shares on the date when such dividends and distributions would be paid on Shares and such additional Restricted Stock shall be subject to the same risk of forfeiture and other restrictions and terms as apply to the original Restricted Stock. No interest will be credited on any cash amount (if any) of such dividends payable at the time of lapse of the risk of forfeiture and other restrictions. Such Restrictions shall lapse as to the shares of additional Restricted Stock in the same proportion that the number of shares of original Restricted Stock as to which the Restrictions have lapsed bears to the total number of shares of original Restricted Stock. The Administrator will determine all terms applicable to the deemed reinvestment of dividend equivalents hereunder. A Participant shall not be entitled to receive actual dividends in respect of Restricted Stock prior to the issuance of Shares in settlement thereof. (b) Adjustments The number of shares of Restricted Stock credited to Participant's Account may be adjusted by the Committee in accordance with Section 10(c) of the Plan. Any such adjustment shall be made taking into account any crediting of Restricted Stock to the Participant under Section 7(a) in connection with such transaction or event. 8. Change of Control Provisions. (a) Acceleration of Lapse of Restricted Period. In the event of a Change of Control at a time that Participant is employed by the Company or any of its subsidiaries and at any time after the Grant Date, the Restricted Period applicable to the Restricted Stock shall expire immediately prior to the Change of Control. (b) Definitions of Terms Relating to Change of Control. For purposes of this Agreement, the following definitions shall apply: (1) "Beneficial Owner," "Beneficially Owns," and "Beneficial Ownership" shall have the meanings ascribed to such terms for purposes of Section 13(d) of the Exchange Act and the rules thereunder, except that, for purposes of this Section 8, "Beneficial Ownership" (and the related terms) shall include Voting Securities that a Person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants, options, or otherwise, regardless of whether any such right is exercisable within 60 days of the date as of which Beneficial Ownership is to be determined. (2) "Change of Control" means and shall be deemed to have occurred if 4 (i) any Person, other than the Company or a Related Party, acquires directly or indirectly the Beneficial Ownership of any Voting Security of the Company and immediately after such acquisition such Person has, directly or indirectly, the Beneficial Ownership of Voting Securities representing 20 percent or more of the total voting power of all the then-outstanding Voting Securities; or (ii) those individuals who as of _____________ constitute the Board or who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors as of _____________ or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the members of the Board; or (iii) there is consummated a merger, consolidation, recapitalization, or reorganization of the Company, a reverse stock split of outstanding Voting Securities, or an acquisition of securities or assets by the Company (a "Transaction"), other than a Transaction which would result in the holders of Voting Securities having at least 80 percent of the total voting power represented by the Voting Securities outstanding immediately prior thereto continuing to hold Voting Securities or voting securities of the surviving entity having at least 60 percent of the total voting power represented by the Voting Securities or the voting securities of such surviving entity outstanding immediately after such Transaction and in or as a result of which the voting rights of each Voting Security relative to the voting rights of all other Voting Securities are not altered; or (iv) there is implemented or consummated a plan of complete liquidation of the Company or sale or disposition by the Company of all or substantially all of the Company's assets other than any such transaction which would result in Related Parties owning or acquiring more than 50 percent of the assets owned by the Company immediately prior to the transaction. (3) "Person" shall have the meaning ascribed for purposes of Section 13(d) of the Exchange Act and the rules thereunder. (4) "Related Party" means (i) a majority-owned subsidiary of the Company; or (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any majority-owned subsidiary of the Company; or (iii) a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportion as their ownership of Voting Securities; or (iv) if, prior to any acquisition of a Voting Security which would result in any Person Beneficially Owning more than ten percent of any outstanding class of Voting Security and which would be required to be reported on a Schedule 13D or an amendment thereto, the Board approved the initial transaction giving rise to an increase in Beneficial Ownership in excess of ten percent and any subsequent transaction giving rise to any further increase in Beneficial Ownership; provided, however, that such Person has not, prior to obtaining Board approval of any such transaction, publicly announced an intention to take actions which, if consummated or successful (at a time such Person has not been deemed a "Related Party"), would constitute a Change of Control. (5) "Voting Securities" means any securities of the Company which carry the right to vote generally in the election of directors. 9. Tax Withholding. Unless otherwise determined by the Board or Committee, or unless the Participant has made other arrangements satisfactory to the Company to provide for payment of mandatory withholding taxes in advance of the settlement date applicable to the Restricted Stock (by such deadline as the Company may specify), the Company will withhold from the number of Shares to be delivered upon settlement a number of whole shares which has a Fair Market Value nearest to but not exceeding the amount of federal, state and local taxes required to be withheld as a result of such settlement. The 5 Participant may elect such other methods of satisfying such withholding obligation as may be permitted under Rules and Regulations adopted by the Committee and in effect at the time of settlement, which may include the surrender of shares of the Company's common stock owned separately by Participant. In the case of the withholding or surrender of Shares to pay withholding taxes, the Shares withheld or the Shares surrendered will be valued at the Fair Market Value determined in accordance with procedures for valuing shares as set forth in Rules and Regulations adopted by the Committee and otherwise in effect at the time of settlement. 10. Miscellaneous. This Agreement shall be binding upon the heirs, executors, administrators, and successors of the parties. This Agreement constitutes the entire agreement between the parties with respect to the Restricted Stock granted hereby, and supersedes any prior agreements or documents with respect to such Restricted Stock. No amendment, alteration, suspension, discontinuation, or termination of this Agreement which may impose any additional obligation upon the Company or materially and adversely affect the rights of Participant with respect to the Restricted Stock shall be valid unless in each instance such amendment, alteration, suspension, discontinuation, or termination is expressed in a written instrument duly executed in the name and on behalf of the Company and by Participant. By accepting this grant of Restricted Stock, Participant agrees to the terms of this Agreement and agrees to be bound by all the terms and provisions of the Agreement and the Plan (as presently in effect or hereafter amended), and by all decisions and determinations of the Committee and the Administrator. CHARMING SHOPPES, INC. BY:____________________________________ (Authorized Officer) PARTICIPANT: ____________________________________ Attachments: 2004 Stock Award and Incentive Plan 6 EX-31 11 exh311.txt EXHIBIT 31.1 EXHIBIT 31.1 Certification By Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Dorrit J. Bern, Principal Executive Officer of Charming Shoppes, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Charming Shoppes, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 29, 2004 /S/ Dorrit J. Bern ------------------ Dorrit J. Bern Chairman of the Board President and Principal Executive Officer EX-31 12 exh312.txt EXHIBIT 31.2 EXHIBIT 31.2 Certification By Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Eric M. Specter, Principal Financial Officer of Charming Shoppes, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Charming Shoppes, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986] c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 29, 2004 /S/ Eric M. Specter ------------------- Eric M. Specter Executive Vice President Principal Financial Officer EX-32 13 exh32.txt EXHIBIT 32 EXHIBIT 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), Dorrit J. Bern, Chairman of the Board, President, and Chief Executive Officer and Eric M. Specter, Executive Vice President and Chief Financial Officer of Charming Shoppes, Inc. (the "Company"), each certifies with respect to the Quarterly Report of the Company on Form 10-Q for the period ended October 30, 2004 (the "Report") that, to the best of her/his knowledge: (1) The Report fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 29, 2004 /S/ Dorrit J. Bern --------------------- Dorrit J. Bern Chairman of the Board President and Chief Executive Officer Dated: November 29, 2004 /S/ Eric M. Specter --------------------- Eric M. Specter Executive Vice President Chief Financial Officer The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----